G.R. No.

135394            April 29, 2003

JOSE V. DELA RAMA, petitioner,

vs.
HON. FRANCISCO G. MENDIOLA, Judge, RTC Pasay City, THE COURT OF
APPEALS and TITAN CONSTRUCTION CORP., respondents.

YNARES-SANTIAGO, J.:

On December 1, 1978, petitioner sold to the government on expropriation a parcel of land

consisting of 1,225 square meters for use in the construction of the EDSA Extension Project. The
sale was subject to the reconveyance to petitioner of any unused portion of the property after the
project is completed.

On June 17, 1988, petitioner entered into a "Contract to Sell", whereby he undertook to sell to
respondent Titan Construction Corporation a parcel of land adjacent to the one expropriated.
Subsequently, petitioner failed to comply with his obligations under the "Contract to Sell"; thus
respondent filed a complaint for rescission/annulment of contract with the Regional Trial Court
of Pasay City. The parties entered into a compromise agreement and, on May 19, 1989, the trial
court rendered judgment approving the parties’ compromise agreement. The pertinent portion of
the judgment reads:

1. That the parties shall execute a deed of absolute sale over the subject property,
including the improvements thereon in the total amount of TWO MILLION FIVE
HUNDRED THOUSAND PESOS (P2,500,000.00);

2. That relative to the parcel of land sold to the government, a separate agreement is
likewise to be executed by the parties;

3. That Atty. and Mrs. Dela Rama will be given a period of 60 days from the signing of
this document to fully vacate the premises sold;

4. That failure on their part to vacate within the said period, an ex-parte ejectment writ of
execution shall issue;

5. That the written agreement relative to the lease of houses in said premises shall be
respected.4

Pursuant to the compromise judgment, petitioner executed a deed of absolute sale of the subject
property in favor of respondent. Likewise, he executed an Agreement to Sell and Buy, stating
among others:

1. That in the event the Republic of the Philippines will return to the vendors (Jose Dela
Rama and Esperanza Belmonte) the area sold which is 1,224 sq. ms. or any portion
therein, the Vendee (Titan Construction Corporation) is given the exclusive option to buy
any area returned at P2,000.00 per square meter.
 2. That in consideration of said exclusive option granted to the said Vendee by the
Vendors, the Vendee upon registration of this instrument at the back of T.C.T. No. 22066
shall pay P200,000.00 to the Vendors.5

After the execution of the Agreement to Sell and Buy, respondent paid petitioner the amount of
P200,000.00, for which the latter issued a receipt which contained the inscription: "amount is not
refundable & not deductible from the agreed price."6

Meanwhile, petitioner sought the reconveyance of the unused portion of the property from the
government. On December 4, 1996, the Office of the President executed the corresponding Deed
of Reconveyance in favor of petitioner over 303 square meters of unused land.7

On January 3, 1997, respondent filed with the Regional Trial Court of Pasay City, Branch 110, a
Petition for Declaratory Relief, Prohibition, Mandamus and Preliminary Injunction with Prayer
for Restraining Order,8 which was docketed as Civil Case No. 97-1275. It prayed that the Deed
of Reconveyance be declared void on the grounds that the same violated its right of preemption
under Article 1622 of the Civil Code; and that no public bidding was conducted, resulting in a
denial of respondent’s right to bid considering that petitioners had waived any and all rights over
the land by virtue of their Deed of Agreement to Sell and Buy. Respondent also prayed that the
Office of the President be ordered to give due course to its application to purchase the subject
land. The trial court dismissed the case for lack of merit on March 5, 1997.9 Thus, respondent
instituted a petition for certiorari before this Court on March 24, 1997 which, however, was
referred to the Court of Appeals, where it was docketed as CA-G.R. SP No. 44094.10

On June 4, 1997, respondent filed an action for specific performance based on the compromise
judgment with the Regional Trial Court of Pasay City, which was docketed as Civil Case No. 97-
0734.11 Petitioner thus filed with the Court of Appeals, in CA-G.R. SP No. 44094, a Motion for
Direct Contempt and to Dismiss based on Forum Shopping.12 He also filed a similar motion with
the Regional Trial Court of Pasay City in Civil Case No. 97-0734.13

On July 18, 1997, respondent filed a motion to withdraw the petition in CA-G.R. SP No.
44094,14 which the Court of Appeals, in its Resolution dated December 10, 1997, granted. Thus,
the case was dismissed with finality.15

Meanwhile, the Regional Trial Court of Pasay City denied the motion to dismiss and for direct
contempt based on forum shopping filed by petitioner. It held that the alleged violation of
Supreme Court Circular No. 04-94 was cured when CA-G.R. SP No. 44094 was dismissed by
the Court of Appeals. Moreover, petitioner failed to show that the two cases have the same
causes of action.16 Petitioner filed a motion for reconsideration, which was denied.17

Hence the instant petition based on the sole assigned error:

THE RESPONDENT COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION

IN NOT RESOLVING PETITIONER’S MOTION TO DISMISS AND FOR DIRECT
CONTEMPT BASED ON FORUM SHOPPING AND, BY REASON OF THAT
SERIOUS ABUSE OF DISCRETION, IT SANCTIONED THE CONTINUANCE OF
 SAID ACTION BEFORE THE RESPONDENT RTC WHICH ITSELF GRAVELY
AND SERIOUSLY ABUSED ITS DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION IN REFUSING TO DISMISS THE CASE BASED ON
AUTER ACTION PENDANT AND RES JUDICATA, AND TO PUNISH FOR DIRECT
CONTEMPT THE PRIVATE RESPONDENT AND ITS LAWYERS BASED ON
FORUM SHOPPING.18

The decisive issue posed by petitioner is whether or not the specific performance case (Civil
Case No. 97-0734) is barred by the petition for declaratory relief case (Civil Case No 96-1725
and CA-G.R. SP No. 44094) on the ground of res judicata.

There is res judicata where the following four essential conditions concur, viz: (1) there must be
a final judgment or order; (2) the court rendering it must have jurisdiction over the subject matter
and the parties; (3) it must be a judgment or order on the merits; and (4) there must be, between
the two cases, identity of parties, subject matter and causes of action.19

Reviewing the records of the case, there is no question that all the first three elements of res
judicata are present. The declaratory relief case, which was elevated by way of a petition for
certiorari to the Court of Appeals, has been dismissed with finality. The decision was rendered
by a court of competent jurisdiction and the case was resolved on its merits.

As regards the fourth condition, it is clear that there is identity of parties in the two cases. The
declaratory relief case was filed by respondent Titan against Executive Secretary Ruben D.
Torres, DPWH Secretary Gregorio R. Vigilar, the Register of Deed of Pasay City, petitioner Jose
V. Dela Rama and Esperanza Belmonte (deceased). On the other hand, the specific performance
case was filed by respondent Titan against petitioner Dela Rama and the heirs of Esperanza
Belmonte. Although the public respondents in the declaratory relief case were not impleaded in
the specific performance case, only a substantial identity is necessary to warrant the application
of res judicata.20 The addition or elimination of some parties does not alter the situation.21

The subject matters and causes of action of the two cases are likewise identical. A subject matter
is the item with respect to which the controversy has arisen, or concerning which the wrong has
been done, and it is ordinarily the right, the thing, or the contract under dispute. In the case at
bar, both the first and second actions involve the same real property. A cause of action, broadly
defined, is an act or omission of one party in violation of the legal right of the other.22 Its
elements are the following: (1) the legal right of plaintiff; (2) the correlative obligation of the
defendant, and (3) the act or omission of the defendant in violation of said legal right.23 Causes of
action are identical when there is an identity in the facts essential to the maintenance of the two
actions, or where the same evidence will sustain both actions. If the same facts or evidence can
sustain either, the two actions are considered the same, so that the judgment in one is a bar to the
other.24

It is true that the first case was a special civil action for declaratory relief while the second case
was a civil action for specific performance. However, the difference in form and nature of the
two actions is immaterial. The philosophy behind the rule on res judicata prohibits the parties
from litigating the same issue more than once.25 The issue involved in the declaratory relief case
was whether respondent has rights over the property which was reconveyed to petitioner
considering that he waived all his rights by executing the Agreement to Sell and Buy. In the
specific performance case, the issue involved was the same, that is, whether respondent was
entitled to the property reconveyed when the petitioner failed to comply with the terms of their
agreement embodied in the same Agreement to Sell and Buy. Respondent’s alleged right in both
cases depends on one and the same instrument, the Agreement to Sell and Buy. Clearly,
respondent’s ultimate objective in instituting the two actions was to have the property
reconveyed in its favor.

When material facts or questions in issue in a former action were conclusively settled by a
judgment rendered therein, such facts or questions constitute res judicata and may not be again
litigated in a subsequent action between the same parties or their privies regardless of the form of
the latter. This is the essence of res judicata or bar by prior judgment. The parties are bound not
only as regards every matter offered and received to sustain or defeat their claims or demand but
as to any other admissible matter which might have been offered for that purpose and of all other
matters that could have been adjudged in that case.26

Assuming res judicata finds no application in the instant case, the action for specific
performance must nonetheless be dismissed. The Agreement to Sell and Buy, being one of the
prestations of the compromise agreement which was judicially confirmed and had long become
final and executory, cannot be enforced in a separate action. In the case of Jose Dela Rama v.
Hon. Aurora P. Navarrete-Recina,27 where petitioner assailed the validity of the Deed of
Absolute Sale executed pursuant to the compromise agreement, we held that:

Moreover, the Deed of Absolute Sale being impugned by the petitioners is but an
offshoot of the compromise agreement entered into, with judicial confirmation, by the
parties themselves. Thus, as observed by the respondent court, any further prestations left
undone, with regard to the provisions of the compromise judgment, should be the subject
of proceedings on execution, and not a separate action.

In the earlier case of Arkoncel v. Lagamon,28 we held:

The rule is that a judgment rendered in accordance with a compromise agreement is

immediately executory unless a motion is filed to set aside the agreement on the ground
of fraud, mistake or duress in which case an appeal may be taken against the order
denying the motion. It then becomes ministerial for the lower court to order the execution
of its final executory judgment.

Even more than a contract which may be enforced by ordinary action for specific
performance, the compromise agreement is part and parcel of the judgment, and may
therefore be enforced as such by a writ of execution.

Finally, when the terms of an amicable settlement are violated, as in the case at bar, the
remedy of the aggrieved party is to move for its execution.
The principle of res judicata requires that stability be accorded to judgments. Controversies once
decided on the merits shall remain in repose for there should be an end to litigation which,
without the doctrine, would be endless.29 Given the circumstances in this case, we find that the
trial court committed grave abuse of discretion when it denied the motion to dismiss filed by
petitioners.

WHEREFORE, in view of the foregoing, the petition is GRANTED. The Order of the Regional
Trial Court of Pasay City, Branch 115 in Civil Case No. 97-0734, denying petitioner’s "Motion
to Dismiss Complaint and For Direct Contempt Based on Forum Shopping," as well as the Order
denying petitioner’s "Motion for Reconsideration," are REVERSED and SET ASIDE. The
Regional Trial Court of Pasay City, Branch 115, is ordered to DISMISS Civil Case No. 97-0734
on the ground of res judicata. Costs against private respondents.

SO ORDERED.

G.R. No. 96921 January 29, 1993

DEVELOPMENT BANK OF THE PHILIPPINES, NATIONAL DEVELOPMENT

COMPANY and NATIONAL STEEL CORPORATION, petitioners,
vs.
JUDGE AMIR PUNDOGAR, in his capacity as Presiding Judge of the Regional Trial
Court of Iligan City, 12th Judicial Region, Branch III, FERNANDO JACINTO, JACINTO
STEEL, INC., and ILIGAN INTEGRATED STEEL MILLS, INC., respondents. 

ROMERO, J.:

The historical antecedents of the present petition hark back to 1955 when Republic Act No. 1396
was enacted authorizing National Shipyards and Steel Corporation (NASSCO) to establish a pig-
iron smelting plant. When NASSCO started negotiations with the United States Export-Import
Bank (EXIMBANK) for a $62.3 million loan, the latter suggested that the management of the
project be placed in the hands of the private sector. After a public bidding, the Jacinto Steel, Inc.
(JSI) was entrusted with the implementation of the project. Later, in October 1963, Iligan
Integrated Steel Mills, Inc. (IISMI) was incorporated with the Jacintos and the Government,
through the GSIS, SSS and NASSCO as principal investors and about fifty other minority
stockholders. 1

On January 22, 1964, an agreement was entered into by the Government, IISMI and the
EXIMBANK whereby the latter would provide the funds required to launch the project into
commercial operation, including provisions for overruns and other financial assistance. On the
same dote, IISMI and the Government entered into a collateral agreement whereby the
Government committed to extend equity and non-equity funds to IISMI during the construction
period, including an amount of no less than P34 million. Pursuant to a Second Collateral
Agreement dated July 26, 1966, the Development Bank of the Philippines granted IISMI
additional loans which were secured by real and chattel mortgages over all of IISMI's assets.

In order to forestall a threatened foreclosure due to defaults in loan payments, IISMI instituted on
June 1, 1971 an injunction suit against the Republic of the Philippines, Development Bank of the
Philippines (DBP), Central Bank of the Philippines (CB), Board of Investments (BOI) and the
Sheriff of Lanao del Norte and Iligan City. The complaint2 which was docketed as Civil Case
No. 1701 alleged that the inability of IISMI to meet its obligations was due to "(g)overnment
violations of its commitments to the Integrated Steel Project" which "were all in pursuance of the
concerted and
single-minded plan of the defendants to foreclose the mortgaged properties of the plaintiff and/or
take over the management and ownership of IISMI or its properties, plants, or mills."

The preliminary injunction issued by the court3 on August 11, 1971 was questioned by the DBP
in G.R. No. L-34188 and the CB in G.R. No. L-33986. When the motion to dismiss filed by the
Republic and the BOI on the grounds of improper venue and non-suability of the State was
denied, the parties likewise questioned the denial order in G.R. No. L-33949. Subsequently, this
Court ordered the consolidation of these petitions and set them all for a joint hearing.4

While these cases were pending before the Court, then President Marcos issued Proclamation
1081 on September 21, 1972 declaring a state of martial law. He thereafter issued four Letters of
Instructions5 directing the Secretary of National Defense to take over and control the operation of
IISMI and other Jacinto-held companies "for the duration of the present national emergency or
until otherwise ordered" because the acts of management of IISMI "indicated that IISMI
disposed of property by fraudulent means and that the funds or money earned was (sic) not
properly accounted for, and neither were they applied for payment of obligations due the
Government and the government-owned corporations."

On October 23, 1973, the Court ordered the lower court "to resume proceedings in Civil Case
No. 1701 by receiving further evidence which the parties may desire to present relative to all the
issues they have so far raised and, thereafter, to resolve all the incidents related to the writ of
preliminary injunction said court has issued and every other incident in the said case and/or
render final judgment in the main case on the merits."6

On January 10, 1974, the lower court7 issued an Order dissolving the writ of preliminary
injunction. 8 It held that there was mismanagement of the financial affairs of IISMI by its
corporate officials through the diversion of its profits to other Jacinto-controlled corporations
especially to Ferro Products Inc. (FERRO), its known marketing instrumentality and biggest
single buyer, which led to its failure to meet its different due and demandable obligations to
DBP. More specifically, mismanagement was shown by the setting up of an unrealistic pricing
scheme where, while the floating exchange rate jacked up the cost of materials by 50%, the
selling price of goods sold to FERRO was increased by only 25% and FERRO resold the goods
at prices higher by 30%, thus realizing in the process additional gross profits of 5% by giving
FERRO extraordinarily long credit terms of 90-180 days; by unduly postponing FERRO's
payments of its matured payables through reinvoicing; by unjustifiably delaying the collecting
trade and non-trade receivables from FERRO and other Jacinto-controlled corporations; by
heavily loading the selling expenses of IISMI with other
non-legitimate charges which created an economic imbalance between its income and expenses;
by giving interest-free loans and direct advances from IISMI funds to the Jacintos and their
corporations; by passing on to IISMI travel and representation expenses of the Jacintos and their
own corporations thus, using IISMI funds to pay expenses of some Jacinto-controlled
corporations; by making IISMI borrow at 12% interest per annum from Jacinto-controlled
corporations instead of IISMI collecting receivables from its debtors especially FERRO; by
appropriating IISMI's money to the Jacintos' private benefit; by debiting IISMI for goods and
shipments actually received not by IISMI but by the Jacintos and their corporations; and by
importing raw materials for Jacinto-controlled corporations through the use of DBP guaranties
intended for IISMI.

Likewise, the court found that there were attempts to hide these corporate malpractices by
"window dressing" of the financial statements and records of IISMI and of the Jacinto-controlled
corporations. This consisted in understating profits to create the impression that losses were not
due to improper operations but rather to other factors like the floating exchange rate; painting a
favorable but unreal cash position on the part of IISMI; creating an ostensibly favorable asset
position by including as IISMI's assets goods returned by FERRO to the Security Bank and Trust
Co.; by overstating the inventories account; and by understating the account receivables from
FERRO and other Jacinto-controlled corporations by intercepting legitimate payables to IISMI.

Moreover, the lower court rejected the claim of IISMI that its failure to meet its obligations was
due to the floating exchange rate, holding that IISMI could only claim a loss of P51.9 million
owing to the floating rate as importations before February 1970 were sold at pre-devaluation
prices even after devaluation. However, no such loss could be claimed after June 1970 since
price adjustments could and should have been instituted by IISMI after that time. Furthermore,
despite the disposition of the processed raw materials, IISMI failed to use the proceeds to
liquidate its accounts which, as of June 30, 1972 had ballooned to P407 million. Such failure
compelled DBP to assume payments in its capacity as guarantor to assume payments due to
IISMI's creditors.

Lastly, the court held that IISMI cannot pin the blame for the delay in payments of its obligations
on the alleged delay in the release of DBP, SSS and GSIS funds. The bulk of IISMI's obligations
arose from subsequent raw material importations guaranteed by DBP. These accounts were only
incurred by IISMI after DBP, SSS and GSIS had released their respective funds to IISMI.

Thus, the lower court concluded:

 It is settled jurisprudence that an applicant for writ of preliminary injunction
should be able to establish a clear case, free from doubt and dispute. Since
injunction is an equitable remedy, an applicant must also come to court with clean
hands. As discussed above, the evidence show that IISMI has failed to satisfy
both basic requirements to entitle it to a writ of preliminary injunction. 9

On February 25, 1974, the court deemed the pre-trial conference terminated and dismissed the
complaint filed by IISMI with prejudice for its failure to appear during the pre-trial despite due
notice.10

After the finality of the January 10, 1974 Order, DBP filed an application for extrajudicial
foreclosure of the IISMI mortgages. On February 26, 1974, the IISMI plant and assets were thus
auctioned to DBP as the highest bidder. After one year, or on March 24, 1975, DBP consolidated
its ownership over the said properties.11

On December 29, 1989 or fourteen (14) years from said consolidation of ownership, IISMI,
Fernando Jacinto and Jacinto Steel, Inc. (JSI) filed a complaint 12 docketed as Civil Case No.
111-1549 before Branch 3 of the Iligan Regional Trial Court against petitioners DBP, National
Development Corporation (NDC) and National Steel Corporation (NSC) praying that judgment
be rendered —

1. Setting aside and declaring as null and void:

1.1. The extra-judicial foreclosure conducted by the provincial

sheriff of Iligan City on February 26, 1974 of the mortgage
contract dated August 1, 1966, additional mortgage dated January
13, 1967, addendum to chattel mortgage dated January 13, 1967,
additional mortgage dated May 20, 1968 and additional mortgage
dated December 22, 1968, all executed by IISMI in favor of DBP.

1.2. The certificate of sale issued by the provincial sheriff of Iligan

City in consequence of the extra-judicial foreclosure of the
mortgages referred to in 1.1 of this prayer;

2. Ordering all defendants, jointly and severally, to restore and/or return to IISMI
all the properties subject of the extrajudicial foreclosure of the mortgages referred
to in 1.1 or 1.2 of this prayer portion;

3. Ordering the Register of Deeds, Iligan City, to cancel Transfer Certificate of

Title No. P-25, 959 (a.f.) of the Register of Deeds for Iligan City and to issue
replacement transfer certificates of title in the name of IISMI. 13

Petitioners filed their respective motions to dismiss 14 on the grounds of lack of jurisdiction,
failure to state a cause of action, prescription and
res judicata. On March 31, 1990, private respondents filed an amended complaint. 15 Petitioners
adopted their earlier motions to dismiss as their motion to dismiss the amended complaint. 16 On
May 4, 1990, National Steel Corporation filed a motion to cancel notice of lis pendens which
was opposed by private respondents on June 22, 1990.

On August 31, 1990, the lower court 17 issued an order denying the motions to dismiss. 18 The
motion for reconsideration was likewise denied on December 27, 1990.19

Hence, the present petition for certiorari which was filed on February 5, 1991 seeking the
nullification of the two aforementioned orders. On February 7, 1991, this Court issued a
Temporary Restraining Order requiring respondent Judge Amir Pundogar to desist from taking
any further proceeding in Civil Case No. 111-1549.

For a clear disposition of the issues raised, we shall consider them seriatim.

I. PROCEDURAL GROUND

Private respondents question the propriety of the instant petition for certiorari before the Court
on the ground that the Order denying a motion to dismiss, being interlocutory, cannot be the
subject of a special civil action. They aver that the proper remedy is to file in the lower court an
answer interposing as defenses the objections raised in the motion to dismiss, proceed to trial
and, in case of an adverse decision, elevate the same by appeal.

Petitioners, on the other hand, argue that the case at bar is an exception to the general rule.
Besides, there is no appeal nor any other plain, speedy and adequate remedy. They contend that
the instant petition can be entertained by the Court for the purpose of correcting the questioned
Orders which were issued by respondent judge with grave abuse of discretion.

Private respondents correctly cited the general rule in elevating cases to this Court. The rule,
however, admits of exceptions, such as when the court, in denying the motion to dismiss acts
without or in excess of jurisdiction or with grave abuse of discretion. In such an
instance, certiorari becomes available in order to relieve the defendant of the trouble of
undergoing the ordeal and expense of a useless trial. 20 As will be seen in the subsequent
discussion, petitioners are rightfully entitled to the recourse availed of as it is part of the
supervisory authority of the Court to correct the error committed.21

Furthermore, the direct invocation of this Court's original jurisdiction to issue writs
of certiorari should be allowed as there are special reasons therefor clearly and specifically set
out in the petition 22 as quoted hereunder:

The Respondent Judge's unlawful refusal to immediately dismiss, and the

continuing pendency of, Civil Case No. 111-1549 has coated the Jacinto claim
with a misleading veneer of plausibility which is obstructing and causing
inevitable delays in (i) the government's and NDC's plans to privatize NSC at the
earliest possible time and under optional conditions generating the maximum
returns for NDC, the country and the Filipino people; (ii) NSC's Integrated Steel
Mill Project and (iii) the development of the nation's steel industry as well as the
 country's industrialization both of which have already suffered an incalculable fall
due to IISMI's ruin masterminded and engineered by Jacinto and his family. 23

II. SUBSTANTIVE GROUNDS

A. RES JUDICATA

Petitioners contend that the final Orders of January 10, 1974 and February 25, 1974 in Civil Case
No. 1701 bar IISMI from filing Civil Case
No. 111-1549, which questions the same DBP foreclosure upon the very same claim that the
foreclosure was fraudulent, that is, IISMI defaulted on its loans due to GSIS-SSS-DBP-CB
conspiracy. The only difference is that in Civil Case No. 1701, they asked for a prospective relief
(that the threatened DBP foreclosure be enjoined) while in Civil Case No. 111-1549, they asked
for a retrospective relief (that the foreclosure be annulled).

Private respondents, on the other hand, argue that the present action cannot be barred by res
judicata because the proceedings in Civil Case
No. 1701 is not a judgment on the merits and there is no identity of causes of action between the
first and the second cases.

Res judicata is indeed present. Imbedded in Philippine jurisprudence are the elements
constituting res judicata as a ground for the dismissal of a complaint: a) the former judgment
must be final; b) the court which rendered it had jurisdiction over the subject matter and the
parties; c) it must be a judgment on the merits and d) there must be, between the first and second
actions, identity of parties, subject matter and causes of action.24

The first three requisites are obviously present. The Orders of January 10, 1974 and February 25,
1974 attained finality as no motion for reconsideration or appeal had been filed. 25 The said
Orders were issued by the CFI of Lanao del Norte, Branch 11 which had jurisdiction over the
injunction case as the property subject of the complaint is located within its territorial
jurisdiction. These Orders are judgments on the merits. In the Order of January 10, 1974 where
the writ of preliminary injunction was lifted, then Judge Tutaan, after considering not only the
evidence presented during the hearing of the motion for preliminary injunction but also the
additional evidence presented after this Court ordered the resumption of proceedings, found that
a case of mismanagement existed. On the other hand, the Order of February 25, 1974 whereby
the complaint was dismissed with prejudice for failure to appear during the pre-trial despite due
notice, had the effect of an adjudication upon the merits.26

For the fourth requisite to exist, the identity required is not only of the parties and subject matter
but also of the causes of action. In Civil Case No. 1701, the complaint was filed by IISMI against
the Republic, BOI, CB and DBP. In Civil Case No. 111-1549, the complaint was filed by IISMI,
Fernando Jacinto and Jacinto Steel, Inc. against DBP, NDC and NSC. For res judicata to apply,
absolute identity of parties is not required because substantial identity is sufficient. 27 Inclusion of
additional parties will not affect the application of the principle of res judicata. 28 In both cases,
the subject matter involved is the Iligan Integrated Steel Mills, Inc.
As regards identity of causes of action, this requisite is similarly present although the same may
not be quite apparent. In Civil Case No. 1701, the caption clearly indicates that the action is one
for injunction while in Civil Case No. 111-1549, the caption does not state the title of the action
as required by Sec. 1, Rule 7 of the Rules of Court. This omission notwithstanding, the test of
identity of causes of action lies, not in the form of the action, but on whether the same evidence
would support and establish the former and the present causes of action.29

A comparison between the allegations of the complaints in Civil Case No. 1701 and that of Civil
Case No. 111-1549 reveals that there is indeed identity of causes of action. In both cases, private
respondents claim that DBP has no right to foreclose because it violated its financial
commitments to IISMI and that it conspired with other agencies of the government to cause the
latter's financial ruin. It follows, therefore, that the evidence that private respondents used to
support Civil Case No. 1701 is the same evidence that they would utilize to establish Civil Case
No. 111-1549.

Private respondents claim that there is no identity of causes of action because the amended
complaint added several allegations which were not present in the complaint for injunction (Civil
Case No. 1701) as they could not have been alleged in that case, and therefore, the evidence
necessary to sustain Civil Case No. 111-1549 could not have been the same as in the former
case. On the contrary, petitioners insist that there is identity of causes of action because
respondent Judge cannot resolve the issue presented in Civil Case No. 111-1549 and grant the
reliefs sought without annulling the 1974 Orders. Hence, the additional allegations will not
change the cause of action in the two cases.

We agree with petitioners. It should be noted that said additional allegations may be categorized
into three: first, those that have arisen after the filing of Civil Case No. 1701; second, those that
pertain to the foreclosure; and third, developments after the EDSA Revolution.

The first group of allegations supposedly affecting the validity of the foreclosure consists of the
declaration of Martial Law, 30 the issuance of LOI No. 27, 31 the seizure of IISMI's records and
the detention of some of its officers, 32 the cancellation of passports of the members of the
Jacinto
family, 33 and the withdrawal of IISMI's counsel. 34 It is significant to note that while these
matters were not alleged in Civil Case No. 1701 as they developed only after its filing, said
events had in fact been brought to the attention of this Court which disposed of them in this wise:

. . . the Court finds no other alternative but to terminate the present proceedings in
this Court, so as to give way to further proceedings in the Court below,
wherein all pertinent issues since arising from the developments which have taken
place since August 17, 1972 may be appropriately and fully threshed out,
considering that the factual matters involved therein would require the formal and
proper presentation of varied and voluminous evidence which the Court is not
adequately equipped to receive. 35 (emphasis supplied)

Thus, the CFI of Lanao del Norte, when it resumed the hearing, was expected to settle, not only
the allegations in the complaint, but even those matters that had developed during the pendency
of the three petitions for certiorari before this Court. It follows perforce, that the subsequent
dismissal of Civil Case No. 1701 for failure to prosecute is not limited solely to the allegations of
the complaint therein. Hence, these additional allegations can no longer be raised for the second
time as res judicata now operates. This is supported by Sec. 49 of Rule 39 of the Rules of Court
which states:

Sec. 49. Effect of Judgments

xxx xxx xxx

(b) In other cases the judgment or order is, with respect to the matter directly
adjudged or as to any other matter that could have been raised in relation
thereto, conclusive between the parties and their successors in interest by title
subsequent to the commencement of the action or special proceeding, litigating
for the same thing and under the same title and in the same capacity; (emphasis
supplied)

x x x           x x x          x x x

The second group of allegations pertaining to the foreclosure are specifically, that the sheriff sold
IISMI at public auction when it was not in
the possession of the mortgagee 36 and that the Jacintos offered to redeem the same 37 We make
short shrift of these allegations by pointing out that the sheriff's act of selling the property which
was then under government control is woven into the very warp and woof of the issue of the
legality of the take-over.

Considering that private respondents had waived their opportunity to question the take-over, they
cannot raise the same belatedly. Otherwise, the effect would be to allow private respondents to
evade their liabilities simply because the foreclosure happened at the time when martial law was
in effect.

As to the claim that the Jacintos offered in a letter to redeem IISMI through a credit line
facilitated by a foreign bank, suffice it to say that this is not the redemption contemplated by the
law and its inclusion will not make res judicata inoperable.38

Lastly, private respondents alleged "facts which transpired after EDSA", viz.: the Enrile
Memorandum to President Aquino; the Enrile Memorandum to former Department of Trade and
Industry Secretary Jose Concepcion, the Order of Dismissal issued by the PCGG, the Legal
Opinion of DBP's former Chief Legal Counsel dated December 5, 1986, the Opinion of the
Deputy Government Corporate Counsel dated January 14, 1984, and the Letter of the
Undersecretary of Justice dated February 13, 1987. 39 Private respondents have erroneously
termed these "opinions" written after the EDSA Revolution as "facts". Truth to tell, no fact or
event has supervened which may justify the overturning of a finding of the court which had long
become final. These are but long debunked, tired reiterations of the same Jacinto refrain, of
"fraudulent, illegal and systematic deprivation of IISMI of its assets (w)as part of a general
preconceived plan . . . to oppress, impoverish and destroy Jacinto and his family and their
interests." 40

B. JURISDICTION

Petitioners assert that the lower court has no jurisdiction because the present case seeks to annul
the Orders of January 10, 1974 and February 25, 1974 of the then CFI of Lanao del Norte. As
such, it is the Court of Appeals which has the exclusive original jurisdiction over actions for
annulment of judgments of Regional Trial Courts. 41 They observe that while private respondents
concede that this case does not expressly pray for the annulment of the said decision, their
prayers, if granted, will, of necessity, invalidate the foreclosure. Furthermore, petitioners assert
that since the allegations raised in both cases are the same, respondent judge cannot resolve the
issues presented without annulling the questioned Orders in Civil Case No. 1701.

On the other hand, private respondents believe that the lower court has jurisdiction over the
instant case as it involves reconveyance of real property 42 and that the Orders are limited to the
circumstances prevailing at the time of the filing of the complaint.

For its part, the lower court did not consider the attack on jurisdiction well-taken because the
annulment of the decision in Civil Case No. 1701 is not being sought by private respondents.43

We agree with petitioners that the lower court committed grave abuse of discretion in taking
jurisdiction over Civil Case No. 111-1549. The failure of respondents to expressly pray for the
annulment of the Orders dated January 10, 1974 and February 25, 1974 does not mean lack of
interest on their part in having them declared void. To be sure, the prayers are explicitly limited
to seeking the nullification of the extrajudicial foreclosure on February 26, 1974 and the
certificate of sale issued by the provincial sheriff of Iligan City, the restoration and/or return to
IISMI of all the foreclosed properties and the cancellation of TCT No. P-25.959 (a.f.), as well as
the issuance of a replacement transfer certificate of title in the name of IISMI. A close scrutiny of
the allegations in the complaint, however, would reveal that if the prayers are to be granted, the
resultant effect would be to annul the findings of mismanagement made in the Order of January
10, 1974 and to re-litigate the same claims which had been earlier dismissed with prejudice in
the Order of February 25, 1974. Private respondents' submission that the action is one for
reconveyance of property is misleading, as reconveyance is but the inevitable consequence once
these two Orders are annulled.

C. PRESCRIPTION

Petitioners contend that the action has prescribed since the case was filed almost sixteen (16)
years after the 1974 Orders. They assert that, based on the allegations in the complaint, if tort or
quasi-delict were committed, the four-year prescriptive period 44 has obviously lapsed. If
constructive trust is established, the ten-year prescriptive period 45 has likewise expired.

Private respondents counter that regardless of the prescriptive period (four or ten y ears)
applicable, the same was suspended during the martial law regime which should be treated as
a force majeure and hence, the prescriptive period should start to run only on February 25,
1986. 46 Involving as it does an issue of fact, they aver that the presentation of evidence must be
made before the trial court. Furthermore, they allege that since the action is one to recover
immovable property, the same prescribes in thirty (30) Years. 47 In any case, they assert that the
action is imprescriptible under Art. 1410 of the New Civil Code.48

We can do no better than to cite the case of Tan v. Court of Appeals, 49 reiterated in National
Development Co. v. Court of Appeals 50 and quote the portion of the decision which deals with
the issue of whether or not martial law interrupted the running of the prescriptive periods:

We cannot accept the petitioners' contention that the period during which
authoritarian rule was in force had interrupted prescription and that the same
began to run only on February 25, 1986, when the Aquino government took
power. It is true that under Article 1154:

Art. 1154. The period during which the obligee was prevented by a
fortuitous event from enforcing his right is not reckoned against
him.

fortuitous events have the effect of tolling the period of prescription. However, we cannot say, as
a universal rule, that the period from September 21, 1972 through February 25, 1986 involves a
force majeure. Plainly, we cannot box in the "dictatorial"; period within the term without
distinction, and without, by necessity, suspending all liabilities, however demandable, incurred
during that period, including perhaps those ordered by this Court to be paid. While this Court is
cognizant of acts of the last regime, especially political acts, that might have indeed precluded
the enforcement of liability against that regime and/or its minions, the Court is not inclined to
make quite a sweeping pronouncement, considering especially the unsettling effects such a
pronouncement is likely to bring about. It is our opinion that claims should be taken on a case-
to-case basis. This selective rule is compelled, among others, by the fact that not all those
imprisoned or detained by the past dictatorship were true political oppositionists, or, for that
matter, innocent of any crime or wrongdoing. Indeed, not a few of them were manipulators and
scoundrels. 51 (emphasis supplied)

In order to prove that they were prevented from commencing the suit during the Marcos regime,
private respondents narrated that the passports of the Jacinto family, who were then abroad, were
cancelled; all their resources were taken over by the Government; their lawyers were constrained
to withdraw their appearances because of the change in the membership of the Board of
Directors of IISMI, and the incarceration of the executives of IISMI who would have been
witnesses in the case. They would have the Court take judicial notice of these facts.

We cannot do so. If this Court does, then it would be relieving private respondents of their
bounden duty to show that during martial law they were so circumstanced that it was impossible
for them to commence, continue or even resist an action. And yet a full blown hearing is not
even necessary as the
so-called "special circumstances" do not convince this Court that, in this particular case, martial
law should be treated as force majeure that suspends the running of prescription. Likewise,
petitioners have consistently pointed out that during the hearing of the motion to dismiss, private
respondents failed to adduce any proof regarding their allegations on the tolling of the
prescriptive period. Private respondents have not, in any of their pleadings, rebutted this.

The allegation regarding the refugee status of the Jacintos finds utterly no support in the records.
Considering the voluminous pleadings they had filed before this Court, it comes as a surprise that
they never offered documentary evidence to prove their possession of such status, let alone
explain its legal implications. For the Court to now give evidentiary value to this unsupported
allegation is to be recreant to its sworn duty to uphold and apply the law.

The dissenting opinion of our respected Colleague poses as the threshold issue: "whether or not
in the name of economic development, the Government can act in a manner basically unfair and
arbitrary and deny to a party with a legitimate grievance, a remedy in law." To the extent that it
anchors practically the whole opinion on the assumption that the Government has indeed acted
"in a manner basically unfair and arbitrary" as to "deny to a party with a legitimate grievance, a
remedy in law" is to mislead him who seeks to address the imponderables of the case objectively,
impartially and fairly.

To cast the issue in such terminology is to ensnare the unwary who, in much the same manner, is
confronted with the question: "When did you stop beating your wife?" on the false assumption
that the addressee is in fact guilty of the obnoxious act of wife-bashing.

The dissenting opinion stands for the proposition that the private respondents were denied due
process inasmuch as, being abroad when part of the trial was being conducted, they were not
given their day in court.

We are strongly convinced, however, upon careful scrutiny of the records that private
respondents have in fact been accorded the guaranties of due process. There is no question that
they were accorded the opportunity to be heard which is the touchstone for determining whether
a party litigant has been granted the right to due process, but they can hardly blame anyone if
they somehow failed to fully utilize this. To aver now that they have been deprived of the same
is not to prove said assertion. It is important to note that when martial law was declared, the
Jacintos were already abroad. Their physical absence did not, however, deter them from filing
Civil Case No. 1701. They had present counsel as their counsel at the time. For almost a year,
these lawyers acted on their behalf and obtained appropriate judicial relief. Their lawyer-client
relationship was only terminated when their counsel filed on July 30, 1973 a Manifestation and
Omnibus Motion praying for leave to withdraw from representation in the cases before us. On
this point, we made this observation in Republic v. CFI of Lanao del Norte:

From the latest pleadings of petitioners, however, supported, as they are, by

official reports which are more specific and factual, the situation relative to the
equities in these cases appears to Us to have changed considerably. And in the
face of this circumstance, counsel for IISMI have not been able to present
sufficiently documented denials and rebuttals of the new allegations of
petitioners, albeit they excuse themselves by alleging that they have lost contact
with their clients, the principal private investors who used to be in control of
respondent corporation. It is claimed that said private investors have gone
abroad to places unknown to said counsel, for which reason, precisely, the latter
are even asking for leave to be allowed to withdraw their representation. Under
the circumstances, and considering that to await the uncertain return of the private
investors would jeopardize the efforts of the government to make the national
project herein involved, as conceived in the triangular agreement among the
Republic, the Exim Bank and IISMI itself, namely, the establishment of an
integrated steel complex to meet the requirements of the industry and economy of
the whole country, totally operative without further loss of time, the Court is of
the considered opinion that all the matters here in dispute should be referred to the
respondent court for further proceedings and appropriate resolution. Indeed,
having in view the nature and volume of the evidence which the parties would
have to present in connection with the factual issues raised by petitioners
regarding what they claim to have discovered or unearthed after the Secretary of
National Defense took over the "management, control and operation" of IISMI,
may be justly and comprehensively resolved only after such evidence have been
received by the trial court, rather than this Court, since it has the ready adequate
machinery for the purpose. And with such additional evidence, the trial court
would naturally be in a better position than before to rule on the injunctions which
have given rise to these proceedings.

xxx xxx xxx

Anent the prayer of all the counsel of IISMI to be given leave to withdraw their
representation of said respondent, it is important to note that said request is not
accompanied by proof of their client's consent to such withdrawal. Ordinarily,
under Section 26 of Rule 138, such consent is required. And even in the instances
where the same section dispenses with the client's consent, it is generally the rule
that the client should be notified of the petition of counsel. But it is not
inconceivable that under peculiar circumstances, the court may be justified in
relieving a lawyer from continuing his appearance in an action or proceeding,
without hearing the client, as, for instance, when a situation develops, like in the
cases at bar where the client stops having any contact with the lawyer, who is
thereby left without the usual means which are indispensable in the successful or,
at least, proper defense of the client's cause, such as, actual knowledge of relevant
facts, the identity of usable witnesses, pertinent documents and other evidence,
not to speak of the money needed for even the minimum of litigation expenses
and the possible advances of attorney's fees. Understandably, no responsible
lawyer can be expected to do justice to any cause under such conditions, and, it
would be an unjust imposition to compel him to continue his services in relation
thereto. While perhaps the absence of legal counsel may create an apparent
denial of the party's inherent right to legal assistance, in these particular cases, it
can rightly be said that in a large sense and for obvious reasons, movant
counsel's clients have it in their power to remedy the situation. 52 (emphasis
supplied)
The foregoing shows that, contrary to the present claim of private respondents that their lawyers
were constrained to withdraw their appearances, this Court had earlier found this not to be the
case and even impressed upon the Jacintos that they had it in their power to remedy the situation.
When their counsel's motion to withdraw was granted by this Court, their logical move should
have been to engage the services of other lawyers to represent them before the CFI of Lanao del
Norte. This they failed to do.

However, while abroad, they managed to hire the services of one Mr. Floyd H. Shebley and Mr.
Jose W. Diokno, a staunch anti-Marcos man and former senator of the Philippines. Considering
this and the fact that the absence of private respondents did not actually prevent them from filing
the injunction case, perforce, when they lost therein, they could have filed an appeal or a separate
action to annul the same.

The allegations regarding their absence, the cancellation of their passports, the seizure of their
resources and the incarceration of other IISMI officials had all been raised earlier in
the Republic case. Not having been convinced then, neither is this Court convinced now. Raising
them for the second time to compel a relitigation will not suffice to make this Court reverse
itself. Thus, we rule that, under the factual circumstances of this case, the martial law years did
not have the effect of interrupting the running of the prescriptive period.

The dissenting opinion would have us remand the case to the trial court to give it the opportunity
to examine "if the doctrine of constructive or implied trust should be applied under the
circumstances of this case." And yet, it
pre-empted the lower court by concluding that certainly, DBP, NDC and NSC are constructive
trustees because they had full and complete knowledge of the dispossession of valuable
properties. Thus, they are supposed to be the trustees who should hold the properties of IISMI for
the benefit of the beneficiary or cestui que trust, the Jacintos. Under Article 1456 of the New
Civil Code, a constructive trust is created if the property is acquired through mistake or fraud.
But this basic requisite is utterly wanting in the instant case. Here, the assets of IISMI mortgaged
to DBP were eventually foreclosed lawfully upon repeated default of the debtor IISMI to pay its
debts. Subsequently, DBP sold the property to NSC under legally-sanctioned procedures.
Nowhere is there an iota of evidence showing acquisition of property through mistake or fraud
by DBP and later, NSC. If there be anyone guilty of fraud, it is the Jacintos, as determined and
ruled upon by the Court of First Instance of Lanao del Norte. Clearly, there can be no room for
the application of the concept of constructive trust in favor of the Jacintos.

The dissenting opinion finds it strange that "in the 20 years which followed these executive and
trial determinations, no charges — criminal or civil — were filed against the alleged saboteurs."
If the petitioners did not file criminal or civil charges against the Jacintos despite findings of
fraud and mismanagement by the lower court, it was merely exercising the option open to any
creditor-mortgagee. From its arsenal, it may choose any legal weapon which it deems proper to
accomplish its objective and which is suitable for its planned strategy. Why fault it if it merely
wants to recover debts and recoup losses without having to necessarily draw blood by jailing its
debtors? Obviously, too, no criminal charges can be filed against them as they were then beyond
the jurisdiction of the courts.
D. FAILURE TO STATE CAUSE OF ACTION

A cause of action is an act or omission of one party in violation of the legal right of the other. Its
essential elements are, namely: (1) the existence of a legal right in the plaintiff, (2) a correlative
legal duty on the part of the defendant, and (3) an act or omission of the defendant in violation of
plaintiff's right with consequential injury or damage to the plaintiff for which he may maintain an
action for the recovery of damages or other appropriate relief. 53

Petitioners maintain that the Jacintos and JSI have no legal right to file the instant case as they
were mere stockholders of IISMI which, as a corporation having a personality distinct and
separate from its stockholders, is the proper party to institute the same. On the other hand,
private respondents argue that they are instituting a derivative suit on behalf of IISMI.

Before a derivative suit can be filed, the stockholder or member bringing the suit must first
exhaust his remedies within the corporation, i.e., he must have made a demand on the directors
or trustees to sue and the latter must have either failed or refused to do so. This demand,
however, is not necessary where it would be futile to make it.54

There is no allegation in the complaint that would show that a demand on the board of directors
of IISMI was in fact made. But even if the Jacintos and JSI omitted to make the same, they can
still file the instant case as a derivative suit. They have alleged that "at this time, IISMI is
without a duly or legally constituted board of directors and no election of officers has been
held." 55 It would be futile for them to make a demand on the board of directors whose very
constitution is being questioned. Private respondents, having the legal right to file the instant
case, we find that the complaint states a cause of action.

However, a finding that a complaint states a cause of action does not imply that the complainant
is assured of a ruling in his favor. While a motion to dismiss based on failure of the complainant
to state a cause of action necessarily carries with it the admission, for purposes of the motion, of
the truth of all material facts pleaded in the complaint, 56 what is submitted for determination
therein is the sufficiency of the allegations in the complaint. 57 Corollarily, the denial of a motion
to dismiss does not necessarily resolve the issues raised in the complaint in favor of the
complainant inasmuch as, after the trial, the defendant might prove to have a better right to the
subject matter in litigation.

Moreover, a motion to dismiss may be based on only one of the grounds enumerated in Sec. 1,
Rule 16 of the Rules of Court. That the petitioners were able to prove the presence of three of the
four grounds they raised, viz., res judicata, lack of jurisdiction and prescription, more than
warrants the reversal of the Order below denying the petitioners' motion to dismiss.

III. INCIDENTAL ISSUES

A. TERMINATION OF COUNSEL

After having been served with summons in Civil Case No. 111-1549, DBP engaged the services
of the Office of the Solicitor General (OSG) which represented it earlier in Civil Case No.
1701. 58 Then Solicitor General Francisco I. Chavez "graciously accepted" this request 59 in a
letter dated February 7, 1990. Surprisingly, however, on February 8, 1992, DBP filed a Notice of
Termination of Counsel.

The conflict between DBP and OSG had its roots when Mr. Jose Ma. P. Jacinto sent a letter
dated August 8, 1991 addressed to then Acting Secretary of Justice Silvestre H. Bello III
requesting a "review of the government position on the matter of our claims, so that action can
be taken — or at least a recommendation made — for a speedy settlement thereof." 60 This
request was made in view of the following opinions which, according to the said letter,
"previously acknowledged the merits of our claims".

a) PCGG Order dated February 19, 1987 which said that "the takeover of the
assets of IISMI was effected thru Letters of Instructions Nos. 27, 35, 39 and 49"
and that "due process may not have been observed when DBP foreclosed the
IISMI."

b) Memorandum-Letter dated December 5, 1986 by Atty. Prospero C. Nograles,

DBP Chief Legal counsel, which states that the "IISMI case established a clear
example of aggression by the past regime and smacks of an abuse of human rights
through the use of sheer force by the military."

c) Opinion No. 003, series of 1987, dated January 14, 1987 by Atty. Ariel F.
Aguirre of the Office of the Government Corporate Counsel (OGCC) which
concluded that LOI No. 27 "directing the then Secretary of National Defense to
take over or cause the take over of the management, control and operation of
IISMI was an arbitrary and unprecedented excuse of undefinable state power" and
that LOI Nos. 35, 39, and 49 "likewise suffer the same infirmity" and

d) Letter dated February 13, 1987 by Undersecretary Silvestre H. Bello III of the
Department of Justice stating that "we find no cogent reason to disagree with both
opinions (of Messrs. Nograles and Aguirre) upon the facts as presented and
hereby confirm the same."

Acting Secretary of Justice Silvestre H. Bello III issued 1st Indorsement dated September 19,
1991 referring the letter of Mr. Jose Ma. P. Jacinto to the Office of the Solicitor General "it
appearing that there is a pending case in court being handled by the Office of the Solicitor
General."61

In response, the OSG thru the former Solicitor General Ramon S. Desuasido, Assistant Solicitor
General Edgardo L. Kilayko and Solicitor Felixberto C. de la Cruz sent a Second Indorsement
which said:

We share the opinion dated December 5, 1986 of the then DBP counsel (now
Congressman) Prospero Nograles that the foreclosure proceedings on IISMI were
legally flawed because at the time of foreclosure the mortgaged assets were in the
 possession of the military pursuant to Letter of Instruction No. 27 ordering the
military to take over the IISMI plant. 62

and recommended:

We could have recommended that the Jacintos be given a fresh period of time to
pay their loan to DBP. One big obstacle, however, is that DBP sold the foreclosed
IISMI assets to the National Steel Corporation in 1981. We do not believe that the
NSC would be willing to return the assets to the Jacintos after paying P983
million for them to DBP.

Perhaps the Office of the President and/or the Department of Justice could
summon the parties to explore avenues of an out-of-court settlement. For, really if
there are incontrovertible badges of confiscation of the Jacintos' property by the
Marcos dictatorship, this Government should not perpetuate that injustice.63

Because of the above-quoted Second Indorsement carrying the signatures of the very same
Solicitors representing DBP, the latter filed the Notice of Termination of Counsel alleging that
the OSG without consulting DBP "advanced a conclusion prejudicial, to its client" considering
that it consistently maintained "that DBP's foreclosure of IISMI plant and assets in 1974 is
legally valid, binding, conclusive and final" and that issues in the instant petition are sub judice.

The OSG filed a Manifestation 64 dated February 26, 1992 stating that the "ground for the
contemplated termination of services of OSG as DBP's counsel is "baseless" since the second
Indorsement merely suggested an out-of-court settlement or compromise which the law
encourages especially in civil cases 65 and that the Second Indorsement is a mere opinion
between the OSG and the DOJ of which no copy was ever furnished to anyone, let alone the
Jacintos.

Although the OSG had been representing DBP, the latter wishes to terminate such relation and
assign its own Legal Department created under Section 12 of E.O. 81 (Revised Charter of
DBP) 66 to act as its counsel. We hold that in the circumstances of this case, we should grant the
prayer.

As early as January 11, 1989, then Secretary of Justice Sedfrey Ordoñez issued Opinion No. 16,
Series of 1989 addressed to Ms. Lilia R. Bautista of the Department of Trade and Industry
regarding her query as to the legal impediment to the privatization of the NSC due to the "claims
of the Fernando Jacinto family to certain properties or assets of the Iligan Integrated Steel Mills,
Inc. (IISMI)." This opinion earlier reviewed the same matters raised in the August 8, 1991 letter
of Mr. Jose Ma. P. Jacinto. We quote the pertinent portions:

As a matter of policy and by well-settled precedents, this Department has

consistently declined to render an opinion on questions that are fundamentally
judicial or which might subsequently be the subject of litigation before the courts,
particularly, those questions which involve the interest of private parties who may
take issue with said opinion and bring the matter before the courts (see DOJ Ops.
No. 125, s. 1958; No. 112, s. 1971; No. 76, s. 1977 and No. 117, s. 1985).

Nonetheless, we are stating our comments and observations on the "issuances"

mentioned in your request to assist DTI in resolving the controversy regarding the
IISMI assets in question vis-a-vis the implementation of its program of
privatization as mandated by existing policies.

At the outset, it must be stressed that the Memorandum dated March 7, 1986,
issued by the former head of the Ministry of National Defense (MND) for the
President, which the counsel for the Jacintos claimed to have been confirmed by
the subject four (4) "issuances", merely advised the President of the action taken
by the said official in his capacity as sequestrator with respect to the Jacinto
assets. The directive, referred to in the said Memorandum, which was to return the
said assets to their "rightful owners" proceeded from the view of their sequestrator
that the "continued sequestration" of said assets had become untenable due to the
dismantling and abolition of the old regime.

To begin with, the IISMI assets were not owned by the Jacintos but by IISMI; it
appears that IISMI, in turn, was owned by public and private stockholders among
whom the Jacintos were just a minority. In fact, we note from the memorandum of
NSC's legal counsel that the Government, through the GSIS and the SSS, was the
single biggest stockholder of IISMI. Moreover, the IISMI assets were no longer
under sequestration at the time of the toppling of the Marcos regime. The said
assets have long been in the possession of NSC which purchased and holds the
same, not by virtue of sequestration, but as an incident of its ownership, otherwise
known as "jus possidendi". Hence, we do not see the relevance of the aforesaid
memorandum of March 7, 1986, insofar as the former IISMI assets, now owned
by NSC, are concerned. The NSC was a purchaser of the IISMI assets for value
and in good faith. With reference to the said assets no question of "continued
sequestration" can be raised. It must also be emphasized that the NSC bought said
property not from the sequestrator, but from a mortgagee, DBP, which had
foreclosed the mortgage from the said assets.

With reference to the four so-called issuances it suffices here to note that the
DBP, through its Chairman's letter dated February 8, 1988, has clarified that the
Nograles opinion contained in this memorandum of December 5, 1986 merely
represent his own personal opinion, that it "does not represent DBP's position with
respect to the Jacinto family's claim regarding the plant and assets of . . . IISMI"
and that, contrary to the conclusion of Atty. Nograles —

1. DBP effected the foreclosure of the IISMI plant and assets in

good faith and after obtaining judicial clearance. The foreclosure
was, and remains, valid, legal, binding and final.
 2. The foreclosure was a necessary, last resort measure which DBP
had to take in order to protect the Government's interests and huge
exposure in IISMI after IISMI continued unabatedly to default on
its obligations to DBP despite numerous extensions and other relief
measures granted by DBP.

The same observation can be made with respect to the letter dated February 13,
1987 of Undersecretary of Justice Silvestre H. Belo III, confirming the Nograles
opinion. It is clear that the facts or circumstances surrounding the former IISMI
assets have not been fully disclosed to the latter by Atty. Nograles. In fact, the
aforementioned DBP Counsel secured the said letter after then Minister of Justice
Neptali A. Gonzales has sent him a letter dated January 27, 1987 which declined
his request for an approval of his Memorandum.

The lack of full disclosure of the facts and circumstances referred to above is also
evident in the case of Opinion No. 003 dated January 14, 1987 of the Deputy
Government Corporate Counsel, the pertinent portion of which reads:

Considering that we have no access to the pertinent documents

relative to the transactions of proceedings affecting the IISMI and
you did not also furnish us copies thereof and considering further
the urgency of your request for our comments, we will endeavor to
delve into the issues in the light of your factual account contained
in your memorandum to the Chairman and Vice-Chairman of the
DBP's Board of Governors and which was the basis of the opinion
you articulated therein.

Aside from the fact that the opinion of the OGCC is merely persuasive and has no
binding force, the admitted absence of a full consideration of the pertinent facts
involved, and the fact that the opinion (OGCC's) was prematurely rendered and
based on a personal opinion (Atty. Nograles') give us cogent reasons to conclude
that the aforesaid opinion of the OGCC has no relevance or pertinency to your
privatization plans for NSC.

Upon the other hand, the PCGG pronouncement that due process may not have
been observed in the foreclosure by the DBP of the IISMI assets was embodied in
the same issuance wherein the PCGG acknowledged that it had no jurisdiction to
act on the matter and dismissing the Jacinto's claim for lack of jurisdiction, as it
raised judicial questions which must be addressed to the regular courts of justice.
Given the absence of jurisdiction, the PCGG's opinions about due process are of
the same character as an obiter dictum or a dictum not necessarily involved in the
case or which was made without full consideration of the point or which a tribunal
is not required to decide and therefore, lacks the force of an adjudication (Morales
vs. Paredes, 55 Phil. 565, 567 [1931]; People vs. Macadaeg, et al., 91 Phil. 410,
413 [1952]). Worse, since PCGG ruled itself without jurisdiction over the
questions raised, it follows that it had no jurisdiction to render an obiter dictum.
 Accordingly, the above-mentioned pronouncement of the PCGG also served no
useful purpose or was a surplusage, since it would not bind the parties to the case
nor any court, which the PCGG conceded as the sole authority to pass upon the
questions raised in the Jacinto petition and to grant the relief therein prayed for.
We took note, however, of the issue of prescription of any judicial action that the
Jacintos may file, raised by the NSC Legal Counsel which is likewise an issue
addressed to the court.67

The foregoing opinion of his predecessor should have guided then Acting Secretary Silvestre H.
Bello III. It should be noted that it was his First Indorsement which led to the issuance by the
OSG lawyers concerned of the controversial Second Indorsement. While the same was not issued
publicly as it was merely addressed to the Acting Secretary of the Department of Justice, the fact
that it might be used, as in fact it was used, by private respondents in their pleading before this
Court, should have cautioned the OSG to be more careful in dealing with matters which may
have legal repercussions.

Government agencies, including government corporations, must look to the Solicitor General, in
the first instance, to represent them in legal proceedings. However, in much the same way that
the Solicitor General is not absolutely required to represent a government agency, neither is the
latter absolutely compelled to avail of the Solicitor General's services. A justifiable departure
from the general rule is when the agency has lost confidence in the Solicitor General, as
demonstrated by its past actuations exemplified in the instant case where the DBP would rather
rely on its "in house" resources for legal services. In this case, therefore, we grant DBP's prayer
to terminate the services of the OSG.

B. TEMPORARY RESTRAINING ORDER

In a Manifestation and Motion 68 dated April 29, 1992, private respondents prayed that an order
be issued commanding the petitioners NDC and NSC to cease and desist from conducting the
privatization and sale of NSC during the pendency of the action. They explained that "the claims
of IISMI and JACINTO on the assets held by NSC and the privatization of NSC through the sale
of 51% of its shares, are so inextricably intertwined," so that a decision in their favor "will
greatly prejudice the buyers of these shares." They added that the sale "will further complicate
the already complex issues" and might render the implementation or execution of a favorable
decision "extremely difficult, if not impossible."

On May 19, 1992, we resolved to issue a Temporary Restraining Order (TRO) enjoining the
petitioners National Development Corporation (NDC) and National Steel Corporation (NSC), "to
CEASE and DESIST from conducting the privatization and sale of National Steel Corporation
(NSC) during the pendency of this action."69

Petitioners filed an Urgent Motion to Lift TRO 70 explaining that any sale of the 51% shares does
not in any way threaten the private respondents' claim over the IISMI assets which constitute
only "1.1% of the total financial asset base of NSC of P24.8 billion."
In the Resolution of May 28, 1992, 71 we granted petitioners' urgent motion to set the case for
Oral Argument. At the hearing on June 4, 1992, the counsel for private respondents admitted that
they had actually no facts to support their assertion of ownership over the 51% shares of NSC
but were merely proceeding from inference. 72

After the hearing, the Court resolved to deny the petitioners' motion to lift the temporary
restraining order and to require private respondents to post a cash or surety bond in the amount
of P1.5 million. 73

WHEREFORE, there being grave abuse of discretion on the part of the court a quo in denying
petitioners' motion to dismiss and motion for reconsideration, the instant petition is hereby
GRANTED. The Temporary Restraining Order issued on February 7, 1991 is made
PERMANENT and respondent Judge Amir Pundogar is hereby ordered to DISMISS Civil Case
No. 111-1549. The Temporary Restraining Order issued on May 9, 1992 is hereby
DISSOLVED.

SO ORDERED.

Bidin, Griño-Aquino, Regalado, Davide, Jr., Nocon, Bellosillo and Melo, JJ., concur.

Narvasa, C.J., Feliciano and Padilla, JJ., took no part.

G.R. No. 111538 February 26, 1997

PARAÑAQUE KINGS ENTERPRISES, INCORPORATED, petitioner,

vs.
COURT OF APPEALS, CATALINA L. SANTOS, represented by her attorney-in-fact,
LUZ B. PROTACIO, and DAVID A. RAYMUNDO, respondents.
PANGANIBAN, J.:

Do allegations in a complaint showing violation of a contractual right of "first option or priority

to buy the properties subject of the lease" constitute a valid cause of action? Is the grantee of
such right entitled to be offered the same terms and conditions as those given to a third party who
eventually bought such properties? In short, is such right of first refusal enforceable by an action
for specific performance?

These questions are answered in the affirmative by this Court in resolving this petition for review
under Rule 45 of the Rules of Court challenging the Decision 1 of the Court of
Appeals 2 promulgated on March 29, 1993, in CA-G.R. CV No. 34987 entitled "Parañaque Kings
Enterprises, Inc. vs. Catalina L. Santos, et al.," which affirmed the order 3 of September 2, 1991,
of the Regional Trial Court of Makati, Branch 57, 4 dismissing Civil Case No. 91-786 for lack of
a valid cause of action.

Facts of the Case

On March 19, 1991, herein petitioner filed before the Regional Trial Court of Makati a
complaint, 5 which is reproduced in full below:

Plaintiff, by counsel, respectfully states that:

1. Plaintiff is a private corporation organized and existing under and by virtue of

the laws of the Philippines, with principal place of business of (sic) Dr. A. Santos
Avenue, Parañaque, Metro Manila, while defendant Catalina L. Santos, is of legal
age, widow, with residence and postal address at 444 Plato Street, Ct., Stockton,
California, USA, represented in this action by her attorney-in-fact, Luz B.
Protacio, with residence and postal address at No, 12, San Antonio Street,
Magallanes Village, Makati, Metro Manila, by virtue of a general power of
attorney. Defendant David A. Raymundo, is of legal age, single, with residence
and postal address at 1918 Kamias Street, Damariñas Village, Makati, Metro
Manila, where they (sic) may be served with summons and other court processes.
Xerox copy of the general power of attorney is hereto attached as Annex "A".

2. Defendant Catalina L. Santos is the owner of eight (8) parcels of land located at
(sic) Parañaque, Metro Manila with transfer certificate of title nos. S-19637, S-
19638 and S-19643 to S-19648. Xerox copies of the said title (sic) are hereto
attached as Annexes "B" to "I", respectively.

3. On November 28, 1977, a certain Frederick Chua leased the above-described

property from defendant Catalina L. Santos, the said lease was registered in the
Register of Deeds. Xerox copy of the lease is hereto attached as Annex "J".
4. On February 12, 1979, Frederick Chua assigned all his rights and interest and
participation in the leased property to Lee Ching Bing, by virtue of a deed of
assignment and with the conformity of defendant Santos, the said assignment was
also registered. Xerox copy of the deed of assignment is hereto attached as Annex
"K".

5. On August 6, 1979, Lee Ching Bing also assigned all his rights and interest in
the leased property to Parañaque Kings Enterprises, Incorporated by virtue of a
deed of assignment and with the conformity of defendant Santos, the same was
duly registered, Xerox copy of the deed of assignment is hereto attached as Annex
"L".

6. Paragraph 9 of the assigned leased (sic) contract provides among others that:

"9. That in case the properties subject of the lease agreement are
sold or encumbered, Lessors shall impose as a condition that the
buyer or mortgagee thereof shall recognize and be bound by all the
terms and conditions of this lease agreement and shall respect this
Contract of Lease as if they are the LESSORS thereof and in case
of sale, LESSEE shall have the first option or priority to buy the
properties subject of the lease;"

7. On September 21, 1988, defendant Santos sold the eight parcels of land subject
of the lease to defendant David Raymundo for a consideration of FIVE MILLION
(P5,000,000.00) PESOS. The said sale was in contravention of the contract of
lease, for the first option or priority to buy was not offered by defendant Santos to
the plaintiff. Xerox copy of the deed of sale is hereto attached as Annex "M".

8. On March 5, 1989, defendant Santos wrote a letter to the plaintiff informing the
same of the sale of the properties to defendant Raymundo, the said letter was
personally handed by the attorney-in-fact of defendant Santos, Xerox copy of the
letter is hereto attached as Annex "N".

9. Upon learning of this fact plaintiff's representative wrote a letter to defendant

Santos, requesting her to rectify the error and consequently realizing the error, she
had it reconveyed to her for the same consideration of FIVE MILLION
(P5,000,000.00) PESOS. Xerox copies of the letter and the deed of reconveyance
are hereto attached as Annexes "O" and "P".

10. Subsequently the property was offered for sale to plaintiff by the defendant for
the sum of FIFTEEN MILLION (P15,000,000.00) PESOS. Plaintiff was given ten
(10) days to make good of the offer, but therefore (sic) the said period expired
another letter came from the counsel of defendant Santos, containing the same
tenor of (sic) the former letter. Xerox copies of the letters are hereto attached as
Annexes "Q" and "R".
11. On May 8, 1989, before the period given in the letter offering the properties
for sale expired, plaintiff's counsel wrote counsel of defendant Santos offering to
buy the properties for FIVE MILLION (P5,000,000.00) PESOS. Xerox copy of
the letter is hereto attached as Annex "S".

12. On May 15, 1989, before they replied to the offer to purchase, another deed of
sale was executed by defendant Santos (in favor of) defendant Raymundo for a
consideration of NINE MILLION (P9,000,000.00) PESOS. Xerox copy of the
second deed of sale is hereto attached as Annex "T".

13. Defendant Santos violated again paragraph 9 of the contract of lease by

executing a second deed of sale to defendant Raymundo.

14. It was only on May 17, 1989, that defendant Santos replied to the letter of the
plaintiff's offer to buy or two days after she sold her properties. In her reply she
stated among others that the period has lapsed and the plaintiff is not a privy (sic)
to the contract. Xerox copy of the letter is hereto attached as Annex "U".

15. On June 28, 1989, counsel for plaintiff informed counsel of defendant Santos
of the fact that plaintiff is the assignee of all rights and interest of the former
lessor. Xerox copy of the letter is hereto attached as Annex "V".

16. On July 6, 1989, counsel for defendant Santos informed the plaintiff that the
new owner is defendant Raymundo. Xerox copy of the letter is hereto attached as
Annex "W".

17. From the preceding facts it is clear that the sale was simulated and that there
was a collusion between the defendants in the sales of the leased properties, on
the ground that when plaintiff wrote a letter to defendant Santos to rectify the
error, she immediately have (sic) the property reconveyed it (sic) to her in a
matter of twelve (12) days.

18. Defendants have the same counsel who represented both of them in their
exchange of communication with plaintiff's counsel, a fact that led to the
conclusion that a collusion exist (sic) between the defendants.

19. When the property was still registered in the name of defendant Santos, her
collector of the rental of the leased properties was her brother-in-law David
Santos and when it was transferred to defendant Raymundo the collector was still
David Santos up to the month of June, 1990. Xerox copies of cash vouchers are
hereto attached as Annexes "X" to "HH", respectively.

20. The purpose of this unholy alliance between defendants Santos and
Raymundo is to mislead the plaintiff and make it appear that the price of the
leased property is much higher than its actual value of FIVE MILLION
(P5,000,000.00) PESOS, so that plaintiff would purchase the properties at a
higher price.

21. Plaintiff has made considerable investments in the said leased property by
erecting a two (2) storey, six (6) doors commercial building amounting to THREE
MILLION (P3,000,000.00) PESOS. This considerable improvement was made on
the belief that eventually the said premises shall be sold to the plaintiff.

22. As a consequence of this unlawful act of the defendants, plaintiff will incurr
(sic) total loss of THREE MILLION (P3,000,000.00) PESOS as the actual cost of
the building and as such defendants should be charged of the same amount for
actual damages.

23. As a consequence of the collusion, evil design and illegal acts of the
defendants, plaintiff in the process suffered mental anguish, sleepless nights,
bismirched (sic) reputation which entitles plaintiff to moral damages in the
amount of FIVE MILLION (P5,000,000.00) PESOS.

24. The defendants acted in a wanton, fraudulent, reckless, oppressive or

malevolent manner and as a deterrent to the commission of similar acts, they
should be made to answer for exemplary damages, the amount left to the
discretion of the Court.

25. Plaintiff demanded from the defendants to rectify their unlawful acts that they
committed, but defendants refused and failed to comply with plaintiffs just and
valid and (sic) demands. Xerox copies of the demand letters are hereto attached as
Annexes "KK" to "LL", respectively.

26. Despite repeated demands, defendants failed and refused without justifiable
cause to satisfy plaintiff's claim, and was constrained to engaged (sic) the services
of undersigned counsel to institute this action at a contract fee of P200,000.00, as
and for attorney's fees, exclusive of cost and expenses of litigation.

PRAYER

WHEREFORE, it is respectfully prayed, that judgment be rendered in favor of the

plaintiff and against defendants and ordering that:

a. The Deed of Sale between defendants dated May

15, 1989, be annulled and the leased properties be
sold to the plaintiff in the amount of P5,000,000.00;

b. Dependants (sic) pay plaintiff the sum of

P3,000,000.00 as actual damages;
 c. Defendants pay the sum of P5,000,000.00 as
moral damages;

d. Defendants pay exemplary damages left to the

discretion of the Court;

e. Defendants pay the sum of not less than

P200,000.00 as attorney's fees.

Plaintiff further prays for other just and equitable

reliefs plus cost of suit.

Instead of filing their respective answers, respondents filed motions to dismiss anchored on the
grounds of lack of cause of action, estoppel and laches.

On September 2, 1991, the trial court issued the order dismissing the complaint for lack of a
valid cause of action. It ratiocinated thus:

Upon the very face of the plaintiff's Complaint itself, it therefore indubitably
appears that the defendant Santos had verily complied with paragraph 9 of the
Lease Agreement by twice offering the properties for sale to the plaintiff for ~1 5
M. The said offers, however, were plainly rejected by the plaintiff which scorned
the said offer as "RIDICULOUS". There was therefore a definite refusal on the
part of the plaintiff to accept the offer of defendant Santos. For in acquiring the
said properties back to her name, and in so making the offers to sell both by
herself (attorney-in-fact) and through her counsel, defendant Santos was indeed
conscientiously complying with her obligation under paragraph 9 of the Lease
Agreement. . . . .

xxx xxx xxx

This is indeed one instance where a Complaint, after barely commencing to create
a cause of action, neutralized itself by its subsequent averments which erased or
extinguished its earlier allegations of an impending wrong. Consequently, absent
any actionable wrong in the very face of the Complaint itself, the plaintiffs
subsequent protestations of collusion is bereft or devoid of any meaning or
purpose. . . . .

The inescapable result of the foregoing considerations point to no other

conclusion than that the Complaint actually does not contain any valid cause of
action and should therefore be as it is hereby ordered DISMISSED. The Court
finds no further need to consider the other grounds of estoppel and laches
inasmuch as this resolution is sufficient to dispose the matter. 6

Petitioners appealed to the Court of Appeals which affirmed in toto the ruling of the trial court,
and further reasoned that:
 . . . . Appellant's protestations that the P15 million price quoted by appellee
Santos was reduced to P9 million when she later resold the leased properties to
Raymundo has no valid legal moorings because appellant, as a prospective buyer,
cannot dictate its own price and forcibly ram it against appellee Santos, as owner,
to buy off her leased properties considering the total absence of any stipulation or
agreement as to the price or as to how the price should be computed under
paragraph 9 of the lease contract, . . . . 7

Petitioner moved for reconsideration but was denied in an order dated August 20, 1993. 8

Hence this petition. Subsequently, petitioner filed an "Urgent Motion for the Issuance of
Restraining Order and/or Writ of Preliminary Injunction and to Hold Respondent David A.
Raymundo in Contempt of Court." 9 The motion sought to enjoin respondent Raymundo and his
counsel from pursuing the ejectment complaint filed before the barangay captain of San Isidro,
Parañaque, Metro Manila; to direct the dismissal of said ejectment complaint or of any similar
action that may have been filed; and to require respondent Raymundo to explain why he should
not be held in contempt of court for forum-shopping. The ejectment suit initiated by respondent
Raymundo against petitioner arose from the expiration of the lease contract covering the
property subject of this case. The ejectment suit was decided in favor of Raymundo, and the
entry of final judgment in respect thereof renders the said motion moot and academic.

Issue

The principal legal issue presented before us for resolution is whether the aforequoted complaint
alleging breach of the contractual right of "first option or priority to buy" states a valid cause of
action.

Petitioner contends that the trial court as well as the appellate tribunal erred in dismissing the
complaint because it in fact had not just one but at least three (3) valid causes of action, to wit:
(1) breach of contract, (2) its right of first refusal founded in law, and (3) damages.

Respondents Santos and Raymundo, in their separate comments, aver that the petition should be
denied for not raising a question of law as the issue involved is purely factual — whether
respondent Santos complied with paragraph 9 of the lease agreement — and for not having
complied with Section 2, Rule 45 of the Rules of Court, requiring the filing of twelve (12) copies
of the petitioner's brief. Both maintain that the complaint filed by petitioner before the Regional
Trial Court of Makati stated no valid cause of action and that petitioner failed to substantiate its
claim that the lower courts decided the same "in a way not in accord with law and applicable
decisions of the Supreme Court"; or that the Court of Appeals has "sanctioned departure by a
trial court from the accepted and usual course of judicial proceedings" so as to merit the exercise
by this Court of the power of review under Rule 45 of the Rules of Court. Furthermore, they
reiterate estoppel and laches as grounds for dismissal, claiming that petitioner's payment of
rentals of the leased property to respondent Raymundo from June 15, 1989, to June 30, 1990,
was an acknowledgment of the latter's status as new owner-lessor of said property, by virtue of
which petitioner is deemed to have waived or abandoned its first option to purchase.
Private respondents likewise contend that the deed of assignment of the lease agreement did not
include the assignment of the option to purchase. Respondent Raymundo further avers that he
was not privy to the contract of lease, being neither the lessor nor lessee adverted to therein,
hence he could not be held liable for violation thereof.

The Court's Ruling

Preliminary Issue: Failure to File

Sufficient Copies of Brief

We first dispose of the procedural issue raised by respondents, particularly petitioner's failure to
file twelve (12) copies of its brief. We have ruled that when non-compliance with the Rules was
not intended for delay or did not result in prejudice to the adverse party, dismissal of appeal on
mere technicalities — in cases where appeal is a matter of right — may be stayed, in the exercise
of the court's equity jurisdiction. 10 It does not appear that respondents were unduly prejudiced by
petitioner's nonfeasance. Neither has it been shown that such failure was intentional.

Main Issue: Validity of Cause of Action

We do not agree with respondents' contention that the issue involved is purely factual. The
principal legal question, as stated earlier, is whether the complaint filed by herein petitioner in
the lower court states a valid cause of action. Since such question assumes the facts alleged in the
complaint as true, it follows that the determination thereof is one of law, and not of facts. There
is a question of law in a given case when the doubt or difference arises as to what the law is on a
certain state of facts, and there is a question of fact when the doubt or difference arises as to the
truth or the falsehood of alleged facts. 11

At the outset, petitioner concedes that when the ground for a motion to dismiss is lack of cause
of action, such ground must appear on the face of the complaint; that to determine the sufficiency
of a cause of action, only the facts alleged in the complaint and no others should be considered;
and that the test of sufficiency of the facts alleged in a petition or complaint to constitute a cause
of action is whether, admitting the facts alleged, the court could render a valid judgment upon the
same in accordance with the prayer of the petition or complaint.

A cause of action exists if the following elements are present: (1) a right in favor of the plaintiff
by whatever means and under whatever law it arises or is created; (2) an obligation on the part of
the named defendant to respect or not to violate such right, and (3) an act or omission on the part
of such defendant violative of the right of plaintiff or constituting a breach of the obligation of
defendant to the plaintiff for which the latter may maintain an action for recovery of damages. 12

In determining whether allegations of a complaint are sufficient to support a cause of action, it

must be borne in mind that the complaint does not have to establish or allege facts proving the
existence of a cause of action at the outset; this will have to be done at the trial on the merits of
the case. To sustain a motion to dismiss for lack of cause of action, the complaint must show that
the claim for relief does not exist, rather than that a claim has been defectively stated, or is
ambiguous, indefinite or uncertain. 13
Equally important, a defendant moving to dismiss a complaint on the ground of lack of cause of
action is regarded as having hypothetically admitted all the averments thereof. 14

A careful examination of the complaint reveals that it sufficiently alleges an actionable

contractual breach on the part of private respondents. Under paragraph 9 of the contract of lease
between respondent Santos and petitioner, the latter was granted the "first option or priority" to
purchase the leased properties in case Santos decided to sell. If Santos never decided to sell at
all, there can never be a breach, much less an enforcement of such "right." But on September 21,
1988, Santos sold said properties to Respondent Raymundo without first offering these to
petitioner. Santos indeed realized her error, since she repurchased the properties after petitioner
complained. Thereafter, she offered to sell the properties to petitioner for P15 million, which
petitioner, however, rejected because of the "ridiculous" price. But Santos again appeared to
have violated the same provision of the lease contract when she finally resold the properties to
respondent Raymundo for only P9 million without first offering them to petitioner at such price.
Whether there was actual breach which entitled petitioner to damages and/or other just or
equitable relief, is a question which can better be resolved after trial on the merits where each
party can present evidence to prove their respective allegations and defenses. 15

The trial and appellate courts based their decision to sustain respondents' motion to dismiss on
the allegations of Parañaque Kings Enterprises that Santos had actually offered the subject
properties for sale to it prior to the final sale in favor of Raymundo, but that the offer was
rejected. According to said courts, with such offer, Santos had verily complied with her
obligation to grant the right of first refusal to petitioner.

We hold, however, that in order to have full compliance with the contractual right granting
petitioner the first option to purchase, the sale of the properties for the amount of P9 million, the
price for which they were finally sold to respondent Raymundo, should have likewise been first
offered to petitioner.

The Court has made an extensive and lengthy discourse on the concept of, and obligations under,
a right of first refusal in the case of Guzman, Bocaling & Co. vs. Bonnevie. 16 In that case, under
a contract of lease, the lessees (Raul and Christopher Bonnevie) were given a "right of first
priority" to purchase the leased property in case the lessor (Reynoso) decided to sell. The selling
price quoted to the Bonnevies was 600,000.00 to be fully paid in cash, less a mortgage lien of
P100,000.00. On the other hand, the selling price offered by Reynoso to and accepted by
Guzman was only P400,000.00 of which P137,500.00 was to be paid in cash while the balance
was to be paid only when the property was cleared of occupants. We held that even if the
Bonnevies could not buy it at the price quoted (P600,000.00), nonetheless, Reynoso could not
sell it to another for a lower price and under more favorable terms and conditions without first
offering said favorable terms and price to the Bonnevies as well. Only if the Bonnevies failed to
exercise their right of first priority could Reynoso thereafter lawfully sell the subject property to
others, and only under the same terms and conditions previously offered to the Bonnevies.

Of course, under their contract, they specifically stipulated that the Bonnevies could exercise the
right of first priority, "all things and conditions being equal." This Court interpreted this proviso
to mean that there should be identity of terms and conditions to be offered to the Bonnevies and
all other prospective buyers, with the Bonnevies to enjoy the right of first priority. We hold that
the same rule applies even without the same proviso if the right of first refusal (or the first option
to buy) is not to be rendered illusory.

From the foregoing, the basis of the right of first refusal* must be the current offer to sell of the
seller or offer to purchase of any prospective buyer. Only after the optionee fails to exercise its
right of first priority under the same terms and within the period contemplated, could the owner
validly offer to sell the property to a third person, again, under the same terms as offered to the
optionee.

This principle was reiterated in the very recent case of Equatorial Realty vs. Mayfair
Theater, Inc. 17 which was decided en banc. This Court upheld the right of first refusal of the
lessee Mayfair, and rescinded the sale of the property by the lessor Carmelo to Equatorial Realty
"considering that Mayfair, which had substantial interest over the subject property, was
prejudiced by its sale to Equatorial without Carmelo conferring to Mayfair every opportunity to
negotiate within the 30-day stipulated period" (emphasis supplied).

In that case, two contracts of lease between Carmelo and Mayfair provided "that if the LESSOR
should desire to sell the leased premises, the LESSEE shall be given 30 days exclusive option to
purchase the same." Carmelo initially offered to sell the leased property to Mayfair for six to
seven million pesos. Mayfair indicated interest in purchasing the property though it invoked the
30-day period. Nothing was heard thereafter from Carmelo. Four years later, the latter sold its
entire Recto Avenue property, including the leased premises, to Equatorial for P11,300,000.00
without priorly informing Mayfair. The Court held that both Carmelo and Equatorial acted in bad
faith: Carmelo for knowingly violating the right of first option of Mayfair, and Equatorial for
purchasing the property despite being aware of the contract stipulation. In addition to rescission
of the contract of sale, the Court ordered Carmelo to allow Mayfair to buy the subject property at
the same price of P11,300,000.00.

No cause of action
under P.D. 1517

Petitioner also invokes Presidential Decree No. 1517, or the Urban Land Reform Law, as another
source of its right of first refusal. It claims to be covered under said law, being the "rightful
occupant of the land and its structures" since it is the lawful lessee thereof by reason of contract.
Under the lease contract, petitioner would have occupied the property for fourteen (14) years at
the end of the contractual period.

Without probing into whether petitioner is rightfully a beneficiary under said law, suffice it to
say that this Court has previously ruled that under
Section 6 18 of P.D. 1517, "the terms and conditions of the sale in the exercise of the lessee's right
of first refusal to purchase shall be determined by the Urban Zone Expropriation and Land
Management Committee. Hence, . . . . certain prerequisites must be complied with by anyone
who wishes to avail himself of the benefits of the decree." 19 There being no allegation in its
complaint that the prerequisites were complied with, it is clear that the complaint did fail to state
a cause of action on this ground.
 Deed of Assignment included
the option to purchase

Neither do we find merit in the contention of respondent Santos that the assignment of the lease
contract to petitioner did not include the option to purchase. The provisions of the deeds of
assignment with regard to matters assigned were very clear. Under the first assignment between
Frederick Chua as assignor and Lee Ching Bing as assignee, it was expressly stated that:

. . . . the ASSIGNOR hereby CEDES, TRANSFERS and ASSIGNS to herein

ASSIGNEE, all his rights, interest and participation over said premises afore-
described, . . . . 20 (emphasis supplied)

And under the subsequent assignment executed between Lee Ching Bing as assignor and the
petitioner, represented by its Vice President Vicenta Lo Chiong, as assignee, it was likewise
expressly stipulated that;

. . . . the ASSIGNOR hereby sells, transfers and assigns all his rights, interest and
participation over said leased premises, . . . . 21 (emphasis supplied)

One of such rights included in the contract of lease and, therefore, in the assignments of rights
was the lessee's right of first option or priority to buy the properties subject of the lease, as
provided in paragraph 9 of the assigned lease contract. The deed of assignment need not be very
specific as to which rights and obligations were passed on to the assignee. It is understood in the
general provision aforequoted that all specific rights and obligations contained in the contract of
lease are those referred to as being assigned. Needless to state, respondent Santos gave her
unqualified conformity to both assignments of rights.

Respondent Raymundo privy

to the Contract of Lease

With respect to the contention of respondent Raymundo that he is not privy to the lease contract,
not being the lessor nor the lessee referred to therein, he could thus not have violated its
provisions, but he is nevertheless a proper party. Clearly, he stepped into the shoes of the owner-
lessor of the land as, by virtue of his purchase, he assumed all the obligations of the lessor under
the lease contract. Moreover, he received benefits in the form of rental payments. Furthermore,
the complaint, as well as the petition, prayed for the annulment of the sale of the properties to
him. Both pleadings also alleged collusion between him and respondent Santos which defeated
the exercise by petitioner of its right of first refusal.

In order then to accord complete relief to petitioner, respondent Raymundo was a necessary, if
not indispensable, party to the case. 22 A favorable judgment for the petitioner will necessarily
affect the rights of respondent Raymundo as the buyer of the property over which petitioner
would like to assert its right of first option to buy.

Having come to the conclusion that the complaint states a valid cause of action for breach of the
right of first refusal and that the trial court should thus not have dismissed the complaint, we find
no more need to pass upon the question of whether the complaint states a cause of action for
damages or whether the complaint is barred by estoppel or laches. As these matters require
presentation and/or determination of facts, they can be best resolved after trial on the merits.

While the lower courts erred in dismissing the complaint, private respondents, however, cannot
be denied their day in court. While, in the resolution of a motion to dismiss, the truth of the facts
alleged in the complaint are theoretically admitted, such admission is merely hypothetical and
only for the purpose of resolving the motion. In case of denial, the movant is not to be deprived
of the right to submit its own case and to submit evidence to rebut the allegations in the
complaint. Neither will the grant of the motion by a trial court and the ultimate reversal thereof
by an appellate court have the effect of stifling such right. 23 So too, the trial court should be
given the opportunity to evaluate the evidence, apply the law and decree the proper remedy.
Hence, we remand the instant case to the trial court to allow private respondents to have their day
in court.

WHEREFORE, the petition is GRANTED. The assailed decisions of the trial court and Court of
Appeals are hereby REVERSED and SET ASIDE. The case is REMANDED to the Regional
Trial Court of Makati for further proceedings.

SO ORDERED.
 FIRST DIVISION

[G.R. No. 149627. September 18, 2003.]

KENNETH O. NADELA, Petitioner, v. THE CITY OF CEBU and METRO CEBU

DEVELOPMENT PROJECT, Respondents.

DECISION

AZCUNA, J.:

Before us is a petition for review on certiorari of the Decision of the Court of Appeals
promulgated on April 30, 2001 in CA-G.R. CV No. 61910, which affirmed the Order of the
Regional Trial Court of Cebu City, Branch 12, dated March 12, 1998, 1 dismissing the action of
petitioner Kenneth O. Nadela for recovery of ownership and possession of a parcel of land with
damages against respondents City of Cebu and Metro Cebu Development Project
(MCDP).chanrob1es virtua1 1aw 1ibrary

On March 4, 1997, herein petitioner, Kenneth O. Nadela, filed an action before the Regional
Trial Court of Cebu City, Branch 12, for recovery of ownership and possession of a parcel of
land with damages and a prayer for the issuance of a temporary restraining order and/or
preliminary injunction against respondents.

In his Amended Complaint, 2 petitioner alleged, thus:chanrob1es virtual 1aw library

1. For more than thirty (30) years, he and his predecessors-in-interest have been in actual,
adverse, peaceful and continuous possession in the concept of owner of an unregistered parcel of
land described as:chanrob1es virtual 1aw library

A parcel of agricultural land known as Lot No. Psu-07006450, situated at Barangay Inayawan,
Cebu City, Philippines, and bounded:chanrob1es virtual 1aw library

North — Public Land;

East — Public Land;

South — Psu-07-006451 (Heirs of Alipio Bacalso);

West — Public Land and Property of Felicisimo Rallon.

With an assessed value of SIX THOUSAND (P6,000) PESOS. 3

2. He merely tolerated respondents’ act of dumping garbage on his property believing that it will
not be prejudicial to his interest. However, sometime in the month of January 1997, Respondents,
without his consent, dumped thereon not just garbage but also other filling materials.
Respondents likewise conducted some earthwork for the purpose of forcibly wresting from him
the ownership and possession of said property.

3. In utter disregard of his rights, respondent MCDP blocked the approval of the survey plan of
the subject property. Consequently, the Bureau of Lands (now the Lands Management Services),
Department of Environment and Natural Resources, Region VII, deferred action on the said plan.

4. Since the month of January 1997, respondent MCDP placed and stationed some security
guards in the subject property, thereby preventing him from entering and exercising his right of
ownership and possession over the property.

5. Said unlawful acts of respondents will not only cause irreparable injury but will also work
injustice to him, and complicate, aggravate and multiply the issues in this case.

Petitioner prayed that pending hearing of the case on the merits, and after the parties shall have
been heard, the court issue a writ of preliminary injunction, directing the respondents to desist
and refrain from conducting any earthwork, introducing any improvement, or, placing any guard
on the property. Thereafter, petitioner prayed that judgment be rendered (1) declaring him as the
true and lawful owner of the subject property; (2) ordering the respondents and all persons acting
in their behalf, control or direction, and/or who derived their right of possession from the
respondents, to vacate the subject property; (3) ordering the respondents to pay the sum of
P500,000 as actual damages plus the sum of P50,000 a month until petitioner’s possession of the
subject property shall have been restored, P100,000 as attorney’s fees and costs of suit.

Respondent City of Cebu filed a Motion to Dismiss 4 on the ground that petitioner has no cause
of action since (1) the suit is against the State and there is no allegation that it has given its
consent; and (2) the Complaint itself shows that the case is premature since petitioner admitted
that he is in possession in the concept of owner of an unregistered parcel of land.

Respondent MCDP, represented by the Solicitor General, also filed a Motion to Dismiss 5 on the
following grounds: (1) the Complaint states no cause of action as the land involved is a public
land and thus belongs to the State, petitioner being a mere claimant thereof; (2) petitioner failed
to exhaust available administrative remedies; and (3) petitioner’s suit is barred under the doctrine
of state immunity from suit.

Petitioner filed an Opposition 6 to respondents’ respective motion to dismiss asserting that the
property in litigation is a private agricultural land and that neither the doctrine of state immunity
from suit nor the general rule of exhaustion of administrative remedies applies in this case.
Petitioner brought to the attention of the trial court the following facts:chanrob1es virtual 1aw
library

(1) That pursuant to Land Classification Map No. 222, Project No. 5, Certified on November 20,
1912, the property in litigation (Lot No. PSU-07-006450, situated at Barangay Inayawan, Pardo,
Cebu City) had long been classified as alienable and disposable land;

(2) That the said lot is a portion of a parcel of land originally owned by Alipio O. Bacalso, whose
possession of the same commenced way back in 1962, as evidenced by a tax declaration issued
in his name;

(3) That on April 22, 1989, spouses Alipio Bacalso and Eleuteria Bacalso assigned their property
situated at Barangay Inayawan, Pardo, Cebu City, to Nadela Agro-Industrial Development
Corporation;

(4) That in 1993, the same property was declared for taxation purposes in the name of Nadela
Agro-Industrial Development Corporation;

(5) That on May 4, 1995, Nadela Agro-Industrial Development Corporation assigned the
property in litigation to the plaintiff; and

(6) That for more than thirty (30) years, plaintiff and his predecessors-in-interest paid realty
taxes for the property in litigation. 7

Respondents filed their respective Reply 8 to petitioner’s Opposition.

On September 19, 1997, Acting Presiding Judge Victorino U. Montecillo issued an Order 9
granting petitioner’s application for a writ of injunction.

Respondents City of Cebu and MCDP filed their respective Motion for Reconsideration 10 of
said Order. Petitioner filed a Comment and Opposition 11 to the motion for reconsideration of
respondent MCDP, which in turn filed a Reply. 12 Petitioner filed a Rejoinder 13 to said Reply.

On January 23, 1998, Presiding Judge Aproniano B. Taypin issued an Order 14 setting aside the
Order of the Court dated September 19, 1997, which granted the application for a writ of
injunction. The trial court ruled that the project undertaken by respondent MCDP falls within the
definition of "infrastructure project" and pursuant to Presidential Decree No. 1818, courts are
prohibited from issuing writs of injunction to stop any person, entity or government official from
proceeding with or continuing the implementation of any such infrastructure project. The trial
court further ordered that the case be tried on the merits.

Respondent City of Cebu filed a Motion for Reconsideration of the Order denying the Motion to
Dismiss 15 reiterating therein that the Complaint states no cause of action and is premature as the
lot in question is admittedly an unregistered parcel of land; hence, it is still a part of the public
domain and owned by the State.chanrob1es virtua1 1aw library

On March 12, 1998, the trial court issued an Order, 16 thus:chanrob1es virtual 1aw library

ORDER

This is a motion for reconsideration of an Order denying the motion to dismiss filed by the
herein defendant, City of Cebu. A copy of said motion was duly furnished to the herein plaintiff
thru its counsels on record.

The instant case involved an unregistered parcel of land, henceforth, a part of the public domain
and owned by the state. The Tax Declarations presented by the plaintiff are not considered
conclusive evidence of ownership, as has been held in the case of Rivera v. Court of Appeals,
244 SCRA 218. Moreover, the subject property being unclassified, whatever possession the
applicant may have had and however long cannot ripen into private ownership. (Director of
Lands v. Intermediate Appellate Court, 219 SCRA 339).

Finally, under the Regalian Doctrine, all lands not otherwise appearing to be clearly within
private ownership are presumed to belong to the State (Director of Lands v. Intermediate
Appellate Court, 219 SCRA 339).

Wherefore, in consideration of all the foregoing, the instant case is hereby dismissed.

SO ORDERED.

Petitioner failed a motion for reconsideration, which was denied by the trial court for being
unmeritorious. 17

Petitioner thereafter appealed to the Court of Appeals alleging that (1) the trial court erred in
dismissing Civil Case No. Ceb-19990 without conducting a hearing of the case on the merits;
and (2) the trial court acted with grave abuse of discretion and denied him due process when it
denied his motion for reconsideration of the order of dismissal. 18

On April 30, 2001, the Court of Appeals rendered a decision against petitioner; the dispositive
portion of which reads:chanrob1es virtual 1aw library

WHEREFORE, premises considered, the present appeal is hereby dismissed and the appealed
Order dated March 12, 1998 in Civil Case No. CEB-19990 is hereby AFFIRMED. 19

The Courts of Appeals ruled that the trial court did not err in ordering the dismissal of the
Complaint based on the following:chanrob1es virtual 1aw library

(1) Petitioner’s allegations in the Amended Complaint that the disputed property is still an
unregistered parcel of land and that he has a pending application for a survey plan with the Lands
Management Bureau of the Department of Environment and Natural Resources, which the
appellate court misstated as a pending application for a judicial confirmation of title, are
admissions of the State’s ownership of the property.

(2) Granting that petitioner has been in possession in the concept of owner of the subject
property for more than 30 years, still petitioner cannot be deemed to have acquired a grant by
operation of law because his possession thereof did not commence since June 12, 1945 as
required by Section 48 (b) of the Public Land Act as amended by Presidential Decree No. 1073,
considering that the earliest tax declaration he submitted during the hearing on the application for
a writ of preliminary injunction was only for the year 1962.

The Court of Appeals also held that in denying petitioner’s motion for reconsideration of the
order of dismissal of the case, the trial court was of the honest opinion, after evaluating the
grounds of said motion, that the same was not meritorious. 20 Hence, the appellate court ruled
that the trial court did not act with grave abuse of discretion as there was no capricious or
whimsical exercise of judgment tantamount to lack of jurisdiction in the issuance of said order.
21

Petitioner filed a motion for reconsideration, which was denied by the Court of Appeals for lack
of merit. 22

Hence, this, appeal.

Petitioner contends that the Court of Appeals erred, thus:chanrob1es virtual 1aw library

I. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN AFFIRMING THE

REGIONAL TRIAL COURT OF CEBU CITY (BRANCH 12) GRANTING THE MOTION TO
DISMISS ON THE GROUND OF NO CAUSE OF ACTION.

II. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN FAILING TO

RECOGNIZE PETITIONER’S CONSTITUTIONAL RIGHT TO PROPERTY WITHOUT DUE
PROCESS AND JUST COMPENSATION.

III. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN FAILING TO

RECOGNIZE PETITIONER’S CONSTITUTIONAL RIGHT TO DUE PROCESS BY NOT
ALLOWING THE LATTER TO PRESENT HIS EVIDENCE-IN-CHIEF IN A TRIAL ON THE
MERITS BY REMANDING THE INSTANT CASE TO THE REGIONAL TRIAL COURT
FOR FURTHER PROCEEDING. 23

The Court’s Ruling

Petitioner contends that the Court of Appeals erred in affirming the Order of the trial court which
granted the motion to dismiss of respondents on the ground that the Complaint states no cause of
action. In essence, petitioner asserts in his assigned errors that the allegations in his Amended
Complaint are sufficient to establish his cause of action, and said allegations were hypothetically
admitted by respondents when they filed a motion to dismiss. Petitioner prays that he be given an
opportunity to prove ownership over the subject property in a trial on the merits.
The contention is untenable.

The test of the sufficiency of the facts to constitute a cause of action is whether admitting the
facts alleged, the court can render a valid judgment upon the same in accordance with the prayer
of the complaint. 24 In answering the query, only the facts asserted in the complaint must be
taken into account without modification although with reasonable inferences therefrom. 25
Nevertheless, in Tan v. Director of Forestry 26 and Santiago v. Pioneer Savings and Loan Bank,
27 evidence submitted by parties during a hearing in an application for a writ of preliminary
injunction was considered by the court in resolving the motion to dismiss. In Llanto v. Ali
Dimaporo, 28 this Court held that the trial court can properly dismiss a complaint on a motion to
dismiss due to lack of cause of action even without a hearing, by taking into consideration the
discussion in said motion and the opposition thereto. In Marcopper Mining Corporation v.
Garcia, 29 this Court ruled that the trial court did not err in considering other pleadings, aside
from the complaint, in deciding whether or not the complaint should be dismissed for lack of
cause of action.chanrob1es virtua1 1aw 1ibrary

A cause of action exists if the following elements are present: (1) a right in favor of the plaintiff
by whatever means and under whatever law it arises or is created; (2) an obligation on the part of
the named defendant to respect or not to violate such right; and (3) an act or omission on the part
of such defendant violative of the right of the plaintiff or constituting a breach of the obligation
of defendant to the plaintiff for which the latter may maintain an action for recovery of damages.
30

From the allegations in the Complaint, petitioner claims ownership of the subject property for
having possessed it in the concept of an owner openly, adversely, peacefully and exclusively for
more than 30 years. Petitioner did not allege in his Complaint the actual date when his ownership
of the subject property accrued. However, in his Opposition 31 to respondents’ motion to
dismiss, petitioner brought to the attention of the trial court the fact that "the said lot is a portion
of a parcel of land originally owned by Alipio O. Bacalso, whose possession of the same
commenced way back in 1962, as evidenced by a tax declaration issued in his name." (Emphasis
supplied.)

Petitioner’s claim is an assertion that the subject property is private land, or that even assuming it
was part of the public domain, petitioner had already acquired imperfect title thereto under
Section 48 (b) of Commonwealth Act No. 141, otherwise known, as the Public Land Act, as
amended by Republic Act No. 1942. 32 Said section provides:chanrob1es virtual 1aw library

SEC. 48. The following-described citizens of the Philippines, occupying lands of the public
domain or claiming to own any such lands or an interest therein, but whose titles have not been
perfected or completed, may apply to the Court of First Instance of the province where the land
is located for confirmation of their claims and the issuance of a certificate therefor, under the
Land Registration Act, to wit:chanrob1es virtual 1aw library

x       x       x

(b) Those who by themselves or through their predecessors in interest have been in the open,
continuous, exclusive, and notorious possession and occupation of agricultural lands of the
public domain, under a bona fide claim of acquisition of ownership, for at least thirty years
immediately preceding the filing of the application for confirmation of title except when
prevented by war or force majeure. These shall be conclusively presumed to have performed all
the conditions essential to a Government grant and shall be entitled to a certificate of title under
the provisions of this chapter.

Said Section 48(b) was amended by Presidential Decree No. 1073, approved on January 25,
1977, thus:chanrob1es virtual 1aw library

SEC. 4. The provisions of Section 48(b) and Section 48(c), Chapter VIII, of the Public Land Act
are hereby amended in the sense that these provisions shall apply only to alienable and
disposable lands of the public domain which have been in open, continuous, exclusive and
notorious possession and occupation by the applicant (himself or thru his predecessor-in-interest,
under a bona fide claim of acquisition of ownership, since June 12, 1945.

In Heirs of Marciano Nagano v. Court of Appeals, 33 we ruled that under Section 48, a subject
lot is, for all intents and purposes, segregated from the public domain, because the beneficiary is
"conclusively presumed to have performed all the conditions essential to a Government grant and
shall be entitled to a certificate of title under the provisions of this chapter."cralaw virtua1aw
library

In Director of Lands v. Bengzon, 34 we also ruled:chanrob1es virtual 1aw library

We cannot subscribe to the view of petitioner that it is only after a possessor has been issued a
certificate of title that the land can be considered private land. In interpreting the provisions of
Section 48 (b) of Commonwealth Act No. [141], this Court said in Herico v. Dar,." . . when the
conditions as specified in the foregoing provision are complied with, the possessor is deemed to
have acquired, by operation of law, a right to a grant, a government grant, without the necessity
of a certificate of title being issued. The land, therefore, ceases to be of the public domain, and
beyond the authority of the Director of Lands to dispose of. The application for confirmation is a
mere formality, the lack of which does not affect the legal sufficiency of the title as would be
evidenced by the patent and the Torrens title to be issued upon the strength of said patent.

In Suzi v. Razon and Director of Lands, 35 we ruled that "if, as above stated, the land, the
possession of which is in dispute, had already become, by operation of law private property of
the plaintiff, there lacking only the judicial sanction of his title, [plaintiff] has the right to bring
an action to recover the possession thereof." One claiming "private rights" must prove that he has
complied with Commonwealth Act No. 141, as amended. 36

Notably, the Court of Appeals knew that petitioner was claiming ownership over the subject
property under Section 48 (b) of the Public Land Act. However, it correctly affirmed the
dismissal of the case as it properly considered the evidence submitted by petitioner during the
hearing of the application for a writ of preliminary injunction. 37 The Court of Appeals
held:chanrob1es virtual 1aw library
In view of the required length of possession, even if We hypothetically admit the truth of
appellant’s allegation in his complaint that he had been for more than thirty (30) years been in
"open, continuous, exclusive and notorious possession in concept of owner" of the subject land,
still he cannot be deemed to have acquired a grant, or a right to a grant, by operation of law,
considering his possession thereof did not commence "since June 12, 1945 or earlier" as required
by Sec. 48 (b) and (c), as amended by P.D. No. 1073. Among the documentary evidence
submitted by appellant during the hearing on the application for a writ of preliminary injunction
are tax declarations in his name and that of his predecessor-in-interest Alipio Bacalso, the oldest
being for the year 1962. Appellant, therefore, has not acquired ownership and title under the law,
over the property subject of litigation, which remained part of the public domain, exclusively
belonging to the State. The trial court thus did not err in ordering the dismissal of the complaint
upon the ground of failure to state a cause of action. 38

Petitioner, therefore, clearly relies on Tax Declaration No. 117609 39 for the year 1962, 40 the
earliest tax declaration presented during the hearing on the application for a writ of preliminary
injunction, which appears to be the evidence mentioned in petitioner’s Opposition 41 to
respondents’ motion to dismiss wherein petitioner brought to the attention of the trial court the
fact that the subject property "is a portion of a parcel of land originally owned by Alipio O.
Bacalso, whose possession of the same commenced way back in 1962, as evidenced by a tax
declaration issued in his name" (Emphasis supplied).

Considering appellant’s allegation in his Opposition that his predecessor-in-interest, Alipio O.

Bacalso, necessarily the first and earliest, in view of the words "originally owned," commenced
possession of the subject property only in 1962, and his submission of tax declarations, the
earliest of which was for the year 1962, 42 during the hearing on the application for a writ of
preliminary injunction, petitioner cannot be presumed to have performed all the conditions
essential to a Government grant inasmuch as his possession of the subject property did not
commence since June 12, 1945 or earlier, as required by Section 48 (b) of Commonwealth Act
No. 141, as amended by Presidential Decree No. 1073. Hence, the Court of Appeals did not err
in affirming the Order of the trial court dismissing the Complaint on the ground of failure to state
a cause of action.

WHEREFORE, in view of the foregoing, the instant petition is DENIED for lack of merit. The
questioned Decision of the Court of Appeals in CA-G.R. CV No. 61910 is hereby AFFIRMED.
Costs against the petitioner.chanrob1es virtua1 1aw 1ibrary

SO ORDERED.

G.R. No. 126647 July 29, 1998

LEBERMAN REALTY CORPORATION, and ARAN REALTY and DEVELOPMENT

CORPORATION, petitioners,

vs.
JOSEPH TYPINGCO and THE COURT OF APPEALS, respondents.

KAPUNAN, J.:

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to
reverse and set aside 1) the Decision dated 13 May 1996; and 2) the Resolution dated 3 October
1996, of the Court of Appeals.

Finding the narration of facts of the Court of Appeals to be concise and well-written, we quote
the same hereunder, in its entirety:

Appellees LEBERMAN REALTY CORPORATION and ARAN REALTY AND

DEVELOPMENT CORPORATION (LEBERMAN and ARAN, respectively, for
brevity), are the registered co-owners of four (4) parcels of land at Binondo,
Manila, containing an aggregate area of 1,124.80 square meters and covered by
four separate certificates of title.

Sometime in March, 1989, herein appellant JOSEPH TYPINGCO learned that the
above-mentioned properties were being offered for sale. Interested on (sic)
acquiring the realties, Typingco met with the officers of LEBERMAN and
ARAN, namely Doris Venezuela, General Manager of LEBERMAN, and
Remedios D. Hollander, President of Aran, to discuss the terms and conditions of
the sale. On March 20, 1989, Venezuela and Hollander, in behalf of their
respective principals, accepted the offer of Typingco to buy the properties for a
total consideration of P43,888,888.88, as evidenced by a handwritten agreement
executed on the same date (Exhibit "A"). Also, on the same date, Typingco made
a down payment of P100,000.00 of which P50,000.00 was for LEBERMAN and
the other P50,000.00 for ARAN (Exhs. "B" and "C").

Thereafter, on April 4, 1989, the parties executed a document denominated as

Contract To Sell (Exh. "D"), which contains the following relevant stipulations:

1. CONSIDERATION. That the total consideration for the

purchase of the above-mentioned properties shall be . . .
(P43,888,888.88) Philippine Currency payable as follows:

1.1 DOWNPAYMENT. The BUYER shall pay the

SELLERS upon signing of this agreement the sum
of One Hundred Thousand (P100,000.00) Pesos,
receipt of which is hereby acknowledged by the
SELLERS from the BUYER. It is agreed by the
parties that the P100,000.00 consideration paid by
the BUYER to the SELLERS on 20th March, 1989
shall be credited as part of the downpayment.
 Hence, there is a total downpayment of Two
Hundred Thousand (P200,000.00) Pesos as of this
date.

1.2 BALANCE. 70% of P43,688,888.88 shall be

paid by the BUYER within seven (7) days from
receipt of notice duly signed by the SELLERS
addressed to the BUYER that all the tenants or
occupants or squatters in the above-mentioned
properties have vacated the same; or, in the event
that BUYER shall opt to pay the aforesaid balance
and demand the execution of the deed of absolute
sale despite the fact that SELLERS have not yet
cleared up the premises of tenants or occupants or
squatters, as hereinafter provided, the BUYER shall
pay seventy (70%) percent of P43,688.888.88
within seven (7) days from notice to SELLERS that
the BUYER desires to exercise said option; that in
such cases above, the remaining thirty (30%)
percent of P43,688,888.88 shall be paid by the
BUYER to SELLERS within one (1) day from
receipt of notice duly signed by the SELLERS
addressed to the BUYER that all their tax
obligations due on the sale of said properties have
been fully paid . . .

2. OBLIGATION OF SELLERS AND BUYER. The SELLERS

and BUYER shall have the following obligations:

2.1 The SELLERS shall clear up the above-

mentioned properties of all tenants or occupants or
squatters, if any, within eighteen (18) months from
date of this Contract to Sell. If at anytime within the
said eighteen (18) months and the SELLERS
succeed in clearing up the premises of tenants,
occupants or squatters, SELLERS shall send a
written notice of such fact to the BUYER who shall
pay in accordance with . . . par. 1 (1.2), this contract
is deemed automatically cancelled or rescinded.

x x x           x x x          x x x

3. OPTION OF BUYER. From the seventh month from date of this

contract to the eighteenth month, the BUYER shall have the option
either to pay the balance of the purchase price notwithstanding that
by that time SELLERS may have not yet cleared up the premises
of all tenants or occupants or squatters therein, and demand the
execution of a deed of absolute sale, or to cancel or rescind this
contract. After the eighteenth month from date of this Contract, if
the BUYER fails to exercise the option to pay the balance of the
purchase price and to demand execution of the deed of absolute
sale, this Contract shall be deemed automatically cancelled or
rescinded. In all cases of rescission under this Contract, which may
take place within the seventh to eighteenth month from date of this
contract and after the eighteenth month as aforesaid, the
downpayment of P200,000.00 as stated under par. 1(1.1) shall be
returned to BUYER without interest.

On the same date, April 4, 1989, Typingco paid LEBERMAN and

ARAN the amount of P50,000.00 each, again as downpayment
(Exh. "G" and ''H"). Thus, the total down payment made was
P200,000.00.

Thereafter, Typingco started to generate funds to finance the

construction of a building which he intended to put up on the lots.
To his surprise however, on September 18, 1989, he received two
(2) separate but uniformly-worded letters, both dated September
11, 1989, one from Jose M. Venezuela, Jr., Chairman of the Board
of Directors of LEBERMAN and the other from Florencia D.
Reyes, Vice President/Director of ARAN, advising Typingco that
the two companies have respectively adopted and approved a
resolution "rejecting" the contract to sell executed on April 4, 1989
''on the ground that the terms and conditions of said contract are
grossly disadvantageous and highly prejudicial to the interests" of
LEBERMAN and ARAN and that the officers who executed the
contract "acted beyond the scope" of their authorities (Exhs. "J"
and "K"). The letters likewise informed Typingco of the
companies' decision to initiate a complaint for annulment or
cancellation of the contract to sell. Enclosed with the letters are
two checks for P100,000.00 each (Exhs. "J-1" and "K-1"), an
apparent effort to return the downpayment Typingco had already
made.

Obviously taken aback, Typingco immediately wrote

LEBERMAN and ARAN telling them that he is not amenable to
their decision to discontinue the sale. Accordingly, he returned to
them the two checks aforementioned (Exhs. "L" and "M").
Unfortunately, Typingco's protest proved futile because the sellers
refused to receive his letters.

Distraught with this development, Typingco then filed on

September 26, 1989, in the Regional Trial Court of Manila the
complaint in this case. In this complaint, docketed in the court a
quo Civil Case No. 89-50512, Typingco alleged, inter alia, as
follows:

6. Plaintiff is definitely interested to proceed with

the Contract to Sell and is, in fact, able, willing and
prepared to perform his obligations thereunder.

x x x           x x x          x x x

9. The unilateral decision of Defendants to rescind

the Contract To Sell is unjustified, illegal and done
in extreme bad faith and malice.

x x x           x x x          x x x

12. The malicious act of Defendants of reneging

from their obligations under the Contract To Sell
has caused plaintiff mental anguish, fright, serious
anxiety, wounded feelings, sleepless nights,
besmirched reputation, moral shock and social
humiliation for which Defendants stand liable to
pay moral damages in the amount of not less than
Three Million Pesos (P3,000,000.00).

The complaint thus prayed for a judgment "ordering the

Defendants to honor their commitment to plaintiff under the
Contract To Sell by performing their undertakings therein fully",
as well as the payment of moral and exemplary damages, attorney's
fees and costs of suit (Records, pp. 1-8).

In their joint Answer with Counterclaim, defendants LEBERMAN

and ARAN raised the following special and affirmative defenses:

20. The complaint states no cause of action, the

same having been filed prematurely, or the action
having been commenced before the cause of action
had accrued. The cause of action in this case
accrued only in the seventh month from April, 1989
or in October, 1989. The filing of the complaint and
the service of the summons in this case to
commence the action was done on September 26,
1989, and September 29, 1989, respectively, before
the cause of action accrued in October, 1989.
 21. The contract to sell should be annulled because
the consent of defendants' representatives was given
through intimidation. They signed the contract
under duress, hence they were compelled to act
beyond the scope of their authority.

22. The defendants acted in good faith and in self-

protection in rejecting the contract to sell, the fact
being that the terms and conditions of said contract
are grossly disadvantageous and highly prejudicial
to their interests.

Simultaneously with the filing of their answer, defendants filed a

motion praying that their affirmative defenses be preliminary heard
as if a motion to dismiss had been filed. Their prayer for
preliminary hearing was granted, but eventually, in an order dated
December 15, 1989, the lower court denied defendants' motion for
dismissal because, "at this stage, the grounds to dismiss do not
appear to be indubitable" and accordingly deferred its action
thereon "without prejudice to ruling on the same at any stage of the
trial when said ground to dismiss appears to be indubitable". The
order pertinently reads:

The alleged ground that the complaint should be

dismissed is that the complaint was filed on
September 26, 1989 and summonses were served
September 29, 1989 but the cause of action had not
yet accrued because under the agreement of the
parties said action would accrue on November
1989. This is true. Defendant also cited
jurisprudence that even if the cause of action should
have accrued thereafter, the defect in the complaint
is not thereby cured.

On the other hand, plaintiffs filed their

OPPOSITION/COMMENT thereto, of which the
Court has also taken note, particularly the argument
that the plaintiffs cause of action already existed at
the time of the filing of the complaint due to
defendants' backing out or rescinding the contract in
question unilaterally and unjustifiably. Said act of
rejecting the contract to sell which signaled the
refusal of the defendants to proceed with their
commitments thereunder, is the very basis of the
plaintiff in coming to court for relief. Said rejection
of the contract appears to be admitted by the
 defendants in their Answer. It is to be further
considered that by said actuations, the defendants
have made it an exercise in futility for plaintiff to
wait for the seven (7) months provided for in
Article 3 of the contract before taking action. By the
very act of the defendants in rescinding the contract
of sale they have rendered it unnecessary for the
plaintiff to wait for said period before coming to
court for relief.

PREMISES CONSIDERED, at this stage, the grounds to dismiss

do not appear to be indubitable and the court hereby defers action
on said ground for dismissal, without prejudice to ruling on the
same at any stage of the trial when said ground to dismiss appears
to be indubitable.

SO ORDERED. (Records, pp. 100-101.)

Defendants moved for a reconsideration of the above-quoted order

but their motion was denied by the lower court in its subsequent
order of January 26, 1990 (Records, pp. 102 and 112).

Thereafter, trial ensued. After the plaintiff had rested his case, the
defendants, instead of going forward with their defensive evidence,
filed a Motion to Dismiss, this time on the ground that "[P]laintiff's
claim had been extinguished when he opted to automatically
cancel or rescind the Contract To Sell." Elaborating on said
ground, the defendants state in their motion:

3. Considering that the Contract To Sell (Contract

for short) was executed and notarized on April 5,
1989, the eighteenth-month period within which
plaintiff (buyer) should exercise his option either to
pay the balance of the purchase price or to cancel
and rescind the Contract expired on October 5,
1990. By not paying the balance of the purchase
price within the eighteenth-month period (which
expired on October 5, 1990) as stipulated in
Contract, plaintiff had indubitably opted for the
automatic cancellation or rescission of the Contract,
pursuant to the aforequoted provision of paragraph
3 thereof. Consequently, the Contract is "deemed
automatically cancelled or rescinded".

x x x           x x x          x x x
 7. Defendants' obligation to execute a deed of
absolute sale had already been extinguished when
the Contract was automatically cancelled and
rescinded at the option of plaintiff, who chose not
pay the balance of the purchase price within the
period expressly provided for and agreed upon by
the parties in the Contract. As defendants no longer
have the obligation to execute a deed of absolute
sale in favor plaintiff, and as plaintiff had opted to
cancel and rescind the Contract, hence plaintiff has
no more cause of action against the defendants.
There being no more cause of action, this case
should then be dismissed (Records, pp. 186-189).

After an exchange of pleadings by the parties, the lower court

came out with an order on December 13, 1990, denying
defendants' Motion to Dismiss "for lack of merit." More
specifically, said order pertinently reads:

(2) The defendants

argued in their
Motion To Dismiss
that the "plaintiffs
claim had been
extinguished when he
opted to automatically
cancel or rescind the
Contract To Sell." On
the other hand, the
plaintiff in his
Opposition to Motion
to Dismiss cited the
grounds, among
others, that
defendants in the
instant case had
unilaterally and
without justification
rescinded and rejected
the Contract to Sell;

(3) This Court,

however, noted and as
alleged by the
plaintiff in his
Opposition to the
Motion to Dismiss,
that "at one time the
defendants claim that
there was no Contract
to Sell on the ground
that their
representatives were
not duly authorized' to
enter into contract
with the herein
plaintiff. In another
instance, the
"defendants not only
recognize the same
but would even want
to apply strictly the
provisions of the said
contract;"

(4) Well-settled is the

rule that in the
determination of the
existence of a cause
of action, the Court
needs to rely only on
the facts alleged in the
complaint and no
other should be
considered. In fact,
"an affirmative
defense of lack of
cause of action
implies that the
defense
hypothetically admits
the allegations of the
complaint";

(5) Likewise, it is the

view of this Court that
there is a need to find
out through trial on
the merits whether or
not the alleged non-
compliance and
rescission or rejection
 of the contract by
either party subsists,
in order to determine
if either of them is
entitled to the relief
sought before this
Court.

WHEREFORE, in view of the foregoing premises,

the Motion to Dismiss is hereby DENIED, for lack
of merit.

SO ORDERED (Records, pp. 219-220; Emphasis

supplied.)

Obviously discontented, the defendants filed a motion for

reconsideration, to which an opposition was interposed by the
plaintiff.

On July 8, 1991, without the trial on the merits having been

resumed or no new matter having been added into the records of
the case the defendants had not even commenced to present their
evidence, the lower court somersaulted by issuing the herein
assailed order granting the defendants' motion for reconsideration,
thereby vacating and setting aside its earlier order of December 13,
1990, and accordingly dismissed the case. After reciting the factual
antecedents, the questioned order states:

A careful analysis of the ground of the Motion for Reconsideration

of the Order of this Court denying the Motion To Dismiss also
with Opposition from the plaintiff, was made by this Court which
hereby resolves the said motions based on the aforecited premises
and on the following grounds:

1. In the contract itself the buyer was given by the seller the option
from the seventh month from date of the contract, that is from
April 4, 1989 to the 18th month:

a) either to pay the balance of the

purchase price notwithstanding that
by that time sellers may have not yet
cleared the premises of all tenants or
occupants or squatters therein, and
demand the execution of a deed of
absolute sale.
 b) or to cancel or rescind the
contract, subject matter of this case.

2. After the eighteenth month from date of Contract if buyer fails

to exercise the option to pay the balance of the purchase price and
to demand execution of the deed of absolute sale, the contract will
be deemed automatically cancelled or rescind.

The plaintiff, as noted by this Court and as admitted by him, did

not exercise this option under the Contract. Plaintiff could, of
course, do this at the opportune time. But this is an option he alone
can make. Even the defendants cannot dictate to him when to
exercise this option.

The focal point to be resolved in this case is whether or not

plaintiff has a cause of action so that he can pray for judgment
ordering the defendants to honor their commitment to him or to
fully perform their undertaking under the Contract. In the order of
this Court dated December 15, 1989, this ticklish issue was already
resolved. It is to be noted that plaintiff never manifested nor
intimated his desire to exercise the option granted to him under
Article 3 of the Contract to Sell to pay the balance of the purchase
price, notwithstanding that on September 18, 1989 defendants
returned the downpayment of P200,000.00, on the ground, that the
terms and conditions of said contract are grossly disadvantageous,
highly prejudicial to their interest, and the officers who executed
the contract acted beyond the scope of their authority.

Finally, the very basis of plaintiff in coming to court for relief is

allegedly the illegal, unjustified and unilateral decision of
defendants to rescind the contract. However, plaintiff was very
much aware that when he filed the instant case he was not yet
entitled to any relief from this Court, considering that he failed to
exercise his option pursuant to the stipulation Number three (3) of
the Contract to Sell.

WHEREFORE, PREMISES CONSIDERED, the Motion for

Reconsideration of the Order dated December 13, 1990 is hereby
GRANTED, and the Court Order dated December 13, 1990 is SET
ASIDE. Accordingly, the instant case is hereby DISMISSED.

SO ORDERED. (Records, pp. 257-261.)

This time, it was Typingco who moved for reconsideration. However, in its
subsequent order of December 9, 1991, the lower court denied the motion for
"lack of merit." (Records, p. 328). 1
From the trial court's Order dated 8 July 1991, plaintiff Typingco, now herein respondent
appealed to the Court of Appeals, anchored on the following assigned errors:

[1] THE LOWER COURT ERRED IN FINDING THAT THE APPELLANT

DID NOT HAVE A CAUSE OF ACTION AT THE TIME HE FILED THE
COMPLAINT.

[2] THE LOWER COURT ERRED IN FINDING THAT THE APPELLANT

NEVER MANIFESTED HIS DESIRE TO EXERCISE HIS OPTION UNDER
THE CONTRACT TO SELL.

[3] THE LOWER COURT ERRED IN IGNORING APPELLANT'S CLAIM

FOR DAMAGES. 2

On 13 May 1996, the appellate court rendered a decision, the dispositive portion of which reads
as follows:

Wherefore, the order under appeal dated July 8, 1991 is hereby REVERSED and
SET ASIDE and the order dated December 13, 1990 is REINSTATED.

Accordingly, the instant case is ordered remanded to the court of origin for further
proceedings.

Proportionate costs against both parties.

SO ORDERED. 3

Hence, this petition wherein petitioners make the following ASSIGNMENT OF ERRORS:

FIRST ASSIGNMENT OF ERROR — THE COURT OF APPEALS, IN

REVERSING THE RTC/COURT A QUO'S DECISION IN FAVOR OF
HEREIN PETITIONERS BY RENDERING THE QUESTIONED DECISIONS,
COMMITTED A SERIOUS ERROR OF LAW, AND, WORSE, ACTED WITH
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF
JURISDICTION WHEN IT RULED THAT RESPONDENT HAS A CAUSE OF
ACTION AGAINST THE PETITIONERS, THE LEGAL AND FACTUAL
TRUTHS BEING THAT RESPONDENT'S COMPLAINT A QUO STATES NO
CAUSE OF ACTION (SECTION I-G, RULES 16, RULES OF COURT) AND
THAT RESPONDENT HAD NO CAUSE OF ACTION AT THE TIME HE
FILED HIS COMPLAINT, SAID PLEADING, AT BEST, HAVING BEEN
PREMATURELY FILED;

SECOND ASSIGNMENT OF ERROR — ASSUMING ARGUENDO THAT

RESPONDENT DID HAVE A CAUSE OF ACTION AT THE TIME HE FILED
HIS COMPLAINT AND THE COMPLAINT STATES A CAUSE OF ACTION,
THE COURT OF APPEALS NONETHELESS COMMITTED A SERIOUS
 ERROR OF LAW AND, WORSE, ACTED WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OF JURISDICTION WHEN IT
RULED IN FAVOR OF RESPONDENT, THE LEGAL AND FACTUAL
TRUTHS BEING THAT WHATEVER CAUSE OF ACTION, IF ANY,
RESPONDENT HAD, WAS LOST WHEN HE AUTOMATICALLY
CANCELLED OR RESCINDED THE CONTRACT TO SELL, THE
ACTIONABLE DOCUMENT, BY HIS FAILURE (EVEN TODATE) TO
EXERCISE HIS OPTION THEREUNDER TO PAY THE BALANCE OF THE
PURCHASE PRICE. AS A RESULT, RESPONDENT'S CAUSE OF
ACTION/CLAIMS, IF ANY, HAD BEEN LOST/EXTINGUISHED (SECTION
1-H, RULE 16 AND SECTION 2, RULE 9, RULES OF COURT). IN LAW
AND EVIDENCE-WISE THE RESPONDENT HAS NONE AND HAD NO
CAUSE OF ACTION VERSUS THE PETITIONERS; AND

THIRD ASSIGNMENT OF ERROR — THE QUESTIONED DECISIONS

WERE RENDERED BY THE COURT OF APPEALS IN TOTAL DISREGARD
OF AND IN GROSS VIOLATION OF THE DOCTRINAL RULING OF THE
SUPREME COURT IN ANG TIBAY VS. CIR (69 PHIL. 635). 4

The petition is devoid of merit.

The pivotal issue in this case is whether or not the private respondent has a cause of action
against the petitioners for prematurity. Petitioners contend that the complaint was prematurely
filed because at the time of the institution of the complaint on September 26, 1989, respondent
had yet to exercise his option under the "Option of Buyer" clause of the contract. According to
petitioners, the contract dated April 4, 1989 gave private respondent (the buyer) from the seventh
(7th) month following the date of the contract which was November 4, 1989 up to the eighteen
(18th) month, which was October 4, 1990, to exercise his option either to pay the balance of the
purchase price and demand the execution of the deed of absolute sale, or to cancel or rescind the
contract. Thus, when private respondent filed his complaint on September 26, 1989, compelling
petitioners to execute in his favor a Deed of Absolute Sale without having exercised his option
under the contract, his cause of action had not yet accrued.

A cause of action is an act or omission of one party in violation of the legal right or rights of
another. 5 It exists if the following elements are present, namely: (1) a right in favor of the
plaintiff by whatever means and under whatever law it arises or is created; (2) an
obligation on the part of the named defendant to respect or not to violate such right; and
(3) an act or omission on the part of such defendant in violation of the right of the plaintiff
or constituting a breach of the obligations of the defendant to the plaintiff for which the
latter may maintain an action for recovery of damages. 6

It is clear from the above-quoted portions of the complaint, as well as the contract to sell,
which forms part of the complaint, that all the elements constituting a cause of action are
present in this case.
First. There is a legal right in favor of the private respondent, i.e., the right, by virtue of the
contract to sell, to complete the payment of the purchase price should he choose to do so.

Second. There is an obligation on the part of the petitioners to sell the subject property
exclusively to the private respondent upon full payment of the purchase price.

Third. There was a breach of petitioners' obligation to sell the property to respondent upon
full payment of the purchase price, when they rejected the contract to sell even before the
private respondent could exercise his option to buy, notwithstanding that the latter had
already made a downpayment in the total amount of Two Hundred Thousand Pesos
(P200,000.00).

Petitioners contend that there is nothing on record to suggest that they committed any
overt act of rescission, either by a notarial act, by court action or by any act whatsoever. 7

Petitioners' allegation is downright untrue. In uniformly-worded letters dated September

11, 1989, one from the Chairman of the Board of Directors of LEBERMAN and the other
from the Vice-President/Director of ARAN, private respondent was advised that the two
companies had adopted and approved a resolution "rejecting the contract to sell" on the
ground that the terms and conditions of the contract are grossly disadvantageous and
highly prejudicial to the interest of LEBERMAN and ARAN and that the officers who
executed the contract "acted beyond the scope" of their authorities.

The fact that the rejection or cancellation of the contract by petitioners was not made
judicially or by notarial act is of no moment. It is enough for purposes of determining the
existence of a breach in obligation, and therefore, the existence of a cause of action, that
petitioners had declared in no uncertain terms their refusal to be bound by the contract to
sell. Such declaration, coupled with petitioners' act of returning respondent's
downpayment of P200,000.00, clearly indicates petitioners' rejection of the contract to sell.
The invocation by petitioners of Article 1592 8 of the Civil Code is misplaced. The provision
contemplates of a situation where the buyer who failed to pay the price at the time agreed
upon, may still pay, even after the expiration of the period, as long as no demand for
rescission has been made upon him either judicially or by a notarial act. In the case at bar,
private respondent was never guilty of failure to pay the price of the land within the period
agreed upon. It was petitioners who cancelled the contract before the period to pay arrived.

Thus, petitioners' argument that respondent failed to exercise his option to buy within the
period provided in the contract, and which period expired/lapsed during the pendency of
the case, is plainly absurd. For how could private respondent have exercised the option
granted him under the "Option to Buyer" clause when the contract itself was
rejected/cancelled by the petitioners even before the arrival of the period for the exercise of
said option?

We quote with approval the Court of Appeals' disquisition on the point, thus:
 It must be emphasized that it was appellees' repudiation of their contract
with the appellant that impelled the latter to sue for specific performance.
Having been notified by the appellees of their decision to reject the contract
in question even before the appellant could exercise his option thereunder,
the latter certainly cannot be expected to merely ignore the notice and simply
wait for the arrival of the option period. Indeed, with appellees' rejection of
the very contract which contains the option, it may even be said that there is
no more option to speak of. We are thus at a loss to understand how the
appellees could shift the blame to the appellant when it was their very own
conduct which preempted the latter's exercise of the option granted him
under the contract. It is thus ironic that having already wronged the
appellant, appellees would still want to profit from their very own wrongful
act. Worse, after having rejected the contract, the appellees had still (sic) the
nerve to invoke the option clause thereof to ward off the appellant's suit.

Moreover, it would have been disastrous for the appellant had he simply
ignored the appellees' respective rejection letters and just content himself
(sic) with merely waiting for the arrival of the option period. Silence or
inaction on the part of the appellant could have meant an acquiescence on his
part to the appellees' unilateral repudiation of the agreement, which
acquiescence could have well estopped him from subsequently invoking the
option provision of the contract. . . . .

It is thus, to us, of no moment that the option period expired without the
appellant having paid the balance of the purchase price. The reason is
obvious: the period expired while this suit was pending in the lower court,
which suit was precisely brought about by the appellees' rejection of the
contract. For the same reason, we find it hard to comprehend how appellees
could additionally argue that appellant's failure to pay said balance during
the option period amounts to appellant's rescission of the same
contract. . . . . 9

WHEREFORE, PREMISES CONSIDERED, the Decision dated 13 May 1996, of the Court
of Appeals is hereby AFFIRMED.

SO ORDERED.

G.R. No. 153267               June 23, 2005

CHINA BANKING CORPORATION, petitioner,

vs.
HON. COURT OF APPEALS and ARMED FORCES AND POLICE SAVINGS & LOAN
ASSOCIATION, INC. (AFPSLAI), respondents.

DECISION

QUISUMBING, J.:

For review is the D E C I S I O N1 dated November 23, 2001 of the Court of Appeals in CA-
G.R. SP No. 65740, affirming the Orders2 dated August 25, 2000 and April 17, 2001, of the
Regional Trial Court of Quezon City, Branch 216, which denied petitioner’s motion to dismiss
the civil action for a sum of money filed by private respondent. Likewise impugned is
the Resolution3 dated April 24, 2002 of the Court of Appeals denying petitioner’s motion for
reconsideration of said decision.

The antecedent facts, as summarized by the appellate court, are as follows:

On September 24, 1996, private respondent Armed Forces and Police Savings and Loan
Association, Inc. (AFPSLAI) filed a complaint for a sum of money against petitioner China
Banking Corporation (CBC) with the Regional Trial Court of Quezon City, Branch 216.

In its Answer,4 the petitioner admitted being the registered owner of the Home Notes, the subject
matter of the complaint. These are instruments of indebtedness issued in favor of a corporation
named Fund Centrum Finance, Inc. (FCFI) and were sold, transferred and assigned to private
respondent. Thus, the petitioner filed a Motion to Dismiss alleging that the real party in interest
was FCFI, which was not joined in the complaint, and that petitioner was a mere trustee of FCFI.

The trial court denied the motion to dismiss. Petitioner filed a motion for reconsideration, which
the court a quo again denied. Petitioner elevated the case to the Court of Appeals through a
Petition for Certiorari and Prohibition. The appellate court denied the petition for lack of merit.
The petitioner then brought the matter to this Court via a Petition for Certiorari, under Rule 65.
We dismissed the petition for being an improper remedy.

Petitioner filed another Motion to Dismiss, this time invoking prescription. The lower court
denied said motion to dismiss for lack of merit. It held that it was not apparent in the complaint
whether or not prescription had set in. Thus, the trial judge directed petitioner to present its
evidence. However, petitioner instead filed a motion for reconsideration, which the trial court
denied, ratiocinating thus:

This Court finds that there are conflicting claims on the issue of whether or not the action has
already prescribed. A full blown trial is in order to determine fully the rights of the contending
parties.5

Undeterred, petitioner impugned, through a petition under Rule 65, the two orders of the trial
court claiming before the appellate court that:
RESPONDENT COURT GROSSLY ERRED OR GRAVELY ABUSED ITS DISCRETION
AMOUNTING TO LACK OF JURISDICTION IN DENYING THE MOTION TO DISMISS
AND DECLARING THAT PRESCRIPTION HAS NOT SET IN AGAINST PRIVATE
RESPONDENT.6

In its assailed Decision, the Court of Appeals dismissed the petition, ruling that:

Since the defense of prescription under the facts obtaining did not rest on solid ground, the trial
court took a more judicious move to direct the defendant therein, herein petitioner, to present its
evidence. It is self-evident that with the evidence of both parties adduced, the trial court could
proceed to decide on the merits of the case including prescription, and thus avoid collateral
proceedings such as the one at bar that unduly prolong the final determination of the controversy.
After all, prescription subsists as a valid issue in the decision process. The trial court wanted
precisely a definite and definitive-factual premise to determine whether or not the action has
prescribed. Surely, such exercise of judgment is not grave abuse of discretion correctible by writ
of certiorari. If ever he erred, it was error in judgment. Errors of judgment may be reviewed only
by appeal.7

Undaunted, petitioner now comes to this Court raising a simple issue:

WHETHER [OR] NOT THE DATE OF MATURITY OF THE INSTRUMENTS IS THE DATE
OF ACCRUAL OF CAUSE OF ACTION.8

Petitioner insists that upon the face of the complaint, prescription has set in. It claims that the
Home Notes annexed to the pleading bearing a uniform maturity date of December 2, 1983
indicate the date of accrual of the cause of action. Hence, argues petitioner, private respondent’s
filing of the complaint for sum of money on September 24, 1996, is way beyond the prescriptive
period of ten years under Article 11449 of the Civil Code. Citing Soriano v. Ubat,10 petitioner
maintains the prescription period starts from the time when the creditor may file an action, not
from the time he wishes to do so.

However, private respondent counters that prescription is not apparent in the complaint because
the maturity date of the Home Notes attached thereto is not the time of accrual of petitioner’s
action. Relying on Elido, Sr. v. Court of Appeals,11 private respondent insists that the action
accrued only on July 20, 1995, when demand to pay was made on petitioner. Private respondent
also points out that since both the trial court and the appellate court found that prescription is not
apparent on the face of the complaint, such factual finding should therefore be binding on this
Court.

We find the petition without merit. The Court of Appeals validly dismissed the petition, there
being no grave abuse of discretion committed by the trial court in denying petitioner’s motion to
dismiss the complaint on the ground of prescription.

Well-settled is the rule that since a cause of action requires, as essential elements, not only a
legal right of the plaintiff and a correlative duty of the defendant but also "an act or omission of
the defendant in violation of said legal right," the cause of action does not accrue until the party
obligated refuses, expressly or impliedly, to comply with its duty.12

Otherwise stated, a cause of action has three elements, to wit, (1) a right in favor of the plaintiff
by whatever means and under whatever law it arises or is created; (2) an obligation on the part of
the named defendant to respect or not to violate such right; and (3) an act or omission on the part
of such defendant violative of the right of the plaintiff or constituting a breach of the obligation
of the defendant to the plaintiff.13

It bears stressing that it is only when the last element occurs that a cause of action arises.
Accordingly, a cause of action on a written contract accrues only when an actual breach or
violation thereof occurs.14

Applying the foregoing principle to the instant case, we rule that private respondent’s cause of
action accrued only on July 20, 1995, when its demand for payment of the Home Notes was
refused by petitioner. It was only at that time, and not before that, when the written contract was
breached and private respondent could properly file an action in court.

The cause of action cannot be said to accrue on the uniform maturity date of the Home Notes as
petitioner posits because at that point, the third essential element of a cause of action, namely, an
act or omission on the part of petitioner violative of the right of private respondent or
constituting a breach of the obligation of petitioner to private respondent, had not yet occurred.

The subject Home Notes, in fact, specifically states that payment of the principal and interest due
on the notes shall be made only upon presentation for notation and/or surrender for cancellation
of the notes, thus:

Payment of the principal amount and interest due on this Note shall be made by the Company at
the principal office of the Trustee herein referred to or at such other office or agency that the
Company may designate for the purpose, in such coin or currency of the Republic of the
Philippines as at the time of payment shall be legal tender for payment of public and private
debts, upon presentation for notation and/or surrender for cancellation of this
Note. . . .15 (Emphasis supplied.)

Thus, the maturity date of the Home Notes is not controlling as far as accrual of cause of action
is concerned. What said date indicates is the time when the obligation matures, when payment on
the Notes would commence, subject to presentation, notation and/or cancellation of those Notes.
The date for computing when prescription of the action for collection begins to set in is properly
a function related to the date of actual demand by the holder of the Notes for payment by the
obligor, herein petitioner bank.

Since the demand was made only on July 20, 1995, while the civil action for collection of a sum
of money was filed on September 24, 1996, within a period of not more than ten years, such
action was not yet barred by prescription.
WHEREFORE, the petition is DENIED for lack of merit. The assailed Decision dated
November 23, 2001, and the Resolution dated April 24, 2002, of the Court of Appeals are
AFFIRMED. Costs against petitioner.

SO ORDERED.

G.R. No. 159831 October 14, 2005

PILIPINAS SHELL PETROLEUM CORPORATION, Petitioner,

vs.
JOHN BORDMAN LTD. OF ILOILO, INC., Respondent.

DECISION

eeply imbedded in our jurisprudence is the doctrine that the factual findings of the Court of
Appeals (CA) affirming those of the trial court are, subject to some exceptions, binding upon this
Court. Otherwise stated, only questions of law, not of facts, may be raised before this Court in
petitions for review under Rule 45 of the Rules of Court. Nonetheless, in the interest of
substantial justice, the Court delved into both the factual and the legal issues raised in the present
case and found no reason to overturn the CA’s main Decision. Furthermore, under the peculiar
factual circumstances of the instant appeal, this Court holds that the period for reckoning the
prescription of the present cause of action began only when respondent discovered with certainty
the short deliveries made by petitioner.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the August 20,
2002 Decision2 and August 29, 2003 Resolution3 of the Court of Appeals (CA) in CA-GR CV
No. 46974. The challenged Decision disposed as follows:
"WHEREFORE, premises considered, the assailed decision dated August 30, 1991 of the RTC,
Branch 26, Manila in Civil Case No. 13419 is hereby AFFIRMED with
the MODIFICATION that the award of exemplary damages and attorney’s fees be both reduced
to ₱100,000.00.

"The order dated December 9, 1991 is likewise AFFIRMED."4

The assailed Resolution denied reconsideration.

The Facts

Petitioner Pilipinas Shell Petroleum Corporation ("Pilipinas Shell") is a corporation engaged in

the business of refining and processing petroleum products.5 The invoicing of the products was
made by Pilipinas Shell, but delivery was effected through Arabay, Inc., its sole distributor at the
time material to the present case.6 From 1955 to 1975, Respondent John Bordman Ltd. of Iloilo,
Inc. ("John Bordman") purchased bunker oil in drums from Arabay.7 When Arabay ceased its
operations in 1975, Pilipinas Shell took over and directly marketed its products to John
Bordman.8

On August 20, 1980, John Bordman filed against Pilipinas Shell a civil case for specific
performance. The former demanded the latter’s short deliveries of fuel oil since 1955; as well as
the payment of exemplary damages, attorney’s fees and costs of suit.9 John Bordman alleged that
Pilipinas Shell and Arabay had billed it at 210 liters per drum, while other oil companies
operating in Bacolod had
billed their customers at 200 liters per drum. On July 24, 1974, when representatives from John
Bordman and Arabay conducted a volumetric test to determine the quantity of fuel oil actually
delivered, the drum used could only fill up to 190 liters, instead of 210 liters, or a short delivery
rate of 9.5%.10 After this volumetric test, Arabay reduced its billing rate to 200 (instead of 210)
liters per drum, except for 4 deliveries between August 1 and September 9, 1974, when the
billing was at 190 liters per drum.11

On January 23, 1975, another volumetric test allegedly showed that the drum could contain only
187.5 liters.12 On February 1, 1975, John Bordman requested from Pilipinas Shell that 640,000
liters of fuel oil, representing the latter’s alleged deficient deliveries, be credited to the former’s
account.13 The volume demanded was adjusted to 780,000 liters, upon a realization that the
billing rate of 210 liters per drum had been effective since 1966.

On October 24, 1977 and November 9, 1977, representatives from John Bordman, the auditor of
the Iloilo City Commission on Audit, pump boat carriers, and truck drivers conducted actual
measurements of fuel loaded on tanker trucks as transferred to dented drums at mouth full. They
found that the drums could contain 180 liters only.14 In its Complaint, John Bordman prayed for
the appointment of commissioners to ascertain the volume of short deliveries.15

On October 21, 1980, Pilipinas Shell and Arabay filed their Answer with Counterclaim.16 They
specifically denied that fuel oil deliveries had been less than those billed.17 Moreover, the drums
used in the volumetric tests were allegedly not representative of the ones used in the actual
deliveries.18

By way of affirmative defense, Pilipinas Shell and Arabay countered that John Bordman had no
cause of action against them.19 If any existed, it had been waived or extinguished; or otherwise
barred by prescription, laches, and estoppel.20

During the pretrial, the parties agreed to limit the issues to the following: (1) whether the action
had prescribed, and (2) whether there had been short deliveries in the quantities of fuel oil.21 John
Bordman’s Motion for Trial by Commissioner was granted by the RTC,22 and the court-
appointed commissioner submitted her Report on April 20, 1988.23

On April 3, 1989, Pilipinas Shell and Arabay filed a Motion for Resolution of their affirmative
defense of prescription.24 Because prescription had not been established with certainty, the RTC
ordered them on November 6, 1989, to present evidence in support of their defense.25

On August 30, 1991, the RTC issued a Decision in favor of respondent.26 Pilipinas Shell and
Arabay were required to deliver to John Bordman 916,487.62 liters of bunker fuel oil, to pay
actual damages of ₱1,000,000; exemplary damages of ₱500,000; attorney’s fees of ₱500,000;
and the costs of suit.27 The basis of the trial court’s decision was predicated on the following
pronouncement:

"Since [respondent] had fully paid their contract price at 210 liters per drum, then the [petitioner]
should deliver to the [respondent] the undelivered volume of fuel oil from 1955 to 1974, which is
20 liters per drum; and 10 liters per drum from 1974 to 1977. Per the invoice receipts submitted,
the total volume of fuel oil which [petitioner] have failed to deliver to [respondent] is 916,487.62
liters."28

Pilipinas Shell appealed to the CA, alleging that John Bordman had failed to prove the short
deliveries; and that the suit had been barred by estoppel, laches, and prescription.29

Ruling of the Court of Appeals

Upholding the trial court, the CA overruled petitioner’s objections to the evidence of respondent
in relation to the testimonies of the latter’s witnesses and the results of the volumetric tests.30 The
CA noted that deliveries from 1955 to 1977 had been admitted by petitioner; and the fact of
deficiency, established by respondent.31

The appellate court also debunked petitioner’s claims of estoppel and laches. It held that the
stipulation in the product invoices stating that respondent had received the products in good
order was not controlling.32 On the issue of prescription, the CA ruled that the action had been
filed within the period required by law.33

Hence, this Petition.34

The Issues
 Petitioner states the issues in this wise:

"I.

Respondent’s allegation that the Petition must be summarily dismissed for containing a false,
defective and unauthorized verification and certification against forum shopping is patently
unmeritorious, as the requisites for a valid verification and certification against forum shopping
have been complied with.

"II.

The Decisions of the court a quo and of the Honorable Court of Appeals were clearly issued with
grave abuse of discretion, based as they are on an unmistakable misappreciation of facts clearly
appearing in the records of the case.

A.

The Honorable Court of Appeals erred giving full faith and credence to the testimony of
respondent’s sole witness, who was neither an ‘expert witness’ nor one with personal knowledge
of the material facts.

B.

The Honorable Court of Appeals erred in ruling that the testimony of respondent’s sole witness
was not controverted and that the results of his volumetric tests were not disproved by petitioner
as the records of the court a quo indubitably show that petitioner disputed the testimony of said
witness in every material respect.

C.

The court a quo and the Honorable Court of Appeals erred when it failed to hold that the results
of the volumetric tests conducted by respondent’s sole witness are not worthy of full faith and
credence, considering that drums subjected to said tests in 1974 and 1975 were not the same
with, or otherwise similar to those used by petitioner in the deliveries made to respondent since
1955.

D.

The Honorable Court of Appeals erred in holding that petitioner’s unilateral reduction of billing
rates constitutes an implied admission of the fact of short deliveries. The reduction was made for
no other purpose than as a business accommodation of a valued client.

"III.
The court a quo, as well as the Honorable Court of Appeals, gravely erred in not ruling that
respondent’s claims of alleged short deliveries for the period 1955 to 1976 were already barred
by prescription.

"IV.

The Honorable Court of Appeals and the court a quo erred in not ruling that respondent’s claims
are barred by estoppel and laches considering that respondent failed to assert its claim for about
twenty-five (25) years.

"V.

The Honorable Court of Appeals erred in awarding to respondent compensatory damages,

exemplary damages, attorney’s fees and cost of suit, when petitioner has not otherwise acted in a
wanton, fraudulent, reckless, oppressive or malevolent manner."35

The Court’s Ruling

In the main, the Petition has no merit, except in regard to the CA’s grant of exemplary damages.

First Issue:

Validity of Verification and Certification

Preliminarily, the Court shall tackle respondent’s allegation that petitioner’s verification and
certification against forum shopping had not complied with, and were in fact made in
contravention of, Section 4 of Rule 45 of the Rules of Court.36 Respondent alleges that Romeo B.
Garcia, vice-president of Pilipinas Shell, had no authority to execute them.37

The records, however, show that petitioner’s president conferred upon its vice-president the
power to institute actions. As certified by the assistant board secretary, the delegation was
authorized by petitioner’s board of directors.38 The power to institute actions necessarily included
the power to execute the verification and certification against forum shopping, as required in a
petition for review before this Court.

In any event, the policy of liberal interpretation of procedural rules compels us to give due
course to the Petition.39 There appears to be no intention to circumvent the need for proper
verification and certification, which are intended to assure the truthfulness and correctness of the
allegations in the Petition and to discourage forum shopping.40

Second Issue:

Appreciation of Facts

As a general rule, questions of fact may not be raised in a petition for review.41 The factual
findings of the trial court, especially when affirmed by the appellate court, are binding and
conclusive on the Supreme Court.42 Nevertheless, this rule has certain exceptions,43 which
petitioner asserts are present in this case.44 The Court reviewed the evidence presented and
revisited the applicable pertinent rules. Being intertwined, the issues raised by petitioner relating
to the evidence will be discussed together.

Objection to Respondent’s Witness

Petitioner claims that the trial court erred in giving credence to the testimony of respondent’s
witness, Engineer Jose A. Macarubbo. The testimony had allegedly consisted of his personal
opinion. Under the Rules of Evidence, the opinion of a witness is not admissible, unless it is
given by an expert.45 Macarubbo was allegedly not an expert witness; neither did he have
personal knowledge of material facts.46

We clarify. Macarubbo testified that sometime in May 1974, respondent had contacted him to
review the reception of fuel at its lime plant. He discovered that Arabay had been billing
respondent at 210 liters per drum, while other oil companies billed their customers at 200 liters
per drum.47 On July 24, 1974, he and Jerome Juarez, branch manager of Pilipinas Shell,
conducted a volumetric test to determine the amount of fuel that was actually being delivered to
respondent.48 On January 25, 1975, the test was again conducted in the presence of Macarubbo,
Juarez and Manuel Ravina (Arabay’s sales supervisor).49

From the foregoing facts, it is evident that Macarubbo did not testify as an expert witness. The
CA correctly noted that he had testified based on his personal knowledge and involvement in
discovering the short deliveries.50 His testimony as an ordinary witness was aptly allowed by the
appellate court under the following rule on admissibility:

"Sec. 36. Testimony generally confined to personal knowledge; hearsay excluded. – A witness

can testify only to those facts which he knows of his personal knowledge; that is, which are
derived from his own perception, except as otherwise provided in these rules."51

Challenge to Volumetric Tests

Petitioner disputes the CA’s finding that it had failed to disprove the results of the volumetric
tests conducted by respondent. The former claims that it was able to controvert the latter’s
evidence.52

During the July 24, 1974 volumetric test, representatives of both petitioner and respondent
allegedly agreed to conduct two tests using drums independently chosen by each.53 Respondent
allegedly chose the worst-dented drum that could fill only up to 190 liters. The second drum,
which was chosen by petitioner, was not tested in the presence of Macarubbo because of heavy
rain.54 It supposedly filled up to 210 liters, however.55

The issue, therefore, relates not to the submission of evidence, but to its weight and credibility.
While petitioner may have submitted evidence, it failed to disprove the short deliveries. The
lower courts obviously gave credence to the volumetric tests witnessed by both parties as
opposed to those done solely by petitioner.
Petitioner also challenges the reliability of the volumetric tests on the grounds of failure to
simulate the position of the drums during filling56 and the fact that those tested were not
representative of the ones used from 1955 to 1974.57 These contentions fail to overturn the short
deliveries established by respondent.

The evidence of petitioner challenging the volumetric tests was wanting. It did not present any as
regards the correct position of the drums during loading. Notably, its representative had
witnessed the two tests showing the short deliveries.58 He therefore had the opportunity to correct
the position of the drums, if indeed they had been incorrectly positioned. Further, there was no
proof that those used in previous years were all good drums with no defects. Neither was there
evidence that its deliveries from 1955 had been properly measured.

From the foregoing observations, it is apparent that the evidence presented by both parties
preponderates in favor of respondent. The Court agrees with the following observations of the
CA:

"[Petitioner] posits that its fuel deliveries were properly measured and/or calibrated. To the mind
of this Court, regardless of what method or manner the deliveries were made, whether pre-
packed drums, by the dip stick method or through ex-jetty, the fact remains that [petitioner]
failed to overcome the burden of proving that indeed the drums used during the deliveries
contain 210 liters. The [petitioner], to support its claim, adduced no evidence. Moreover, it failed
to disprove the results of the volumetric tests."59

Having sustained the finding of short deliveries, the Court finds it no longer necessary to address
the contention of petitioner that its subsequent reduction of billings constituted merely a business
accommodation.60

Third Issue:

Prescription

Action Based on Contract

Petitioner avers that respondent’s action -- a claim for damages as a result of over-billing -- has
already prescribed. Respondent’s claim supposedly constitutes a quasi-delict, which prescribes in
four years.61

We do not agree. It is elementary that a quasi-delict, as a source of an obligation, occurs only

when there is no preexisting contractual relation between the parties.62 The action of respondent
for specific performance was founded on short deliveries, which had arisen from its Contract of
Sale with petitioner, and from which resulted the former’s obligation in the present case. Any
action to enforce a breach of that Contract prescribes in ten years.63

Prescriptive Period Counted from

the Accrual of the Cause of Action

Petitioner avers that the action of respondent, even if based on a Contract, has nevertheless
already prescribed, because more than ten years had lapsed since 1955 to August 20, 1970 -- the
period of short deliveries that the latter seeks to recover.64 Respondent’s request for fuel
adjustments on October 24, 1974, February 1, 1975, April 3, 1975, and September 22, 1975,
were not formal demands that would interrupt the prescriptive period, says petitioner.

The Court shall first address the contention that formal demands were not alleged in the
Complaint. This argument was not raised in the courts a quo; thus, it cannot be brought before
this tribunal.65 Well settled is the rule that issues not argued in the lower courts cannot be raised
for the first time on appeal.66 At any rate, it appears from the records that respondent’s letters to
petitioner dated October 24, 1974 and February 1, 1975 were formal and written extrajudicial
demands that interrupted the prescriptive period.67 Nevertheless, the interruption has no bearing
on the prescriptive period, as will be shown presently.

Cause of Action Defined

Actions based upon a written contract should be brought within ten years from the time the right
of action accrues.68 This accrual refers to the cause of action, which is defined as the act or the
omission by which a party violates the right of another.69

Jurisprudence is replete with the elements of a cause of action: (1) a right in favor of the plaintiff
by whatever means and under whatever law it arises or is created; (2) an obligation on the part of
the named defendant to respect or not to violate the right; and (3) an act or omission on the part
of the defendant violative of the right of the plaintiff or constituting a breach of an obligation to
the latter.70 It is only when the last element occurs that a cause of action arises.71

Applying the foregoing elements, it can readily be determined that a cause of action in a contract
arises upon its breach or violation.72 Therefore, the period of prescription commences, not from
the date of the execution of the contract, but from the occurrence of the breach.

The cause of action resulting from a breach of contract is dependent on the facts of each
particular case. The following cases involving prescription illustrate this statement.

Nabus v. Court of Appeals73 dealt with an action to rescind a Contract of Sale. The cause of
action arose at the time when the last installment was not paid. Since the case was filed ten years
after that date, the action was deemed to have prescribed.74

In Elido v. Court of Appeals,75 the overdraft Agreement stipulated that the obligation was
payable on demand. Thus, the breach started only when that judicial demand was made. This rule
was applied recently to China Banking Corporation v. Court of Appeals,76 which held that the
prescriptive period commenced on the date of the demand, not on the maturity of the certificate
of indebtedness. In that case, the certificate had stipulated that payment should be made upon
presentation.

Banco Filipino Savings & Mortgage Bank v. Court of Appeals77 involved a Contract of Loan
with real estate mortgages, whereby the creditor could unilaterally increase the interest rate.
When the debtor failed to pay the loan, the creditor foreclosed on the mortgage. The Court ruled
that the cause of action for the annulment of the foreclosure sale should be counted from the date
the debtor discovered the increased interest rate.78

In Cole v. Gregorio,79 the agreement to buy and sell was conditioned upon the conduct of a
preliminary survey of the land to verify whether it contained the area stated in the Tax
Declaration. Both the agreement and the survey were made in 1963. The Court ruled that the
right of action for specific performance arose only in 1966, when the plaintiff discovered the
completion of the survey.80

Serrano v. Court of Appeals81dealt with money claims arising from a Contract of Employment,
which would prescribe in three years from the time the cause of action accrued.82 The Court
noted that the cause of action had arisen when the employer made a definite denial of the
employee’s claim. It was deemed that the issues had not yet been joined prior to the definite
denial of the claim, because the employee could have still been reinstated.83

Naga Telephone Co. v. Court of Appeals84 involved the reformation of a Contract. Among others,
the grounds for the action filed by the plaintiff included allegations that the contract was too one-
sided in favor of the defendant, and that certain events had made the arrangement
inequitable.85 The Court ruled that the cause of action for a reformation would arise only when
the contract appeared disadvantageous.86

Cause of Action in

the Present Case

The Court of Appeals noted that, in the case before us, respondent had been negotiating with
petitioner since 1974. Accordingly, the CA ruled that the cause of action had arisen only in 1979,
after a manifestation of petitioner’s denial of the claims.87

The nature of the product in the present factual milieu is a major factor in determining when the
cause of action has accrued. The delivery of fuel oil requires the buyer’s dependence upon the
seller
for the correctness of the volume. When fuel is delivered in drums, a buyer readily assumes that
the agreed volume can be, and actually is, contained in those drums.

Buyer dependence is common in many ordinary sale transactions, as when gasoline is loaded in
the gas tanks of motor vehicles, and when beverage is purchased in bottles and ice cream in bulk
containers. In these cases, the buyers rely, to a considerable degree, on the sellers’ representation
that the agreed volumes are being delivered. They are no longer expected to make a meticulous
measurement of each and every delivery.

To the mind of this Court, the cause of action in the present case arose on July 24, 1974, when
respondent discovered the short deliveries with certainty. Prior to the discovery, the latter had no
indication that it was not getting what it was paying for. There was yet no issue to speak of; thus,
it could not have brought an action against petitioner. It was only after the discovery of the short
deliveries that respondent got into a position to bring an action for specific performance.
Evidently then, that action was brought within the prescriptive period when it was filed on
August 20, 1980.

Fourth Issue:

Estoppel

Petitioner alleges, in addition to prescription, that respondent is estopped from claiming short
deliveries.88 It is argued that, since the initial deliveries had been made way back in 1955, the
latter belatedly asserted its right only in 1980, or after twenty-five years. Moreover, respondent
should allegedly be bound by the Certification in the delivery Receipts and Invoices that state as
follows:

"RECEIVED ABOVE PRODUCT(S) IN GOOD CONDITION. I HAVE INSPECTED THE

COMPARTMENTS OF THE BULK LORRY, WHEN FULL AND EMPTY, AND FOUND
THEM IN ORDER."89

Estoppel by Laches

Estoppel by laches is the failure or neglect for an unreasonable length of time to do that which,
by the exercise of due diligence, could or should have been done earlier.90 Otherwise stated,
negligence or omission to assert a right within a reasonable time warrants a presumption that the
party has abandoned or declined the right.91 This principle is based on grounds of public policy,
which discourages stale claims for the peace of society.92

Respondent cannot be held guilty of delay in asserting its right during the time it did not yet
know of the short deliveries. The facts in the present case show that after the discovery of the
short deliveries, it immediately sought to recover the undelivered fuel from petitioner.93 Laches
refers, inter alia, to the length of time in asserting a claim. The Court, therefore, agrees with the
lower courts that respondent’s claim was not lost by laches.

Alleged Certification Not a Bar

It is not disputed that the alleged Certification stating that respondent received the fuel oil in
good condition is in the nature of a contract of adhesion.94 The statement was in fine print at the
lower right of petitioner’s invoices.95 It was made in the form and language prepared by
petitioner. The latter’s customers, including respondent, were required to sign the statement upon
every delivery. The primary purpose of an invoice, however, is merely to evidence delivery and
receipt of the goods stated in it.

While the Court has sustained the validity of similar stipulations in other contracts, it has also
recognized that reliance on them cannot be favored when the facts and circumstances warrant the
contrary.96 Noting the nature of the product in the present factual milieu, as discussed earlier in
the claim of prescription, the dependence of the buyer upon the seller makes the stipulation
inapplicable.
Indeed, it would be too cumbersome and impractical for respondent to measure the fuel oil in
each and every drum delivered. Nonetheless, upon delivery by petitioner, the former was obliged
to sign the Certification in the invoice. In signing it, respondent could not have waived the right
to a legitimate claim for hidden defects. Thus, it is not estopped from recovering short deliveries.

Doubts in the interpretation of stipulations in contracts of adhesion should be resolved against

the party that prepared them. This principle especially holds true with regard to waivers, which
are not presumed, but which must be clearly and convincingly shown.97

Fourth Issue:

Exemplary Damages and Attorney’s Fees

In the last error assigned, petitioner challenges the Order for specific performance and the
awards of exemplary damages and attorney’s fees in favor of respondent.98 The directive for the
delivery of 916,487.62 liters of bunker oil will no longer be taken up because, as discussed
earlier, this fact is borne out by the evidence.

The CA sustained the award of exemplary damages because of petitioner’s wanton refusal to
deliver the shortages of fuel oil after the demand was made.99 Similarly, attorney’s fees were
imposed, because respondent had been compelled to litigate to protect its interests.100 Both
awards, however, were each reduced from ₱500,000 to ₱100,000.101

Exemplary Damages Not Proper

Exemplary damages are imposed as a corrective measure102 when the guilty party has acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner.103 These damages are awarded in
accordance with the sound discretion of the court.104

Petitioner argues that its refusal to deliver the shortages of fuel was premised on good
faith.105 Indeed, records reveal that it had reviewed respondent’s requests for the delivery of
shortages before declining them.106 It likewise readily granted respondent’s requests to conduct
volumetric tests. It simply had the mistaken belief that it was not liable for any shortages.
Unfortunately, the evidence showed the contrary.

Absent any showing of bad faith on the part of petitioner, exemplary damages cannot be imposed
upon it.

Attorney’s Fees Allowed

Petitioner claims that the award of attorney’s fees was tied up with the award for exemplary
damages.107 Since those damages were not recoverable, then the attorney’s fees allegedly had no
legal basis.

While attorney’s fees are recoverable when exemplary damages are awarded, the former may
also be granted when the court deems it just and equitable.108 The grant of attorney’s fees
depends on the circumstances of each case and lies within the discretion of the court. They may
be awarded when a party is compelled to litigate or to incur expenses to protect its interest by
reason of an unjustified act by the other.109

The Court agrees that the award of ₱100,000 as attorney’s fees is very reasonable;110 in fact, it is
almost symbolic, as it will not totally recompense respondent for the actual fees spent to
prosecute its cause. The case has dragged on unnecessarily despite petitioner’s failure to present
countervailing evidence during the trial. Moreover, respondent was compelled to litigate,
notwithstanding its attempt at an amicable settlement from the time it discovered the shortages in
1974 until the actual filing of the case in 1980.111

WHEREFORE, the Petition is hereby DENIED. The assailed Decision and Resolution

are AFFIRMED with the slight MODIFICATION that the award of exemplary damages is
deleted. Costs against petitioner.

SO ORDERED.

G.R. No. 116100             February 9, 1996

SPOUSES CRISTINO and BRIGIDA CUSTODIO and SPOUSES LITO and MARIA
CRISTINA SANTOS, petitioners,
vs.
COURT OF APPEALS, HEIRS OF PACIFICO C. MABASA and REGIONAL TRIAL
COURT OF PASIG, METRO MANILA, BRANCH 181, respondents.

DECISION

REGALADO, J.:

This petition for review on certiorari assails the decision of respondent Court of Appeals in CA-
G.R. CV No. 29115, promulgated on November 10, 1993, which affirmed with modification the
decision of the trial court, as well as its resolution dated July 8, 1994 denying petitioner's motion
for reconsideration.1

On August 26, 1982, Civil Case No. 47466 for the grant of an easement of right of way was filed
by Pacifico Mabasa against Cristino Custodio, Brigida R. Custodio, Rosalina R. Morato, Lito
Santos and Maria Cristina C. Santos before the Regional Trial Court of Pasig and assigned to
Branch 22 thereof.2

The generative facts of the case, as synthesized by the trial court and adopted by the Court of
Appeals, are as follows:

Perusing the record, this Court finds that the original plaintiff Pacifico Mabasa died
during the pendency of this case and was substituted by Ofelia Mabasa, his surviving
spouse [and children].

The plaintiff owns a parcel of land with a two-door apartment erected thereon situated at
Interior P. Burgos St., Palingon, Tipas, Tagig, Metro Manila. The plaintiff was able to
acquire said property through a contract of sale with spouses Mamerto Rayos and
Teodora Quintero as vendors last September 1981. Said property may be described to be
surrounded by other immovables pertaining to defendants herein. Taking P. Burgos Street
as the point of reference, on the left side, going to plaintiff's property, the row of houses
will be as follows: That of defendants Cristino and Brigido Custodio, then that of Lito
and Maria Cristina Santos and then that of Ofelia Mabasa. On the right side (is) that of
defendant Rosalina Morato and then a Septic Tank (Exhibit "D"). As an access to P.
Burgos Street from plaintiff's property, there are two possible passageways. The first
passageway is approximately one meter wide and is about 20 meters distan(t) from
Mabasa's residence to P. Burgos Street. Such path is passing in between the previously
mentioned row of houses. The second passageway is about 3 meters in width and length
from plaintiff Mabasa's residence to P. Burgos Street; it is about 26 meters. In passing
thru said passageway, a less than a meter wide path through the septic tank and with 5-6
meters in length, has to be traversed.

When said property was purchased by Mabasa, there were tenants occupying the remises
and who were acknowledged by plaintiff Mabasa as tenants. However, sometime in
 February, 1982, one of said tenants vacated the apartment and when plaintiff Mabasa
went to see the premises, he saw that there had been built an adobe fence in the first
passageway making it narrower in width. Said adobe fence was first constructed by
defendants Santoses along their property which is also along the first passageway.
Defendant Morato constructed her adobe fence and even extended said fence in such a
way that the entire passageway was enclosed. (Exhibit "1-Santoses and Custodios, Exh.
"D" for plaintiff, Exhs. "1-C", "1-D" and "1-E") And it was then that the remaining
tenants of said apartment vacated the area. Defendant Ma. Cristina Santos testified that
she constructed said fence because there was an incident when her daughter was dragged
by a bicycle pedalled by a son of one of the tenants in said apartment along the first
passageway. She also mentioned some other inconveniences of having (at) the front of
her house a pathway such as when some of the tenants were drunk and would bang their
doors and windows. Some of their footwear were even lost. . . .3 (Emphasis in original
text; corrections in parentheses supplied)

On February 27, 1990, a decision was rendered by the trial court, with this dispositive part:

Accordingly, judgment is hereby rendered as follows:

1) Ordering defendants Custodios and Santoses to give plaintiff permanent access ingress
and egress, to the public street;

2) Ordering the plaintiff to pay defendants Custodios and Santoses the sum of Eight
Thousand Pesos (P8,000) as indemnity for the permanent use of the passageway.

The parties to shoulder their respective litigation expenses.4

Not satisfied therewith, therein plaintiff represented by his heirs, herein private respondents,
went to the Court of Appeals raising the sole issue of whether or not the lower court erred in not
awarding damages in their favor. On November 10, 1993, as earlier stated, the Court of Appeals
rendered its decision affirming the judgment of the trial court with modification, the decretal
portion of which disposes as follows:

WHEREFORE, the appealed decision of the lower court is hereby AFFIRMED WITH
MODIFICATION only insofar as the herein grant of damages to plaintiffs-appellants.
The Court hereby orders defendants-appellees to pay plaintiffs-appellants the sum of
Sixty Five Thousand (P65,000) Pesos as Actual Damages, Thirty Thousand (P30,000)
Pesos as Moral Damages, and Ten Thousand (P10,000) Pesos as Exemplary Damages.
The rest of the appealed decision is affirmed to all respects.5

On July 8, 1994, the Court of Appeals denied petitioner's motion for reconsideration.6 Petitioners
then took the present recourse to us, raising two issues, namely, whether or not the grant of right
of way to herein private respondents is proper, and whether or not the award of damages is in
order.
With respect to the first issue, herein petitioners are already barred from raising the same.
Petitioners did not appeal from the decision of the court a quo granting private respondents the
right of way, hence they are presumed to be satisfied with the adjudication therein. With the
finality of the judgment of the trial court as to petitioners, the issue of propriety of the grant of
right of way has already been laid to rest.

For failure to appeal the decision of the trial court to the Court of Appeals, petitioners cannot
obtain any affirmative relief other than those granted in the decision of the trial court. That
decision of the court below has become final as against them and can no longer be reviewed,
much less reversed, by this Court. The rule in this jurisdiction is that whenever an appeal is taken
in a civil case, an appellee who has not himself appealed may not obtain from the appellate court
any affirmative relief other than what was granted in the decision of the lower court. The
appellee can only advance any argument that he may deem necessary to defeat the appellant's
claim or to uphold the decision that is being disputed, and he can assign errors in his brief if such
is required to strengthen the views expressed by the court a quo. These assigned errors, in turn,
may be considered by the appellate court solely to maintain the appealed decision on other
grounds, but not for the purpose of reversing or modifying the judgment in the appellee's favor
and giving him other affirmative reliefs.7

However, with respect to the second issue, we agree with petitioners that the Court of Appeals
erred in awarding damages in favor of private respondents. The award of damages has no
substantial legal basis. A reading of the decision of the Court of Appeals will show that the
award of damages was based solely on the fact that the original plaintiff, Pacifico Mabasa,
incurred losses in the form of unrealized rentals when the tenants vacated the leased premises by
reason of the closure of the passageway.

However, the mere fact that the plaintiff suffered losses does not give rise to a right to recover
damages. To warrant the recovery of damages, there must be both a right of action for a legal
wrong inflicted by the defendant, and damage resulting to the plaintiff therefrom. Wrong without
damage, or damage without wrong, does not constitute a cause of action, since damages are
merely part of the remedy allowed for the injury caused by a breach or wrong.8

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. These situations are often called damnum absque injuria.9

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.10 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 the breach of some duty and the
imposition of liability for that breach before damages may be awarded; it is not sufficient to state
that there should be tort liability merely because the plaintiff suffered some pain and suffering.11
Many accidents occur and many injuries are inflicted by acts or omissions which cause damage
or loss to another but which violate no legal duty to such other person, and consequently create
no cause of action in his favor. 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.12

In other words, in order that the law will give redress for an act causing damage, that act must be
not only hurtful, but wrongful. There must be damnum et injuria.13 If, as may happen in many
cases, a person sustains actual damage, that is, harm or loss to his person or property, without
sustaining any legal injury, that is, an act or omission which the law does not deem an injury, the
damage is regarded as damnum absque injuria.14

In the case at bar, although there was damage, there was no legal injury. Contrary to the claim of
private respondents, petitioners could not be said to have violated the principle of abuse of right.
In order that the principle of abuse of right provided in Article 21 of the Civil Code can be
applied, it is essential that the following requisites concur: (1) The defendant should have acted
in a manner that is contrary to morals, good customs or public policy; (2) The acts should be
willful; and (3) There was damage or injury to the plaintiff.15

The act of petitioners in constructing a fence within their lot is a valid exercise of their right as
owners, hence not contrary to morals, good customs or public policy. The law recognizes in the
owner the right to enjoy and dispose of a thing, without other limitations than those established
by law.16 It is within the right of petitioners, as owners, to enclose and fence their property.
Article 430 of the Civil Code provides that "(e)very owner may enclose or fence his land or
tenements by means of walls, ditches, live or dead hedges, or by any other means without
detriment to servitudes constituted thereon."

At the time of the construction of the fence, the lot was not subject to any servitudes. There was
no easement of way existing in favor of private respondents, either by law or by contract. The
fact that private respondents had no existing right over the said passageway is confirmed by the
very decision of the trial court granting a compulsory right of way in their favor after payment of
just compensation. It was only that decision which gave private respondents the right to use the
said passageway after payment of the compensation and imposed a corresponding duty on
petitioners not to interfere in the exercise of said right.

Hence, prior to said decision, petitioners had an absolute right over their property and their act of
fencing and enclosing the same was an act which they may lawfully perform in the employment
and exercise of said right. To repeat, whatever injury or damage may have been sustained by
private respondents by reason of the rightful use of the said land by petitioners is damnum
absque injuria.17

A person has a right to the natural use and enjoyment of his own property, according to his
pleasure, for all the purposes to which such property is usually applied. As a general rule,
therefore, there is no cause of action for acts done by one person upon his own property in a
lawful and proper manner, although such acts incidentally cause damage or an unavoidable loss
to another, as such damage or loss is damnum absque injuria. 18 When the owner of property
makes use thereof in the general and ordinary manner in which the property is used, such as
fencing or enclosing the same as in this case, nobody can complain of having been injured,
because the incovenience arising from said use can be considered as a mere consequence of
community life. 19

The proper exercise of a lawful right cannot constitute a legal wrong for which an action will
lie, 20 although the act may result in damage to another, for no legal right has been invaded. 21 One
may use any lawful means to accomplish a lawful purpose and though the means adopted may
cause damage to another, no cause of action arises in the latter's favor. An injury or damage
occasioned thereby is damnum absque injuria. The courts can give no redress for hardship to an
individual resulting from action reasonably calculated to achieve a lawful means. 22

WHEREFORE, under the compulsion of the foregoing premises, the appealed decision of
respondent Court of Appeals is hereby REVERSED and SET ASIDE and the judgment of the
trial court is correspondingly REINSTATED.

G.R. No. L-28782 September 12, 1974

AUYONG HIAN (HONG WHUA HANG), petitioner,

vs.
COURT OF TAX APPEALS, COLLECTOR OF CUSTOMS, COMMISSIONER OF
CUSTOMS, CONSOLIDATED INDUSTRIES OF THE PHILIPPINES, INC. (CTIP), and
LUZON STEVEDORING CORPORATIONS, respondents.

Pedro C. Geling for petitioner.

Francisco T. Koh for respondent Consolidated Industries of the Philippines.

Pelaez, Jalandoni & Jamir for respondent Luzon Stevedoring Corp.

Office of the Solicitor General for Collector of Customs, etc.

ZALDIVAR, J.:p

This is the fifth time that a case involving the 600 hogsheads of Virginia leaf tobacco is before
this Court. The first case was the case of "Cesar Climaco, et al., vs. Hon. Manuel Barcelona,"
G.R. No. L-19597, July 31, 19621 , hereinafter referred to as the Barcelona case; the second, the
case of Collector of Customs, et al., vs. Hon. Francisco Arca, et al.," G.R. No. L-21839, July 17,
19642 , hereinafter referred to as the Arca case; the third, the case of "Auyong Hian vs. Judge
Gaudencio Cloribel, et al.," G.R. No.
L-24704, July 10, 19673 hereinafter referred to as the Cloribel case; and the fourth, "Auyong
Hian vs. Court of Tax Appeals, et al.," G.R. No. L-25181, January 11, 19674 , which was an
appeal from the resolution of the Court of Tax Appeals in CTA Case No. 1560, dismissing
Auyong Hian's petition for review of the decision of the Commissioner of Customs that affirmed
the decision of the Collector of Customs upon the ground of lack of jurisdiction, and which will
be hereinafter referred to as the "First CTA Case".

The instant case, the fifth, is a petition for review of the decision of the Court of Tax Appeals in
its CTA Case No. 1560, dated January 31, 1968, finding without merit petitioner's appeal from
the decision of the Commissioner of Customs that affirmed the decision of the Collector of
Customs of Manila which ordered the seizure and forfeiture of the 600 hogsheads of Virginia
Leaf tobacco imported by petitioner from the United States. The instant case may well be called
the "Second CTA Case".

The antecedent facts, and the proceedings that spawned the instant case, briefly stated, are as
follows:

On June 29, 1953, the import Control Commission approved petitioner Auyong Hian's
application for four no dollar remittance licenses to import Virginia leaf tobacco with an
aggregate value of two million dollars, of which approval petitioner was advised on the
following day, June 30, 1953-the day when the effectivity of the Import Control Law (Republic
Act No. 650) expired. In October, 1961, the Office of the President approved the use of the
aforesaid licenses, and petitioner paid the license fees on November 2, 1961. On December 30,
1961 600 hogsheads of Virginia leaf tobacco arrived in the Port of Manila aboard the "SS
Fernstate", consigned to petitioner.

Inasmuch as the Collector of Customs in Manila, apparently doubting the legality of the
importation, refused to release the shipment of said Virginia leaf tobacco, petitioner filed in the
Court of First Instance of Manila an action for mandamus (Civil Case No. 49639), to compel the
Collector of Customs and the Commissioner of Customs to release the tobacco to petitioner. On
March 19, 1962 Judge Barcelona issued an order to release the tobacco shipment to petitioner.
The Collector of Customs and the Commissioner of Customs then filed with the Supreme Court
a petition for certiorari to annul the order of release. This was the Barcelona case. On July 31,
1962 this Court, in its decision, ruled that the Court of First Instance of Manila had no
jurisdiction to issue the (questioned) order releasing the tobacco shipment; and this Court
incidentally declared that the importation of the tobacco, notwithstanding the alleged approval of
the importation by the President of the Philippines, was illegal upon the ground that the
importation was made long after the expiration of the effectivity of the Import Control Law, and
that the importation contravened the government policy as declared in Republic Acts Nos. 698
and 1194.5

On November 8, 1962, the Collector of Customs instituted seizure proceedings against the 600
hogsheads of tobacco, and issued a warrant of seizure and detention, in Seizure Identification
Case No. 6669. On April 23, 1960 the Collector of Customs rendered a decision declaring the
tobacco forfeited to the government, and ordering the sale thereof at public auction on June 10,
1963. Petitioner received copy of the decision on May 7, 1963. From this decision petitioner
filed, on May 21, 1963, his notice of appeal to the Commissioner of Customs. On December 7,
1964, the Commissioner of Customs affirmed the decision of the. Collector of Customs.

On January 8, 1965 petitioner filed in the Court of Tax Appeals, in CTA Case No. 1560, a
petition for review by way of appeal from the decision of the Commissioner of Customs. On
June 22, 1965 the Court of Tax Appeals dismissed the petition upon the ground that it had no
jurisdiction to entertain the appeal because the Supreme Court had already decided in the
Barcelona and Area cases that the importation in question was illegal. From this resolution
Auyong Hian appealed to the Supreme Court. This was the "First CTA Case" that We have
earlier adverted to, This Court, on January 11, 19676 remanded the case to the Court of Tax
Appeals for further proceedings, and for decision, on matters that this Court had refrained from
deciding.

After the case has been remanded to the Court of Tax Appeals, petitioner filed in said court an
amended petition for review to include the Consolidated Tobacco Industries of the Philippines
(hereinafter referred to as CTIP) and the Luzon Stevedoring Corporation, as parties-respondents.

After hearing, respondent Court of Tax Appeals, in its decision dated January 31, 1968, found
the appeal to be without merit and dismissed the same, with costs against petitioner. This is the
decision that is now sought to be reviewed in the instant petition for review before this Court.

While this case was pending decision, the Solicitor General, on February 22, 1972, filed a
"motion for leave", praying that pending final determination of the case, respondents Collector of
Customs and Commissioner of Customs be authorized to refund to the CTIP the storage charges
of the tobacco in question pursuant to Section 2605-c of the Tariff and Customs Code. In a
resolution dated February 28, 1972 this Court deferred action on the petition of the Solicitor
General until the case is considered on the merits.

In the present appeal, petitioner Auyong Hian assigns twelve (12) errors allegedly committed by
the Court of Tax Appeals in its decision of January 31, 1968 dismissing the appeal from the
decision of the Commissioner of Customs. The points raised in the assignment of errors boil
down to the question of whether or not the Court of Tax Appeals had correctly sustained the
decision of the Commissioner of Customs which affirmed the decision of the Collector of
Customs in connection with the seizure, forfeiture and the sale of the 600 hogsheads of Virginia
leaf tobacco that were imported into the country at the instance of petitioner Auyong Hian. It
must be recalled that in the Barcelona and Arca cases, supra, this Court had categorically held
that the importation of the 600 hogsheads of Virginia leaf tobacco was illegal. It was for this
reason that the Court of Tax Appeals, in its resolution of June 22, 1965, in CTA Case No. 1560
(First CTA Case), dismissed the appeal of Auyong Hian from the decision of the Commissioner
of Customs. But this Court, in the first CTA Case held that the Court of Tax Appeals, had
jurisdiction to pass upon the appeal of Auyong Hian from the decision of the Commissioner of
Customs because the appeal involved matters related to the administrative proceedings in
connection with the seizure, forfeiture and sale of the tobacco in question. Here is what this
Court said:

... It appears to Us that the Court of Tax Appeals had overlooked the fact that the
appeal of Auyong Hian from the decision of the Commissioner of Customs had
raised not only the question of the legality of the importation but also other
matters which called for a ruling by the Court of Tax Appeals in the exercise of its
appellate jurisdiction — especially the question of whether the tobacco thus
imported were goods the importation of which was relatively prohibited or
absolutely prohibited, and also the question regarding the disposal of the tobacco
that was thus seized. The declaration by this Court, in the Barcelona and Arca
cases, supra, that the importation of the tobacco in question was illegal was not
intended to stop the course of the administrative proceedings in relation to the
importation of said tobacco. Let it be noted that when the Barcelona case was
decided on July 31, 1962 the seizure proceedings against the 600 hogsheads of
tobacco in question had not yet been instituted by the Collector of Customs. It
was not until November 8, 1962 when Seizure Identification No. 6669 was
instituted. ...

And so this Court, in the First CTA case, declared the Court of Tax Appeals as possessed of
jurisdiction to pass upon the questions raised by Auyong Hian in his appeal from the decision of
the Commissioner of Customs regarding administrative matters relating to the seizure
proceedings of the 600 hogsheads of tobacco in question.

(1) Auyong Hian claims that he was not given a chance to be heard in the seizure proceedings.
He claims that he filed a motion for postponement of the hearing scheduled for November 26,
1962 based on some valid reasons, that said motion for postponement was not acted upon by the
hearing officer, or if it was acted upon at all the hearing officer did not notify him of the action
taken on said motion, and that he was not notified about the subsequent hearing because he was
declared in default by the hearing officer. Auyong Hian maintains that there can not be a
declaration of default in purely administrative proceedings. In short, it is the contention of
Auyong Hian that in the seizure proceedings of the 600 hogsheads of tobacco in question he was
not afforded the benefits of due process of law.

It is a settled doctrine that due process is applicable to administrative proceedings (Asprec vs.
Itchon, et al., L-21685, April 30, 1966, 16 SCRA 921, 925; Cornejo vs. Gabriel, 41 Phil. 188,
193); that the essence of due process is the requirement of notice and hearing (Algabre vs. Court
of Appeals, L-24458-64, July 31, 1969, 26 SCRA 1130, 1140); that the presence of a party at a
trial is not always of the essence of due process, and all that due process requires is an
opportunity to be heard (Asprec vs. Itchon, et al., supra).

In this connection, the Court of Tax Appeals made the following findings:
 The records show that petitioner was given a notice of hearing in Seizure
Identification No. 6669 (re the 600 hogsheads of Virginia leaf tobacco); that on
the date of hearing petitioner filed a motion for indefinite postponement, which
was not acted upon or resolved by the proper Customs officials; that upon failure
of petitioner to appear on the date of hearing, the hearing officer declared
petitioner in default; and that the hearing was conducted thereafter in the absence
of petitioner. (Decision CTA Case No. 1560; Record, pp. 32-33).

Petitioner's having filed a motion for postponement, even if the motion is not entirely groundless,
confers on him no right either to assume that the motion for postponement would be granted or
to be absent at, and shy away from, the hearing. Petitioner was consequently guilty of
carelessness and neglect when he failed to appear at the trial. He cannot rightfully claim that the
hearing officer was guilty of abuse of discretion in refusing to grant the postponement (Sarreal
vs. Hon. Tan, et al., 92 Phil. 689, 692). And after a party has been declared in default, he is not
entitled to notice of the order placing him in default; neither is he entitled to notice of
proceedings subsequent to default (Lim Toco v. Go Fay, 80 Phil. 166, 168). Petitioner, therefore,
has no cause to complain that he was not afforded a chance to be heard or that he was denied his
day in court.

The contention of petitioner that in administrative proceedings a party can not be declared in
default is untenable. If a respondent in an administrative proceeding cannot be declared in
default when he fails to appear, as required, the continuance of an administrative proceeding
would be dependent on the will and caprice of said party to the proceedings, and would render
helpless the officer or board conducting an administrative proceeding. We hold that if the party
duly summoned, or duly notified, to appear at an administrative investigation, refuses to appear,
he may be declared in default, and the investigation may proceed without his presence.

Petitioner's first assignment of error is not only not sustained by the facts. It is furthermore
negated by the pronouncements of this Court which has already passed directly on the issue of
whether or not petitioner Auyong Hian was deprived of due process of law in the seizure
proceedings. In the Arca case, respondent therein claimed that the decision in the seizure
proceedings was arbitrary because the hearing officer and the Collector of Customs declared
Auyong Hian in default without notifying him of the action taken on his motion to postpone the
seizure proceedings.

This Court rejected the contention saying:

The record shows that Auyong Hian received on November 21, 1963 notice of
hearing on the seizure proceedings scheduled for November 26, 1962. It is true
that he filed a motion to postpone the hearing, but it was for an indefinite period
of time and only in the morning of the date of hearing. He did not bother to find
out what action the Collector of Customs would take on his motion. Continuation
of the seizure proceedings was made on December 6, and December 10, 1962, yet
Auyong Hian did not take the trouble to find out about its status. The facts,
therefore, show that Auyong Hian was not deprived of due process of law, but
 that he is guilty of abandonment or gross negligence in the protection of his
rights, for which he alone is to blame.

This pronouncement, though found only in the opinion, cannot be accurately called, as contended
by petitioner, an obiter dictum just because it was not incorporated in the dispositive portion of
the decision. This Court has already remarked that the dispositive part does not always constitute
a judgment and that the judicial pronouncements in the body of the decision must be considered.
(Millare, et al. vs. Millare, et al., 106 Phil. 298-299.) An obiter dictum has been defined as an
opinion expressed by a court upon some question of law which is not necessary to the decision of
the case before it (Bouvier's Law Dictionary, third revision, Vol. I, p. 863). Although the
question of whether petitioner Auyong Hian was deprived of due process in the seizure
proceedings was not the precise issue in the Arca case, for this Court itself said that the legal
question posed in that case was:

Who has a better right to the tobacco in question, petitioner Collector of Customs
who has ordered the seizure and declared the forfeiture thereof as a result of
Manila Seizure Identification No. 6669, or respondent Tomas Cloma in whose
favor a writ of attachment was issued by the Court of First Instance of Manila
covering said shipment in Civil Case No. 53874, brought by Cloma against
Auyong Hian for services rendered to the latter? (Collector of Customs v. Area,
L-21389, July 17, 1964, 11 SCRA 529, 534-535).

Yet, the pronouncement made by this Court upon said question cannot be said to be totally
extraneous, and was not necessary, to the adjudication of the case before it, for to arrive at the
conclusion that the Collector of Customs had a better right, by virtue of the seizure proceedings,
that had already been terminated before Cloma's action was brought, the validity and legality of
the seizure proceedings, and necessarily the issue of the deprivation of due process, had to be
passed upon. With respect to a court of last resort, all that is needed to render its decision
authoritative is that there was an application of the judicial mind to the precise question
adjudged, and that the point was investigated with care and considered in its fullest extent
(Alexander v. Worthington, 5 Md. 488, cited in Bouvier's Law Dictionary, third revision, Vol. 1,
p. 864). A perusal of the decision in the Arca case shows that the precise question of deprivation
of due process was extensively and explicitly discussed with a view to settle it, and consequently
the pronouncement on said point cannot be considered a dictum.

2. Petitioner anchors the alleged invalidity of the seizure proceedings on his

having been deprived his day in court. This basis has been shown to be untenable.

Petitioner, however, tried to emasculate respondents' argument by asserting that the declaration
of the illegality of the tobacco importation was incidentally made; hence it has no binding force.

An analysis of the Barcelona case shows that even if the pronouncement therein made regarding
the illegality of the importation was incidentally made, it did not and could not mean that the
pronouncement was extraneous to the subject matter and that it was, therefore, unauthoritative.
The Barcelona case was a petition for certiorari to set aside a writ of preliminary mandatory
injunction. issued by the Hon. Judge Manuel P. Bareelona in Civil Case No. 49639 of the Court
of First Instance of Manila, ordering the respondents therein, Cesar Climaco and Teotimo Roja,
to allow entry of the 600 hogsheads of Virginia leaf tobacco imported under authority of licenses
Nos. 17166, 17169, 17196, and 17199 issued by the defunct Import Control Commission on May
8, 1953 under the provisions of Republic Act No. 650. Respondents therein opposed the issuance
of the writ of preliminary injunction, alleging among other things that the Court of First Instance
had no jurisdiction to order the release of the importation on the ground that the importer
Auyong Hian was not entitled as a matter of right and equity to import the tobacco, for the
licenses, under which the importation was made, were issued under a law that ceased to exist
eight years before the importation, and that the importation was a violation of Rep. Act No. 1194
at the time of importation; and that the imported tobacco, being under customs custody, could
not be ordered released by the Court of First Instance which had no jurisdiction to review the
actuations of customs authorities in any case involving the seizure, detention or release of any
property.

One of the reasons given by the respondent court therein for granting the writ of preliminary
mandatory injunction was that the importation was legal on the ground that the President had
issued the licenses in accordance with the supposed opinions of the Secretary of Justice Nos. 32
and 145, series of 1961.

Although the principal question therein was the court's jurisdiction and the primary relief prayed
for by petitioners was to set aside the preliminary mandatory injunction dated March 20, 1962,
the resolution thereof hinged on another question, which was, to quote the Court:

The question that is, therefore squarely presented for the decision of this Court is
whether, under the facts and circumstances above indicated, the petitioner has the
clear legal right to make the importation in question and the respondents the clear
legal duty to allow entry and release of said importation.

The above question in turn depended on whether the importation was legally made.

This Court in the dispositive portion of its decision in said case ruled for the reasons therein
given that:

... We are constrained to declare, as we hereby declare, that the importation in

question has been illegally made ... And We, therefore, hereby grant the petition
and set aside the order of the court below on March 19, 1962 and the writ of
preliminary injunction issued in accordance therewith ....

Said ruling regarding the illegality of the importation, contained in the dispositive portion cannot
be said, as claimed by petitioner, unauthoritative and not binding. Said declaration of illegality
was reiterated in the Arca case thus:

There is no question that the importation of the tobacco leaf in question was
illegal, having been made in clear violation of the policy contained in Republic
 Acts Nos. 698 and 1194. (Collector of Customs v. Arca, L-21389, July 17, 1964,
11 SCRA 529, 535.)

3. Petitioner's insistence that the tobacco importation was valid and legal together
with the grounds asserted to sustain the same is not tenable. This Court already
had occasion to examine in the Barcelona case the import licenses claimed to be
valid by petitioner. To the petition in said case were appended copies of the
licenses and the receipt evidencing payment of the fees thereon in November,
1961. The alleged reason that said licenses were valid because the President had
issued them in accordance with the supposed opinions of the Secretary of Justice
No. 32 and 145, series of 1961 was already passed upon. This Court said that:

An examination of the licenses shows that the same were approved by the Import
Control Commission on June 29, 1953. The following statement is contained in
each of the licenses:

This license is valid from date of issue until fully consummated, provided that this
license must be presented to an Authorized Agent (Negotiating Bank) of the
Central Bank, and Bank Credit established within thirty (30) days after date of
release. It is not transferable/assignable without authority from the Import Control
Commission and is subject to revocation for cause. Commodities covered by this
license must be shipped from the country of origin before the expiry date of the
license, and are subject to Sec. 13 of Republic Act No. 650.

The following provision of Republic Act No. 650 is to be noted:

Sec. 8. Unless extended in accordance with the rules and regulations, import
licenses issued under this Act and which are not used within thirty days after the
issue by the opening of a letter of credit or a similar transaction shall be null and
void. Import licenses are non-transferable.

The petitioner has not shown that steps were ever taken to open the corresponding
letters of credit amounting to $500,000 to cover the payment of the Virginia leaf
tobacco to he imported, as required by the above-quoted provision of the law.
Neither is it shown that immediately, or within a reasonable time after the
approval of the licenses and their issuance, steps were taken to order the tobacco
to be shipped to the Philippines. Certainly this was not done because the licenses
were not fully completed until November 2, 1961, when the corresponding fees
chargeable on the licenses were paid to the Office of the President. (Climaco vs.
Barcelona, L-19597, July 31, 1962, 5 SCRA 850-851.)

and after discussing why the decision in Commissioner of Customs v. Auyong Hian, G.R. No. L-
11719, April 29, 1959 could not be applied to the said case, this Court concluded that:

The importation [of the tobacco] in question, therefore, is a gross violation of the
policy contained in Republic Acts Nos. 698 and 1194, limiting the Virginia leaf
 tobacco importation only to such amounts as could not be met with by the local
production of Virginia leaf tobacco, hence clearly illegal.

The supposed approval of the licenses by the President has been alleged as a
ground for the validity of the importation. The President may not extend the life
of licenses issued under Republic Act No. 650; he cannot make the illegal
importation valid; he has no legal authority to do so and his act would be clearly
violative of the express provisions of Republic Act 1194. (Climaco v. Bareelona,
L-19597, July 31, 1962, 5 SCRA 846, 848, 850, 853.)

In the Arca case, this Court again said:

There is no question that the importation was illegal having been made in clear
violation of the policy contained in Republic Acts Nos. 698 and 1194. To this
effect is the decision of this Court in Climaco vs. Judge Barcelona, et al., G.R.
No. L-19597, July 31, 1962. (Collector of Customs vs. Arca, No. L-21389, July
17, 1964, 11 SCRA 529, 535.)

Petitioner's claim that the Government is estopped to deny the validity of the license cannot be
seriously defended. Time and again, this Court has ruled that the doctrine of estoppel is not
applicable against the Government suing in its capacity as sovereign or asserting governmental
rights; the Government is never estopped by mistake or errors on the part of its agents. (Republic
v. Go Bon Lee, L-11499, April 29, 1961, 1 SCRA 1166, 1170; Republic vs. Philippine Rabbit
Bus Lines, Inc., L-26862, March 30, 1970, 32 SCRA 211, 218; Luciano vs. Estrella, L-31622,
August 31, 1970, 34 SCRA 769, 776.) Moreover, estoppel cannot give validity to an act that is
prohibited by law or is against public policy. (Republic v. Go Bon Lee, supra.)

The tobacco importation in question was, therefore, subject to seizure and forfeiture in
accordance with Section 2530 of the Tariff and Customs Code and the Collector of Customs had
the power to order the seizure in accordance with the provisions of Section 2205 of the Tariff
and Customs Code, as has already been ruled by this Court in the Arca case.

But the Court of Tax Appeals, insists petitioner, should have decided whether the importation
was absolutely prohibited or merely prohibited, on the ground that in this Court's decision in the
Court of Tax Appeals case, it was said that "the question of whether the tobacco thus imported
were goods the importation of which was relatively prohibited or absolutely prohibited" "called
for a ruling of the Court of Tax Appeals in the exercise of its appellate jurisdiction." (19 SCRA
10, 22). Petitioner also claims that the respondent Court of Tax Appeals erred when it did not
hold that the importation was at worst, only relatively prohibited. In the decision of the Court of
Tax Appeals sought to be reviewed, it appears that the Tax Court discussed the classification of
articles subject to forfeiture under the Customs Law, and the rights of the importer to the
delivery of the imported article under Sections 2301 and 2307 of the same Code, and it
concluded that the failure to declare the tobacco imported as merely qualifiedly prohibited did
not affect the substantive rights of petitioner. Said the Tax Court:
 There is no evidence of record to show that petitioner herein exercised or
attempted to exercise any of the rights afforded an importer under Sections 2301
and 2307 of the Tariff and Customs Code. ... At any rate, even if he sought the
release of said tobacco by filing a bond for its appraised value or by paying the
redemption price, it is evident that the same could not have been granted because
the delivery of said tobacco to him would be contrary to law. ... It is quite plain
that the failure of respondents to declare said tobacco as an article which merely
qualifiedly prohibited has not adversely affected the substantive right of
petitioner. (Decision-CTA Case No. 1560, Record, pp. 47-48.)

The Court of Tax Appeals did not commit a reversible error on this point. There is no question,
as this Court has declared, that the importation made in December, 1961, of tobacco leaf in
question was illegal. The same was made in clear violation of the policy enunciated in Republic
Act No. 698, approved May 9, 1952 limiting the importation of foreign leaf tobacco, and also of
its amendatory Act, Republic Act No. 1194, approved August 25, 1954. These' statutes not only
limit the importation of Virginia leaf tobacco but also provide that the "Virginia-type leaf
tobacco authorized to be imported therein shall be allocated and distributed by the Monetary
Board of the Central Bank among legitimate manufacturers of Virginia-type cigarettes; that the
licenses for such importation shall be issued ... by the Central Bank ... that the leaf-tobacco
imported without the necessary license issued under said Act shall be forfeited to the
Government" (Sec. 2). Said importation is also subject to forfeiture under Sec. 2530 of the Tariff
and Customs Code.

The substantive right of petitioner is not affected, as declared by the Tax Court, by the failure to
declare whether the importation was absolutely or qualifiedly prohibited.

Although the illegally imported subject tobacco may not be absolutely prohibited, but only
qualifiedly prohibited under Sec. 102 (K) of the Tariff and Customs Code, for it may be imported
subject to certain conditions, it is nonetheless prohibited and is a contraband (Comm. of Customs
vs. CTA & Dichoco, L-33471, Jan. 31, 1972), and the legal effects of the importation of
qualifiedly prohibited articles are the same as those of absolutely prohibited articles (Geotina vs.
Court of Tax Appeals, No. L-33500, August 30, 1971, 40 SCRA 362, 379, 383; Comm. of
Customs vs. CTA & Dichoco, supra).

Under Sec. 2301 of the Tariff and Customs Code, upon making any seizure, the Collector of
Customs shall issue a warrant for the detention of property; and if the owner or importer desires
to secure the release of the property for legitimate use, the Collector may surrender it upon the
filing of a sufficient bond, in an amount to be fixed by him, conditioned for the payment of the
appraised value of the article and/or any fine, expenses and costs which may be adjudged in the
case, provided, the articles the importation of which is prohibited by law shall not be released
under bond. Pursuant, thereto, the importer of the subject tobacco, the importation of which is
prohibited by law, has no right that the tobacco be released to him even if he puts up a bond to be
determined by the Collector of Customs.

Sec. 2307 of the Tariff and Customs Code, which authorizes in a seizure case the settlement of
the case by payment of fine or the redemption of forfeited property, also provides that:
 Redemption of forfeited property shall not be allowed in any case where the
importation is absolutely prohibited or where the surrender of the property to the
persons offering to redeem the same would be contrary to law. (Emphasis
supplied.)

Petitioner Auyong Hian would, accordingly, not even be entitled to redeem, even if he wanted to,
the forfeited tobacco, for the surrender to him of said tobacco would be contrary to law, because
petitioner could not really be legally entitled to import it inasmuch as he was not a legitimate
manufacturer of Virginia-type cigarettes, among whom alone shall be allocated and distributed
by the Monetary Board of the Central Bank the Virginia-type leaf tobacco authorized to be
imported. (Sec. 2, Rep. Act No. 1194.)

What has been said above would have applied even if petitioner had attempted to exercise the
right of redemption under Sec. 2307 of the Tariff and Customs Code. The fact, however, as
found by the Court of Tax Appeals is —

There is no evidence or record to show that petitioner herein exercised or

attempted to exercise any of the rights afforded an importer under Section 2307 of
the Tariff and Customs Code. All that he sought was the release of tobacco in
question upon payment of the duties and taxes due thereon because of his
insistence that the importation was made in accordance with law.

4. What has been said in the third assignment of error suffices to dispose of the fourth and fifth
assignments. Therein it was shown that pursuant to the provisions of Republic Acts Nos. 650 and
1194, petitioner was disqualified to import the Virginia-leaf tobacco, he not being a legitimate
manufacturer of this type of cigarette, and under the provisions of Secs. 2301 and 2307 of the
Tariff and Customs Code, the tobacco could not be delivered to him, even if he had made
attempts to put up a bond. Neither could the tobacco be legally delivered to him even if he had
attempted to redeem it. Hence, the alleged error committed by the Court of Tax Appeals in
finding that petitioner did not attempt to exercise any of the rights afforded an importer under
Section 2307 of the Tariff and Customs Code, even if sustained, would not affect the outcome of
the instant petition.

5. Petitioner's contention that the sale to the CTIP was invalid cannot be upheld.

It has been shown in the previous discussion that the decision of the Collector of Customs in
ordering the forfeiture and sale of the subject tobacco was correct and legal. Seized property,
other than contraband, pursuant to Sections 2601 and 2602 of the Tariff and Customs Code, shall
be sold, or otherwise disposed of, upon the order of the Collector of the port where the property
in question is found. The property shall be sold at public auction after ten days notice
conspicuously posted at the port and such other advertisements as may appear to the Collector to
be advisable in the particular case (Sec. 2603). If the article seized, however, is perishable, the
Collector may proceed to advertise and sell the same at auction upon notice as he shall deem to
be reasonable (Sec. 2607).
Implementing his decision dated May 9, 1963, to have the seized tobacco sold to buyers who
could meet certain qualifications and conditions, and after having created a Committee to
implement the decision, the Collector of Customs issued a notice of sale (Exhibit 6 — Customs),
setting the public auction sale "at June 10, 1963 at 9:00 A.M. and every morning thereafter until
terminated." which notice of sale was given the requisite publication at least ten days before the
auction sale (before June 10, 1963) in accordance with Section 2603 of the Tariff and Customs
Code. The sale, therefore, could not have been invalid, for lack of public notice.

Two prospective bidders — the respondent CTIP and the Philippine Associated Resources —
registered with the Special Bidding Committee — but only the CTIP was found to be a qualified
bidder.

On June 10, 1963, the date set for the public auction sale, the Collector of Customs was served
the writ of preliminary injunction issued by Judge Francisco Arca in Civil Case No. 53824
directing the former to desist from holding the auction sale. This writ was served upon him at
8:55 A.M. (pp. 270-272, 329, 360 t.s.n., Brief for Respondent CTIP, p. 48), but before the writ
was served, the CTIP had submitted its bid at around 8:00 A.M. (Ibid., p. 48), and these facts
were not impugned by petitioner (See Petitioner's Reply Brief, pp. 26-27). At any rate, even if
the bid were submitted after the Collector had been served with the writ of preliminary
injunction, his act would not constitute a violation of the writ for the submission and reception of
a bid could not constitute a consummated sale. But on June 17, 1963 the Supreme Court issued a
preliminary injunction in L-21389 (Arca case) prohibiting Judge Arca from executing or
enforcing the writ of preliminary injunction issued by him against the petitioner in Civil Case
No. 53874 (11 SCRA 529, 532-533).

On June 26, 1963, the bid of the CTIP was finally approved and the tobacco was awarded to it.
This took place before 5:00 p.m. However, at 5:38 p.m. of the same day another restraining order
from the Supreme Court in the Arca case directed the Collector to desist temporarily from
continuing with the public auction of the tobacco until July 3, 1963. Before the Collector
received the restraining order, CTIP had already paid P500,000 on account of its approved and
accepted bid of P1,500,000.00 and had filed the required surety bond of P1,000,000 to guarantee
the exportation of the locally grown tobacco. It is clear, therefore, that at the time the bid of the
CTIP was approved and at the time payment was made, there was no restraining order either of
the CFI or of the Supreme Court enjoining the sale.

But even assuming arguendo that at the time the sale was made there was already a restraining
order enjoining it, the sale would still not be null and void. A restraining order like injunction
operates upon a person as it is granted in exercise of equity jurisdiction, and an injunction has
no in rem effect to invalidate an act done in contempt of an order of the court except where by
statutory authorization the decree is so framed as to act in rem on property. (Town of Fond Du
Lac v. City of Fond Du Lac, 22 Wis. 2d 525,126 NW 2d 206). In 42 Am. Jur. 2d, pp. 1144-1145,
we read:

Where an injunction is granted and the decree operates in personam, an act done
in violation of injunction is not a nullity. On the contrary, the act is ordinarily
valid and legally effective, except as to the person who obtained the injunction
 and those claiming under him, and as to them, the act is valid unless and until they
attack it in a proper manner. If an injunction prohibits the defendant from
transferring property, but he transfers the property in violation of the injunction,
and the transfer is made to an innocent third person, the transferee obtains good
title and the injunction. does not affect his rights.

Neither may petitioner's contention that the continuation of the sale for more than three days, i.e.
from June 10 to June 26, 1963 would render the sale void, because it is violative of Section 2607
of the Tariff and Customs Code, be sustained. Said section in part provides:

Section 2607. Disposition of article liable to deterioration. — Perishable articles

shall not be deposited in a bonded warehouse; and, if not immediately entered for
export or for transportation from the vessel or aircraft in which imported or
entered for consumption and the duties and taxes paid thereon, such articles may
be sold at auction, after such public notice, not exceeding three days, as the
necessities of the case permit.

The three days mentioned in said section refers to the period of public notice, not to continuation
of the sale as contended by petitioner.

Untenable also is petitioner's contention that the Collector had no right to have the tobacco sold
because the Bureau of Customs was not yet the owner of the tobacco at the time of the sale. This
contention loses sight of the fact that the Collector of Customs when sitting in forfeiture
proceedings, constitutes a tribunal upon which the law confers jurisdiction to determine all
questions touching the forfeiture and further disposition of the illegally imported merchandise.
(Commissioner of Customs v. Cloribel, L-20266, Jan. 31, 1967, 19 SCRA 234; Auyong Hian vs.
Court of Tax Appeals, L-25181, January 11, 1967, 19 SCRA 10). The Tariff and Customs Code
requires the Collector, upon making any seizure to issue a warrant for the detention of the
property (Section 2301); to make in writing, after hearing, a declaration of forfeiture (Section
2312), and to sell or otherwise dispose of the property under customs custody (Sec. 2602). The
forfeiture constitutes a statutory transfer of the right of property. Title is vested in the
government by administrative forfeiture, although such title may not be absolute, but resoluble
subject to the right of redemption on the part of the owner of the forfeited merchandise (Sec.
1388 Administrative Code). The consequence of this forfeiture was already declared by this
Court in the Arca case when it said:

It is to be noted that the seizure proceedings had already been terminated and the
tobacco shipment declared forfeited to the Government, thereby ceasing to be the
property of Auyong Hian .... The seizure proceedings were taken by the Collector
of Customs in the exercise of its jurisdiction of the customs law (Secs. 2205 and
2530, Tariff and Customs Code) ... (11 SCRA 529, 537).

And this Court continued:

Auyong Hian, therefore, had lost all his rights to the shipment, not only because
we declared the licenses void and the shipment illegal in the case of Climaco vs.
 Barcelona, G.R. No. L-19597, but also because the seizure proceedings have been
found to be regular and had deprived Auyong Hian of his rights to the shipment as
importer; at least while the order of seizure has not been set aside. (11 SCRA 529,
538.)

Petitioner, however, insists that the Collector could not sell the forfeited tobacco after he lost
jurisdiction thereof upon the perfection of the appeal on May 21, 1963 to the Commissioner of
Customs. Petitioner seems to imply that the sale, if any, should have been made by, or at least
with, the approval of the Commissioner of Customs. This is what happened. When the Collector
of Customs approved, on June 26, 1963, the offer of the CTIP, his action was backed by prior
approval of the Commissioner of Customs. To this effect we read in the appealed decision, thus:

Apparently, to preclude any doubt as to the regularity of the sale, the Collector of
Customs, on June 11, 1963, sought the advice of the Secretary of Finance, and the
latter referred the matter to the Secretary of Justice, who, at that time, was the
Chairman of the Cabinet Committee on Public Bidding of Tobacco. In an
indorsement (rated June 24, 1963, signed by the Secretary of Justice and all the
members of the said Cabinet Committee, the sale was approved. The indorsement
of the Cabinet Committee was transmitted to the Secretary of Finance and the
Commissioner of Customs, who informed the Collector of Customs of such
approval (See Exhs. "E", "F" and "G", CTIP, pp. 205-211, CTA Records), When,
therefore, the Collector of Customs approved on June 26, 1963, the
recommendation 'of the Special Bidding Committee to accept the offer of
Consolidated Tobacco Industries of the Philippines, his action had the prior
approval of the Commissioner of Customs, the Secretary of Finance and the
Cabinet Committee. (Brief for Petitioner, pp. 140-141.)

Neither can the inadequate consideration, even if true, invalidate the sale to the CTIP.

The other factor which, according to petitioner, militates against the validity of the sale is the
measly sum of P1,500,000 paid by the CTIP for the tobacco which had a value, according to
petitioner, of P7,000,000. What is really the value of the imported tobacco? According to the Tax
Court, the records show that when the tobacco arrived in the Philippines, petitioner filed and
Affidavit and Pro Forma Invoice giving the invoice value of the tobacco as $103,453 and an
appraised value, for tax purposes, of P227,675. Petitioner contends that this declaration was
merely its invoice value and does not include the other expenses incurred in the importation.
Because of these different declarations, the Tax Court confessed it was at a loss as to which of
petitioner's declaration was to be believed. When it suits petitioner's purpose he claims that the
tobacco was worth P227,675.00. For other purposes the value was P7,000,000. If the claim of
petitioner that the tobacco was really worth P7,000,000.00, then there will be another cause for
forfeiture which would be petitioner's filing a false declaration under section 2530 (m) of the
Tariff and Customs Code.

We cannot say that the appraisal of the value of the tobacco was incorrect. According to the Tax
Court, the Collector of Customs took precautionary measures to insure a correct appraisal of the
tobacco. The appraisal was made by a competent appraiser of the Bureau of Customs, and both
the Commissioner of Customs and the Secretary of Finance, who exercise supervisory authority
over the Collector of Customs and who were consulted on the matter, approved the sale, or at
least, interposed no objection to the sale. Anent this matter it has been said that an appraisal
made by the Commissioner of Customs under Section 1377 of the Revised Administrative Code
is presumed to be correct, unless the contrary is proven by the importer. (Lazaro vs.
Commissioner of Customs, L-22511 and L-22343, May 16, 1966, 17 SCRA 36, 41 and cases
cited therein.)

But, assuming arguendo, that the consideration paid for the forfeited tobacco was inadequate,
such inadequate consideration is not a ground for the invalidity of a contract. Anent this matter
Article 1355 of the Civil Code provides:

Except in cases specified by law, lesion or inadequacy of cause shall not

invalidate a contract, unless there has been fraud, mistake or undue influence.

Petitioner has not shown that the instant sale is a case exempted by law from the operation of
Art. 1355; neither has petitioner shown that there was fraud, mistake or undue influence in the
sale. Hence, this Court cannot but conclude with the Court of Tax Appeals that "In these
circumstances, we find no reason to invalidate the sale of said tobacco to Consolidated Tobacco
Industries of the Philippines."

The Court of Tax Appeals is claimed to have erred also in holding that the subject tobacco was
deteriorating. We note, that the imported tobacco has a very unique nature. According to
petitioner, it is highly perishable, but in spite of the lapse of several years, it has not deteriorated.
In Civil Case No. 49639 of the Court of First Instance of Manila, petitioner herein averred that
the Virginia leaf tobacco imported is highly perishable in nature so that delay in the release
thereof would cause him irreparable injury (Climaco v. Barcelona, L-19597, July 31, 1962, 5
SCRA 846, 848). In his "petition to release tobacco under bond" dated March 14, 1967, filed
with respondent court, he alleged that:

16. That considering the time that has elapsed since the arrival in Manila of the
600 hogsheads of Virginia leaf tobacco same may be deteriorated unless sooner
disposed of ...

Now he claims that the tobacco has not deteriorated.

But let us give petitioner the benefit of the doubt. We do not see, however, how the deterioration
or not of the tobacco will affect the outcome of this petition. Hence, it is unnecessary to deal on
it further.

Petitioner's contention that the Court of Tax Appeals erred in holding that he had no legal
personality to question the legality of the sale, should be sustained. Even if petitioner had lost all
his rights to the tobacco shipment after the same has been seized and forfeited, such loss of right
was still subject to a contingency — that is, "at least while the order of seizure has not been set
aside." It is unwarranted to conclude that the loss of his rights to the tobacco while the seizure
has not been set aside carried with it the loss of his legal personality to question the legality of
the sale. The Tariff and Customs Code itself expressly gives to any person aggrieved by the
decision or action of the Collector of Customs in any case of seizure, the right to have the
decision reviewed by the Commissioner of Customs (Section 2313), and from the decision of the
latter, he has a right to appeal to the Court of Tax Appeals (Section 2402), and from the latter's
decision to the Supreme Court.

Neither can it be accurately said that petitioner has no right to have the contract of sale to the
CTIP annulled, on the ground that he was not a party bound either principally or subsidiarily by
the contract. (Art. 1397 Civil Code.) Petitioner seeks the declaration of the nullity of the sale not
as a party to the sale, but because he had an interest that was affected by the sale. This Court has
held that a person who is not a party obliged principally or subsidiarily in a contract may
exercise an action for nullity of the contract if he is prejudiced in his rights with respect to one of
the contracting parties, and can show the detriment which would positively result to him from the
contract in which he had no intervention. (Ibañez v. Hongkong and Shanghai Bank, 22 Phil. 572,
584-585; Teves vs. People's Homesite and Housing Corporation, et al., L-21498, June 27, 1968,
23 SCRA 1141, 1147-1148). It would be stating the obvious that in the instant case the petitioner
will suffer detriment as a consequence of the sale, in case it is not set aside.

As a matter of fact, this Court has recognized the personality of petitioner to question the legality
of the sale when in the Court of Appeals case, L-25181, this Court remanded the case to the
Court of Tax Appeals to decide the validity of the administrative proceedings and the question
regarding the disposal and sale of the tobacco that was seized. It was therein implied that
petitioner had personality to question the sale.

The error assigned regarding the amount of warehousing charges that had accumulated is
immaterial to the decision of the instant case, and whether the Court of Tax Appeals did commit
the error or not, will not affect the result of the case. This point, therefore, need not be
commented on.

This Court recognizes that petitioner has the right to take all legal steps to enforce his legal
and/or equitable rights to the tobacco in question. One who makes use of his own legal right does
no injury. Qui jure suo utitur mullum damnum facit. If damage results from a person's exercising
his legal rights, it is damnum absque injuria. The consequent delay in the delivery of the tobacco
is an incident to said exercise of his rights. But, again, whatever might be petitioner's motive in
this regard will hardly affect the outcome of this case.

6. The property, subject of litigation is not by that fact a line, in custodia legis. "When property
is lawfully taken, by virtue of legal process, it is in the custody of the law, and not otherwise."
(Gilman v. Williams, Wis. 334, 76 Am. Dec. 219.)

In the case of Millare et all, vs. Millare et al., 106 Phil. 203, 299, a motion for contempt was
filed in this Court by appellant charging respondents with having committed contempt by selling
or otherwise disposing the land in question pending the appeal. This Court held that there being
no attachment, injunction or receivership issued with respect to the land, and in view of the
conclusion reached on the merits of the case, there was no reason to declare the respondents
guilty of contempt. This ruling is in point in the instant case. At the time the CTIP took
possession of the tobacco and disposed it on September 12, 1967, there was no existing order of
the Court of Tax Appeals restraining such possession and disposition. By specific order of the
Court of Tax Appeals, it declared that the restraining order previously issued by it was of no
further effect on September 12, 1967 due to appellants' failure to post the bond required.

It has been shown above, furthermore, that petitioner herein was not entitled to the tobacco,
consequently he had no right to the proceeds of the sale, and to have the proceeds thereof
deposited.

7. Regarding the "Motion for Leave" filed by the Solicitor General's Office
praying authority to refund the storage charges of the subject tobacco to the CTIP,
this Court notes that the same is not in issue in the instant case, and, therefore,
abstains from making any resolution regarding the matter. The claim of the CTIP
for refund must be prosecuted administratively.

WHEREFORE, the instant petition for review is dismissed, and the decision of the Court of Tax
Appeals, appealed from is affirmed.

G.R. No. 134241            August 11, 2003

DAVID REYES (Substituted by Victoria R. Fabella), petitioner,
vs.
JOSE LIM, CHUY CHENG KENG and HARRISON LUMBER, INC., respondents.

CARPIO, J.:

The Case

This is a petition for review on certiorari of the Decision1 dated 12 May 1998 of the Court of
Appeals in CA-G.R. SP No. 46224. The Court of Appeals dismissed the petition for certiorari
assailing the Orders dated 6 March 1997, 3 July 1997 and 3 October 1997 of the Regional Trial
Court of Paranaque, Branch 2602 ("trial court") in Civil Case No. 95-032.

The Facts

On 23 March 1995, petitioner David Reyes ("Reyes") filed before the trial court a complaint for
annulment of contract and damages against respondents Jose Lim ("Lim"), Chuy Cheng Keng
("Keng") and Harrison Lumber, Inc. ("Harrison Lumber").

The complaint3 alleged that on 7 November 1994, Reyes as seller and Lim as buyer entered into
a contract to sell ("Contract to Sell") a parcel of land ("Property") located along F.B. Harrison
Street, Pasay City. Harrison Lumber occupied the Property as lessee with a monthly rental of
P35,000. The Contract to Sell provided for the following terms and conditions:

1. The total consideration for the purchase of the aforedescribed parcel of land together
with the perimeter walls found therein is TWENTY EIGHT MILLION (P28,000,000.00)
PESOS payable as follows:

(a) TEN MILLION (P10,000,000.00) PESOS upon signing of this Contract to Sell;

(b) The balance of EIGHTEEN MILLION (P18,000,000.00) PESOS shall be paid on or

before March 8, 1995 at 9:30 A.M. at a bank to be designated by the Buyer but upon the
complete vacation of all the tenants or occupants of the property and execution of the
Deed of Absolute Sale. However, if the tenants or occupants have vacated the premises
earlier than March 8, 1995, the VENDOR shall give the VENDEE at least one week
advance notice for the payment of the balance and execution of the Deed of Absolute
Sale.

2. That in the event, the tenants or occupants of the premises subject of this sale shall not
vacate the premises on March 8, 1995 as stated above, the VENDEE shall withhold the
payment of the balance of P18,000,000.00 and the VENDOR agrees to pay a penalty of
Four percent (4%) per month to the herein VENDEE based on the amount of the
downpayment of TEN MILLION (P10,000,000.00) PESOS until the complete vacation
of the premises by the tenants therein.4
The complaint claimed that Reyes had informed Harrison Lumber to vacate the Property before
the end of January 1995. Reyes also informed Keng5 and Harrison Lumber that if they failed to
vacate by 8 March 1995, he would hold them liable for the penalty of P400,000 a month as
provided in the Contract to Sell. The complaint further alleged that Lim connived with Harrison
Lumber not to vacate the Property until the P400,000 monthly penalty would have accumulated
and equaled the unpaid purchase price of P18,000,000.

On 3 May 1995, Keng and Harrison Lumber filed their Answer6 denying they connived with Lim
to defraud Reyes. Keng and Harrison Lumber alleged that Reyes approved their request for an
extension of time to vacate the Property due to their difficulty in finding a new location for their
business. Harrison Lumber claimed that as of March 1995, it had already started transferring
some of its merchandise to its new business location in Malabon.7

On 31 May 1995, Lim filed his Answer8 stating that he was ready and willing to pay the balance
of the purchase price on or before 8 March 1995. Lim requested a meeting with Reyes through
the latter’s daughter on the signing of the Deed of Absolute Sale and the payment of the balance
but Reyes kept postponing their meeting. On 9 March 1995, Reyes offered to return the P10
million down payment to Lim because Reyes was having problems in removing the lessee from
the Property. Lim rejected Reyes’ offer and proceeded to verify the status of Reyes’ title to the
Property. Lim learned that Reyes had already sold the Property to Line One Foods Corporation
("Line One") on 1 March 1995 for P16,782,840. After the registration of the Deed of Absolute
Sale, the Register of Deeds issued to Line One TCT No. 134767 covering the Property. Lim
denied conniving with Keng and Harrison Lumber to defraud Reyes.

On 2 November 1995, Reyes filed a Motion for Leave to File Amended Complaint due to
supervening facts. These included the filing by Lim of a complaint for estafa against Reyes as
well as an action for specific performance and nullification of sale and title plus damages before
another trial court.9 The trial court granted the motion in an Order dated 23 November 1995.

In his Amended Answer dated 18 January 1996,10 Lim prayed for the cancellation of the Contract
to Sell and for the issuance of a writ of preliminary attachment against Reyes. The trial court
denied the prayer for a writ of preliminary attachment in an Order dated 7 October 1996.

On 6 March 1997, Lim requested in open court that Reyes be ordered to deposit the P10 million
down payment with the cashier of the Regional Trial Court of Parañaque. The trial court granted
this motion.

On 25 March 1997, Reyes filed a Motion to Set Aside the Order dated 6 March 1997 on the
ground the Order practically granted the reliefs Lim prayed for in his Amended Answer.11 The
trial court denied Reyes’ motion in an Order12 dated 3 July 1997. Citing Article 1385 of the Civil
Code, the trial court ruled that an action for rescission could prosper only if the party demanding
rescission can return whatever he may be obliged to restore should the court grant the rescission.

The trial court denied Reyes’ Motion for Reconsideration in its Order13 dated 3 October 1997. In
the same order, the trial court directed Reyes to deposit the P10 million down payment with the
Clerk of Court on or before 30 October 1997.
On 8 December 1997, Reyes14 filed a Petition for Certiorari15 with the Court of Appeals. Reyes
prayed that the Orders of the trial court dated 6 March 1997, 3 July 1997 and 3 October 1997 be
set aside for having been issued with grave abuse of discretion amounting to lack of jurisdiction.
On 12 May 1998, the Court of Appeals dismissed the petition for lack of merit.

Hence, this petition for review.

The Ruling of the Court of Appeals

The Court of Appeals ruled the trial court could validly issue the assailed orders in the exercise
of its equity jurisdiction. The court may grant equitable reliefs to breathe life and force to
substantive law such as Article 138516 of the Civil Code since the provisional remedies under the
Rules of Court do not apply to this case.

The Court of Appeals held the assailed orders merely directed Reyes to deposit the P10 million
to the custody of the trial court to protect the interest of Lim who paid the amount to Reyes as
down payment. This did not mean the money would be returned automatically to Lim.

The Issues

Reyes raises the following issues:

1. Whether the Court of Appeals erred in holding the trial court could issue the
questioned Orders dated March 6, 1997, July 3, 1997 and October 3, 1997, requiring
petitioner David Reyes to deposit the amount of Ten Million Pesos (P10,000,000.00)
during the pendency of the action, when deposit is not among the provisional remedies
enumerated in Rule 57 to 61 of the 1997 Rules on Civil Procedure.

2. Whether the Court of Appeals erred in finding the trial court could issue the questioned
Orders on grounds of equity when there is an applicable law on the matter, that is, Rules
57 to 61 of the 1997 Rules on Civil Procedure.17

The Court’s Ruling

Reyes’ contentions are without merit.

Reyes points out that deposit is not among the provisional remedies enumerated in the 1997
Rules of Civil Procedure. Reyes stresses the enumeration in the Rules is exclusive. Not one of
the provisional remedies in Rules 57 to 6118 applies to this case. Reyes argues that a court cannot
apply equity and require deposit if the law already prescribes the specific provisional remedies
which do not include deposit. Reyes invokes the principle that equity is "applied only in the
absence of, and never against, statutory law or x x x judicial rules of procedure."19 Reyes adds
the fact that the provisional remedies do not include deposit is a matter of dura lex sed lex.20

The instant case, however, is precisely one where there is a hiatus in the law and in the Rules of
Court. If left alone, the hiatus will result in unjust enrichment to Reyes at the expense of Lim.
The hiatus may also imperil restitution, which is a precondition to the rescission of the Contract
to Sell that Reyes himself seeks. This is not a case of equity overruling a positive provision of
law or judicial rule for there is none that governs this particular case. This is a case of silence or
insufficiency of the law and the Rules of Court. In this case, Article 9 of the Civil Code expressly
mandates the courts to make a ruling despite the "silence, obscurity or insufficiency of the
laws."21 This calls for the application of equity,22 which "fills the open spaces in the law."23

Thus, the trial court in the exercise of its equity jurisdiction may validly order the deposit of the
P10 million down payment in court. The purpose of the exercise of equity jurisdiction in this
case is to prevent unjust enrichment and to ensure restitution. Equity jurisdiction aims to do
complete justice in cases where a court of law is unable to adapt its judgments to the special
circumstances of a case because of the inflexibility of its statutory or legal jurisdiction.24 Equity
is the principle by which substantial justice may be attained in cases where the prescribed or
customary forms of ordinary law are inadequate.25

Reyes is seeking rescission of the Contract to Sell. In his amended answer, Lim is also seeking
cancellation of the Contract to Sell. The trial court then ordered Reyes to deposit in court the P10
million down payment that Lim made under the Contract to Sell. Reyes admits receipt of the P10
million down payment but opposes the order to deposit the amount in court. Reyes contends that
prior to a judgment annulling the Contract to Sell, he has the "right to use, possess and
enjoy"26 the P10 million as its "owner"27 unless the court orders its preliminary attachment.28

To subscribe to Reyes’ contention will unjustly enrich Reyes at the expense of Lim. Reyes sold
to Line One the Property even before the balance of P18 million under the Contract to Sell with
Lim became due on 8 March 1995. On 1 March 1995, Reyes signed a Deed of Absolute Sale29 in
favor of Line One. On 3 March 1995, the Register of Deeds issued TCT No. 13476730 in the
name of Line One.31 Reyes cannot claim ownership of the P10 million down payment because
Reyes had already sold to another buyer the Property for which Lim made the down payment. In
fact, in his Comment32 dated 20 March 1996, Reyes reiterated his offer to return to Lim the P10
million down payment.

On balance, it is unreasonable and unjust for Reyes to object to the deposit of the P10 million
down payment. The application of equity always involves a balancing of the equities in a
particular case, a matter addressed to the sound discretion of the court. Here, we find the equities
weigh heavily in favor of Lim, who paid the P10 million down payment in good faith only to
discover later that Reyes had subsequently sold the Property to another buyer.

In Eternal Gardens Memorial Parks Corp. v. IAC,33 this Court held the plaintiff could not
continue to benefit from the property or funds in litigation during the pendency of the suit at the
expense of whomever the court might ultimately adjudge as the lawful owner. The Court
declared:

In the case at bar, a careful analysis of the records will show that petitioner admitted among
others in its complaint in Interpleader that it is still obligated to pay certain amounts to private
respondent; that it claims no interest in such amounts due and is willing to pay whoever is
declared entitled to said amounts. x x x
Under the circumstances, there appears to be no plausible reason for petitioner’s objections to the
deposit of the amounts in litigation after having asked for the assistance of the lower court by
filing a complaint for interpleader where the deposit of aforesaid amounts is not only required by
the nature of the action but is a contractual obligation of the petitioner under the Land
Development Program (Rollo, p. 252).

There is also no plausible or justifiable reason for Reyes to object to the deposit of the P10
million down payment in court. The Contract to Sell can no longer be enforced because Reyes
himself subsequently sold the Property to Line One. Both Reyes and Lim are now seeking
rescission of the Contract to Sell. Under Article 1385 of the Civil Code, rescission creates the
obligation to return the things that are the object of the contract. Rescission is possible only when
the person demanding rescission can return whatever he may be obliged to restore. A court of
equity will not rescind a contract unless there is restitution, that is, the parties are restored to the
status quo ante.34

Thus, since Reyes is demanding to rescind the Contract to Sell, he cannot refuse to deposit the
P10 million down payment in court.35 Such deposit will ensure restitution of the P10 million to
its rightful owner. Lim, on the other hand, has nothing to refund, as he has not received anything
under the Contract to Sell.36

In Government of the Philippine Islands v. Wagner and Cleland Wagner,37 the Court ruled
the refund of amounts received under a contract is a precondition to the rescission of the
contract. The Court declared:

The Government, having asked for rescission, must restore to the defendants whatever it
has received under the contract. It will only be just if, as a condition to rescission, the
Government be required to refund to the defendants an amount equal to the purchase
price, plus the sums expended by them in improving the land. (Civil Code, art. 1295.)

The principle that no person may unjustly enrich himself at the expense of another is embodied
in Article 2238 of the Civil Code. This principle applies not only to substantive rights but also to
procedural remedies. One condition for invoking this principle is that the aggrieved party has no
other action based on contract, quasi-contract, crime, quasi-delict or any other provision of
law.39 Courts can extend this condition to the hiatus in the Rules of Court where the aggrieved
party, during the pendency of the case, has no other recourse based on the provisional remedies
of the Rules of Court.

Thus, a court may not permit a seller to retain, pendente lite, money paid by a buyer if the seller
himself seeks rescission of the sale because he has subsequently sold the same property to
another buyer.40 By seeking rescission, a seller necessarily offers to return what he has received
from the buyer. Such a seller may not take back his offer if the court deems it equitable, to
prevent unjust enrichment and ensure restitution, to put the money in judicial deposit.

There is unjust enrichment when a person unjustly retains a benefit to the loss of another, or
when a person retains money or property of another against the fundamental principles of justice,
equity and good conscience.41 In this case, it was just, equitable and proper for the trial court to
order the deposit of the P10 million down payment to prevent unjust enrichment by Reyes at the
expense of Lim.42

WHEREFORE, we AFFIRM the Decision of the Court of Appeals.

SO ORDERED.

G.R. No. L-13602            April 6, 1918

LEUNG BEN, plaintiff,
vs.
P. J. O'BRIEN, JAMES A OSTRAND and GEO. R. HARVEY, judges of First Instance of
city of Manila, defendants.

Thos. D. Aitken and W. A. Armstrong for plaintiff.

Kincaid & Perkins for defendants.

STREET, J.:

This is an application for a writ of certiorari, the purpose of which is to quash an attachment
issued from the Court of First Instance of the City of Manila under circumstances hereinbelow
stated.

Upon December 12, 1917, an action was instituted in the Court of First Instance of the city of
Manila by P. J. O'Brien to recover of Leung Ben the sum of P15,000 alleged to have been lost by
the plaintiff to the defendant in a series of gambling, banking and percentage games conducted
ruing the two or three months prior to the institution of the suit. In his verified complaint the
plaintiff asked for an attachment, under section 424, and 412 (1) of the Code of Civil Procedure,
against the property of the defendant, on the ground that the latter was about to depart from the
Philippine islands with intent to defraud his creditors. This attachment was issued; and acting
under the authority thereof, the sheriff attached the sum of P15,000 which had been deposited by
the defendant with the International Banking Corporation.

The defendant thereupon appeared by his attorney and moved the court to quash the attachment.
Said motion having dismissed in the Court of First Instance, the petitioner, Leung Ben, the
defendant in that action, presented to this court, upon January 8, 1918 his petition for the writ
of certiorari directed against P. J. O'Brien and the judges of the Court of First Instance of the
city of Manila whose names are mentioned in the caption hereof. The prayer is that the
Honorable James A. Ostrand, as the judge having cognizance of the action in said court be
required to certify the record to this court for review and that the order of attachment which had
been issued should be revoked and discharged. with costs. Upon the filing of said petition in this
court the usual order was entered requiring the defendants to show cause why the writ should not
issue. The response of the defendants, in the nature of a demurrer, was filed upon January 21,
1918; and the matter is now heard upon the pleadings thus presented.

The provision of law under which this attachment was issued requires that there should be accuse
of action arising upon contract, express or implied. The contention of the petitioner is that the
statutory action to recover money lost at gaming is that the statutory action to recover money lost
at gaming is no such an action as is contemplated in this provision, and he therefore insists that
the original complaint shows on its face that the remedy of attachment is not available in aid
thereof; that the Court of First Instance acted in excess of its jurisdiction in granting the writ of
attachment; that the petitioner has no plain, speedy, and adequate remedy by appeal or otherwise;
and that consequently the writ of certiorari supplies the appropriate remedy for his relief.

The case presents the two following questions of law, either of which, if decided unfavorably to
the petitioner, will be fatal to his application:

(1) Supposing that the Court of First Instance has granted an attachment for which there is no
statutory authority, can this court entertain the present petition and grant the desired relief?

(2) Is the statutory obligation to restore money won at gaming an obligation arising from
"contract, express or implied?"

We are of the opinion that the answer to the first question should be in the affirmative. Under
section 514 of the Code of Civil Procedure the Supreme Court has original jurisdiction by the
writ of certiorari over the proceedings of Courts of First Instance, wherever said courts have
exceeded their jurisdiction and there is no plaint, speedy, and adequate remedy. In the same
section, it is further declared that the proceedings in the Supreme Court in such cases hall be as
prescribed for Courts of First Instance in section 217-221, inclusive, of said Code. This Supreme
Court, so far as applicable, the provisions contained in those section to the same extent as if they
had been reproduced verbatim immediately after section 514. Turning to section 217, we find
that, in defining the conditions under which certiorari can be maintained in a Court of First
Instance substantially the same language is used as is the same remedy can be maintained in the
Supreme Court of First Instance, substantially the same language is used as is found in section
514 relative to the conditions under which the same remedy can be maintained in the Supreme
Court, namely, when the inferior tribunal has exceeded its jurisdiction and there is no appeal, nor
any plain, speedy and adequate remedy. In using these expressions the author of the Code of
Civil Procedure merely adopted the language which, in American jurisdictions at least, had long
ago reached the stage of stereotyped formula.

In section 220 of the same Code, we have a provision relative to the final proceedings
in certiorari, and herein it is stated that the court shall determine whether the inferior tribunal has
regularly pursued its authority it shall give judgment either affirming annulling, or modifying the
proceedings below, as the law requires. The expression, has not regularly pursued its authority as
here used, is suggestive, and we think it should be construed in connection with the other
expressions have exceeded their jurisdiction, as used in section 514, and has exceeded their
jurisdiction as used in section 217. Taking the three together, it results in our opinion that any
irregular exercise of juridical power by a Court of First Instance, in excess of its lawful
jurisdiction, is remediable by the writ of certiorari, provided there is no other plain, speedy, and
adequate remedy; and in order to make out a case for the granting of the writ it is not necessary
that the court should have acted in the matter without any jurisdiction whatever. Indeed the
repeated use of expression excess of jurisdiction shows that the lawmaker contemplated the
situation where a court, having jurisdiction should irregularly transcend its authority as well as
the situation where the court is totally devoid of lawful power.

It may be observed in this connection that the word jurisdiction as used in attachment cases, has
reference not only to the authority of the court to entertain the principal action but also to its
authority to issue the attachment, as dependent upon the existence of the statutory ground. (6 C.
J., 89.) This distinction between jurisdiction to issue the attachment as an ancillary remedy
incident to the principal litigation is of importance; as a court's jurisdiction over the main action
may be complete, and yet it may lack authority to grant an attachment as ancillary to such action.
This distinction between jurisdiction over the ancillary has been recognized by this court in
connection with actions involving the appointment of a receiver. Thus in Rocha &
Co. vs. Crossfield and Figueras (6 Phil. Rep., 355), a receiver had been appointed without legal
justification. It was held that the order making the appointment was beyond the jurisdiction of
the court; and though the court admittedly had jurisdiction of the main cause, the order was
vacated by this court upon application a writ of certiorari. (See Blanco vs. Ambler, 3 Phil. Rep.,
358, Blanco vs. Ambler and McMicking 3 Phil. Rep., 735, Yangco vs. Rohde, 1 Phil. Rep., 404.)

By parity of reasoning it must follow that when a court issues a writ of attachment for which
there is no statutory authority, it is acting irregularly and in excess of its jurisdiction, in the sense
necessary to justify the Supreme Court in granting relief by the writ of certiorari. In applying
this proposition it is of course necessary to take account of the difference between a ground of
attachment based on the nature of the action and a ground of attachment based on the acts or the
conditions of the defendant. Every complaint must show a cause of action some sort; and when
the statue declares that the attachment may issue in an action arising upon contract, the express
or implied, it announces a criterion which may be determined from an inspection of the language
of the complaint. The determination of this question is purely a matter of law. On the other hand,
when the stature declares that an attachment may be issued when the defendant is about to depart
from the Islands, a criterion is announced which is wholly foreign to the cause of action; and the
determination of it may involve a disputed question of fact which must be decided by the court.
In making this determination, the court obviously acts within its powers; and it would be idle to
suppose that the writ of certiorari would be available to reverse the action of a Court of First
Instance in determining the sufficiency of the proof on such a disputed point, and in granting or
refusing the attachment accordingly.

We should not be understood, in anything that has been said, as intending to infringe the doctrine
enunciated by this court in Herrera vs. Barretto and Joaquin (25 Phil. Rep., 245), when properly
applied. It was there held that we would not, upon application for a writ of certiorari, dissolve an
interlocutory mandatory injunction that had been issued in a Court of First Instance as an
incident in an action of mandamus. The issuance of an interlocutory injunction depends upon
conditions essentially different from those involved in the issuance of an attachment. The
injunction is designed primarily for the prevention of irreparable injury and the use of the
remedy is in a great measure dependent upon the exercise of discretion. Generally, it may be said
that the exercise of the injunctive powers is inherent in judicial authority; and ordinarily it would
be impossible to distinguish between the jurisdiction of the court in the main litigation and its
jurisdiction to grant an interlocutory injunction, for the latter is involved in the former. That the
writ of certiorari can not be used to reverse an order denying a motion for a preliminary
injunction is of course not to cavil. (Somes vs. Crossfield and Molina, 8 Phil. Rep., 284.)

But it will be said that the writ of certiorari is not available in this cae, because the petitioner is
protected by the attachment bond, and that he has a plain, speedy, and adequate remedy appeal.
This suggestion seems to be sufficiently answered in the case of Rocha & Co vs. Crossfield and
Figueras (6 Phil. Rep., 355), already referred to, and the earlier case there cited. The remedy by
appeal is not sufficiently speedy to meet the exigencies of the case. An attachment is extremely
violent, and its abuse may often result in infliction of damage which could never be repaired by
any pecuniary award at the final hearing. To postpone the granting of the writ in such a case until
the final hearing and to compel the petitioner to bring the case here upon appeal merely in order
to correct the action of the trial court in the matter of allowing the attachment would seem both
unjust and unnecessary.

Passing to the problem propounded in the second question it may be observed that, upon general
principles,. recognize both the civil and common law, money lost in gaming and voluntarily paid
by the loser to the winner can not in the absence of statue, be recovered in a civil action. But Act
No. 1757 of the Philippine Commission, which defines and penalizes several forms of gambling,
contains numerous provisions recognizing the right to recover money lost in gambling or in the
playing of certain games (secs. 6, 7, 8, 9, 11). The original complaint in the action in the Court of
First Instance is not clear as to the particular section of Act No. 1757 under which the action is
brought, but it is alleged that the money was lost at gambling, banking, and percentage game in
which the defendant was banker. It must therefore be assumed that the action is based upon the
right of recovery given in Section 7 of said Act, which declares that an action may be brought
against the banker by any person losing money at a banking or percentage game.

Is this a cause arising upon contract, express or implied, as this term is used in section 412 of the
Code of Civil Procedure? To begin the discussion, the English version of the Code of Civil
Procedure is controlling (sec. 15, Admin. Code, ed. of 1917). Furthermore it is universally
admitted to be proper in the interpretation of any statute, to consider its historical antecedents
and its juris prudential sources. The Code of Civil Procedure, as is well known, is an American
contribution to Philippine legislation. It therefore speaks the language of the common-law and
for the most part reflects its ideas. When the draftsman of this Code used the expression contract,
express or implied, he used a phrase that has been long current among writers on American and
English law; and it is therefore appropriate to resort to that system of law to discover the
appropriate to resort to that system of law to discover the meaning which the legislator intended
to convey by those meaning which the legislator intended to convey by those terms. We remark
in passing that the expression contrato tracito, used in the official translation of the Code of
Civil Procedure as the Spanish equivalent of implied contract, does not appear to render the full
sense of the English expression.

The English contract law, so far as relates to simple contracts is planted upon two foundations,
which are supplied by two very different conceptions of legal liability. These two conceptions
are revealed in the ideas respectively underlying (1) the common- law debt and (2) the
assumptual promise. In the early and formative stages of the common-law the only simple
contract of which the courts took account was the real contract or contract re, in which the
contractual duty imposed by law arises upon the delivery of a chattle, as in
the mutuum, commodatum, depositum, and the like; and the purely consensual agreements of the
Roman Law found no congenial place in the early common law system.

In course of time the idea underlying the contract re was extended so as to include from one
person to another under such circumstances as to constitute a justa cuas debendi. The obligation
thereby created was a debt. The constitutive element in this litigation is found in the fact that the
debtor has received something from the creditor, which he is bound by the obligation of law to
return or pay for. From an early day this element was denominated the quid pro quo, an ungainly
phrase coined by Mediaeval Latinity. The quid pro quo was primarily a materials or physical
object, and its constituted the recompense or equivalent acquired by the debtor. Upon the passage
of the quid pro quo from one party to the other, the law imposed that real contractual duty
peculiar to the debt. No one conversant with the early history of English law would ever
conceive of the debt as an obligation created by promise. It is the legal duty to pay or deliver a
sum certain of money or an ascertainable quantity of ponderable or measurable chattles.

The ordinary debt, as already stated, originates in a contract in which a quid pro quo passes to
the debtor at the time of the creation of the debt, but the term is equally applicable to duties
imposed by custom or statute, or by judgment of a court.

The existence of a debt supposes one person to have possession of thing (res) which he owes and
hence ought to turn over the owner. This obligation is the oldest conception of contract with
which the common law is familiar; and notwithstanding the centuries that have rolled over
Westminster Hall that conception remains as one of the fundamental bases of the common-law
contract.

Near the end of the fifteenth century there was evolved in England a new conception of
contractual liability, which embodied the idea of obligation resulting from promise and which
found expression in the common law assumpsit, or parol promise supported by a consideration.
The application of this novel conception had the effect of greatly extending the filed of
contractual liability and by this means rights of action came to be recognized which had been
unknown before. The action of assumpsit which was the instrument for giving effect to this
obligation was found to be a useful remedy; and presently this action came to be used for the
enforcement of common-law debts. The result was to give to our contract law the superficial
appearance of being based more or less exclusively upon the notion of the obligation of promise.

An idea is widely entertained to the effect that all simple contracts recognized in the common-
law system are referable to a singly category. They all have their roots, so many of us imagine, in
one general notion of obligation; and of course the obligation of promise is supposed to supply
this general notion, being considered a sort of menstruum in which all other forms of contractual
obligation have been dissolved. This a mistake. The idea of contractual duty embodied in the
debt which was the first conception of contract liability revealed in the common law, has
remained, although it was detained to be in a measure obscured by the more modern conception
of obligation resulting from promise.

What has been said is intended to exhibit the fact that the duty to pay or deliver a sum certain of
money or an ascertainable quantity of ponderable or measurable chattles — which is indicated by
them debt — has ever been recognized, in the common-law system, as a true contract, regardless,
of the source of the duty or the manner in which it is create — whether derived from custom,
statue or some consensual transaction depending upon the voluntary acts of the parties. the form
of contract known as the debt is of the most ancient lineage; and when reference is had to
historical antecedents, the right of the debt to be classed as a contract cannot be questioned.
Indeed when the new form of engagement consisting of the parol promise supported by a
consideration first appeared, it was looked upon as an upstart and its right to be considered a true
contract was questioned. It was long customary to refer to it exclusively as an assumpsit,
agreement, undertaking, or parol promise, in fact anything but a contract. Only in time did the
new form of engagement attain the dignity of being classed among true contract.

The term implied takers us into shadowy domain of those obligations the theoretical
classification of which has engaged the attention of scholars from the time of Gaius until our
own day and has been a source of as much difficulty to the civilian as to the common-law jurist.
There we are concerned with those acts which make one person debtor to another without there
having intervened between them any true agreement tending to produce a legal bond (vinculum
juris). Of late years some American and English writers have adopted the term quasi-contract as
descriptive of these obligations or some of them; but the expression more commonly used is
implied contract.

Upon examination of these obligations, from the view point of the common-law jurisprudence, it
will be found that they fall readily into two divisions according as they bear an analogy to the
common-law debt or to the common law assumpsit. To exhibit the scope of these different
classes of obligations is here impracticable. It is only necessary in this connection to observe that
the most conspicuous division is that which comprises duties in the nature of debt. The
characteristic feature of these obligations is that upon certain states of fact the law imposes an
obligation to pay a sum certain of money; and it is characteristic of this obligation that the money
in respect to which the duty is raised is conceived as being equivalent of something taken or
detained under circumstances giving rise to the duty to return or compensate therefore. The
proposition that no one shall be allowed to enrich himself unduly at the expense of another
embodies the general principle here lying at the basis of obligation. The right to recover money
improperly paid (repeticion de lo indebido) is also recognized as belong to this class of duties.

It will observed that according to the Civil Code obligations are supposed to be derived either
from (1) the law, (2) contracts and quasi-contracts, (3) illicit acts and omission, or (4) acts in
which some sort ob lame or negligence is present. This enumeration of sources of obligations
and the obligation imposed by law are different types. The learned Italian jurist, Jorge Giorgi,
criticises this assumption and says that the classification embodied in the code is theoretically
erroneous. His conclusion is that one or the other of these categories should have been
suppressed and merged in the other. (Giorgi, Teoria de las Obligaciones, Spanish ed., vol. 5 arts.
5, 7, 9.) The validity of this criticism is, we thin, self-evident; and it is of interest to note that the
common law makes no distinction between the two sources of liability. The obligations which in
the Code are indicated as quasi-contracts, as well as those arising ex lege, are in the common la
system, merged into the category of obligations imposed by law, and all are denominated implied
contracts.

Many refinements, more or less illusory, have been attempted by various writers in
distinguishing different sorts of implied contracts, as for example, the contract implied as of fact
and the contract implied as of law. No explanation of these distinctions will be here attempted.
Suffice it to say that the term contract, express or implied, is used to by common-law jurists to
include all purely personal obligations other than those which have their source in delict, or tort.
As to these it may be said that, generally speaking, the law does not impose a contractual duty
upon a wrongdoer to compensate for injury done. It is true that in certain situations where a
wrongdoer unjustly acquired something at the expense of another, the law imposes on him a duty
to surrender his unjust acquisitions, and the injured party may here elect to sue upon this
contractual duty instead of suing upon the tort; but even here the distinction between the two
liabilities, in contract and in tort, is never lost to sight; and it is always recognized that the
liability arising out of the tort is delictual and not of a contractual or quasi-contractual nature.

In the case now under consideration the duty of the defendant to refund the money which he won
from the plaintiff at gaming is a duty imposed by statute. It therefore arises ex lege. Furthermore,
it is a duty to return a certain sum which had passed from the plaintiff to the defendant. By all the
criteria which the common law supplies, this a duty in the nature of debt and is properly
classified as an implied contract. It is well- settled by the English authorities that money lost in
gambling or by lottery, if recoverable at all, can be recovered by the loser in an action
of indebitatus assumpsit for money had and received. (Clarke vs. Johnson. Lofft, 759; Mason vs.
Waite, 17 Mass., 560; Burnham vs. Fisher, 25 Vt., 514.) This means that in the common law the
duty to return money won in this way is an implied contract, or quasi-contract.

It is no argument to say in reply to this that the obligation here recognized is called an implied
contract merely because the remedy commonly used in suing upon ordinary contract can be here
used, or that the law adopted the fiction of promise in order to bring the obligation within the
scope of the action of assumpsit. Such statements fail to express the true import of the
phenomenon. Before the remedy was the idea; and the use of the remedy could not have been
approved if it had not been for historical antecedents which made the recognition of this remedy
at one logical and proper. Furthermore, it should not be forgotten that the question is not how
this duty but what sort of obligation did the author of the Code of Civil Procedure intend to
describe when he sued the term implied contract in section 412.

In what has been said we have assumed that the obligation which is at the foundation of the
original action in the court below is not a quasi-contract, when judge by the principles of the civil
law. A few observations will show that this assumption is not by any means free from doubt. The
obligation in question certainly does not fall under the definition of either of the two-quasi-
contracts which are made the subject of special treatment in the Civil Code, for its does not arise
from a licit act as contemplated in article 1895. The obligation is clearly a creation of the positive
law — a circumstance which brings it within the purview of article 1090, in relation with article,
1089; and it is also derived from an illicit act, namely, the playing of a prohibited game. It is thus
seen that the provisions of the Civil Code which might be consulted with a view to the correct
theoretical classification of this obligation are unsatisfactory and confusing.

The two obligations treated in the chapter devoted to quasi-contracts in the Civil Code are (1) the
obligation incident to the officious management of the affairs of other person (gestion de
negocios ajenos) and (2) the recovery of what has been improperly paid (cabro de lo indebido).
That the authors of the Civil Code selected these two obligations for special treatment does not
signify an intention to deny the possibility of the existence of other quasi-contractual obligations.
As is well said by the commentator Manresa.

The number of the quasi-contracts may be indefinite as may be the number of lawful
facts, the generations of the said obligations; but the Code, just as we shall see further on,
in the impracticableness of enumerating or including them all in a methodical and orderly
classification, has concerned itself with two only — namely, the management of the
affairs of other person and the recovery of things improperly paid — without attempting
by this to exclude the others. (Manresa, 2d ed., vol. 12, p. 549.)

It would indeed have been surprising if the authors of the Code, in the light of the jurisprudence
of more than a thousand years, should have arbitrarily assumed to limit the quasi-contract to two
obligations. The author from whom we have just quoted further observes that the two obligations
in question were selected for special treatment in the Code not only because they were the most
conspicuous of the quasi-contracts, but because they had not been the subject of consideration in
other parts of the Code. (Opus citat., 550.)

It is well recognized among civilian jurists that the quasi- contractual obligations cover a wide
range. The Italian jurist, Jorge Giorgi, to whom we have already referred, considers under this
head, among other obligations, the following: payments made upon a future consideration which
is not realized or upon an existing consideration which fails; payments wrongfully made upon a
consideration which is contrary to law, or opposed to public policy; and payments made upon a
vicious consideration or obtained by illicit means (Giorgi, Teoria de las Obligaciones, vol. 5, art.
130.)
Im permitting the recovery of money lost at play, Act No. 1757 has introduced modifications in
the application of articles 1798, 180`, and 1305 of the Civil Code. The first two of these articles
relate to gambling contracts, while article 1305 treats of the nullity of contracts proceeding from
a vicious or illicit consideration. Taking all these provisions together, it must be apparent that the
obligation to return money lost at play has a decided affinity to contractual obligations; and we
believe that it could, without violence to the doctrines of the civil law, be held that such
obligations is an innominate quasi-contract. It is, however, unnecessary to place the decision on
this ground.

From what has been said it follows that in our opinion the cause of action stated in the
complaints in the court below is based on a contract, express or implied and is therefore of such
nature that the court had authority to issue writ of attachment. The application for the writ
of certiorari must therefore be denied and the proceedings dismissed. So ordered.

G.R. No. L-3489           September 7, 1907

VICENTE NAVALES, plaintiff-appellee,
vs.
EULOGIA RIAS, ET AL., defendants-appellants.

Pantaleon E. del Rosario for appellants.

F. Sevilla y Macam for appellee.

TORRES, J.:

On the 18th of November, 1904, Vicente Navales filed a complaint with the Court of First
Instance of Cebu against Eulogia Rias and Maximo Requiroso, claiming that the latter should be
sentenced to pay him the sum of 1,200 pesos, Philippine currency, as damages, together with
costs and such other expenses as the court might consider just and equitable. To this end he
alleged that the said defendants, without due cause, ordered the pulling down and destruction of
his house erected in Daanbuangan, town of Naga, Island of Cebu, which was 6 meters in height
with an area of 8.70 square meters, built of wood with a nipa roof, and worth 1,000 pesos, which
amount he expended in its construction. He further alleged that the destruction took place in the
month of April, 1904, and that, notwithstanding his efforts, he had not obtained any
reimbursement from the defendants, and that by reason of their refusal he had been prejudiced to
the extent of 200 pesos, Philippine currency.

The defendant, in answer to the foregoing complaint, denied all and each one of the allegations
therein contained, and asked that judgment be entered dismissing the complaint with costs
against the plaintiff.

After considering the proofs submitted by both parties and the proceedings upon the trial, the
judge, on the 17th of January, 1906, rendered judgment declaring that the decision entered by the
justice of the peace of Naga, and the order given by virtue thereof were illegal, as well as the
action of the deputy sheriff Luciano Bacayo, that the defendant were thereby liable for the
damages caused to the plaintiff, which amounted to 500 pesos, and that the defendants were
sentenced to pay the said sum to the plaintiff, with costs. The defendant upon being informed of
this decision, asked that it be set aside, and also moved for a new trial on the ground that the
decision was not in accordance with the weight of the evidence. The motion was denied, to
which exception was taken, and at the request of the interested party, the corresponding bill of
exceptions was limited.

The aim of this litigation, therefore, is to obtain payment through a judicial decision, of the
damages said to have been caused by the execution of a judgment rendered by the justice of the
peace, in an action for ejectment.

It is undeniable that, in order to remove from the land of Eulogia Rias, situated within the
jurisdiction of the town of Naga, the house which Vicente Navales had constructed thereon, by
virtue of the decision of the justice in the action instituted by the said Eulogia Rias against the
owner of the house , Vicente Navales, the deputy sheriff who carried the judgment into execution
was obliged to destroy the said house and removed it from the land, according to the usual
procedure in the action for ejectment.

In the order of execution issued to the deputy sheriff, the directive portion of the judgment of the
justice of the peace was inserted, and it contained the essential statement that the said judgment,
by reason of its not having been appealed from, had become final, and from the contents of the
same may be inferred that there had been an action for ejectment between the above-named
parties, and that there was no reason why it should not be enforced when it had already become
final and acquired the nature of res adjudicata.

Section 72 of the Code of Civil Procedure reads:

Execution. — If no appeal from a judgment of a justice of the peace shall be perfected as

herein provided, the justice of the peace shall, at the request of the successful party, issue
execution for the enforcement of the judgment, and the expiration of the time limited by
law for the perfection of an appeal.
Assuming that the order for execution of final judgment was issued in accordance with the law,
and in view of the fact that it has not been alleged nor proven that the sheriff when complying
with the same had committed trespass or exceeded his functions, it must be presumed according
to section 334 (14) of the said Code of Procedure, that the official duty was regularly performed.
Therefore, it is not possible to impute liability to the plaintiff who obtained the judgment and the
execution thereof, when the same was not disputed nor alleged to be null or illegal, and much
less to compel the payment of damages to the person who was defeated in the action and
sentenced to be ejected from the land which he improperly occupied with his house.

No proof has been submitted that a contract had been entered into between the plaintiff and the
defendants, or that the latter had committed illegal acts or omissions or incurred in any kind of
fault or negligence, from any of which an obligation might have arisen on the part of the
defendants to indemnify the plaintiff. For this reason, the claim for indemnity, on account of acts
performed by the sheriff while enforcing a judgment, can not under any consideration be
sustained. (Art. 1089, Civil Code.)

The illegality of the judgment of the justice of the peace, that of the writ of execution thereunder,
or of the acts performed by the sheriff for the enforcement of the judgment, has not been shown.
Therefore, for the reasons hereinbefore set forth, the judgment appealed from is hereby reversed,
and the complaint for damages filed by Vicente Navales against Eulogia Rias and Maximo
Requiroso is dismissed without special ruling as to costs. So ordered.

G.R. No. L-7089             August 31, 1954

DOMINGO DE LA CRUZ, plaintiff-appellant,
vs.
NORTHERN THEATRICAL ENTERPRISES INC., ET AL., defendants-appellees.
MONTEMAYOR, J.:

The facts in this case based on an agreed statement of facts are simple. In the year 1941 the
Northern Theatrical Enterprises Inc., a domestic corporation operated a movie house in Laoag,
Ilocos Norte, and among the persons employed by it was the plaintiff DOMINGO DE LA
CRUZ, hired as a special guard whose duties were to guard the main entrance of the cine, to
maintain peace and order and to report the commission of disorders within the premises. As such
guard he carried a revolver. In the afternoon of July 4, 1941, one Benjamin Martin wanted to
crash the gate or entrance of the movie house. Infuriated by the refusal of plaintiff De la Cruz to
let him in without first providing himself with a ticket, Martin attacked him with a bolo. De la
Cruz defendant himself as best he could until he was cornered, at which moment to save himself
he shot the gate crasher, resulting in the latter's death.

For the killing, De la Cruz was charged with homicide in Criminal Case No. 8449 of the Court of
First Instance of Ilocos Norte. After a re-investigation conducted by the Provincial Fiscal the
latter filed a motion to dismiss the complaint, which was granted by the court in January 1943.
On July 8, 1947, De la Cruz was again accused of the same crime of homicide, in Criminal Case
No. 431 of the same Court. After trial, he was finally acquitted of the charge on January 31,
1948. In both criminal cases De la Cruz employed a lawyer to defend him. He demanded from
his former employer reimbursement of his expenses but was refused, after which he filed the
present action against the movie corporation and the three members of its board of directors, to
recover not only the amounts he had paid his lawyers but also moral damages said to have been
suffered, due to his worry, his neglect of his interests and his family as well in the supervision of
the cultivation of his land, a total of P15,000. On the basis of the complaint and the answer filed
by defendants wherein they asked for the dismissal of the complaint, as well as the agreed
statement of facts, the Court of First Instance of Ilocos Norte after rejecting the theory of the
plaintiff that he was an agent of the defendants and that as such agent he was entitled to
reimbursement of the expenses incurred by him in connection with the agency (Arts. 1709-1729
of the old Civil Code), found that plaintiff had no cause of action and dismissed the complaint
without costs. De la Cruz appealed directly to this Tribunal for the reason that only questions of
law are involved in the appeal.

We agree with the trial court that the relationship between the movie corporation and the plaintiff
was not that of principal and agent because the principle of representation was in no way
involved. Plaintiff was not employed to represent the defendant corporation in its dealings with
third parties. He was a mere employee hired to perform a certain specific duty or task, that of
acting as special guard and staying at the main entrance of the movie house to stop gate crashers
and to maintain peace and order within the premises. The question posed by this appeal is
whether an employee or servant who in line of duty and while in the performance of the task
assigned to him, performs an act which eventually results in his incurring in expenses, caused not
directly by his master or employer or his fellow servants or by reason of his performance of his
duty, but rather by a third party or stranger not in the employ of his employer, may recover said
damages against his employer.

The learned trial court in the last paragraph of its decision dismissing the complaint said that
"after studying many laws or provisions of law to find out what law is applicable to the facts
submitted and admitted by the parties, has found none and it has no other alternative than to
dismiss the complaint." The trial court is right. We confess that we are not aware of any law or
judicial authority that is directly applicable to the present case, and realizing the importance and
far-reaching effect of a ruling on the subject-matter we have searched, though vainly, for judicial
authorities and enlightenment. All the laws and principles of law we have found, as regards
master and servants, or employer and employee, refer to cases of physical injuries, light or
serious, resulting in loss of a member of the body or of any one of the senses, or permanent
physical disability or even death, suffered in line of duty and in the course of the performance of
the duties assigned to the servant or employee, and these cases are mainly governed by the
Employer's Liability Act and the Workmen's Compensation Act. But a case involving damages
caused to an employee by a stranger or outsider while said employee was in the performance of
his duties, presents a novel question which under present legislation we are neither able nor
prepared to decide in favor of the employee.

In a case like the present or a similar case of say a driver employed by a transportation company,
who while in the course of employment runs over and inflicts physical injuries on or causes the
death of a pedestrian; and such driver is later charged criminally in court, one can imagine that it
would be to the interest of the employer to give legal help to and defend its employee in order to
show that the latter was not guilty of any crime either deliberately or through negligence,
because should the employee be finally held criminally liable and he is found to be insolvent, the
employer would be subsidiarily liable. That is why, we repeat, it is to the interest of the employer
to render legal assistance to its employee. But we are not prepared to say and to hold that the
giving of said legal assistance to its employees is a legal obligation. While it might yet and
possibly be regarded as a normal obligation, it does not at present count with the sanction of
man-made laws.

If the employer is not legally obliged to give, legal assistance to its employee and provide him
with a lawyer, naturally said employee may not recover the amount he may have paid a lawyer
hired by him.

Viewed from another angle it may be said that the damage suffered by the plaintiff by reason of
the expenses incurred by him in remunerating his lawyer, is not caused by his act of shooting to
death the gate crasher but rather by the filing of the charge of homicide which made it necessary
for him to defend himself with the aid of counsel. Had no criminal charge been filed against him,
there would have been no expenses incurred or damage suffered. So the damage suffered by
plaintiff was caused rather by the improper filing of the criminal charge, possibly at the instance
of the heirs of the deceased gate crasher and by the State through the Fiscal. We say improper
filing, judging by the results of the court proceedings, namely, acquittal. In other words, the
plaintiff was innocent and blameless. If despite his innocence and despite the absence of any
criminal responsibility on his part he was accused of homicide, then the responsibility for the
improper accusation may be laid at the door of the heirs of the deceased and the State, and so
theoretically, they are the parties that may be held responsible civilly for damages and if this is
so, we fail to see now this responsibility can be transferred to the employer who in no way
intervened, much less initiated the criminal proceedings and whose only connection or relation to
the whole affairs was that he employed plaintiff to perform a special duty or task, which task or
duty was performed lawfully and without negligence.
Still another point of view is that the damages incurred here consisting of the payment of the
lawyer's fee did not flow directly from the performance of his duties but only indirectly because
there was an efficient, intervening cause, namely, the filing of the criminal charges. In other
words, the shooting to death of the deceased by the plaintiff was not the proximate cause of the
damages suffered but may be regarded as only a remote cause, because from the shooting to the
damages suffered there was not that natural and continuous sequence required to fix civil
responsibility.

In view of the foregoing, the judgment of the lower court is affirmed. No costs.

G.R. No. L-4089             January 12, 1909

ARTURO PELAYO, plaintiff-appellant,
vs.
MARCELO LAURON, ET AL., defendants-appellees.

J.H. Junquera, for appellant.

Filemon Sotto, for appellee.

TORRES, J.:

On the 23rd of November, 1906, Arturo Pelayo, a physician residing in Cebu, filed a complaint
against Marcelo Lauron and Juana Abella setting forth that on or about the 13th of October of
said year, at night, the plaintiff was called to the house of the defendants, situated in San Nicolas,
and that upon arrival he was requested by them to render medical assistance to their daughter-in-
law who was about to give birth to a child; that therefore, and after consultation with the
attending physician, Dr. Escaño, it was found necessary, on account of the difficult birth, to
remove the fetus by means of forceps which operation was performed by the plaintiff, who also
had to remove the afterbirth, in which services he was occupied until the following morning, and
that afterwards, on the same day, he visited the patient several times; that the just and equitable
value of the services rendered by him was P500, which the defendants refuse to pay without
alleging any good reason therefor; that for said reason he prayed that the judgment be entered in
his favor as against the defendants, or any of them, for the sum of P500 and costs, together with
any other relief that might be deemed proper.

In answer to the complaint counsel for the defendants denied all of the allegation therein
contained and alleged as a special defense, that their daughter-in-law had died in consequence of
the said childbirth, and that when she was alive she lived with her husband independently and in
a separate house without any relation whatever with them, and that, if on the day when she gave
birth she was in the house of the defendants, her stay their was accidental and due to fortuitous
circumstances; therefore, he prayed that the defendants be absolved of the complaint with costs
against the plaintiff.
The plaintiff demurred to the above answer, and the court below sustained the demurrer,
directing the defendants, on the 23rd of January, 1907, to amend their answer. In compliance
with this order the defendants presented, on the same date, their amended answer, denying each
and every one of the allegations contained in the complaint, and requesting that the same be
dismissed with costs.

As a result of the evidence adduced by both parties, judgment was entered by the court below on
the 5th of April, 1907, whereby the defendants were absolved from the former complaint, on
account of the lack of sufficient evidence to establish a right of action against the defendants,
with costs against the plaintiff, who excepted to the said judgment and in addition moved for a
new trial on the ground that the judgment was contrary to law; the motion was overruled and the
plaintiff excepted and in due course presented the corresponding bill of exceptions. The motion
of the defendants requesting that the declaration contained in the judgment that the defendants
had demanded therefrom, for the reason that, according to the evidence, no such request had
been made, was also denied, and to the decision the defendants excepted.

Assuming that it is a real fact of knowledge by the defendants that the plaintiff, by virtue of
having been sent for by the former, attended a physician and rendered professional services to a
daughter-in-law of the said defendants during a difficult and laborious childbirth, in order to
decide the claim of the said physician regarding the recovery of his fees, it becomes necessary to
decide who is bound to pay the bill, whether the father and mother-in-law of the patient, or the
husband of the latter.

According to article 1089 of the Civil Code, obligations are created by law, by contracts, by
quasi-contracts, and by illicit acts and omissions or by those in which any kind of fault or
negligence occurs.

Obligations arising from law are not presumed. Those expressly determined in the code or in
special laws, etc., are the only demandable ones. Obligations arising from contracts have legal
force between the contracting parties and must be fulfilled in accordance with their stipulations.
(Arts. 1090 and 1091.)

The rendering of medical assistance in case of illness is comprised among the mutual obligations
to which the spouses are bound by way of mutual support. (Arts. 142 and 143.)

If every obligation consists in giving, doing or not doing something (art. 1088), and spouses are
mutually bound to support each other, there can be no question but that, when either of them by
reason of illness should be in need of medical assistance, the other is under the unavoidable
obligation to furnish the necessary services of a physician in order that health may be restored,
and he or she may be freed from the sickness by which life is jeopardized; the party bound to
furnish such support is therefore liable for all expenses, including the fees of the medical expert
for his professional services. This liability originates from the above-cited mutual obligation
which the law has expressly established between the married couple.

In the face of the above legal precepts it is unquestionable that the person bound to pay the fees
due to the plaintiff for the professional services that he rendered to the daughter-in-law of the
defendants during her childbirth, is the husband of the patient and not her father and mother- in-
law, the defendants herein. The fact that it was not the husband who called the plaintiff and
requested his assistance for his wife is no bar to the fulfillment of the said obligation, as the
defendants, in view of the imminent danger, to which the life of the patient was at that moment
exposed, considered that medical assistance was urgently needed, and the obligation of the
husband to furnish his wife in the indispensable services of a physician at such critical moments
is specially established by the law, as has been seen, and compliance therewith is unavoidable;
therefore, the plaintiff, who believes that he is entitled to recover his fees, must direct his action
against the husband who is under obligation to furnish medical assistance to his lawful wife in
such an emergency.

From the foregoing it may readily be understood that it was improper to have brought an action
against the defendants simply because they were the parties who called the plaintiff and
requested him to assist the patient during her difficult confinement, and also, possibly, because
they were her father and mother-in-law and the sickness occurred in their house. The defendants
were not, nor are they now, under any obligation by virtue of any legal provision, to pay the fees
claimed, nor in consequence of any contract entered into between them and the plaintiff from
which such obligation might have arisen.

In applying the provisions of the Civil Code in an action for support, the supreme court of Spain,
while recognizing the validity and efficiency of a contract to furnish support wherein a person
bound himself to support another who was not his relative, established the rule that the law does
impose the obligation to pay for the support of a stranger, but as the liability arose out of a
contract, the stipulations of the agreement must be held. (Decision of May 11, 1897.)

Within the meaning of the law, the father and mother-in-law are strangers with respect to the
obligation that devolves upon the husband to provide support, among which is the furnishing of
medical assistance to his wife at the time of her confinement; and, on the other hand, it does not
appear that a contract existed between the defendants and the plaintiff physician, for which
reason it is obvious that the former can not be compelled to pay fees which they are under no
liability to pay because it does not appear that they consented to bind themselves.

The foregoing suffices to demonstrate that the first and second errors assigned to the judgment
below are unfounded, because, if the plaintiff has no right of action against the defendants, it is
needless to declare whether or not the use of forceps is a surgical operation.

Therefore, in view of the consideration hereinbefore set forth, it is our opinion that the judgment
appealed from should be affirmed with the costs against the appellant. So ordered.
 EN BANC

G.R. No. 858            January 23, 1903

FRANCISCO MARTINEZ, plaintiff-appellee,
vs.
PEDRO MARTINEZ, defendant-appellant.

Carlos Ledesma, for appellant.

Felipe G. Calderon, for appellee.

WILLARD, J.:
In the decision in this case it is found as a fact that the titles to the steamer Balayan and the
coasting vessel Ogoño are registered in the name of the defendant. It must be assumed from this
that the defendant has the legal title to the vessels, as without it they could not be so registered.

These facts standing alone show that the defendant is the owner of the property.

Two other facts, however, appear in the decision which the appellee claims warranted the court
below in deciding that the defendant was not the owner.

1. That court found that the money with which the vessels were purchased was furnished by the
plaintiff, the father of the defendant. Does this fact make him the owner of them, the title having
been taken and registered in the son's name?

The various ways in which the title to property may be acquired are stated in article 609 of the
Civil Code.

The plaintiff never acquired the title to these vessels in any one of the ways therein described. He
did not acquire it by donation or succession. He did not acquire it by means of any contract.

The court does not find that the father and son had between themselves any contract of any kind
by virtue of which the son agreed to transfer the title to the father or to hold it for his benefit.

There is an allegation in the complaint that the defendant acted as the agent of the plaintiff in the
purchase. This is denied in the answer and there is no finding in the decision which supports this
allegation of the complaint.

There is only the bare fact that the price of property which was conveyed to the defendant by a
third person was paid by the plaintiff. It can not be said that the law by reason of this fact
transfers any title or interest in the thing itself to the plaintiff.

Article 1090 of the Civil Code provides that "obligations derived from the law are not to be
presumed. Only those expressly provided for in this Code or in special laws are enforceable."

It is provided in article 161 of the same Code, relating to minors, that "the ownership or
enjoyment of property acquired by a minor child with funds of his parents, pertain to the latter."
This article does not apply to the present case, for the son was of age.

Nor can such general doctrine be found in the former law. Law 49, title 5, partida 5, the effect of
which is incorrectly stated in the brief of the appellee, expressly provided that property bought
with another's money should not belong to the owner of the money except in certain enumerated
cases of which this is not one.

Law 48, title 5, partida 5, also expressly provided that where one bought with his own money
property the title to which he procured to be transferred to a third person, such third person had
the right to keep it by reimbursing the other for his outlay.
It may be true that the laws in some of the United States would in this case raise a resulting trust
in favor of the plaintiff. But such laws are not in force here; and whatever other right the plaintiff
may have against the defendant, either for the recovery of the money paid or for damages, it is
clear that such payment gave him no title either legal or equitable to these vessels.

If there were evidence in the case which would have justified the court below in finding that the
defendant acted as the agent of the plaintiff or that there was some other contract between them,
he should have incorporated such findings in his decision.

Article 133 of the Code of Civil Procedure requires the court to file a written decision. If the
facts stated in that decision together with those admitted in the pleadings are not sufficient as a
matter of law to support the judgment, it must be reversed, if excepted to.

The record, however, contains all the evidence and an examination of it shows that no such
findings would have been warranted. As to the Balayan, it appears that the son had nothing
whatever to do with its purchase. It was bought by the father with the money of the conjugal
partnership, and the title by his direction placed in the son's name.

As to the Ogoño, the father's intervention in the purchase nowhere appears. He simply testified
that it was bought with his money.

It is said that the court below found as a fact that the father was the owner of the vessels and that
we can not disturb this finding because there was no motion for a new trial. This contention can
not be sustained. The ultimate question in the whole case was: Who owned this property? The
resolution of that question depended upon the application of legal principles to the facts
connected with its acquisition and subsequent management. Those facts were that the father
bought and paid for it, and that the titles to it were taken and registered in the son's name. A
statement that by reason of these facts the father is the owner is a statement of law and not a
finding of fact.

2. It was found as a fact that the father had exercised acts of ownership over the vessel. That
finding is entirely consistent with the legal ownership by the son. The exercise of such acts could
not transfer such ownership from the son.

3. There is in the record a letter written by the defendant to the plaintiff in which the latter is
asked if he desires to sell the Balayan. This letter is not incorporated into the findings and we
have no right to consider it. But, if we had, it would not in our opinion change the result. Such a
letter might well have been written by a son to a father, both of them recognizing the fact that the
son was the owner of the property as to which the inquiry was made.

4. In conclusion we may say that even on the supposition that a written and recorded title to
vessels may be overcome by parol evidence, that offered in this case was insufficient to
accomplish such a result. As to the Balayan, there is nothing whatever to show why the father
placed the title in his son's name. It may have been either as a gift or a loan. As to the Ogoño,
there is the simple declaration of the father that he paid for it. This may have been either a gift or
a loan.
The judgment is reversed and a new trial is granted with costs against the appellee.

G.R. No. 142830             March 24, 2006

WILLIAM GOLANGCO CONSTRUCTION CORPORATION, Petitioner,

vs.
PHILIPPINE COMMERCIAL INTERNATIONAL BANK*, Respondent

DECISION

CORONA, J.:

The facts of this case are straightforward.1

William Golangco Construction Corporation (WGCC) and the Philippine Commercial

International Bank (PCIB) entered into a contract for the construction of the extension of PCIB
Tower II (denominated as PCIB Tower II, Extension Project [project])2 on October 20, 1989.
The project included, among others, the application of a granitite wash-out finish3 on the exterior
walls of the building.

PCIB, with the concurrence of its consultant TCGI Engineers (TCGI), accepted the turnover of
the completed work by WGCC in a letter dated June 1, 1992. To answer for any defect arising
within a period of one year, WGCC submitted a guarantee bond dated July 1, 1992 issued by
Malayan Insurance Company, Inc. in compliance with the construction contract.4
The controversy arose when portions of the granitite wash-out finish of the exterior of the building began peeling off and falling from the walls in 1993. WGCC made
minor repairs after PCIB requested it to rectify the construction defects. In 1994, PCIB entered into another contract with Brains and Brawn Construction and
Development Corporation to re-do the entire granitite wash-out finish after WGCC manifested that it was "not in a position to do the new finishing work," though it
was willing to share part of the cost. PCIB incurred expenses amounting to P11,665,000 for the repair work.

PCIB filed a request for arbitration with the Construction Industry Arbitration Commission (CIAC) for the reimbursement of its expenses for the repairs made by
another contractor. It complained of WGCC’s alleged non-compliance with their contractual terms on materials and workmanship. WGCC interposed a counterclaim
for P5,777,157.84 for material cost adjustment.

The CIAC declared WGCC liable for the construction defects in the project.5 WGCC filed a petition for review with the Court of Appeals (CA) which dismissed it for
lack of merit.6 Its motion for reconsideration was similarly denied.7

In this petition for review on certiorari, WGCC raises this main question of law: whether or not petitioner WGCC is liable for defects in the granitite wash-out finish
that occurred after the lapse of the one-year defects liability period provided in Art. XI of the construction contract.8

We rule in favor of WGCC.

The controversy pivots on a provision in the construction contract referred to as the defects liability period:

ARTICLE XI – GUARANTEE

Unless otherwise specified for specific works, and without prejudice to the rights and causes of action of the OWNER under Article 1723 of the Civil Code, the
CONTRACTOR hereby guarantees the work stipulated in this Contract, and shall make good any defect in materials and workmanship which [becomes]
evident within one (1) year after the final acceptance of the work. The CONTRACTOR shall leave the work in perfect order upon completion and present the final
certificate to the ENGINEER promptly.

If in the opinion of the OWNER and ENGINEER, the CONTRACTOR has failed to act promptly in rectifying any defect in the work which appears within the period
mentioned above, the OWNER and the ENGINEER may, at their own discretion, using the Guarantee Bond amount for corrections, have the work done by another
contractor at the expense of the CONTRACTOR or his bondsmen.

However, nothing in this section shall in any way affect or relieve the CONTRACTOR’S responsibility to the OWNER. On the completion of the [w]orks, the
CONTRACTOR shall clear away and remove from the site all constructional plant, surplus materials, rubbish and temporary works of every kind, and leave the whole
of the [s]ite and [w]orks clean and in a workmanlike condition to the satisfaction of the ENGINEER and OWNER.9 (emphasis ours)

Although both parties based their arguments on the same stipulations, they reached conflicting conclusions. A careful reading of the stipulations, however, leads us to
the conclusion that WGCC’s arguments are more tenable.

Autonomy of contracts
The autonomous nature of contracts is enunciated in Article 1306 of the Civil Code.

Article 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy.

Obligations arising from contracts have the force of law between the parties and should be complied with in good faith.10 In characterizing the contract as having the
force of law between the parties, the law stresses the obligatory nature of a binding and valid agreement.

The provision in the construction contract providing for a defects liability period was not shown as contrary to law, morals, good customs, pubic order or public policy.
By the nature of the obligation in such contract, the provision limiting liability for defects and fixing specific guaranty periods was not only fair and equitable; it was
also necessary. Without such limitation, the contractor would be expected to make a perpetual guarantee on all materials and workmanship.

The adoption of a one-year guarantee, as done by WGCC and PCIB, is established usage in the Philippines for private and government construction contracts.11 The
contract did not specify a different period for defects in the granitite wash-out finish; hence, any defect therein should have been brought to WGCC’s attention within
the one-year defects liability period in the contract.

We cannot countenance an interpretation that undermines a contractual stipulation freely and validly agreed upon. The courts will not relieve a party from the effects of
an unwise or unfavorable contract freely entered into.12

[T]he inclusion in a written contract for a piece of work [,] such as the one in question, of a provision defining a warranty period against defects, is not uncommon. This
kind of a stipulation is of particular importance to the contractor, for as a general rule, after the lapse of the period agreed upon therein, he may no longer be held
accountable for whatever defects, deficiencies or imperfections that may be discovered in the work executed by him.13

Interpretation of contracts

To challenge the guarantee period provided in Article XI of the contract, PCIB calls our attention to Article 62.2 which provides:

62.2 Unfulfilled Obligations

Notwithstanding the issue of the Defects Liability Certificate[,] the Contractor and the Owner shall remain liable for the fulfillment of any obligation[,] incurred
under the provisions of the Contract prior to the issue of the Defects Liability Certificate[,] which remains unperformed at the time such Defects Liability
Certificate is issued[. And] for the purpose of determining the nature and extent of any such obligation, the Contract shall be deemed to remain in force between the
parties of the Contract. (emphasis ours)

The defects in the granitite wash-out finish were not the "obligation" contemplated in Article 62.2. It was not an obligation that remained unperformed or unfulfilled at
the time the defects liability certificate was issued. The alleged defects occurred more than a year from the final acceptance by PCIB.

An examination of Article 1719 of the Civil Code is enlightening:

Art. 1719. Acceptance of the work by the employer relieves the contractor of liability for any defect in the work, unless:

(1) The defect is hidden and the employer is not, by his special knowledge, expected to recognize the same; or

(2) The employer expressly reserves his rights against the contractor by reason of the defect.
The lower courts conjectured that the peeling off of the granitite wash-out finish was probably due to "defective materials and workmanship." This they characterized
as hidden or latent defects. We, however, do not agree with the conclusion that the alleged defects were hidden.

First, PCIB’s team of experts14 (who were specifically employed to detect such defects early on) supervised WGCC’s workmanship. Second, WGCC regularly
submitted progress reports and photographs. Third, WGCC worked under fair and transparent circumstances. PCIB had access to the site and it exercised reasonable
supervision over WGCC’s work. Fourth, PCIB issued several "punch lists" for WGCC’s compliance before the issuance of PCIB’s final certificate of acceptance. Fifth,
PCIB supplied the materials for the granitite wash-out finish. And finally, PCIB’s team of experts gave their concurrence to the turnover of the project.

The purpose of the defects liability period was precisely to give PCIB additional, albeit limited, opportunity to oblige WGCC to make good any defect, hidden or
otherwise, discovered within one year.

Contrary to the CA’s conclusion, the first sentence of the third paragraph of Article XI on guarantee previously quoted did not operate as a blanket exception to the
one-year guarantee period under the first paragraph. Neither did it modify, extend, nullify or supersede the categorical terms of the defects liability period.

Under the circumstances, there were no hidden defects for which WGCC could be held liable. Neither was there any other defect for which PCIB made any express
reservation of its rights against WGCC. Indeed, the contract should not be interpreted to favor the one who caused the confusion, if any. The contract was prepared by
TCGI for PCIB.15

WHEREFORE, the petition is hereby GRANTED. The decision of the Court of Appeals in CA-G.R. SP No. 41152 is ANNULED and SET ASIDE.

SO ORDERED.

G.R. No. 141910            August 6, 2002

FGU INSURANCE CORPORATION, petitioner,

vs.
G.P. SARMIENTO TRUCKING CORPORATION and LAMBERT M.
EROLES, respondents.

VITUG, J.:
G.P. Sarmiento Trucking Corporation (GPS) undertook to deliver on 18 June 1994 thirty (30)
units of Condura S.D. white refrigerators aboard one of its Isuzu truck, driven by Lambert
Eroles, from the plant site of Concepcion Industries, Inc., along South Superhighway in Alabang,
Metro Manila, to the Central Luzon Appliances in Dagupan City. While the truck was traversing
the north diversion road along McArthur highway in Barangay Anupol, Bamban, Tarlac, it
collided with an unidentified truck, causing it to fall into a deep canal, resulting in damage to the
cargoes.

FGU Insurance Corporation (FGU), an insurer of the shipment, paid to Concepcion Industries,
Inc., the value of the covered cargoes in the sum of P204,450.00. FGU, in turn, being the
subrogee of the rights and interests of Concepcion Industries, Inc., sought reimbursement of the
amount it had paid to the latter from GPS. Since the trucking company failed to heed the claim,
FGU filed a complaint for damages and breach of contract of carriage against GPS and its driver
Lambert Eroles with the Regional Trial Court, Branch 66, of Makati City. In its answer,
respondents asserted that GPS was the exclusive hauler only of Concepcion Industries, Inc.,
since 1988, and it was not so engaged in business as a common carrier. Respondents further
claimed that the cause of damage was purely accidental.1âwphi1.nêt

The issues having thus been joined, FGU presented its evidence, establishing the extent of
damage to the cargoes and the amount it had paid to the assured. GPS, instead of submitting its
evidence, filed with leave of court a motion to dismiss the complaint by way of demurrer to
evidence on the ground that petitioner had failed to prove that it was a common carrier.

The trial court, in its order of 30 April 1996,1 granted the motion to dismiss, explaining thusly:

"Under Section 1 of Rule 131 of the Rules of Court, it is provided that ‘Each party must
prove his own affirmative allegation, xxx.’

"In the instant case, plaintiff did not present any single evidence that would prove that
defendant is a common carrier.

"x x x           x x x           x x x

"Accordingly, the application of the law on common carriers is not warranted and the
presumption of fault or negligence on the part of a common carrier in case of loss,
damage or deterioration of goods during transport under 1735 of the Civil Code is not
availing.

"Thus, the laws governing the contract between the owner of the cargo to whom the
plaintiff was subrogated and the owner of the vehicle which transports the cargo are the
laws on obligation and contract of the Civil Code as well as the law on quasi delicts.

"Under the law on obligation and contract, negligence or fault is not presumed. The law
on quasi delict provides for some presumption of negligence but only upon the
attendance of some circumstances. Thus, Article 2185 provides:
 ‘Art. 2185. Unless there is proof to the contrary, it is presumed that a person
driving a motor vehicle has been negligent if at the time of the mishap, he was
violating any traffic regulation.’

"Evidence for the plaintiff shows no proof that defendant was violating any traffic
regulation. Hence, the presumption of negligence is not obtaining.

"Considering that plaintiff failed to adduce evidence that defendant is a common carrier
and defendant’s driver was the one negligent, defendant cannot be made liable for the
damages of the subject cargoes."2

The subsequent motion for reconsideration having been denied,3 plaintiff interposed an appeal to
the Court of Appeals, contending that the trial court had erred (a) in holding that the appellee
corporation was not a common carrier defined under the law and existing jurisprudence; and (b)
in dismissing the complaint on a demurrer to evidence.

The Court of Appeals rejected the appeal of petitioner and ruled in favor of GPS. The appellate
court, in its decision of 10 June 1999,4 discoursed, among other things, that -

"x x x in order for the presumption of negligence provided for under the law governing
common carrier (Article 1735, Civil Code) to arise, the appellant must first prove that the
appellee is a common carrier. Should the appellant fail to prove that the appellee is a
common carrier, the presumption would not arise; consequently, the appellant would
have to prove that the carrier was negligent.

"x x x           x x x           x x x

"Because it is the appellant who insists that the appellees can still be considered as a
common carrier, despite its `limited clientele,’ (assuming it was really a common carrier),
it follows that it (appellant) has the burden of proving the same. It (plaintiff-appellant)
`must establish his case by a preponderance of evidence, which means that the evidence
as a whole adduced by one side is superior to that of the other.’ (Summa Insurance
Corporation vs. Court of Appeals, 243 SCRA 175). This, unfortunately, the appellant
failed to do -- hence, the dismissal of the plaintiff’s complaint by the trial court is
justified.

"x x x           x x x           x x x

"Based on the foregoing disquisitions and considering the circumstances that the appellee
trucking corporation has been `its exclusive contractor, hauler since 1970, defendant has
no choice but to comply with the directive of its principal,’ the inevitable conclusion is
that the appellee is a private carrier.

"x x x           x x x           x x x
 "x x x the lower court correctly ruled that 'the application of the law on common carriers
is not warranted and the presumption of fault or negligence on the part of a common
carrier in case of loss, damage or deterioration of good[s] during transport under [article]
1735 of the Civil Code is not availing.' x x x.

"Finally, We advert to the long established rule that conclusions and findings of fact of a
trial court are entitled to great weight on appeal and should not be disturbed unless for
strong and valid reasons."5

Petitioner's motion for reconsideration was likewise denied;6 hence, the instant petition,7 raising
the following issues:

WHETHER RESPONDENT GPS MAY BE CONSIDERED AS A COMMON

CARRIER AS DEFINED UNDER THE LAW AND EXISTING JURISPRUDENCE.

II

WHETHER RESPONDENT GPS, EITHER AS A COMMON CARRIER OR A

PRIVATE CARRIER, MAY BE PRESUMED TO HAVE BEEN NEGLIGENT WHEN
THE GOODS IT UNDERTOOK TO TRANSPORT SAFELY WERE
SUBSEQUENTLY DAMAGED WHILE IN ITS PROTECTIVE CUSTODY AND
POSSESSION.

III

WHETHER THE DOCTRINE OF RES IPSA LOQUITUR IS APPLICABLE IN THE

INSTANT CASE.

On the first issue, the Court finds the conclusion of the trial court and the Court of Appeals to be
amply justified. GPS, being an exclusive contractor and hauler of Concepcion Industries, Inc.,
rendering or offering its services to no other individual or entity, cannot be considered a common
carrier. Common carriers are persons, corporations, firms or associations engaged in the business
of carrying or transporting passengers or goods or both, by land, water, or air, for hire or
compensation, offering their services to the public,8 whether to the public in general or to a
limited clientele in particular, but never on an exclusive basis.9 The true test of a common carrier
is the carriage of passengers or goods, providing space for those who opt to avail themselves of
its transportation service for a fee.10 Given accepted standards, GPS scarcely falls within the term
"common carrier."

The above conclusion nothwithstanding, GPS cannot escape from liability.

In culpa contractual, upon which the action of petitioner rests as being the subrogee of
Concepcion Industries, Inc., the mere proof of the existence of the contract and the failure of its
compliance justify, prima facie, a corresponding right of relief.11 The law, recognizing the
obligatory force of contracts,12 will not permit a party to be set free from liability for any kind of
misperformance of the contractual undertaking or a contravention of the tenor thereof.13 A breach
upon the contract confers upon the injured party a valid cause for recovering that which may
have been lost or suffered. The remedy serves to preserve the interests of the promisee that may
include his "expectation interest," which is his interest in having the benefit of his bargain by
being put in as good a position as he would have been in had the contract been performed, or his
"reliance interest," which is his interest in being reimbursed for loss caused by reliance on the
contract by being put in as good a position as he would have been in had the contract not been
made; or his "restitution interest," which is his interest in having restored to him any benefit that
he has conferred on the other party.14 Indeed, agreements can accomplish little, either for their
makers or for society, unless they are made the basis for action.15 The effect of every infraction is
to create a new duty, that is, to make recompense to the one who has been injured by the failure
of another to observe his contractual obligation16 unless he can show extenuating circumstances,
like proof of his exercise of due diligence (normally that of the diligence of a good father of a
family or, exceptionally by stipulation or by law such as in the case of common carriers, that of
extraordinary diligence) or of the attendance of fortuitous event, to excuse him from his ensuing
liability.

Respondent trucking corporation recognizes the existence of a contract of carriage between it

and petitioner’s assured, and admits that the cargoes it has assumed to deliver have been lost or
damaged while in its custody. In such a situation, a default on, or failure of compliance with, the
obligation – in this case, the delivery of the goods in its custody to the place of destination -
gives rise to a presumption of lack of care and corresponding liability on the part of the
contractual obligor the burden being on him to establish otherwise. GPS has failed to do so.

Respondent driver, on the other hand, without concrete proof of his negligence or fault, may not
himself be ordered to pay petitioner. The driver, not being a party to the contract of carriage
between petitioner’s principal and defendant, may not be held liable under the agreement. A
contract can only bind the parties who have entered into it or their successors who have assumed
their personality or their juridical position.17 Consonantly with the axiom res inter alios acta aliis
neque nocet prodest, such contract can neither favor nor prejudice a third person. Petitioner’s
civil action against the driver can only be based on culpa aquiliana, which, unlike culpa
contractual, would require the claimant for damages to prove negligence or fault on the part of
the defendant.18

A word in passing. Res ipsa loquitur, a doctrine being invoked by petitioner, holds a defendant
liable where the thing which caused the injury complained of is shown to be under the latter’s
management and the accident is such that, in the ordinary course of things, cannot be expected to
happen if those who have its management or control use proper care. It affords reasonable
evidence, in the absence of explanation by the defendant, that the accident arose from want of
care.19 It is not a rule of substantive law and, as such, it does not create an independent ground of
liability. Instead, it is regarded as a mode of proof, or a mere procedural convenience since it
furnishes a substitute for, and relieves the plaintiff of, the burden of producing specific proof of
negligence. The maxim simply places on the defendant the burden of going forward with the
proof.20 Resort to the doctrine, however, may be allowed only when (a) the event is of a kind
which does not ordinarily occur in the absence of negligence; (b) other responsible causes,
including the conduct of the plaintiff and third persons, are sufficiently eliminated by the
evidence; and (c) the indicated negligence is within the scope of the defendant's duty to the
plaintiff.21 Thus, it is not applicable when an unexplained accident may be attributable to one of
several causes, for some of which the defendant could not be responsible.22

Res ipsa loquitur generally finds relevance whether or not a contractual relationship exists
between the plaintiff and the defendant, for the inference of negligence arises from the
circumstances and nature of the occurrence and not from the nature of the relation of the
parties.23 Nevertheless, the requirement that responsible causes other than those due to
defendant’s conduct must first be eliminated, for the doctrine to apply, should be understood as
being confined only to cases of pure (non-contractual) tort since obviously the presumption of
negligence in culpa contractual, as previously so pointed out, immediately attaches by a failure
of the covenant or its tenor. In the case of the truck driver, whose liability in a civil action is
predicated on culpa acquiliana, while he admittedly can be said to have been in control and
management of the vehicle which figured in the accident, it is not equally shown, however, that
the accident could have been exclusively due to his negligence, a matter that can allow,
forthwith, res ipsa loquitur to work against him.

If a demurrer to evidence is granted but on appeal the order of dismissal is reversed, the movant
shall be deemed to have waived the right to present evidence.24 Thus, respondent corporation
may no longer offer proof to establish that it has exercised due care in transporting the cargoes of
the assured so as to still warrant a remand of the case to the trial court.1âwphi1.nêt

WHEREFORE, the order, dated 30 April 1996, of the Regional Trial Court, Branch 66, of
Makati City, and the decision, dated 10 June 1999, of the Court of Appeals,
are AFFIRMED only insofar as respondent Lambert M. Eroles is concerned, but said assailed
order of the trial court and decision of the appellate court are REVERSED as regards G.P.
Sarmiento Trucking Corporation which, instead, is hereby ordered to pay FGU Insurance
Corporation the value of the damaged and lost cargoes in the amount of P204,450.00. No costs.

SO ORDERED.
G.R. No. 149434             June 3, 2004

PHILIPPINE APPLIANCE CORPORATION (PHILACOR), petitioner,

vs.
THE COURT OF APPEALS, THE HONORABLE SECRETARY OF LABOR
BIENVENIDO E. LAGUESMA and UNITED PHILACOR WORKERS UNION-
NAFLU, respondents.

DECISION

YNARES-SANTIAGO, J.:

Before us is an appeal by certiorari under Rule 45 of the Rules of Court which seeks to set aside
the decision1 of the Court of Appeals in CA-G.R. SP No. 59011, denying due course to petitioner
Philippine Appliance Corporation’s partial appeal, as well as the Resolution2 of the same court,
dated August 10, 2001, denying the motion for reconsideration.

Petitioner is a domestic corporation engaged in the business of manufacturing refrigerators,

freezers and washing machines. Respondent United Philacor Workers Union-NAFLU is the duly
elected collective bargaining representative of the rank-and-file employees of petitioner. During
the collective bargaining negotiations between petitioner and respondent union in 1997 (for the
last two years of the collective bargaining agreement covering the period of July 1, 1997 to
August 31, 1999), petitioner offered the amount of four thousand pesos (P4,000.00) to each
employee as an "early conclusion bonus". Petitioner claims that this bonus was promised as a
unilateral incentive for the speeding up of negotiations between the parties and to encourage
respondent union to exert their best efforts to conclude a CBA. Upon conclusion of the CBA
negotiations, petitioner accordingly gave this early signing bonus.3

In view of the expiration of this CBA, respondent union sent notice to petitioner of its desire to
negotiate a new CBA. Petitioner and respondent union began their negotiations. On October 22,
1999, after eleven meetings, respondent union expressed dissatisfaction at the outcome of the
negotiations and declared a deadlock. A few days later, on October 26, 1999, respondent union
filed a Notice of Strike with the National Conciliation and Mediation Board (NCMB), Region IV
in Calamba, Laguna, due to the bargaining deadlock.4

A conciliation and mediation conference was held on October 30, 1999 at the NCMB in Imus,
Cavite, before Conciliator Jose L. Velasco. The conciliation meetings started with eighteen
unresolved items between petitioner and respondent union. At the meeting on November 20,
1999, respondent union accepted petitioner’s proposals on fourteen items,5 leaving the following
items unresolved: wages, rice subsidy, signing, and retroactive bonus.6

Petitioner and respondent union failed to arrive at an agreement concerning these four remaining
items. On January 18, 2000, respondent union went on strike at the petitioner’s plant at Barangay
Maunong, Calamba, Laguna and at its washing plant at Parañaque, Metro Manila. The strike
lasted for eleven days and resulted in the stoppage of manufacturing operations as well as losses
for petitioner, which constrained it to file a petition before the Department of Labor and
Employment (DOLE). Labor Secretary Bienvenido Laguesma assumed jurisdiction over the
dispute and, on January 28, 2000, ordered the striking workers to return to work within twenty-
four hours from notice and directed petitioner to accept back the said employees.7

On April 14, 2000, Secretary Laguesma issued the following Order:8

In view of the foregoing, we fix the wage increases at P30 per day for the first year and
P25 for the second year.

The rice subsidy and retroactive pay base are maintained at their existing levels and rates.

Finally, this Office rules in favor of Company’s proposal on signing bonus. We believe
that a P3,000 bonus is fair and reasonable under the circumstances.

WHEREFORE, premises considered, Philippine Appliance Corporation and United

Philacor Workers Union-NAFLU are hereby directed to conclude a Collective Bargaining
Agreement for the period July 1, 1999 to June 30, 2001. The agreement is to incorporate
the disposition set forth above and includes other items already agreed upon in the course
of negotiation and conciliation.

SO ORDERED. (Emphasis supplied)

On April 27, 2000, petitioner filed a Partial Motion for Reconsideration9 stating that while it
accepted the decision of Secretary Laguesma, it took exception to the award of the signing
bonus. Petitioner argued that the award of the signing bonus was patently erroneous since it was
not part of the employees’ salaries or benefits or of the collective bargaining agreement. It is not
demandable or enforceable since it is in the nature of an incentive. As no CBA was concluded
through the mutual efforts of the parties, the purpose for the signing bonus was not served. On
May 22, 2000, Secretary Laguesma issued an Order10 denying petitioner’s motion. He ruled that
while the bargaining negotiations might have failed and the signing of the agreement was
delayed, this cannot be attributed solely to respondent union. Moreover, the Secretary noted that
the signing bonus was granted in the previous CBA.

On June 2, 2000, petitioner filed a Petition for Certiorari with the Court of Appeals docketed as
CA-G.R. SP No. 59011 which was dismissed. The Labor Secretary’s award of the signing bonus
was affirmed since petitioner itself offered the same as an incentive to expedite the CBA
negotiations. This offer was not withdrawn and was still outstanding when the dispute reached
the DOLE. As such, petitioner can no longer adopt a contrary stand and dispute its own offer.

Petitioner filed a Motion for Reconsideration but the same was denied. Hence this petition for
review raising a lone issue, to wit:

THE HONORABLE RESPONDENT COURT OF APPEALS COMMITTED GRAVE

ABUSE OF DISCRETION WHEN IT RENDERED A DECISION NOT IN ACCORD
WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT,
SPECIFICALLY THE CALTEX DOCTRINE OF 1997.

The petition is meritorious.

Petitioner invokes the doctrine laid down in the case of Caltex v. Brillantes,11 where it was held
that the award of the signing bonus by the Secretary of Labor was erroneous. The said case
involved similar facts concerning the CBA negotiations between Caltex (Philippines), Inc. and
the Caltex Refinery Employees Association (CREA). Upon referral of the dispute to the DOLE,
then Labor Secretary Brillantes ruled, inter alia:

Fifth, specifically on the issue of whether the signing bonus is covered under the
"maintenance of existing benefits" clause, we find that a clarification is indeed
imperative. Despite the expressed provision for a signing bonus in the previous CBA, we
uphold the principle that the award for a signing bonus should partake the nature of an
incentive and premium for peaceful negotiations and amicable resolution of disputes
which apparently are not present in the instant case. Thus, we are constrained to rule that
the award of signing bonus is not covered by the "maintenance of existing benefits"
clause.

On appeal to this Court, it was held:

Although proposed by [CREA], the signing bonus was not accepted by [Caltex
Philippines, Inc.]. Besides, a signing bonus is not a benefit which may be demanded
 under the law. Rather, it is now claimed by petitioner under the principle of "maintenance
of existing benefits" of the old CBA. However, as clearly explained by [Caltex], a signing
bonus may not be demanded as a matter of right. If it is not agreed upon by the parties or
unilaterally offered as an additional incentive by [Caltex], the condition for awarding it
must be duly satisfied. In the present case, the condition sine qua non for its grant—a
non-strike— was not complied with.

In the case at bar, two things militate against the grant of the signing bonus: first, the non-
fulfillment of the condition for which it was offered, i.e., the speedy and amicable conclusion of
the CBA negotiations; and second, the failure of respondent union to prove that the grant of the
said bonus is a long established tradition or a "regular practice" on the part of petitioner.
Petitioner admits, and respondent union does not dispute, that it offered an "early conclusion
bonus" or an incentive for a swift finish to the CBA negotiations. The offer was first made
during the 1997 CBA negotiations and then again at the start of the 1999 negotiations. The bonus
offered is consistent with the very concept of a signing bonus.

In the case of MERALCO v. The Honorable Secretary of Labor,12 we stated that the signing
bonus is a grant motivated by the goodwill generated when a CBA is successfully negotiated and
signed between the employer and the union. In that case, we sustained the argument of the
Solicitor General, viz:

When negotiations for the last two years of the 1992-1997 CBA broke down and the
parties sought the assistance of the NCMB, but which failed to reconcile their
differences, and when petitioner MERALCO bluntly invoked the jurisdiction of the
Secretary of Labor in the resolution of the labor dispute, whatever goodwill existed
between petitioner MERALCO and respondent union disappeared. . . .

Verily, a signing bonus is justified by and is the consideration paid for the goodwill that
existed in the negotiations that culminated in the signing of a CBA.13

In the case at bar, the CBA negotiation between petitioner and respondent union failed
notwithstanding the intervention of the NCMB. Respondent union went on strike for eleven days
and blocked the ingress to and egress from petitioner’s two work plants. The labor dispute had to
be referred to the Secretary of Labor and Employment because neither of the parties was willing
to compromise their respective positions regarding the four remaining items which stood
unresolved. While we do not fault any one party for the failure of the negotiations, it is apparent
that there was no more goodwill between the parties and that the CBA was clearly not signed
through their mutual efforts alone. Hence, the payment of the signing bonus is no longer justified
and to order such payment would be unfair and unreasonable for petitioner.

Furthermore, we have consistently ruled that a bonus is not a demandable and enforceable
obligation.14 True, it may nevertheless be granted on equitable considerations as when the giving
of such bonus has been the company’s long and regular practice.15 To be considered a "regular
practice," however, the giving of the bonus should have been done over a long period of time,
and must be shown to have been consistent and deliberate.16 The test or rationale of this rule on
long practice requires an indubitable showing that the employer agreed to continue giving the
benefits knowing fully well that said employees are not covered by the law requiring payment
thereof.17 Respondent does not contest the fact that petitioner initially offered a signing bonus
only during the previous CBA negotiation. Previous to that, there is no evidence on record that
petitioner ever offered the same or that the parties included a signing bonus among the items to
be resolved in the CBA negotiation. Hence, the giving of such bonus cannot be deemed as an
established practice considering that the same was given only once, that is, during the 1997 CBA
negotiation.

WHEREFORE, premises considered, the instant petition is GRANTED. The decision of the
Court of Appeals in CA-G.R. SP No. 59011 affirming the Order of the Secretary of Labor and
Employment, directing petitioner Philippine Appliance Corporation to pay each of its employees
a signing bonus in the amount of Three Thousand Pesos (P3,000.00), is hereby REVERSED and
SET ASIDE. No pronouncement as to costs.

SO ORDERED.

G.R. No. 169578             November 30, 2006

TERESITA DIO, Petitioner,
vs.
ST. FERDINAND MEMORIAL PARK, INC. and MILDRED F. TANTOCO, Respondents.

DECISION

CALLEJO, SR., J.:

Before us is a Petition for Review on Certiorari assailing the Decision1 of the Court of Appeals
(CA) in CA-G.R. CV No. 52311 which affirmed the decision of the Regional Trial Court (RTC),
Branch 57 of Lucena City, in Civil Case No. 86-152. Likewise sought to be reversed and set
aside is the resolution of the appellate court denying reconsideration of the assailed decision.

On December 11, 1973, Teresita Dio agreed to buy, on installment basis, a memorial lot from the
St. Ferdinand Memorial Park, Inc. (SFMPI) in Lucena City. The 36-square-meter memorial lot is
particularly described as Block 2, Section F, Lot 15. The purchase was evidenced by a Pre-Need
Purchase Agreement2 dated December 11, 1973 and denominated as Contract No. 384. She
obliged herself to abide by all such rules and regulations governing the SFMPI dated May 25,
1972.
SFMPI issued a Deed of Sale and Certificate of Perpetual Care3 dated April 1, 1974 denominated
as Contract No. 284. The ownership of Dio over the property was made subject to the rules and
regulations of SFMPI, as well as the government, including all amendments, additions and
modifications that may later be adopted. Rule 69 of the Rules reads:

Rule 69. Mausoleum building and memorials should be constructed by the Park Personnel. Lot
Owners cannot contract other contractors for the construction of the said buildings and memorial,
however, the lot owner is free to give their own design for the mausoleum to be constructed, as
long as it is in accordance with the park standards. The construction shall be under the close
supervision of the Park Superintendent.

Meanwhile, the mortal remains of Dio’s husband and father were interred in the lot at her own
expense, without the knowledge and intervention of SFMPI. She engaged the services of a
private contractor for the fabrication of niches and improvements on her lot. In August 1974, the
remains of Dio’s daughter were likewise interred in the niche constructed on the lot, again
without the knowledge and intervention of SFMPI.

In 1986, Dio decided to build a mausoleum on the lot. In September that year, she caused the
preparation of a design-plan for the construction of a mausoleum and the bidding out of the
project.

In the early part of October 1986, Dio informed SFMPI, through its president and controlling
stockholder, Mildred F. Tantoco, that she was planning to build a mausoleum on her lot and
sought the approval thereof. Dio even showed to Tantoco the plans and project specifications
accomplished by her private contractor at an estimated cost of ₱60,000.00. The plans and
specifications were approved, but Tantoco insisted that the mausoleum be built by it or its agents
at a minimum cost of ₱100,000.00 as provided in Rule 69 of the Rules and Regulations the
SFMPI issued on May 25, 1972. The total amount excluded certain specific designs in the
approved plan which if included would cost Dio much more. In a letter4 dated October 13, 1986,
Dio, through counsel, demanded that she be allowed to construct the mausoleum within 10 days,
otherwise, she would be impelled to file the necessary action/s against SFMPI and Tantoco.

On October 17, 1986, SFMPI wrote Dio informing her that under Rule 69 of SFMPI Rules and
Regulations, she was prohibited from engaging an outside contractor for the construction of
buildings, improvements and memorials. A lot owner was only allowed to submit a preferred
design as long as it is in accordance with park standards.

On December 23, 1986, Dio filed a Complaint for Injunction with Damages5 against SFMPI and
Tantoco before the RTC of Lucena City. She averred that she was not aware of Rule 69 of the
SFMPI Rules and Regulations; the amount of ₱100,000.00 as construction cost of the
mausoleum was unconscionable and oppressive. She prayed that, after trial, judgment be
rendered in her favor, granting a final injunction perpetually restraining defendants from
enforcing the invalid Rule 69 of SFMPI’s "Rules for Memorial Work in the Mausoleum of the
Park" or from refusing or preventing the construction of any improvement upon her property in
the park.6 The court issued a cease and desist order against defendants.
In their answer with counterclaim, defendants averred that the construction of a mausoleum on
plaintiff’s lot at a minimum cost of ₱100,000.00 was not oppressive and unconscionable. They
averred that the estimated amount was commensurate to the plan and specified expensive
materials to be used in the construction from which defendants did not expect any unreasonable
gain. They stressed that Rule 69 was made in good faith and was adopted prior to plaintiff’s
purchase of the lot in question. They insisted that plaintiff was aware of the existence of Rule 69
when the Pre-Need Purchase Agreement and Deed of Sale was executed, that plaintiff made no
protest thereto, and was therefore estopped from questioning its application and enforcement.

Plaintiff testified that when she bought the memorial lot from defendant, she transferred the
remains of her father and husband on the said property. In August 1974, her daughter
Serconsicion died and was likewise buried in the memorial lot.7 She narrated that she wanted a
mausoleum to be constructed over the niches of her loved ones to protect the remains of her dead
relatives. She requested Engr. Alex Tan to prepare a plan for a mausoleum. The blueprint for the
mausoleum was estimated at ₱60,000.00. Thereafter, plaintiff informed defendant Tantoco of
her intention to build a mausoleum on her lot. Tantoco retorted that plaintiff could not hire an
outside contractor to build a mausoleum.8 Plaintiff was initially surprised by Tantoco’s statement
because she knew that their contract did not provide for such stipulation. Tantoco then offered to
construct the mausoleum but at the lowest cost of ₱100,000.00, excluding the stainless name and
the Coloroof.9 She also testified that when she bought the lot on December 11, 1973, the
agreement was that she would cause the construction of the niche and all improvements
necessary for the tombs. When asked by the court if the witness had read the rules and
regulations stated in the Pre-Need Purchase Agreement and the Deed of Sale and Certificate of
Perpetual Care, she answered in the negative.10

Plaintiff presented National Bureau of Investigation (NBI) Document Examiner Bienvenido

Albacea to prove that the rules and regulations of SFMPI were not yet in existence on May 25,
1972. The witness declared that, as a document examiner since 1976, he examines documents
being questioned to determine their authenticity and source. Papers are likewise examined to
check if there is any forgery, and photographed to compare the original from the photocopy. He
declared that he conducted a laboratory examination and analysis of the original of the rules and
regulations of defendant and subjected the same under stereoscopic microscope. He used
measuring test plates to calibrate the size of the typewriter, the horizontal and vertical pitch and
slots of the typewriter used in the document. He concluded that the date "May 25, 1972" was an
intercalation on page one of defendant’s rules and regulations and were not typed in one and the
same occasion as the other provisions on the document.11

On cross-examination, Albacea admitted that it was possible that the date "May 25, 1972" was
typed on the same day when the other entries in the rules and regulations were typed. He also
admitted that the date could have been typed after the whole page one was removed from the
typewriter.12 He produced test plates, a photograph enlargement, and the laboratory analysis
result of the original specimens, as well as the carbon duplicate of SFMPI Rules and
Regulations.

On August 3, 1995, the trial court rendered judgment in favor of defendants.13 The dispositive
portion of the decision reads:
WHEREFORE, premises considered, this Court hereby renders Judgment against the plaintiff
and in favor of the defendants. Consequently, [the] instant Complaint is hereby DISMISSED.

No pronouncement on award of damages could be made as the same has not been sufficiently
proven.

SO ORDERED.14

The trial court rejected the claim of plaintiff that defendants failed to inform her of the rules and
regulations of SFMPI. The court declared that she even informed them of her intention to
construct a mausoleum. According to the court a quo, this was proof that plaintiff was fully
aware of the rules and regulations of the memorial park; otherwise, she would not have sought
the permission of defendants of her intention to build a mausoleum. Plaintiff was obliged to
abide by the terms and conditions of the Pre-Need Purchase Agreement and the Deed of Sale and
the rules and regulations issued by defendant SFMPI.

On appeal, the CA affirmed the decision of the trial court.15 The appellate court ratiocinated that
when the parties executed the Pre-Need Purchase Agreement, Dio agreed to be bound not only
by the existing rules and regulations for the use and governance of the cemetery, but also future
ones.

Aggrieved, Dio, now petitioner, filed the present petition for review on certiorari, alleging that:

I. THE APPELLATE COURT ERRED IN RULING THAT THE DATE "MAY 25,
1972" COULD NOT HAVE BEEN A BELATED ATTEMPT TO SHOW THAT RULE
69 WAS ADOPTED PRIOR TO PETITIONER’S PURCHASE OF THE MEMORIAL
LOT BECAUSE IT WAS POSSIBLE THAT SAID DATE COULD HAVE BEEN
TYPED RIGHT AFTER THE DOCUMENT CONTAINING RULE 69 WAS
PREPARED.

II. THE APPELLATE COURT ERRED IN RULING THAT PETITIONER WAS

BOUND NOT ONLY BY RULES EXISTING AT THE TIME OF THE PURCHASE
OF THE MEMORIAL LOT BUT ALSO BY THOSE THAT MAY BE ADOPTED BY
RESPONDENTS AFTER THE PURCHASE.

III. THE APPELLATE COURT ERRED IN RULING THAT PETITIONER WAS

BOUND BY THE RULES BECAUSE SHE VOLUNTARILY ENTERED INTO THE
SALE AND PURCHASE OF THE MEMORIAL LOT.

IV. THE APPELLATE COURT ERRED IN SUSTAINING THE VALIDITY OF RULE

69 DESPITE THE FACT THAT IT WAS VOID FOR BEING CONTRARY TO LAW,
MORALS, PUBLIC ORDER, AND PUBLIC POLICY.

V. THE APPELLATE COURT ERRED IN NOT ORDERING RESPONDENTS TO

PAY PETITIONER DAMAGES AS PRAYED FOR IN HER COMPLAINT AND
PROVED DURING THE TRIAL.16
The issues are whether or not petitioner had knowledge of Rule 69 of SFMPI Rules and
Regulations for memorial works in the mausoleum areas of the park when the Pre-Need Purchase
Agreement and the Deed of Sale was executed; and whether the said rule is valid and binding
upon petitioner.

Petitioner argues that respondents failed to prove that respondent SFMPI approved the rules and
regulations on May 25, 1972, before she purchased the lot. Petitioner avers that as testified to by
NBI Document Examiner Albacea, the rules and regulations were not drafted on May 25, 1972.
In any event, she never consented to comply with the memorial park rules and regulations, and
all amendments, additions, and modifications thereto. Petitioner further avers that the questioned
Rule 69 is unreasonable and oppressive, therefore, void for being contrary to law, morals, public
order, and public policy. Petitioner additionally denies being in estoppel as she never made any
admission or representation in the contracts she signed, which, according to petitioner, were both
contracts of adhesion.

Respondents, on the other hand, contend that petitioner’s plea for injunction had become moot
and academic because petitioner had already caused the completion of said mausoleum as early
as July 8, 1997, in patent violation of the trial and appellate courts’ orders to cease and desist
construction. Moreover, petitioner presented NBI Document Examiner Albacea as a witness, and
is thus barred from assailing the probative weight thereof. Respondents maintain that the Pre-
Need Purchase Agreement as well as the Deed of Sale and Certificate of Perpetual Care are not
contracts of adhesion, and petitioner could have easily refused to enter into said contracts if she
truly had concerns regarding any of the stipulations therein. Rule 69 of the SFMPI Rules and
Regulations does not permanently deprive the owners of their right to use their own property;
hence, the rule is not oppressive or unconscionable.

The petition is denied for lack of merit.

Time and again the Court has emphasized that findings of facts of lower courts, particularly
when affirmed by the appellate court, are deemed final and conclusive. The Supreme Court
cannot go over such findings on appeal, especially when they are borne out by the records or are
based on substantial evidence. It is not the function of this Court to analyze or weigh the
evidence all over again, unless there is a showing that the findings of the lower court are entirely
devoid of support or are glaringly erroneous as to constitute palpable error or grave abuse of
discretion.17

The reason for the rule is that the trial court is in a better position to examine the demeanor of the
witnesses while testifying. Our jurisdiction is in principle limited to reviewing errors of law that
might have been committed by the CA. A fortiori, as in this case, where the factual findings of
the trial court are affirmed in toto by the CA, there is great reason for not disturbing such
findings and for regarding them as not reviewable by this Court.18 There are also settled
exceptions to this rule: (1) when the factual findings of the CA and the trial court are
contradictory; (2) when the conclusion is a finding grounded entirely on speculation, surmises, or
conjectures; (3) when the inference made by the CA from its findings of fact is manifestly
mistaken, absurd, or impossible; (4) when there is a grave abuse of discretion in the appreciation
of facts; (5) when the appellate court, in making its findings, went beyond the issues of the case
and such findings are contrary to the admissions of both appellant and appellee; (6) when the
judgment of the CA is premised on a misapprehension of facts; (7) when the CA failed to notice
certain relevant facts which, if properly considered, would justify a different conclusion; (8)
when the findings of fact are themselves conflicting; (9) when the findings of fact are
conclusions without citation of the specific evidence on which they are based; and (10) when the
findings of fact of the CA are premised on the absence of evidence but such findings are
contradicted by the evidence on record.19 In the case at bar, none of these exceptions is present
which would warrant a review of the factual findings of the courts below.

Under the Pre-Need Purchase Agreement executed by petitioner and respondents, the parties
covenanted that upon the completion of all payments by the purchaser, the seller would convey
to the purchaser a certificate of ownership to the aforesaid interment property for the interment
of human remains only. The certificate of SFMPI now existing or which may hereafter be
adopted for the government of said cemetery and said certificate shall be in the form used by the
seller, a copy of which petitioner acknowledged she had examined and approved. Petitioner
agreed to abide by all such rules and regulations governing SFMPI,20 among them Rule 69 which
prevents lot owners from "contract[ing] other contractors for the construction of the said
buildings and memorial" but gives the owners free rein "to give their own design for the
mausoleum to be constructed, as long as it is in accordance with the park standards."

Under the Deed of Sale and Certificate of Perpetual Care, petitioner agreed to be bound not only
by the existing rules but also by future rules and regulations that may be adopted by respondent
SFMPI. It is also stated in the said rules and regulations kept in the office of respondent which
could be inspected by petitioner at any time:

2. The PURCHASER, his heirs, successors and assigns, shall have, hold and use the property
subject to the rules and regulations of SELLER for the government of the cemetery now in force
and those which may hereafter be adopted. A copy of said rules and regulations and all
amendments, additions and modifications thereto is kept in the office of the SELLER and is
subject to inspection by the PURCHASER at all times during normal office hours. Said rules and
regulations and all amendments, additions, and modifications thereto are hereby incorporated
herein and made integral parts hereof by reference as if set forth herein in full.21

Thus, when petitioner executed the Pre-Need Purchase Agreement and conformed to the Deed of
Sale, it was with full knowledge of the terms and conditions thereof, including the rules and
regulations issued by respondent SFMPI. Hence, petitioner is precluded from asserting that she
had no knowledge of said rules and regulations, and that she never consented to comply with
them. More importantly, petitioner cannot feign ignorance of said rules. In law, whatever fairly
puts a person on inquiry is sufficient notice, where the means of knowledge are at hand, which if
pursued by the proper inquiry, the full truth might have been ascertained.22 In this case, the
appellate court declared:

x x x [k]knowledge will be imputed and may be implied from circumstances where the
circumstances known to one concerning a matter in which he is interested are sufficient to
require him, as an honest and prudent person, to investigate concerning the rights of others in the
same matter, and diligent investigation will lead to discovery of any right conflicting with his
own.23

For its part, the trial court made the following findings:

Plaintiff’s allegation that she was not aware of the said Rules and Regulations lacks credence.
Admittedly, in her Complaint and during the trial, plaintiff testified that she informed the
defendants of her intention to construct a mausoleum. Even counsel for the plaintiff, who is the
son of the plaintiff, informed the Court during the trial in this case that her mother, the plaintiff
herein, informed the defendants of her plan to construct and erect a mausoleum. This act of the
plaintiff clearly shows that she was fully aware of the said rules and regulations otherwise she
should not consult, inform and seek permission from the defendants of her intention to build a
mausoleum if she is not barred by the rules and regulations to do the same. When she signed the
contract between [sic] the defendants, she is [sic] estopped to question and attack the legality of
said contract later on. (Emphasis supplied)24

Petitioner is obliged to abide by the terms and conditions of the Pre-Need Purchase Agreement
and the Deed of Sale, as well as said rules and regulations which formed integral parts of said
deeds.

Basic is the principle that contracts, once perfected, bind both contracting parties.25 The parties
may establish such stipulations, clauses, terms and conditions as they may deem convenient,
provided these are not contrary to law, morals, good customs, public order, or public policy. It
follows that obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith.26

We quote with approval the ruling of the trial court:

The appellant’s ownership of the memorial lot was subject to the rules and regulations legally
and validly restricting her enjoyment and use of the property. Art. 428, Civil Code, states that the
owner has the right to enjoy and dispose of a thing without other limitations than those
established by law. It is recognized that the limitations include those that are imposed by the will
of the transmitting owner, that is, the transmitting owner transfers his property by whatever title
and imposes on the acquirer whatever limitations he wishes as long as the limitations are not
contrary to the nature of ownership and not prohibited by law (e.g., servitudes, encumbrances,
prohibition against alienation).

Otherwise stated, the appellant should adhere to and comply with the terms and conditions of the
pre-need purchase agreement and the deed of sale and certificate of perpetual care. Her perceived
disadvantage does not amount to her deprivation of property or other rights without due process
of law considering that she had voluntarily entered into the purchase and considering also that
she remains free to exercise her right as property owner, under which she can build a mausoleum
provided she does so in accordance with the memorial park’s standards and rules common to all
owners of lots.27
Petitioner is an experienced businesswoman. She doubtlessly dealt with numerous documents,
and is therefore presumed to know the import thereof. It cannot be further emphasized that it
behooves every contracting party to learn and know the contents of an instrument before signing
and agreeing to it.28

We are not persuaded by petitioner’s claim that Rule 69 of respondent’s rules and regulations is
unreasonable and oppressive because the provision unduly restricts her right of ownership over
the property. Rule 69 of the said rules and regulations is neither excessive nor despotic. The rule
itself specifies that the "lot owner is free to give their own design for the mausoleum to be
constructed, as long as it is in accordance with the park standards." Clearly, the rule allows the
construction of a mausoleum but with certain restrictions. Moreover, as the proprietor of the
entire memorial park, the formulation of a reasonable set of rules and regulations is within the
power of the management of respondent SFMPI. It is noteworthy that the same rule permits
petitioner, or any other buyer of memorial lot, to use the property for the purpose for which it
was contemplated.1âwphi1

A contract of adhesion, wherein one party imposes a readymade form of contract on the other, is
not strictly against the law.29 A contract of adhesion is as binding as ordinary contracts, the
reason being that the party who adheres to the contract is free to reject it entirely.30 Contrary to
petitioner’s contention, not every contract of adhesion is an invalid agreement. As we had the
occasion to state in Development Bank of the Philippines v. Perez:31

x x x In discussing the consequences of a contract of adhesion, we held in Rizal Commercial

Banking Corporation v. Court of Appeals:

It bears stressing that a contract of adhesion is just as binding as ordinary contracts. It is true that
we have, on occasion, struck down such contracts as void when the weaker party is imposed
upon in dealing with the dominant bargaining party and is reduced to the alternative of taking it
or leaving it, completely deprived of the opportunity to bargain on equal footing, Nevertheless,
contracts of adhesion are not invalid per se; they are not entirely prohibited. The one who
adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent.32

The validity or enforceability of the impugned contracts will have to be determined by the
peculiar circumstances obtaining in each case and the situation of the parties concerned. Indeed,
Article 24 of the New Civil Code provides that "[in] all contractual, property or other relations,
when one of the parties is at a disadvantage on account of his moral dependence, ignorance,
indigence, mental weakness, tender age, or other handicap, the courts must be vigilant for his
protection."33 In this case, however, there is no reason for the Court to apply the rule on stringent
treatment towards contracts of adhesion. To reiterate, not only is petitioner educated, she is
likewise a well-known and experienced businesswoman; thus, she cannot claim to be the weaker
or disadvantaged party in the subject contracts so as to call for a strict interpretation against
respondents. Moreover, she executed the Pre-Need Purchase Agreement and Deed of Sale
without any complaint or protest. She assailed Rule 69 of the Rules and Regulations of
respondent SFMPI only when respondents rejected her request to cause the construction of the
mausoleum.
WHEREFORE, the instant petition is DENIED. The Decision of the Court of Appeals in CA-
G.R. CV No. 52311 dated May 10, 2005, and the Resolution dated September 6, 2005, are
AFFIRMED. Costs against petitioner.

SO ORDERED.

G.R. No. 131013      December 14, 2001

BLADE INTERNATIONAL MARKETING CORPORATION, EVAN J. BORBON,

EDGAR J. BORBON, and MARCIAL GERONIMO, petitioners,
vs.
COURT OF APPEALS and METROPOLITAN BANK & TRUST
COMPANY, respondents.

BELLOSILLO, J.:

The Case

The case under consideration is a petition to annul the decision1 of the Court of Appeals that
ordered petitioners Blade International Marketing Corporation, Evan J. Borbon, Edgar J. Borbon,
and Marcial Geronimo to pay, jointly and severally, the total amount of their obligation to
respondent Metropolitan Bank and Trust Company, including interest, penalty charge and
attorney's fees.1âwphi1.nêt

The Facts

The facts, as state in the petition, are as follows:

"1. The instant complaint for a "Sum of Money" was instituted by the Metropolitan Bank
& Trust Co. with an application for issuance of a Writ of Preliminary Attachment against
the petitioners Blade International Marketing Corporation, Evan J. Borbon, Edgar J.
Borbon, Marcial Geronimo and Elenito G. Santos. The complaint consisted of eight (8)
causes of actions involving the delivery, shipment of merchandise, and tools. Private
Respondent alleged, that it paid the suppliers thereof by way of letters of credit against
bills of exchange and that said merchandise or shipment were delivered in trust and/or
accepted by the petitioner/s under the conditions of the trust receipt which required the
said petitioner/s as entrustee/s to hold the goods, merchandise, documents and/or
instrument as well as the proceeds thereof, for the payment of petitioner/s obligations
acceptances, indebtedness and liabilities and that without justifiable reason, they
allegedly failed and refused to account for and turn over to the private respondent the
proceeds of sale of the above mentioned goods or merchandise, documents and
instruments subject matter of the trust, the details of which are as follows:
 "x      x      x.

"2. On 20 November 1987, petitioners BLADE, Evan J. Borbon, Edgar J. Borbon and
Marcial Geronimo filed a "Joint Answer with Counterclaim," and which answer was
anchored on the following grounds:

"1. That defendant corporation thru its authorized officers applied for and in its
own behalf for several commercial letters of credit with the plaintiff in blank
form;

"2. That defendants further denied the material and ultimate facts of the eight (8)
causes of actions in the complaint and interposed Special and Affirmative
Defenses, to wit:

"x      x      x.

"3. By way of "Special and Affirmative Defenses," defendants also maintained, that
individual defendants Evan J. Borbon, Marcial Geronimo and Edgar J. Borbon never
signed the letters of credit and related documents in their personal capacities nor agreed
to be bound thereon in anyway or as sureties or as entrustees to the plaintiff, since they
merely acted for and in behalf of defendant corporation in the execution of the documents
in question and therefore not liable thereon in their personal capacities; that defendants
and/or individual defendants never received the subject merchandise/goods in concept of
a trust or as entrustees to account or to hold and/or turn over the goods/merchandise,
instruments or the proceeds of sale thereof to the plaintiff and that they have not misused
or converted the merchandise or proceeds thereof and that plaintiff has not made any
demand nor given any notice to defendants to account for or hold or turn over of the
merchandise, instruments, documents, as well as the proceeds thereof to the plaintiff, and
further the plaintiff has no causes of actions and that the trust receipts being simulated
contracts are void and unenforceable;

"4. Defendant by way of counterclaim further maintained, that the suit was premature and
filed maliciously and in bad faith by making it appear that the defendant corporation and
individual defendants committed breaches of trust which are non-existent, since the
documents supposedly the 'trust receipts' were prepared and executed for convenience
purposes but not in concept of trust and therefore simulated contracts or void ab initio.
However, the plaintiff with full knowledge thereof maliciously instituted this suit, as a
consequence plaintiff unduly prejudiced and/or damaged defendants corporation as well
as the individual defendants business reputation and/or credit standing and further caused
the individual defendants to suffer unnecessary damages for which defendants are
entitled moral damages in the sum of P100,000.00 and for having dragged the defendants
before to court, who were compelled and to protect their rights and interest in the
premises for which they agreed to pay counsel the sum of P25,000.00 as and for
attorney's fees;
 "5. After due hearing, the Trial Court rendered a decision on 10 February 1992
dismissing both the complaint and counterclaim, the dispositive portion of which
provides, as follows:

"x      x      x

"WHEREFORE, judgment is hereby rendered dismissing the complaint of plaintiff

Metropolitan Bank and Trust Company against defendants Blade International Marketing
Corporation, Evan J. Borbon, Edgar J. Borbon and Marcial Geronimo, as well as the
counter claim of the latter against the former, without pronouncement as to costs."

"6. On 24 February 1992, the private respondent not satisfied with the said Decision filed
a "Notice of Appeal" before the Honorable Court of Appeals, upon the 'ground that said
decision is contrary to the evidence adduced by the parties and to the applicable laws and
jurisprudence;

"7. On 13 June 1997, the Honorable Court of Appeals (Third Division) rendered a
Decision, which reversed and set-aside the assailed decision and a new one was entered,
copy of which was received by the petitioners thru counsel on 20 June 1997, the
dispositive portion of which are as follows:

"WHEREFORE, finding reversible error in the assailed decision, the same is

hereby REVERSED and SET ASIDE and a new one is ENTERED finding the
appellees liable, jointly and severally, with each other and ordering them to pay
the appellant the sum of P2,118,841.20 representing the total amount of the
obligation as of May 31, 1997, inclusive of 18% interest and 2% penalty charge
until their obligation is fully paid, and the payment of P50,000.00 as attorney's
fees. No pronouncement as to costs.

"SO ORDERED.

"8. On 04 July 1997, petitioners filed a "Motion for Reconsideration" thereof, and the
Honorable Court of Appeals DENIED the same in its Resolution dated 24 October 1997,
copy of which was received on 30 October 1997, the dispositive portion of which reads
as follows:

"WHEREFORE, the instant motion for reconsideration is hereby DENIED for

lack of merit.

"SO ORDERED."2

Hence, this appeal.3

The Issue
The issue raised is whether the petitioners Evan J. Borbon, Edgar J. Borbon, and Marcial
Geronimo are personally liable jointly and severally with Blade International for fulfillment of
its obligations under the letters of credit opened with Metrobank.

Petitioners Evan J. Borbon, Edgar J. Borbon, and Marcial Geronimo disclaim liability because
they never signed the letters of credit and related documents in their personal capacities.

The Court's Ruling

We hold petitioners liable solidarily.

In this case, petitioners admit that they signed the letters of credit and related documents
pertaining to the transactions with Metrobank. However, petitioners claimed that they signed the
forms in blank. The documents show that the petitioners agreed to jointly and severally
undertake payment of the obligations and also consented to each and all of the stipulated
conditions on the documents. "An experienced businessman who signs important legal papers
cannot disclaim the consequent liabilities therefor after being a signatory thereon."4

Thus, the Court of Appeals was correct in finding that petitioners contractually agreed to hold
themselves personally solidarily liable with the corporation in the fulfillment of its obligations to
Metrobank.1âwphi1.nêt

The Fallo

WHEREFORE, the Court AFFIRMS the decision of the Court of Appeals in toto.5

No costs.

SO ORDERED.

G.R. No. 113363           August 24, 1999

ASIA WORLD RECRUITMENT INC., petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION (2nd DIVISION),
PHILIPPINE OVERSEAS EMPLOYMENT ADMINISTRATION (POEA) and PHILIP
MEDEL, JR., respondents.

QUISUMBING, J.:
This is a special civil action for certiorari under Rule 65 of the Rules of Court assailing (a) the
Decision1 dated September 13, 1993 of the National Labor Relations Commission (NLRC),
Second Division, in NLRC-NCR CA No. 001637-91, which affirmed with modification the
decision of the Philippine Overseas Employment Administration (POEA)2 in POEA Case No.
89-10-1002 finding petitioner liable, among others, for illegal dismissal of private respondent;
and (b) the Resolution3 of the NLRC, dated December 15, 1993, denying reconsideration.

Petitioner Asia World Recruitment is a domestic corporation with authority granted by the
POEA to recruit and deploy Filipino overseas contract workers abroad. Petitioner's principal is
Roan Selection Trust International Ltd., a diamond and gold mining company in Angola, Africa,
owned by one Christian Rudolf G. Hellinger.

Private respondent Philip Medel, Jr., is a Filipino who entered into an employment contract4 with
petitioner to work as a Security Officer in its diamond mine in Cafunfo, Angola, for a period of
twelve (12) months commencing upon his departure from the Philippines, with a salary rate of
US $800.00 a month, plus 50% of the salary by way of bonus or a total of US$1,200.00 a
month.5 The parties also agreed that private respondent would work for six (6) hours a day, with
one rest day every week and that he would be entitled to overtime pay for work in excess of six
(6) hours at the rate of $5.00 per hour.6 Private respondent arrived in Angola sometime in
December, 1988. In addition to being a Security Officer, he was made to work as a Dispatcher
and Metallurgy Inspector in the diamond mine. During his employment, private respondent
elevated the grievances of his Filipino co-workers to the management,7 which apparently strained
relations between him and management.

On March 10, 1989, private respondent received a letter of termination8 dated March 1, 1989
signed by General Manager A.J. Smith, who informed him that the company was not satisfied
with his performance within the three-month trial period, and that his employment with the
company would be terminated on March 13, 1989. The records show, however, that private
respondent was repatriated to the Philippines on March 12, 1989, barely two (2) days after he
received the notice of termination.

Aggrieved by his precipitate termination, private respondent filed on October 18, 1989, a
complaint9 for illegal dismissal, cancellation of petitioner's license, refund of placement fee plus
interest, payment of salary differentials, reimbursement of amounts illegally deducted from his
monthly salary, payment of salaries for the unexpired portion of the contract, damages and
attorney's fees against petitioner and its principal, Roan Selection Trust International Ltd.

On March 12, 1991, the POEA Adjudication Office rendered a decision10 finding petitioner (with
his co-respondents therein) solidarily liable for illegal dismissal, and ordering them to pay herein
private respondent the sum of seven thousand two hundred ($7,200.00) dollars representing
salaries for the unexpired portion of the contract, but disallowing private respondent's other
monetary claims.11

On April 1, 1991, petitioner and private respondent elevated their respective appeals to the
NLRC. Petitioner sought the reversal of the POEA decision, while private respondent filed an
Urgent Motion for the Partial Reconsideration of the POEA decision denying his other monetary
claims.

On September 13, 1993, the NLRC, through its Second Division, rendered the assailed decision
dismissing petitioner's appeal and granting private respondent's Partial Motion for
Reconsideration as regards his claims for illegal deductions, salary differentials and overtime
pay, finding as follows:

As established from the records, the parties agreed that complainant's basic monthly
salary was US $800.00 plus 50% of such salary as bonus or a total of $1,200.00 a month.
The bonus represents complainant's hazard pay. For according to respondents there is a
war going on in Angola.

The POEA by denying the complainant's claim for illegal deduction and/or salary
differential held that the respondents has proven that complainant has already been paid
were it not for the legal deductions made against his salaries representing the damages
caused to company vehicle by complainant. A careful study of the record reveals that said
deductions on the complainant's salary is not justified considering that complainant in his
position paper was able to establish the fact that he was not negligent in driving his
assigned vehicle but was the subject of sabotage as an attempt to silence him for seeking
redress and elevating the grievances of his co-Filipino workers to the management. It can
thus be said that respondent made it appear that complainant committed a misdemeanor
by issuing complainant the misdemeanor application note wherein he was made to pay
for the cost of the repair of vehicle (Record, p. 32).

Furthermore, there is no showing that an investigation was made to establish the liability
of complainant regarding the alleged vehicular accident. Neither was there proof showing
that deductions be made from the salary of the complainant. No less than the Labor Code,
Article 116 thereof, provides that "it shall be unlawful for any person, directly or
indirectly withold any amount from the wages of a worker . . . without the worker's
consent."

As shown by the bank records, respondent employer transmitted to complainant's bank

account in the Philippines the total amount of US$2,190.77 (See Records, p. 242)
representing complainant's salary during his entire period of employment. Based on
complainant's US $1,200.00 a month salary ($800.00 monthly salary plus 50% thereof as
bonus), complainant is supposed to receive $3,600.00. Complainant is therefore entitled
to receive the difference of $1,409.23, as his salary differential.1âwphi1.nêt

Anent the claim for overtime pay, the same should have been allowed by the POEA in
the light of the evidences/document submitted to wit: Forecast of Duties for February
1989 and March 1989 (Records, pp. 70-71) and the Legend of Forecast of Duties
(Records, p. 38). As borne by these documents, complainant, like other security officers
had render (sic) twelve (12) hours of duty per shifting. In the summary of complainant's
Tour of Duties (Records, pp. 116 to 119) it was established that complainant had
rendered work for a total of fifty six (56) days. Considering that he worked for twelve
 (12) hours each day, complainant has rendered an excess of six (6) hours of overtime
work per day or a total of 336 hours. Based on the prevailing hourly rate for the overtime
work which is $5 per hours, complainant is entitled to US $1,680.00. Under the
circumstances, the documents submitted by complainant in support of his claim for
overtime pay are adequate enough to establish the fact of his overtime work and should
have been given credence rather than respondents' which merely denied the claim without
submitting their own evidence to refute. As held by the Supreme Court in the case
of Cuadra vs. NLRC, G.R. No. 98030, March 17, 1992, to wit:

Regarding the claim for overtime pay, we do not agree that it should have been
disallowed because of the failure of the petitioner to substantiate it. . . . .

The claim of our overseas workers against their foreign employers should have
not (sic) subjected to the rules of evidence and procedure that we usually apply to
other complainants who have facility in obtaining the required evidence to prove
their demands.

Records show that complainant has engaged the professional services of two (2) lawyers.
Pursuant to Article 211 of the Labor Code and Rule VIII Section II Book III of the Rules
Implementing the Labor Code, complainant is entitled to his claim for attorney's fees.

The NLRC then modified the POEA decision, to wit:

WHEREFORE, the decision of the POEA dated March 12, 1991 is hereby modified as
follows:

Respondents are hereby held solidarily liable to pay complainant:

1. The sum of Seven Thousand Two Hundred US Dollars (US$7,200) representing his
salaries for the unexpired portion of his contract.

2. US Dollars One Thousand Six Hundred Eighty (US$1,680.00) as and for complainant's
overtime pay.

3. US Dollars One Thousand Four Hundred Nine and Twenty-Three (US$1, 409.23) as
salary differential.

4. Attorney's fees, representing 10% of the totality of the amount of the award.

Thereafter, the NLRC, acting on private respondent's Motion for Classificatory Judgment and/or
Motion for Reconsideration, rendered a Decision dated October 29, 1993, clarifying that the
aforesaid amounts should be paid at their prevailing peso equivalent at the time of
payment.12 Petitioner's Motion for Reconsideration of the aforesaid Decision was likewise denied
by the NLRC for lack of merit.
Hence, the instant petition for certiorari, which was given due course by this Court after the
private respondent, and public respondents, through the Office of the Solicitor General, filed
their respective Comments, and private respondent filed his Reply thereto. The parties thereafter
submitted their respective Memoranda.

The issue raised in this petition is whether or not public respondent NLRC committed grave
abuse of discretion when it affirmed the decision of the POEA finding that private respondent
was illegally dismissed with the modification that salary differential, overtime pay and attorney's
fee should be allowed.13

During the pendency of the case, by virtue of a writ of execution issued by the NLRC, petitioner
made substantial payments to private respondent in partial satisfaction of the NLRC decision
thus prompting private respondent to file a Motion to Dismiss dated April 20, 1996 and a
subsequent Supplemental Motion to Dismiss dated September 19, 1996, stating that;

a. that on October 23, 1993, the NLRC resolution (sic) modified its DECISION (dated
September 13, 1993), by ordering the petitioner Asiaworld to pay him the following:

1. The sum of Seven Thousand Two Hundred US Dollars (US$7,200.00) or its

prevailing peso equivalent at the time of payment representing his salaries for the
unexpired portion of his contract.

2. US Dollars One Thousand Six Hundred Eighty (US$1,680;00) or its prevailing

peso equivalent at the time of payment as and for complainant's overtime pay.

3. US Dollars One Thousand Four Hundred Nine and Twenty-Three (US$

1,409.23) or its prevailing peso equivalent at the time of payment as salary
differential.

4. Attorney's fees, representing 10% of the totality of the amount of the award. . . .
.

The total award, including attorney's fees, is US $11,318.13.

b. that on April 20, 1996, he filed a MOTION TO DISMISS because of partial payment
made by Asiaworld Recruitment, in the sum of P201,564.13;

c. that on July 26, 1996, the petitioner Asia World Recruitment Inc. paid him the
additional sum of US 2,881.69, subject to his reservation to demand for the balance or the
correct computation of the award, per NLRC Resolution dated 29 October 1993.

d. the prevailing peso equivalent at the time of payment, as of July 26, 1996, was P26.19
x US $1.00. Using the stated peso-dollar conversion rate, he (Medel) is still entitled to the
balance of US$ 741.98.

Computation:
 P201,564.13 is equivalent to US$7,694.46,

leaving a balance of US $3,623.67

(US$11,318.13 - US$ 7,694.46);

US $3,623.67 - US$ 2,881.69 = US$741.98.

WHEREFORE, in supplement of his motion to dismiss (dated April 20, 1996), the
complainant prays that the above-entitled petition of the Asia World Recruitment Inc. be
DISMISSED.

Private respondent's Motion to Dismiss and Supplemental Motion to Dismiss are akin to a partial
quitclaim as to the amounts awarded by the NLRC. Nevertheless, we are mindful of the rule that
"a deed of release or quitclaim cannot always bar an employee from demanding what is legally
due him."14 Hence, notwithstanding the substantial satisfaction of the amounts prayed for, the
basic issue in this case remains for the Court's resolution.

At the outset, except for serious lapses, we are not at liberty to overturn the findings of both the
NLRC and the POEA Administrator on the circumstances concerning the dismissal of private
respondent. These are essentially factual matters which are within the competence of the
administrative agencies to determine. Their findings are accorded by this Court respect and
finality if, as in this case, they are supported by substantial evidence.15

The records clearly show that private respondent was an employee with a fixed period of twelve
(12) months. Private respondent, therefore, was an employee hired for a fixed term whose
employment was to end only at the expiration of the period stipulated in his contract.16 Thus, this
is not a simple case of illegal dismissal of an employee whose employment is without a definite
period, rather, we find that the principal cause of action in private respondent's complaint is
breach of contract of employment for a definite period.17 As a party to this contract, he enjoys
security of tenure, for the period of time his contract is in effect.18 Petitioner contends that private
respondent was only a probationary employee for a period of three (3) months. Even if granted,
for the sake of argument, that this were true, as a probationary employee, he is nonetheless
entitled to constitutional protection of security of tenure that no worker shall be dismissed except
for cause provided by law and after due process.19 Security of tenure is a right of paramount
value guaranteed by the Constitution and should not be denied on mere
speculation.20 Furthermore, the right of an employer to freely select or discharge his employees is
regulated by the State, considering that the preservation of the lives of the citizens is a duty of
the State, more basic than the preservation of business profit.21

The burden is on the employer to prove that the termination was after due process, and for a
valid or authorized cause.22 For the two requisites in our jurisdiction to constitute a valid
dismissal are: (a) the existence of a cause expressly stated in Article 282 of the Labor Code; and
(b) the observance of due process, including the opportunity given the employee to be heard and
defend himself.23 As correctly found by the NLRC, there was no valid cause for dismissal of
private respondent. Thus —
 As in the instant case respondent claim that complainant was terminated due to
incompetence. The burden of proof to [establish] such incompetence rests on
respondents. The evidence adduced by them were insufficient to prove the alleged
incompetence of complainant. Even the "termination letter" itself does not state the how
and why complainant was considered incompetent. It merely stated that the company "is
not satisfied" with his performance during the probationary period. Respondent even
failed to attach to said letter the rating sheets of complainant for his information as that he
may present his side.24

Worse, in the petition for certiorari, petitioner invoked the provision in the employment contract
which allows summary dismissal for cases provided therein.25 Consequently, petitioner argues
that written notice to the private respondent was no longer an indispensable procedural
requirement to satisfy the dictates of due process but was merely a formality in the course of
effecting severance of employment.26 Such blatant violation of basic labor law principles cannot
be permitted by this Court. Although a contract is law between the parties, the provisions of
positive law which regulate such contracts are deemed included and shall limit and govern the
relations between the parties.27 Petitioner, in our view, failed to rebut the following findings of
the respondent NLRC —

Records also show that the letter of termination dated March 1, 1989 was received by
complainant on March 10, 1989 when he was terminated. He was repatriated on March
12, 1989. Taking into consideration the effectivity date of his termination, and the span of
time the letter was received and his date of repatriation, we cannot consider that such is
the notice required for a valid termination of employment.28

Jurisprudence abounds on the twin requirements of due process, substantive and procedural,
which must be complied with, before a valid dismissal exists.29 The twin requirements of notice
and hearing constitute the essential elements of due process. Simply put, the employer shall
afford the worker ample opportunity to be heard and to defend himself with the assistance of his
representative, if he so desires. As held in the case of International
Pharmaceuticals, Inc. v. National Labor Relations Commission, 287 SCRA 213, 227 (1998):

The law requires that the employer must furnish the worker sought to be dismissed with
two written notices before termination of employee can be legally effected: (1) notice
which apprises the employee of the particular acts or omissions for which his dismissal is
sought; and (2) the subsequent notice which informs the employee of the employer's
decision to dismiss him. (Sec. 13, BP 130; Sections 2-6, Rule XIV, Book V, Rules and
Regulations Implementing the Labor Code as amended). Failure to comply with the
requirements taints the dismissal with illegality. . . . [Citing Aurora Land Projects Corp.
v. NLRC; 266 SCRA 48 (1997); Tingson, Jr. v. NLRC, 185 SCRA 498 (1990); National
Service Corporation v. NLRC, 168 SCRA 122 (1988); Ruffy v. NLRC, 182 SCRA 365
(1990).]

Applying the above legal criteria, we find that private respondent herein was indeed dismissed
without cause and without due process.
Although the Labor Code is silent on the liability of an employer for damages in case the
termination is declared to be unjust, we have ruled,30 however, that the employer may be so liable
if, in terminating the employment, it also committed an antisocial and oppressive abuse of its
right to investigate and dismiss its employee in violation of Article 1701 of the Civil
Code.31 Further, in CLLC E.G. Gochangco Workers Union v. NLRC, 161 SCRA 655, 671 (1988),
we already stated:

As for moral damages, we hold the said respondent liable therefor under the provisions of
Article 2220 of the Civil Code providing for damages for "breaches of contract where the
defendant acted fraudulently or in bad faith."

Hence, we now hold that private respondent is entitled to moral damages amounting to
TWENTY-FIVE THOUSAND PESOS (P25,000.00), considering that his dismissal was marked
by precipitate dispatch and utter disregard of due process.

One final note. The need for strict enforcement of the law as well as rules and regulations
governing Filipino contract workers cannot be over-emphasized. Many hapless citizens of this
country have sought employment abroad to earn a few dollars in order to improve their lot, and
provide proper education and a decent future for their children, but have found themselves
exploited by foreign employers or recruiters who harass or abuse them. They are deprived of
their jobs without cause or at the slightest pretense. Hence, Filipino recruiting agencies must not
only faithfully comply with Government-prescribed responsibilities; they must also impose upon
themselves the duty, borne out of a social conscience, to properly help fellow citizens sent
abroad to work for foreign principals. They must keep in mind that this country is not exporting
slaves but human beings, and, above all, fellow Filipinos seeking merely to improve their lives.32

WHEREFORE, finding no grave abuse of discretion committed by public respondent NLRC, the
assailed Decision dated September 13, 1993 and Resolution dated October 29, 1993 are hereby
AFFIRMED, with the MODIFICATION that, it appearing that petitioner already partially
satisfied the NLRC judgment except for a balance of US $741.98, petitioner is hereby ordered to
pay private respondent said amount or its prevailing peso equivalent at the time of
payment.33 The Court also finds it proper to award private respondent moral damages, and
hereby ORDERS petitioner to pay P25,000.00 as moral damages. Costs against petitioner.

SO ORDERED.

G.R. No. 161003             May 6, 2005

FELIPE O. MAGBANUA, CARLOS DE LA CRUZ, REMY ARNAIZ, BILLY ARNAIZ,

ROLLY ARNAIZ, DOMINGO SALARDA, JULIO CAHILIG and NICANOR
LABUEN, petitioners,
vs.
RIZALINO UY, respondent.
 DECISION

PANGANIBAN, J.:

Rights may be waived through a compromise agreement, notwithstanding a final judgment that
has already settled the rights of the contracting parties. To be binding, the compromise must be
shown to have been voluntarily, freely and intelligently executed by the parties, who had full
knowledge of the judgment. Furthermore, it must not be contrary to law, morals, good customs
and public policy.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the May 31,
2000 Decision2 and the October 30, 2003 Resolution3 of the Court of Appeals (CA) in CA-GR
SP No. 53581. The challenged Decision disposed as follows:

"WHEREFORE, having found that public respondent NLRC committed grave abuse of
discretion, the Court hereby SETS ASIDE the two assailed
Resolutions and REINSTATES the order of the Labor Arbiter dated February 27,
1998."4

The assailed Resolution denied reconsideration.

The Facts

The CA relates the facts in this wise:

"As a final consequence of the final and executory decision of the Supreme Court
in Rizalino P. Uy v. National Labor Relations Commission, et. al. (GR No. 117983,
September 6, 1996) which affirmed with modification the decision of the NLRC in
NLRC Case No. V-0427-93, hearings were conducted [in the National Labor Relations
Commission Sub-Regional Arbitration Branch in Iloilo City] to determine the amount of
wage differentials due the eight (8) complainants therein, now [petitioners]. As
computed, the award amounted to P1,487,312.69 x x x.

"On February 3, 1997, [petitioners] filed a Motion for Issuance of Writ of Execution.

"On May 19, 1997, [respondent] Rizalino Uy filed a Manifestation requesting that the
cases be terminated and closed, stating that the judgment award as computed had been
complied with to the satisfaction of [petitioners]. Said Manifestation was also signed by
the eight (8) [petitioners]. Together with the Manifestation is a Joint Affidavit dated May
5, 1997 of [petitioners], attesting to the receipt of payment from [respondent] and
waiving all other benefits due them in connection with their complaint.

xxx      xxx      xxx
 "On June 3, 1997, [petitioners] filed an Urgent Motion for Issuance of Writ of Execution
wherein they confirmed that each of them received P40,000 from [respondent] on May 2,
1997.

"On June 9, 1997, [respondent] opposed the motion on the ground that the judgment
award had been fully satisfied. In their Reply, [petitioners] claimed that they received
only partial payments of the judgment award.

xxx      xxx      xxx

"On October 20, 1997, six (6) of the eight (8) [petitioners] filed a Manifestation
requesting that the cases be considered closed and terminated as they are already satisfied
of what they have received (a total of P320,000) from [respondent]. Together with said
Manifestation is a Joint Affidavit in the local dialect, dated October 20, 1997, of the six
(6) [petitioners] attesting that they have no more collectible amount from [respondent]
and if there is any, they are abandoning and waiving the same.

"On February 27, 1998, the Labor Arbiter issued an order denying the motion for
issuance of writ of execution and [considered] the cases closed and terminated x x x.

"On appeal, the [National Labor Relations Commission (hereinafter ‘NLRC’)] reversed
the Labor Arbiter and directed the immediate issuance of a writ of execution, holding that
a final and executory judgment can no longer be altered and that quitclaims and releases
are normally frowned upon as contrary to public policy."5

Ruling of the Court of Appeals

The CA held that compromise agreements may be entered into even after a final
judgment.6 Thus, petitioners validly released respondent from any claims, upon the voluntary
execution of a waiver pursuant to the compromise agreement.7

The appellate court denied petitioners’ motion for reconsideration for having been filed out of
time.8

Hence, this Petition.9

The Issues

Petitioners raise the following issues for our consideration:

"1. Whether or not the final and executory judgment of the Supreme Court could be
subject to compromise settlement;

"2. Whether or not the petitioners’ affidavit waiving their awards in [the] labor case
executed without the assistance of their counsel and labor arbiter is valid;
 "3. Whether or not the ignorance of the jurisprudence by the Court of Appeals and its
erroneous counting of the period to file [a] motion for reconsideration constitute a denial
of the petitioners’ right to due process."10

The Court’s Ruling

The Petition has no merit.

First Issue:

Validity of the Compromise Agreement

A compromise agreement is a contract whereby the parties make reciprocal concessions in order
to resolve their differences and thus avoid or put an end to a lawsuit.11 They adjust their
difficulties in the manner they have agreed upon, disregarding the possible gain in litigation and
keeping in mind that such gain is balanced by the danger of losing.12 Verily, the compromise
may be either extrajudicial (to prevent litigation) or judicial (to end a litigation).13

A compromise must not be contrary to law, morals, good customs and public policy; and must
have been freely and intelligently executed by and between the parties.14 To have the force of law
between the parties,15 it must comply with the requisites and principles of contracts.16 Upon the
parties, it has the effect and the authority of res judicata, once entered into.17

When a compromise agreement is given judicial approval, it becomes more than a contract
binding upon the parties. Having been sanctioned by the court, it is entered as a determination of
a controversy and has the force and effect of a judgment.18 It is immediately executory and not
appealable, except for vices of consent or forgery.19 The nonfulfillment of its terms and
conditions justifies the issuance of a writ of execution; in such an instance, execution becomes a
ministerial duty of the court.20

Following these basic principles, apparently unnecessary is a compromise agreement after final
judgment has been entered. Indeed, once the case is terminated by final judgment, the rights of
the parties are settled. There are no more disputes that can be compromised.

Compromise Agreements
after Final Judgment

The Court is tasked, however, to determine the legality of a compromise agreement after final
judgment, not the prudence of entering into one. Petitioners vehemently argue that a compromise
of a final judgment is invalid under Article 2040 of the Civil Code, which we quote:21

"Art. 2040. If after a litigation has been decided by a final judgment, a compromise
should be agreed upon, either or both parties being unaware of the existence of the final
judgment, the compromise may be rescinded.
 "Ignorance of a judgment which may be revoked or set aside is not a valid ground for
attacking a compromise." (Bold types supplied)

The first paragraph of Article 2040 refers to a scenario in which either or both of the parties
are unaware of a court’s final judgment at the time they agree on a compromise. In this case, the
law allows either of them to rescind the compromise agreement. It is evident from the quoted
paragraph that such an agreement is not prohibited or void or voidable. Instead, a remedy to
impugn the contract, which is an action for rescission, is declared available.22 The law allows a
party to rescind a compromise agreement, because it could have been entered into in ignorance
of the fact that there was already a final judgment. Knowledge of a decision’s finality may affect
the resolve to enter into a compromise agreement.

The second paragraph, though irrelevant to the present case, refers to the instance when the
court’s decision is still appealable or otherwise subject to modification. Under this paragraph,
ignorance of the decision is not a ground to rescind a compromise agreement, because the parties
are still unsure of the final outcome of the case at this time.

Petitioners’ argument, therefore, fails to convince. Article 2040 of the Civil Code does not refer
to the validity of a compromise agreement entered into after final judgment. Moreover, an
important requisite, which is lack of knowledge of the final judgment, is wanting in the present
case.

Supported by Case Law

The issue involving the validity of a compromise agreement notwithstanding a final judgment is
not novel. Jesalva v. Bautista23 upheld a compromise agreement that covered cases pending trial,
on appeal, and with final judgment.24 The Court noted that Article 2040 impliedly allowed such
agreements; there was no limitation as to when these should be entered into.25 Palanca v. Court
of Industrial Relations26 sustained a compromise agreement, notwithstanding a final judgment in
which only the amount of back wages was left to be determined. The Court found no evidence of
fraud or of any showing that the agreement was contrary to law, morals, good customs, public
order, or public policy.27

Gatchalian v. Arlegui28 upheld the right to compromise prior to the execution of a final

judgment. The Court ruled that the final judgment had been novated and superseded by a
compromise agreement.29 Also, Northern Lines, Inc. v. Court of Tax Appeals30 recognized the
right to compromise final and executory judgments, as long as such right was exercised by the
proper party litigants.31

Rovero v. Amparo,32 which petitioners cited, did not set any precedent that all compromise
agreements after final judgment were invalid. In that case, the customs commissioner imposed a
fine on an importer, based on the appraised value of the goods illegally brought to the country.
The latter’s appeal, which eventually reached this Court, was denied. Despite a final judgment,
the customs commissioner still reappraised the value of the goods and effectively reduced the
amount of fine. Holding that he had no authority to compromise a final judgment, the Court
explained:
 "It is argued that the parties to a case may enter into a compromise about even a final
judgment rendered by a court, and it is contended x x x that the reappraisal ordered by the
Commissioner of Customs and sanctioned by the Department of Finance was authorized
by Section 1369 of the [Revised Administrative Code]. The contention may be correct
as regards private parties who are the owners of the property subject-matter of the
litigation, and who are therefore free to do with what they own or what is awarded
to them, as they please, even to the extent of renouncing the award, or condoning the
obligation imposed by the judgment on the adverse party. Not so, however, in the
present case. Here, the Commissioner of Customs is not a private party and is not the
owner of the money involved in the fine based on the original appraisal. He is a mere
agent of the Government and acts as a trustee of the money or property in his hands or
coming thereto by virtue of a favorable judgment. Unless expressly authorized by his
principal or by law, he is not authorized to accept anything different from or anything less
than what is adjudicated in favor of the Government."33 (Bold types supplied)

Compliance with the

Rule on Contracts

There is no justification to disallow a compromise agreement, solely because it was entered into
after final judgment. The validity of the agreement is determined by compliance with the
requisites and principles of contracts, not by when it was entered into. As provided by the law on
contracts, a valid compromise must have the following elements: (1) the consent of the parties to
the compromise, (2) an object certain that is the subject matter of the compromise, and (3) the
cause of the obligation that is established.34

In the present factual milieu, compliance with the elements of a valid contract is not in issue.
Petitioners do not challenge the factual finding that they entered into a compromise agreement
with respondent. There are no allegations of vitiated consent. Neither was there any proof that
the agreement was defective or could be characterized as
rescissible,35 voidable,36 unenforceable,37 or void.38 Instead, petitioners base their argument on the
sole fact that the agreement was executed despite a final judgment, which the Court had
previously ruled to be allowed by law.

Petitioners voluntarily entered into the compromise agreement, as shown by the following facts:
(1) they signed respondent’s Manifestation (filed with the labor arbiter) that the judgment award
had been satisfied;39 (2) they executed a Joint Affidavit dated May 5, 1997, attesting to the
receipt of payment and the waiver of all other benefits due them;40 and (3) 6 of the 8 petitioners
filed a Manifestation with the labor arbiter on October 20, 1997, requesting that the cases be
terminated because of their receipt of payment in full satisfaction of their claims.41 These
circumstances also reveal that respondent has already complied with its obligation pursuant to
the compromise agreement. Having already benefited from the agreement, estoppel bars
petitioners from challenging it.

Advantages of Compromise
A reciprocal concession inherent in a compromise agreement assures benefits for the contracting
parties. For the defeated litigant, obvious is the advantage of a compromise after final judgment.
Liability arising from the judgment may be reduced. As to the prevailing party, a compromise
agreement assures receipt of payment. Litigants are sometimes deprived of their winnings
because of unscrupulous mechanisms meant to delay or evade the execution of a final judgment.

The advantages of a compromise agreement appear to be recognized by the NLRC in its Rules of
Procedure. As part of the proceedings in executing a final judgment, litigants are required to
attend a pre-execution conference to thresh out matters relevant to the execution.42 In the
conference, any agreement that would settle the final judgment in a particular manner is
necessarily a compromise.

Novation of an Obligation

The principle of novation supports the validity of a compromise after final judgment. Novation, a
mode of extinguishing an obligation,43 is done by changing the object or principal condition of an
obligation, substituting the person of the debtor, or surrogating a third person in the exercise of
the rights of the creditor.44

For an obligation to be extinguished by another, the law requires either of these two conditions:
(1) the substitution is unequivocally declared, or (2) the old and the new obligations are
incompatible on every point.45 A compromise of a final judgment operates as a novation of the
judgment obligation, upon compliance with either requisite.46 In the present case, the
incompatibility of the final judgment with the compromise agreement is evident, because the
latter was precisely entered into to supersede the former.

Second Issue:

Validity of the Waiver

Having ruled on the validity of the compromise agreement in the present suit, the Court now
turns its attention to the waiver of claims or quitclaim executed by petitioners. The subject
waiver was their concession when they entered into the agreement. They allege, however, that
the absence of their counsel and the labor arbiter when they executed the waiver invalidates the
document.

Not Determinative
of the Waiver’s Validity

The presence or the absence of counsel when a waiver is executed does not determine its
validity. There is no law requiring the presence of a counsel to validate a waiver. The test is
whether it was executed voluntarily, freely and intelligently; and whether the consideration for it
was credible and reasonable.47 Where there is clear proof that a waiver was wangled from an
unsuspecting or a gullible person, the law must step in to annul such transaction.48 In the present
case, petitioners failed to present any evidence to show that their consent had been vitiated.
The law is silent with regard to the procedure for approving a waiver after a case has been
terminated.49 Relevant, however, is this reference to the NLRC’s New Rules of Procedure:

"Should the parties arrive at any agreement as to the whole or any part of the dispute, the
same shall be reduced to writing and signed by the parties and their respective counsel, or
authorized representative, if any,50 before the Labor Arbiter.

"The settlement shall be approved by the Labor Arbiter after being satisfied that it was
voluntarily entered into by the parties and after having explained to them the terms and
consequences thereof.

"A compromise agreement entered into by the parties not in the presence of the Labor
Arbiter before whom the case is pending shall be approved by him, if after confronting
the parties, particularly the complainants, he is satisfied that they understand the terms
and conditions of the settlement and that it was entered into freely and voluntarily by
them and the agreement is not contrary to law, morals, and public policy."51

This provision refers to proceedings in a mandatory/conciliation conference during the initial

stage of the litigation. Such provision should be made applicable to the proceedings in the pre-
execution conference, for which the procedure for approving a waiver after final judgment is not
stated. There is no reason to make a distinction between the proceedings in
mandatory/conciliation and those in pre-execution conferences.

The labor arbiter’s absence when the waivers were executed was remedied upon compliance
with the above procedure. The Court observes that the arbiter made searching questions during
the pre-execution conference to ascertain whether petitioners had voluntarily and freely executed
the waivers.52 Likewise, there was evidence that they made an intelligent choice, considering that
the contents of the written waivers had been explained to them.53 The labor arbiter’s absence
when those waivers were executed does not, therefore, invalidate them.

The Court declines to rule on the allegation that respondent’s counsels encroached upon the
professional employment of petitioners’ lawyer when they facilitated the waivers.54 The present
action is not the proper forum in which to raise any charge of professional misconduct. More
important, petitioners failed to present any supporting evidence.

The third issue, which refers to the timely filing of petitioners’ Motion for Reconsideration filed
with the CA, will no longer be discussed because this Court’s decision has resolved the case on
the merits.

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against

petitioners.

SO ORDERED.
G.R. No. L-24033             February 22, 1968

PHOENIX ASSURANCE CO., LTD., plaintiff-appellant,

vs.
UNITED STATES LINES, defendant-appellee.

Quasha, Asperilla, Blanco & Associates for plaintiff-appellant.

Enriquez D. Perez for defendant-appellee.

BENGZON, J.P., J.:

          The facts antecedent to this appeal from a decision dated October 31, 1964 of the Court of
First Instance of Manila, are as follows:

          On June 29, 1962, General Motors shipped and consigned on a CIF basis to Davao Parts
and Service, Inc. at Davao City from New York aboard the United States Lines' vessel SS
"Pioneer Moor" a cargo of truck spare parts in 25 cases and 4 crates (2 pieces unboxed), for
which United States Lines issues a short form bill of lading No. T-1 (Annex "A" and Exh. "1"),
and which shipment was insured against loss and damage with Phoenix Assurance Co., Ltd.
The short form bill of lading No. T-1 indicated Manila as the port of discharge and Davao City
as the place where the goods were to be transshipped, and expressly incorporated by reference
the provisions contained in the carrier's regular long form bill of lading (Annex "B" and Exh.
"2").

          The SS "Pioneer Moor" on July 28, 1962 discharged at Manila to the custody of the
Manila Port Service which was then the operator of the arrastre service at the Port of Manila, the
above described cargo, complete but with the exception of two crates, namely, Crates Nos. 3139
and 3148 valued at P1,498.25.

          On July 30, 1962, the Luzon Brokerage Corporation, Customs broker hired by the United
States Lines, filed in behalf of the latter a provisional claim against the Manila Port Service for
short landed, short-delivered and/or landed in bad order cargo ex-United States Lines' vessel.

          On August 30, 1962, the afore-described cargo, with the exception of Crates Nos. 3139
and 3148 which were not discharged at the Manila Port, and Crates Nos. 3648 and 3649 which
were discharged at the Manila Port but were lost in the custody of the Manila Port Service, was
transshipped by United States Lines to Davao through a vessel of its Davao agent, Columbian
Rope Company, and duly received in good order by the Davao Parts and Service, Inc.

          Davao Parts and Service, Inc. filed on December 26, 1962 a formal claim with the United
States Lines through the latter's agent, Columbian Rope Company, for the value of Crates Nos.
3139, 3148, 3648 and 3649 in the total sum of P2,010.37.
          The United States Lines, after proper verification, paid Davao Parts and Service, Inc. the
sum of P1,458.25, representing the value of Crates Nos. 3139 and 3148, when it was discovered
that these two crates had been overlanded in Honolulu, but refused to pay for the value of Crates
Nos. 3648 and 3649 for the reason that these crates had been lost while in the custody of the
Manila Port Service.

          The two crates (Nos. 3139 and 3148) which were overlanded in Honolulu and for which
United States Lines paid Davao Parts and Service, Inc. the sum of P1,458.25, were later
recovered and returned to Davao Parts and Service, Inc. and the latter refunded United States
Lines for the sum it paid.

          In view of United States Lines' refusal to pay for the two crates (Nos. 3648 and 3649)
which were lost while in the custody of the Manila Port Service, Ker & Company, Ltd., agent of
Phoenix Assurance Co., Ltd., in the Philippines, and insurer of Davao Parts and Service, Inc.,
paid to the latter the value of said crates in the sum of P552.12.

          On March 25, 1963, the United States Lines, through the Columbian Rope Company, by
letter informed the Davao Parts and Service, Inc. that it was filing a claim for the undelivered
crates with the Manila Port Service. And true to its word, it filed on March 30, 1963 a formal
claim with the Manila Port Service for the value of Crates Nos. 3648 and 3649, but the latter
declined to honor the same.

          On June 26, 1963, United States Lines, through Columbian Rope Company, its Davao
agent, informed the Davao Parts and Service, Inc., inter alia, that the Manila Port Service had
not yet settled its claim, and that the one-year period provided by law within which to bring
action against the Manila Port Service for the two crates (Nos. 3648 and 3649) would expire on
July 28, 1963.

          Phoenix Assurance Co., Ltd., through Ker & Company Ltd., its agent in the Philippines,
wrote on July 24, 1963 the United States Lines expressing its appreciation to the latter for taking
action against the Manila Port Service. In the same letter it requested for an extension of time to
file suit against the United States Lines (the prescriptive period for doing so being set to expire
on July 28, 1963), explaining that it could not file suit against any entity (including the Manila
Port Service) except the United States Lines with whom its subrogee the Davao Parts and
Service, Inc., was in contract.

          No reply having been received by it from the United States Lines, the Phoenix Assurance
Co., Ltd. on July 29, 1963 filed a suit praying that judgment be rendered against the former for
the sum of P552.12, with interest at the legal rate, plus attorney's fees and expenses of
litigation. 1

          On August 16, 1963, the United States Lines filed its answer with counterclaim, 2 while
Phoenix Assurance Co., Ltd. filed its answer to said counterclaim on August 26, 1963.

          On March 9, 1964, the parties submitted a Partial Stipulation of Facts. 3

          After trial, the lower court on October 31, 1964 rendered a decision dismissing plaintiff's
complaint. 4

          Thus this appeal, raising the sole issue of whether or not the lower court erred in
dismissing the complaint and in exonerating defendant-appellee from liability for the value of the
two undelivered crates Nos. 3648 and 3649.

          It must be stated at the outset that a bill of lading operates both as a receipt and as a
contract. It is a receipt for the goods shipped and a contract to transport and deliver the same as
therein stipulated. As a receipt, it recites the date and place of shipment, describes the goods as to
quantity, weight, dimensions, identification marks and condition, quality, and value. As a
contract, it names the contracting parties, which include the consignee, fixes the route,
destination, and freight rate or charges, and stipulates the rights and obligations assumed by the
parties. 5

          In this jurisdiction, it is a statutory and decisional rule of law that a contract is the law
between the contracting parties, 6 and where there is nothing in it which is contrary to law,
morals, good customs, public policy, or public order, the validity of the contract must be
sustained. 7

          The Bill of Lading (short form) No. T-1 dated June 29, 1962 (Annex "A" and Exh. 1)
provides under Section 1 thereof (Exh. that, "It is agreed that the receipt, custody carriage,
delivery and transshipping of the goods are subject to the norms appearing on the face and back
hereof and also to the terms contained in the carrier's regular long form, bill of lading, used in
this service, including any clauses presently being stamped or endorsed thereon which shall be
deemed to be incorporated in this bill of lading, which shall govern the relations whatsoever they
may be between shipper, consignee, carrier and ship in every contingency, wheresoever and
whensoever occurring and whether the carrier be acting as such or as bailee, . . . . (Emphasis
supplied.)

          On the other hand, the regular long form Bill of Lading (Annex "B" and Exh. "2")
provides, inter alia, that:1äwphï1.ñët

          The carrier shall not be liable in any capacity whatsoever for any loss or damage
to the goods while the goods are not in its actual custody. (Par. 2, last subpar. Emphasis
supplied.)

          The carrier or master, in the exercise of its or his discretion and altho'
transshipment or forwarding of the goods may have been contemplated or provided for
herein, may at port of discharge or any other place whatsoever transship or forward the
goods or any part thereof by any means at the risk and expense of the goods and at any
time, whether before or after loading on the ship named and by any route, whether within
or outside the scope of the voyage or beyond the port of discharge or destination of the
goods and without notice to the shipper or consignee. The carrier or master may delay
such transshipping or forwarding for any reason, including but not limited to awaiting a
vessel or other means of transportation whether by the carrier or others.
           The carrier or master in making arrangements with any person for or in
connection with all transshipping or forwarding of the goods or the use of any means of
transportation not used or operated by the carrier shall be considered solely the agent of
the shipper and consignee and without any other responsibility whatsoever or for the cost
thereof . The receipt, custody, carriage and delivery of the goods by any such person or
on carrier and all transshipping and forwarding shall be subject to all the provisions
whatsoever of such person's or on carrier's form of bill of lading or agreement then in use,
whether or not issued and even though such provisions may be less favorable to the
shipper or consignee in any respect than the provisions of this bill of lading. The shipper
and consignee authorize the carrier or master to arrange with any such person or on-
carrier that the lowest valuation or limitation of liability contained in the bill of lading or
other agreement of such person or on-carrier shall apply.

          All responsibility of the carrier in any capacity shall altogether cease and the
goods shall be deemed delivered by it and this contract of carriage shall be deemed fully
performed on actual or constructive delivery of the goods to itself as such agent of the
shipper and consignee or to any such person or on carrier at port of discharge from ship
or elsewhere in case of an earlier transshipment.

          The shipper and consignee shall be liable to this carrier for and shall indemnify it
against all expense of forwarding and transshipping, including any increase in or
additional freight or other charges whatsoever.

          Pending or during forwarding or transshipping this carrier or the master may store
the goods ashore or afloat solely as agent of the shipper and at the risk and expense of the
goods and this carrier shall not be responsible for the acts, neglect, delay or failure to act
of anyone to whom the goods are entrusted or delivered for storage, handling, or any
service incidental thereto.

          In case the carrier issues a bill of lading covering transportation by a local or other
carrier prior to the goods being delivered to and put into the physical custody of the
carrier, it shall not be under any responsibility or liability whatsoever for any loss or
damage to the goods occurring prior to or until the actual receipt or custody of the goods
by it at the port or place of transportation to such port or place where the goods are put in
its physical custody, it acts solely as the agent of the shipper. (Par. 16, emphasis
supplied.)

          It is admitted by both parties that the crates subject matter of this action were lost while in
the possession and custody of the Manila Port Service. Since the long form of Bill of Lading
(Annex "B" and Exh. "2") provides that "The carrier shall not be liable in any capacity
whatsoever for any loss or damage to the goods while the goods are not in its actual custody,"
appellee cannot be held responsible for the loss of said crates. For as correctly observed by the
lower court, it is hardly fair to make appellee accountable for a loss not due to its acts or
omissions or over which it had no control. 8
          Contrary to appellant's stand, the appellee did not undertake to carry and deliver safely the
cargo to the consignee in Davao City. The short form Bill of Lading (Annex "A" and Exh. "1")
states in no uncertain terms that the port of discharge of the cargo is Manila, but that the same
was to be transshipped beyond the port of discharge to Davao City. Pursuant to the terms of the
long form Bill of Lading (Annex "B" and Exh. "2"), appellee's responsibility as a common
carrier ceased the moment the goods were unloaded in Manila; and in the matter of
transshipment, appellee acted merely as an agent of the shipper and consignee. Contrary likewise
to appellant's contention, the cargo was not transshipped with the use of transportation used or
operated by appellee. It is true that the vessel used for transshipment is owned and operated by
appellee's Davao agent, the Columbian Rope Company, but there is no proof that said vessel is
owned or operated by appellee. The vessels of appellee's agent are being erroneously presumed
by appellant to be owned and operated by appellee.

          Appellant argues that the provisions of the Bill of Lading exculpating the appellee from
liability for cargo losses, do not apply where full cargo freight is paid up to and beyond the point
of stipulated discharge, and here defendant-appellee agreed to absorb all costs of forwarding and
transshipment — freight having been prepaid up to Davao City. But the receipt of full cargo
freight up to Davao City cannot render inoperative the provisions of the Bill of Lading relied
upon by appellee inasmuch as such a situation is not provided therein as an exception. In fact,
one searches the Bills of Lading (short and long forms) in vain for such an exception. Besides, it
is for the convenience of both parties that full freight up to Davao City had been prepaid,
otherwise there would have been need to make further arrangements regarding the transshipment
of the cargo to Davao City. After all, the long form Bill of Lading provides that, "The shipper
and consignee shall be liable to this carrier for and shall indemnify it against all expense of
forwarding and transshipping, including any increase in or additional freight or other charge
whatsoever." (Annex "B" and Exh. "2", par. 6, subpar. 4)

          The filing of a claim by defendant-appellee with the Manila Port Service for the value of
the losses cannot be considered as an indication that it is answerable for cargo losses up to Davao
City. On the contrary, it is a convincing proof that said party was not remiss in its duties as agent
of the consignee. That appellee captioned its claim against the Manila Port Service as "SS
'Pioneer Moor' Voy. 25, Reb. 1067 New York/Davao via Manila B/L T-1 31 Packages Truck
Spare Parts Cons: Davao Parts and Service," likewise, is no proof that appellee knowingly
assumed liability for cargo losses up to Davao City. It merely showed that the goods would have
to be, as indeed they were, first unloaded in Manila and thereafter transshipped to Davao City.

          Through the short form Bill of Lading (Annex "A" and Exh. "1"), incorporating by
reference the terms of the regular long form bill of lading (Annex "B" and Exh. "2"), the United
States Lines acknowledged the receipt of the cargo of truck spare parts that it carried, and stated
the conditions under which it was to carry the cargo, the place where it was to be transshipped,
the entity to which delivery is to be made, and the rate of compensation for the carriage. This it
delivered to the Davao Parts and Service, Inc. as evidence of a contract between them. By
receiving the bill of lading, Davao Parts and Service, Inc. assented to the terms of the
consignment contained therein, and became bound thereby, so far as the conditions named are
reasonable in the eyes of the law. Since either appellant nor appellee alleges that any provision
therein is contrary to law, morals, good customs, public policy, or public order, — and indeed
We found none — the validity of the Bill of Lading must be sustained and the provisions therein
properly applied to resolve the conflict between the parties.

          WHEREFORE, the decision appealed from is hereby affirmed, with costs against the
appellant. So ordered.1äwphï1.ñët

G.R. No. 81087             June 19, 1991

INTERTROD MARITIME, INC. and TROODOS SHIPPING CO., petitioners,

vs.
NATIONAL LABOR RELATIONS COMMISSION and ERNESTO DE LA
CRUZ, respondents.

Del Rosario & Del Rosario for petitioners.

PADILLA, J.:

This petition seeks the annulment and/or modification of the resolution * of the First Division of
the National Labor Relations Commission promulgated on 11 December 1987 in NSB Case No.
3997-82 entitled "Ernesto de la Cruz vs. Intertrod Maritime, Inc. and Troodos Shipping
Company," which reversed the decision of then POEA Administrator Patricia Sto. Tomas dated
20 December 1983.

On 10 May 1982, private respondent Ernesto de la Cruz signed a shipboard employment contract
with petitioner Troodos Shipping Company as principal and petitioner Intertrod Maritime, Inc.,
as agent to serve as Third Engineer on board the M/T "BREEDEN" for a period of twelve (12)
months with a basic monthly salary of US$950.00.1

Private respondent eventually boarded a sister vessel, M/T "AFAMIS" and proceeded to work as
the vessel's Third Engineer under the same terms and conditions of his employment contract
previously referred to.2

On 26 August 1982, while the ship (M/T "Afamis") was at Port Pylos, Greece, private
respondent requested for relief, due to "personal reason."3 The Master of the ship approved his
request but informed private respondent that repatriation expenses were for his account and that
he had to give thirty (30) days notice in view of the Clause 5 of the employment contract so that
a replacement for him (private respondent) could be arranged.4

On 30 August 1982, while the vessel was at Port Said in Egypt and despite the fact that it was
only four (4) days after private respondent's request for relief, the Master "signed him off" and
paid him in cash all amounts due him less the amount of US$780.00 for his repatriation
expenses, as evidenced by the wages account signed by the private respondent.5

On his return to the Philippines, private respondent filed a complaint with the National Seamen
Board (NSB)(now POEA) charging petitioners for breach of employment contract and violation
of NSB rules and regulations.6 Private respondent alleged that his request for relief was made in
order to take care of a Filipino member of the crew of M/T "AFAMIS" who was hospitalized on
25 August 1982 in Athens, Greece. However, the Master of the ship refused to let him
immediately disembark in Greece so that the reason for his request for relief ceased to exist.
Hence, when the Master of the ship forced him to step out in Egypt despite his protestations to
the contrary, there being no more reason to request for relief, an illegal dismissal occurred and he
had no other recourse but to return to the Philippines at his own expense.7

In its Answer to the complaint, petitioners denied the allegations of the complainant and averred
that the contract was cut short because of private respondent's own request for relief so that it
was only proper that he should pay for his repatriation expenses in accordance with the
provisions of their employment contract.8

The sole issue to be resolved in this case is whether or not complainant's termination is illegal.

POEA rendered a decision dismissing the complaint for lack of merit.9 On appeal to the NLRC,
the decision was reversed.

The dispositive portion of the NLRC decision reads:

WHEREFORE, the appealed decision is hereby SET ASIDE and another one entered,
directing respondents-appellees to: (1) pay complainant-appellant the amount of
US$780.00 representing his plane fare from Egypt to Manila; and (2) pay complainant-
appellant the amount of US$6,300.00 representing his unearned salary for nine (9)
months, the unexpired portion of the contract.

Foreign exchange conversions shall be paid in Philippine currency at the rate of exchange
at the actual payment thereof.

SO ORDERED.10

Hence, this petition.

Article 21(c) of the Labor Code requires that the Philippine Overseas Employment
Administration (formerly NSB) should approve and verify a contract for overseas
Employment.11 A contract, which is approved by the National Seamen Board, such as the one in
this case, is the law between the contracting parties; and where there is nothing in it which is
contrary to law, morals, good customs, public policy or public order, the validity of said contract
must be sustained.12

In its resolution, the NLRC held that the immediate approval of private respondent's request for
relief should have resulted in his disembarkation in Port Pylos, Greece; that failure of the Master
to allow disembarkation in Greece nullified the request for relief and its approval, such that
private respondent's subsequent disembarkation in Egypt is no longer his doing but rather an
illegal dismissal on the part of the Master.13 We cannot support such a ruling for it fails to
consider the clear import of the provisions of the employment contract between petitioners and
private respondent.

Paragraph 5 of the Employment Contract between petitioners and private respondent Ernesto de
la Cruz provides as follows:

5. That, if the seaman decide to terminate his contract prior to the expiration of the
service period as stated and defined in paragraph 4 of this Employment Contract, without
due cause, he will give the Master thirty (30) days notice and agree to allow his
repatriation expenses to be deducted from wages due him.14

Clearly, therefore, private respondent Ernesto de la Cruz was required by the employment
contract not only to pay his own repatriation expenses but also to give thirty (30) days notice
should he decide to terminate his employment prior to the expiration of the period provided in
the contract. When the Master approved his request for relief, the Master emphasized that private
respondent was required to give thirty (30) days notice and to shoulder his own repatriation
expenses. Approval of his request for relief, therefore, did not constitute a waiver by petitioners
of the provisions of the contract, as private respondent would have us believe, for it was made
clear to him that the provisions of the contract, insofar as the thirty (30) days notice and
repatriation expenses were concerned, were to be enforced.

Private respondent claims that his request for relief was only for the reason of taking care of a
fellow member of the crew so much so that when he was not allowed to disembark in Port Pylos,
Greece, the reason no longer existed and, therefore, when he was forced to "sign off" at Port
Said, Egypt even when he signified intentions of continuing his work, he was illegally
dismissed.15 We sympathize with the private respondent; however, we cannot sustain such
contention. Resignation is the voluntary act of an employee who "finds himself in a situation
where he believes that personal reasons cannot be sacrificed in favor of the exigency of the
service, then he has no other choice but to disassociate himself from his employment."16 The
employer has no control over resignations and so, the notification requirement was devised in
order to ensure that no disruption of work would be involved by reason of the resignation. This
practice has been recognized because "every business enterprise endeavors to increase its profits
by adopting a device or means designed towards that goal."17

Resignations, once accepted and being the sole act of the employee, may not be withdrawn
without the consent of the employer. In the instant case, the Master had already accepted the
resignation and, although the private respondent was being required to serve the thirty (30) days
notice provided in the contract, his resignation was already approved. Private respondent cannot
claim that his resignation ceased to be effective because he was not immediately discharged in
Port Pylos, Greece, for he could no longer unilaterally withdraw such resignation. When he later
signified his intention of continuing his work, it was already up to the petitioners to accept his
withdrawal of his resignation. The mere fact that they did not accept such withdrawal did not
constitute illegal dismissal for acceptance of the withdrawal of the resignation was their
(petitioners') sole prerogative.

Once an employee resigns and his resignation is accepted, he no longer has any right to the job.
If the employee later changes his mind, he must ask for approval of the withdrawal of his
resignation from his employer, as if he were re-applying for the job. It will then be up to the
employer to determine whether or not his service would be continued. If the employer accepts
said withdrawal, the employee retains his job. If the employer does not, as in this case, the
employee cannot claim illegal dismissal for the employer has the right to determine who his
employees will be. To say that an employee who has resigned is illegally dismissed, is to
encroach upon the right of employers to hire persons who will be of service to them.

Furthermore, the employment contract also provides as follows:

4. That all terms and conditions agreed herein are for a service period of twelve (12)
months provided the vessel is in a convenient port for his repatriation, otherwise at
Master's discretion, on vessel's arrival at the first port where repatriation is practicable
provided that such continued service shall not exceed three months.18

Under the terms of the employment contract, it is the ship's Master who determines where a
seaman requesting relief may be "signed off." It is, therefore, erroneous for private respondent to
claim that his resignation was effective only in Greece and that because he was not immediately
allowed to disembark in Greece (as the employer wanted compliance with the contractual
conditions for termination on the part of the employee), the resignation was to be deemed
automatically withdrawn.

The decision of the NLRC is therefore set aside. To sustain it would be to authorize undue
oppression of the employer.1âwphi1 After all, "the law, in protecting the rights of the laborer,
authorizes neither oppression nor self-destruction of the employer."19

WHEREFORE, the petition is GRANTED. The questioned resolution of the National Labor
Relations Commission dated 11 December 1987 is hereby REVERSED and SET ASIDE and the
decision of then POEA Administrator Patricia Sto. Tomas dated 20 December 1983 is
REVIVED. No pronouncement as to costs.

SO ORDERED.
G.R. No. L-27239 August 20, 1986

ROYAL LINES, INC., petitioner,

vs.
THE HON. COURT OF APPEALS and THE NATIONAL SHIPYARDS AND STEEL
CORPORATION, respondents.

Regino Hermosisimo for petitioner.

CRUZ, J.:

Petitioner and the National Shipyards and Steel Corporation (NASSCO) entered into a written
contract for the conversion of the former's yacht, the M/V Sea Belle, into a passenger and cargo
vessel for the stipulated price of P121,980.00.1 Additional work was done on the ship, for which
NASSCO demanded the sum of P196,245.37, representing the difference between the amount
already paid by the petitioner and the contract price.2 Petitioner rejected the demand, claiming it
had not authorized the additional work in writing as required under Article 1724 of the Civil
Code. The trial court sustained NASSCO, and petitioner appealed. The Court of Appeals, in a 3-
2 decision, affirmed the court a quo, holding that the said article was not applicable in the instant
case as it referred only to structures on land and did not include vessels. 3 Petitioner come to us
on certiorari to challenge this decision.

The lone assignment of error is the refusal of the Court of Appeals to apply Article 1724 of the
Civil Code reading in full as follows:

Art. 1724. The contractor who undertakes to build a structure or any other work
for a stipulated price, in conformity with plans and specifications agreed upon
with the landowner can neither withdraw from the contract nor demand an
increase in the price on account of the higher cost of labor or materials, save when
there has been a change in the plans and specifications, provided:

(1) Such change has been authorized by the proprietor in writing, and

(2) The additional price to be paid to the contractor has been determined in
writing by both parties.

Petitioner contends that it cannot be held liable for the additional work (which it admits) because
it had not given any written authorization therefor. The change had not been authorized "in
writing" and the additional price to be paid had not "been determined in writing by the
parties." 4 To bolster its position, petitioner cites the case of San Diego v. Sayson 5 and Tui Suico
v. Habana,6 where this Court rejected claims for payment for additional work because these had
not been authorized in writing by the parties, nor had the price therefor been previously
determined by written agreement of the parties.

For its part, NASSCO argues that the above provision is not in point for the simple reason that it
refers only to buildings or structures constructed on land.7 The article in question constitutes the
special rule applicable only to those constructions. All other matters come under the general
rules on contract and under such rules no particular form is required for the agreement under
consideration.8 Moreover, the cases cited by petitioner are not in point because they involved
buildings and not, as in this case, a vessel.9

There is no ambiguity in the language of Article 1724. Plainly, it refers to a structure or any other
work to be built on land by agreement between the contractor and the landowner. It cannot apply
to work done upon a vessel which is not erected on land or owned by a landowner. Hence, the
said article is not controlling in this case.

However, it does not follow that petitioner is absolved of liability for the work done upon its
vessel which, to repeat, it does not deny. Regarding this matter, the applicable rules, as it itself
contends, are the general rules on contracts.

A contract is a meeting of minds between the parties and is perfected by mere consent10 except in
the case of certain agreements like deposit, pledge and commodatum. 11 It may be entered into in
whatever form 12 save where the law requires a document or other special form as in the contract
enumerated in Article 1388 of the Civil Code. As a general rule , therefore, the contract may be
oral or written.

In the case at bar, the original contract of services was in writing. It does not follow, however,
that all supplements of that written contract should also be written.

In Article IV of the written contract of services it was provided that:

during the performance of the work required on the vessel at the Bataan National
Shipyard at Mariveles, Bataan, the OWNER, at his option may send an authorized
representative to be present while the work is being performed. In the event that
the OWNER requests for any modification, change, and/or extra work to be
performed on the vessel which are not otherwise specified herein and which have
not been included in the Specifications submitted by the BUILDER to the
OWNER, the same shall be subject of another contract between the parties hereto.

In stipulating that "any modification, change and/or extra work" shall be "subject of another
contract," the contracting parties did not necessarily or explicitly agree that the second contract
should be in writing. The second contract could be merely verbal, as in fact it was, and was
binding on the parties as long as it represented a meeting of minds between them.

We are satisfied with the finding of the Court of Appeals that Victorino Estrella and Steve Pierre
were sent by petitioner to the NASSCO shipyard in Mariveles while the M/V Sea Belle was
being repaired and that they represented said petitioner when they requested the extra work that
was subsequently done on the vessel.13 This second contract was not reduced to writing, but it
was nonetheless as binding between the parties as the first written contract.

As for the consideration for the extra work, it has been held that the same can be determined in
relation to a definite thing or under the usage and customs of the place or by leaving it to the
judgment of the court in case of disagreement or disputes. 14 The Court of Appeals has made its
determination on the basis of the evidence before it, and we shall also accept this finding.

We deplore the efforts of petitioner to evade a legitimate obligation for benefits it has admittedly
received from the additional work done by NASSCO. Strict legal considerations apart, what we
see here is a shabby attempt to enrich oneself at the expense of another by a clever disowning of
benefits while at the same time enjoying them. This is hardly sporting, to say the least; at worst,
it is downright dishonest.

The study of the law is not an exact science with definite fields of black and white and
unbending rules and rigid dogmas. The beauty of this discipline is the "penumbra shading
gradually from one extreme to another," in the words of Justice Holmes, that gives rise to those
honest differences of opinion among the brotherhood as to its correct interpretation. Honest
differences are allowed and, indeed, inevitable, but we certainly must frown on stilted readings
to suit one's motives, especially if they are less than noble. The law does not permit this, and
much less, for that matter, does equity.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED, with costs against the
petitioner.

SO ORDERED.

G.R. No. L-22590 March 20, 1987

SOLOMON BOYSAW and ALFREDO M. YULO, JR., plaintiffs-appellants,

vs.
INTERPHIL PROMOTIONS, INC., LOPE SARREAL, SR., and MANUEL NIETO,
JR., defendants-appellees.

Felipe Torres and Associates for plaintiffs-appellants.

V.E. Del Rosario & Associates for defendant-appellee M. Nieto, Jr.

A.R. Naravasa & Pol Tiglao, Jr. for defendant-appellee Interphil Promotions, Inc.

RESOLUTION

FERNAN, J.:

This is an appeal interposed by Solomon Boysaw and Alfredo Yulo, Jr., from the decision dated
July 25, 1963 and other rulings and orders of the then Court of First Instance [CFI] of Rizal,
Quezon City, Branch V in Civil Case No. Q-5063, entitled "Solomon Boysaw and Alfredo M.
Yulo, Jr., Plaintiffs versus Interphil Promotions, Inc., Lope Sarreal, Sr. and Manuel Nieto, Jr.,
Defendants," which, among others, ordered them to jointly and severally pay defendant-appellee
Manuel Nieto, Jr., the total sum of P25,000.00, broken down into P20,000.00 as moral damages
and P5,000.00 as attorney's fees; the defendants-appellees Interphil Promotions, Inc. and Lope
Sarreal, Sr., P250,000.00 as unrealized profits, P33,369.72 as actual damages and P5,000.00 as
attorney's fees; and defendant-appellee Lope Sarreal, Sr., the additional amount of P20,000.00 as
moral damages aside from costs.

The antecedent facts of the case are as follows:

On May 1, 1961, Solomon Boysaw and his then Manager, Willie Ketchum, signed with Interphil
Promotions, Inc. represented by Lope Sarreal, Sr., a contract to engage Gabriel "Flash" Elorde in
a boxing contest for the junior lightweight championship of the world.

It was stipulated that the bout would be held at the Rizal Memorial Stadium in Manila on
September 30, 1961 or not later than thirty [30] days thereafter should a postponement be
mutually agreed upon, and that Boysaw would not, prior to the date of the boxing contest,
engage in any other such contest without the written consent of Interphil Promotions, Inc.

On May 3, 1961, a supplemental agreement on certain details not covered by the principal
contract was entered into by Ketchum and Interphil. Thereafter, Interphil signed Gabriel "Flash"
Elorde to a similar agreement, that is, to engage Boysaw in a title fight at the Rizal Memorial
Stadium on September 30, 1961.

On June 19, 1961, Boysaw fought and defeated Louis Avila in a ten-round non-title bout held in
Las Vegas, Nevada, U.S.A. [pp. 26-27, t.s.n., session of March 14, 1963].

On July 2, 1961, Ketchum on his own behalf and on behalf of his associate Frank Ruskay,
assigned to J. Amado Araneta the managerial rights over Solomon Boysaw.

Presumably in preparation for his engagement with Interphil, Solomon Boysaw arrived in the
Philippines on July 31, 1961.

On September 1, 1961, J. Amado Araneta assigned to Alfredo J. Yulo, Jr. the managerial rights
over Boysaw that he earlier acquired from Ketchum and Ruskay. The next day, September 2,
1961, Boysaw wrote Lope Sarreal, Sr. informing him of his arrival and presence in the
Philippines.

On September 5, 1961, Alfredo Yulo, Jr. wrote to Sarreal informing him of his acquisition of the
managerial rights over Boysaw and indicating his and Boysaw's readiness to comply with the
boxing contract of May 1, 1961. On the same date, on behalf of Interphil Sarreal wrote a letter to
the Games and Amusement Board [GAB] expressing concern over reports that there had been a
switch of managers in the case of Boysaw, of which he had not been formally notified, and
requesting that Boysaw be called to an inquiry to clarify the situation.

The GAB called a series of conferences of the parties concerned culminating in the issuance of
its decision to schedule the Elorde-Boysaw fight for November 4, 1961. The USA National
Boxing Association which has supervisory control of all world title fights approved the date set
by the GAB

Yulo, Jr. refused to accept the change in the fight date, maintaining his refusal even after Sarreal
on September 26, 1961, offered to advance the fight date to October 28, 1961 which was within
the 30-day period of allowable postponements provided in the principal boxing contract of May
1, 1961.

Early in October 1961, Yulo, Jr. exchanged communications with one Mamerto Besa, a local
boxing promoter, for a possible promotion of the projected Elorde-Boysaw title bout. In one of
such communications dated October 6, 1961, Yulo informed Besa that he was willing to approve
the fight date of November 4,1961 provided the same was promoted by Besa.

While an Elorde-Boysaw fight was eventually staged, the fight contemplated in the May 1, 1961
boxing contract never materialized.

As a result of the foregoing occurrences, on October 12, 1961, Boysaw and Yulo, Jr. sued
Interphil, Sarreal, Sr. and Manuel Nieto, Jr. in the CFI of Rizal [Quezon City Branch] for
damages allegedly occasioned by the refusal of Interphil and Sarreal, aided and abetted by Nieto,
Jr., then GAB Chairman, to honor their commitments under the boxing contract of May 1,1961.

On the first scheduled date of trial, plaintiff moved to disqualify Solicitor Jorge Coquia of the
Solicitor General's Office and Atty. Romeo Edu of the GAB Legal Department from appearing
for defendant Nieto, Jr. on the ground that the latter had been sued in his personal capacity and,
therefore, was not entitled to be represented by government counsel. The motion was denied
insofar as Solicitor General Coquia was concerned, but was granted as regards the
disqualification of Atty. Edu.

The case dragged into 1963 when sometime in the early part of said year, plaintiff Boysaw left
the country without informing the court and, as alleged, his counsel. He was still abroad when,
on May 13, 1963, he was scheduled to take the witness stand. Thus, the lower court reset the trial
for June 20, 1963. Since Boysaw was still abroad on the later date, another postponement was
granted by the lower court for July 23, 1963 upon assurance of Boysaw's counsel that should
Boysaw fail to appear on said date, plaintiff's case would be deemed submitted on the evidence
thus far presented.

On or about July 16, 1963, plaintiffs represented by a new counsel, filed an urgent motion for
postponement of the July 23, 1963 trial, pleading anew Boysaw's inability to return to the
country on time. The motion was denied; so was the motion for reconsideration filed by plaintiffs
on July 22, 1963.

The trial proceeded as scheduled on July 23, 1963 with plaintiff's case being deemed submitted
after the plaintiffs declined to submit documentary evidence when they had no other witnesses to
present. When defendant's counsel was about to present their case, plaintiff's counsel after asking
the court's permission, took no further part in the proceedings.

After the lower court rendered its judgment dismissing the plaintiffs' complaint, the plaintiffs
moved for a new trial. The motion was denied, hence, this appeal taken directly to this Court by
reason of the amount involved.

From the errors assigned by the plaintiffs, as having been committed by the lower court, the
following principal issues can be deduced:

1. Whether or not there was a violation of the fight contract of May 1, 1961; and
if there was, who was guilty of such violation.

2. Whether or not there was legal ground for the postponement of the fight date
from September 1, 1961, as stipulated in the May 1, 1961 boxing contract, to
November 4,1961,

3. Whether or not the lower court erred in the refusing a postponement of the July
23, 1963 trial.

4. Whether or not the lower court erred in denying the appellant's motion for a
new trial.

5. Whether or not the lower court, on the basis of the evidence adduced, erred in
awarding the appellees damages of the character and amount stated in the
decision.

On the issue pertaining to the violation of the May 1, 1961 fight contract, the evidence
established that the contract was violated by appellant Boysaw himself when, without the
approval or consent of Interphil, he fought Louis Avila on June 19, 1961 in Las Vegas Nevada.
Appellant Yulo admitted this fact during the trial. [pp. 26-27, t.s.n., March 14, 1963].

While the contract imposed no penalty for such violation, this does not grant any of the parties
the unbridled liberty to breach it with impunity. Our law on contracts recognizes the principle
that actionable injury inheres in every contractual breach. Thus:
 Those who in the performance of their obligations are guilty of fraud, negligence
or delay, and those who in any manner contravene the terms thereof, are liable for
damages. [Art. 1170, Civil Code].

Also:

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. [Part 1, Art. 1191,
Civil Code].

There is no doubt that the contract in question gave rise to reciprocal obligations. "Reciprocal
obligations are those which arise from the same cause, and in which each party is a debtor and a
creditor of the other, such that the obligation of one is dependent upon the obligation of the
other. They are to be performed simultaneously, so that the performance of one is conditioned
upon the simultaneous fulfillment of the other" [Tolentino, Civil Code of the Philippines, Vol.
IV, p. 175.1

The power to rescind is given to the injured party. "Where the plaintiff is the party who did not
perform the undertaking which he was bound by the terms of the agreement to perform 4 he is
not entitled to insist upon the performance of the contract by the defendant, or recover damages
by reason of his own breach " [Seva vs. Alfredo Berwin 48 Phil. 581, Emphasis supplied].

Another violation of the contract in question was the assignment and transfer, first to J. Amado
Araneta, and subsequently, to appellant Yulo, Jr., of the managerial rights over Boysaw without
the knowledge or consent of Interphil.

The assignments, from Ketchum to Araneta, and from Araneta to Yulo, were in fact novations of
the original contract which, to be valid, should have been consented to by Interphil.

Novation which consists in substituting a new debtor in the place of the original
one, may be made even without the knowledge or against the will of the latter, but
not without the consent of the creditor. [Art. 1293, Civil Code, emphasis
supplied].

That appellant Yulo, Jr., through a letter, advised Interphil on September 5, 1961 of his
acquisition of the managerial rights over Boysaw cannot change the fact that such acquisition,
and the prior acquisition of such rights by Araneta were done without the consent of Interphil.
There is no showing that Interphil, upon receipt of Yulo's letter, acceded to the "substitution" by
Yulo of the original principal obligor, who is Ketchum. The logical presumption can only be
that, with Interphil's letter to the GAB expressing concern over reported managerial changes and
requesting for clarification on the matter, the appellees were not reliably informed of the changes
of managers. Not being reliably informed, appellees cannot be deemed to have consented to such
changes.

Under the law when a contract is unlawfully novated by an applicable and unilateral substitution
of the obligor by another, the aggrieved creditor is not bound to deal with the substitute.
 The consent of the creditor to the change of debtors, whether
in expromision or delegacion is an, indispensable requirement . . . Substitution of
one debtor for another may delay or prevent the fulfillment of the obligation by
reason of the inability or insolvency of the new debtor, hence, the creditor should
agree to accept the substitution in order that it may be binding on him.

Thus, in a contract where x is the creditor and y is the debtor, if y enters into a
contract with z, under which he transfers to z all his rights under the first contract,
together with the obligations thereunder, but such transfer is not consented to or
approved by x, there is no novation. X can still bring his action against y for
performance of their contract or damages in case of breach. [Tolentino, Civil
Code of the Philippines, Vol. IV, p. 3611.

From the evidence, it is clear that the appellees, instead of availing themselves of the options
given to them by law of rescission or refusal to recognize the substitute obligor Yulo, really
wanted to postpone the fight date owing to an injury that Elorde sustained in a recent bout. That
the appellees had the justification to renegotiate the original contract, particularly the fight date is
undeniable from the facts aforestated. Under the circumstances, the appellees' desire to postpone
the fight date could neither be unlawful nor unreasonable.

We uphold the appellees' contention that since all the rights on the matter rested with the
appellees, and appellants' claims, if any, to the enforcement of the contract hung entirely upon
the former's pleasure and sufferance, the GAB did not act arbitrarily in acceding to the appellee's
request to reset the fight date to November 4, 1961. It must be noted that appellant Yulo had
earlier agreed to abide by the GAB ruling.

In a show of accommodation, the appellees offered to advance the November 4, 1961 fight to
October 28, 1961 just to place it within the 30- day limit of allowable postponements stipulated
in the original boxing contract.

The refusal of appellants to accept a postponement without any other reason but the
implementation of the terms of the original boxing contract entirely overlooks the fact that by
virtue of the violations they have committed of the terms thereof, they have forfeited any right to
its enforcement.

On the validity of the fight postponement, the violations of the terms of the original contract by
appellants vested the appellees with the right to rescind and repudiate such contract altogether.
That they sought to seek an adjustment of one particular covenant of the contract, is under the
circumstances, within the appellee's rights.

While the appellants concede to the GAB's authority to regulate boxing contests, including the
setting of dates thereof, [pp. 44-49, t.s.n., Jan. 17, 1963], it is their contention that only Manuel
Nieto, Jr. made the decision for postponement, thereby arrogating to himself the prerogatives of
the whole GAB Board.
The records do not support appellants' contention. Appellant Yulo himself admitted that it was
the GAB Board that set the questioned fight date. [pp. 32-42, t.s.n., Jan. 17, 1963]. Also, it must
be stated that one of the strongest presumptions of law is that official duty has been regularly
performed. In this case, the absence of evidence to the contrary, warrants the full application of
said presumption that the decision to set the Elorde-Boysaw fight on November 4, 1961 was a
GAB Board decision and not of Manuel Nieto, Jr. alone.

Anent the lower court's refusal to postpone the July 23, 1963 trial, suffice it to say that the same
issue had been raised before Us by appellants in a petition for certiorari and prohibition docketed
as G.R. No. L-21506. The dismissal by the Court of said petition had laid this issue to rest, and
appellants cannot now hope to resurrect the said issue in this appeal.

On the denial of appellant's motion for a new trial, we find that the lower court did not commit
any reversible error.

The alleged newly discovered evidence, upon which the motion for new trial was made to rest,
consists merely of clearances which Boysaw secured from the clerk of court prior to his
departure for abroad. Such evidence cannot alter the result of the case even if admitted for they
can only prove that Boysaw did not leave the country without notice to the court or his counsel.

The argument of appellants is that if the clearances were admitted to support the motion for a
new trial, the lower court would have allowed the postponement of the trial, it being convinced
that Boysaw did not leave without notice to the court or to his counsel. Boysaw's testimony upon
his return would, then, have altered the results of the case.

We find the argument without merit because it confuses the evidence of the clearances and the
testimony of Boysaw. We uphold the lower court's ruling that:

The said documents [clearances] are not evidence to offset the evidence adduced
during the hearing of the defendants. In fact, the clearances are not even material
to the issues raised. It is the opinion of the Court that the 'newly discovered
evidence' contemplated in Rule 37 of the Rules of Court, is such kind of evidence
which has reference to the merits of the case, of such a nature and kind, that if it
were presented, it would alter the result of the judgment. As admitted by the
counsel in their pleadings, such clearances might have impelled the Court to grant
the postponement prayed for by them had they been presented on time. The
question of the denial of the postponement sought for by counsel for plaintiffs is a
moot issue . . . The denial of the petition for certiorari and prohibition filed by
them, had he effect of sustaining such ruling of the court . . . [pp. 296-297, Record
on Appeal].

The testimony of Boysaw cannot be considered newly discovered evidence for as appellees
rightly contend, such evidence has been in existence waiting only to be elicited from him by
questioning.
We cite with approval appellee's contention that "the two qualities that ought to concur or dwell
on each and every of evidence that is invoked as a ground for new trial in order to warrant the
reopening . . . inhered separately on two unrelated species of proof" which "creates a legal
monstrosity that deserves no recognition."

On the issue pertaining to the award of excessive damages, it must be noted that because the
appellants wilfully refused to participate in the final hearing and refused to present documentary
evidence after they no longer had witnesses to present, they, by their own acts prevented
themselves from objecting to or presenting proof contrary to those adduced for the appellees.

On the actual damages awarded to appellees, the appellants contend that a conclusion or finding
based upon the uncorroborated testimony of a lone witness cannot be sufficient. We hold that in
civil cases, there is no rule requiring more than one witness or declaring that the testimony of a
single witness will not suffice to establish facts, especially where such testimony has not been
contradicted or rebutted. Thus, we find no reason to disturb the award of P250,000.00 as and for
unrealized profits to the appellees.

On the award of actual damages to Interphil and Sarreal, the records bear sufficient evidence
presented by appellees of actual damages which were neither objected to nor rebutted by
appellants, again because they adamantly refused to participate in the court proceedings.

The award of attorney's fees in the amount of P5,000.00 in favor of defendant-appellee Manuel
Nieto, Jr. and another P5,000.00 in favor of defendants-appellees Interphil Promotions, Inc. and
Lope Sarreal, Sr., jointly, cannot also be regarded as excessive considering the extent and nature
of defensecounsels' services which involved legal work for sixteen [16] months.

However, in the matter of moral damages, we are inclined to uphold the appellant's contention
that the award is not sanctioned by law and well- settled authorities. Art. 2219 of the Civil Code
provides:

Art. 2219. Moral damages may be recovered in the following analogous cases:

1) A criminal offense resulting in physical injuries;

2) Quasi-delict causing physical injuries;

3) Seduction, abduction, rape or other lascivious acts;

4) Adultery or concubinage;

5) Illegal or arbitrary detention or arrest;

6) Illegal search;

7) Libel, slander or any other form of defamation;

 8) Malicious prosecution;

9) Acts mentioned in Art. 309.

10) Acts and actions referred to in Arts., 21, 26, 27, 28, 29, 30, 32, 34 and 35.

The award of moral damages in the instant case is not based on any of the cases enumerated in
Art. 2219 of the Civil Code. The action herein brought by plaintiffs-appellants is based on a
perceived breach committed by the defendants-appellees of the contract of May 1, 1961, and
cannot, as such, be arbitrarily considered as a case of malicious prosecution.

Moral damages cannot be imposed on a party litigant although such litigant exercises it
erroneously because if the action has been erroneously filed, such litigant may be penalized for
costs.

The grant of moral damages is not subject to the whims and caprices of judges or
courts. The court's discretion in granting or refusing it is governed by reason and
justice. In order that a person may be made liable to the payment of moral
damages, the law requires that his act be wrongful. The adverse result of an action
does not per se make the act wrongful and subject the actor to the payment of
moral damages. The law could not have meant to impose a penalty on the right to
litigate; such right is so precious that moral damages may not be charged on those
who may exercise it erroneously. For these the law taxes costs. [Barreto vs.
Arevalo, et. al. No. L-7748, Aug. 27, 1956, 52 O.G., No. 13, p. 5818.]

WHEREFORE, except for the award of moral damages which is herein deleted, the decision of
the lower court is hereby affirmed.

SO ORDERED.

G.R. No. 97332 October 10, 1991

SPOUSES JULIO D. VILLAMOR AND MARINA VILLAMOR, petitioners,

vs.
THE HON. COURT OF APPEALS AND SPOUSES MACARIA LABINGISA REYES
AND ROBERTO REYES, respondents.

Tranquilino F. Meris for petitioners.

Agripino G. Morga for private respondents.
MEDIALDEA, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals in CA-G.R. No.
24176 entitled, "Spouses Julio Villamor and Marina Villamor, Plaintiffs-Appellees, versus
Spouses Macaria Labing-isa Reyes and Roberto Reyes, Defendants-Appellants," which reversed
the decision of the Regional Trial Court (Branch 121) at Caloocan City in Civil Case No. C-
12942.

The facts of the case are as follows:

Macaria Labingisa Reyes was the owner of a 600-square meter lot located at Baesa, Caloocan
City, as evidenced by Transfer Certificate of Title No. (18431) 18938, of the Register of Deeds
of Rizal.

In July 1971, Macaria sold a portion of 300 square meters of the lot to the Spouses Julio and
Marina and Villamor for the total amount of P21,000.00. Earlier, Macaria borrowed P2,000.00
from the spouses which amount was deducted from the total purchase price of the 300 square
meter lot sold. The portion sold to the Villamor spouses is now covered by TCT No. 39935 while
the remaining portion which is still in the name of Macaria Labing-isa is covered by TCT No.
39934 (pars. 5 and 7, Complaint). On November 11, 1971, Macaria executed a "Deed of Option"
in favor of Villamor in which the remaining 300 square meter portion (TCT No. 39934) of the lot
would be sold to Villamor under the conditions stated therein. The document reads:

DEED OF OPTION

This Deed of Option, entered into in the City of Manila, Philippines, this 11th day of
November, 1971, by and between Macaria Labing-isa, of age, married to Roberto Reyes,
likewise of age, and both resideing on Reparo St., Baesa, Caloocan City, on the one hand,
and on the other hand the spouses Julio Villamor and Marina V. Villamor, also of age and
residing at No. 552 Reparo St., corner Baesa Road, Baesa, Caloocan City.

WITNESSETH

That, I Macaria Labingisa, am the owner in fee simple of a parcel of land with an area of
600 square meters, more or less, more particularly described in TCT No. (18431) 18938
of the Office of the Register of Deeds for the province of Rizal, issued in may name, I
having inherited the same from my deceased parents, for which reason it is my
paraphernal property;

That I, with the conformity of my husband, Roberto Reyes, have sold one-half thereof to
the aforesaid spouses Julio Villamor and Marina V. Villamor at the price of P70.00 per
sq. meter, which was greatly higher than the actual reasonable prevailing value of lands
in that place at the time, which portion, after segregation, is now covered by TCT No.
39935 of the Register of Deeds for the City of Caloocan, issued on August 17, 1971 in
the name of the aforementioned spouses vendees;

That the only reason why the Spouses-vendees Julio Villamor and Marina V. Villamor,
agreed to buy the said one-half portion at the above-stated price of about P70.00 per
square meter, is because I, and my husband Roberto Reyes, have agreed to sell and
convey to them the remaining one-half portion still owned by me and now covered by
TCT No. 39935 of the Register of Deeds for the City of Caloocan, whenever the need of
such sale arises, either on our part or on the part of the spouses (Julio) Villamor and
Marina V. Villamor, at the same price of P70.00 per square meter, excluding whatever
improvement may be found the thereon;

That I am willing to have this contract to sell inscribed on my aforesaid title as an

encumbrance upon the property covered thereby, upon payment of the corresponding
fees; and

That we, Julio Villamor and Marina V. Villamor, hereby agree to, and accept, the above
provisions of this Deed of Option.

IN WITNESS WHEREOF, this Deed of Option is signed in the City of Manila,

Philippines, by all the persons concerned, this 11th day of November, 1971.

JULIO VILLAMOR MACARIA LABINGISA

With My Conformity:

MARINA VILLAMOR ROBERTO REYES

Signed in the Presence Of:

MARIANO Z. SUNIGA
ROSALINDA S. EUGENIO

ACKNOWLEDGMENT

REPUBLIC OF THE PHILIPPINES)

CITY OF MANILA ) S.S.

At the City of Manila, on the 11th day of November, 1971, personally appeared before
me Roberto Reyes, Macaria Labingisa, Julio Villamor and Marina Ventura-Villamor,
known to me as the same persons who executed the foregoing Deed of Option, which
consists of two (2) pages including the page whereon this acknowledgement is written,
and signed at the left margin of the first page and at the bottom of the instrument by the
parties and their witnesses, and sealed with my notarial seal, and said parties
acknowledged to me that the same is their free act and deed. The Residence Certificates
of the parties were exhibited to me as follows: Roberto Reyes, A-22494, issued at Manila
 on Jan. 27, 1971, and B-502025, issued at Makati, Rizal on Feb. 18, 1971; Macaria
Labingisa, A-3339130 and B-1266104, both issued at Caloocan City on April 15, 1971,
their joint Tax Acct. Number being 3028-767-6; Julio Villamor, A-804, issued at Manila
on Jan. 14, 1971, and B-138, issued at Manila on March 1, 1971; and Marina Ventura-
Villamor, A-803, issued at Manila on Jan. 14, 1971, their joint Tax Acct. Number being
608-202-6.

ARTEMIO M. MALUBAY
Notary Public
Until December 31, 1972
PTR No. 338203, Manila
January 15, 1971

Doc. No. 1526;

Page No. 24;
Book No. 38;
Series of 1971. (pp. 25-29, Rollo)

According to Macaria, when her husband, Roberto Reyes, retired in 1984, they offered to
repurchase the lot sold by them to the Villamor spouses but Marina Villamor refused and
reminded them instead that the Deed of Option in fact gave them the option to purchase the
remaining portion of the lot.

The Villamors, on the other hand, claimed that they had expressed their desire to purchase the
remaining 300 square meter portion of the lot but the Reyeses had been ignoring them. Thus, on
July 13, 1987, after conciliation proceedings in the barangay level failed, they filed a complaint
for specific performance against the Reyeses.

On July 26, 1989, judgment was rendered by the trial court in favor of the Villamor spouses, the
dispositive portion of which states:

WHEREFORE, and (sic) in view of the foregoing, judgment is hereby rendered in favor
of the plaintiffs and against the defendants ordering the defendant MACARIA LABING-
ISA REYES and ROBERTO REYES, to sell unto the plaintiffs the land covered by
T.C.T No. 39934 of the Register of Deeds of Caloocan City, to pay the plaintiffs the sum
of P3,000.00 as and for attorney's fees and to pay the cost of suit.

The counterclaim is hereby DISMISSED, for LACK OF MERIT.

SO ORDERED. (pp. 24-25, Rollo)

Not satisfied with the decision of the trial court, the Reyes spouses appealed to the Court of
Appeals on the following assignment of errors:

1. HOLDING THAT THE DEED OF OPTION EXECUTED ON NOVEMBER 11, 1971

BETWEEN THE PLAINTIFF-APPELLEES AND DEFENDANT-APPELLANTS IS
 STILL VALID AND BINDING DESPITE THE LAPSE OF MORE THAN THIRTEEN
(13) YEARS FROM THE EXECUTION OF THE CONTRACT;

2. FAILING TO CONSIDER THAT THE DEED OF OPTION CONTAINS OBSCURE

WORDS AND STIPULATIONS WHICH SHOULD BE RESOLVED AGAINST THE
PLAINTIFF-APPELLEES WHO UNILATERALLY DRAFTED AND PREPARED
THE SAME;

3. HOLDING THAT THE DEED OF OPTION EXPRESSED THE TRUE INTENTION

AND PURPOSE OF THE PARTIES DESPITE ADVERSE, CONTEMPORANEOUS
AND SUBSEQUENT ACTS OF THE PLAINTIFF-APPELLEES;

4. FAILING TO PROTECT THE DEFENDANT-APPELLANTS ON ACCOUNT OF

THEIR IGNORANCE PLACING THEM AT A DISADVANTAGE IN THE DEED OF
OPTION;

5. FAILING TO CONSIDER THAT EQUITABLE CONSIDERATION TILT IN

FAVOR OF THE DEFENDANT-APPELLANTS; and

6. HOLDING DEFENDANT-APPELLANTS LIABLE TO PAY PLAINTIFF-

APPELLEES THE AMOUNT OF P3,000.00 FOR AND BY WAY OF ATTORNEY'S
FEES. (pp. 31-32, Rollo)

On February 12, 1991, the Court of Appeals rendered a decision reversing the decision of the
trial court and dismissing the complaint. The reversal of the trial court's decision was premised
on the finding of respondent court that the Deed of Option is void for lack of consideration.

The Villamor spouses brought the instant petition for review on certiorari on the following
grounds:

I. THE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE PHRASE

WHENEVER THE NEED FOR SUCH SALE ARISES ON OUR (PRIVATE
RESPONDENT) PART OR ON THE PART OF THE SPOUSES JULIO D.
VILLAMOR AND MARINA V. VILLAMOR' CONTAINED IN THE DEED OF
OPTION DENOTES A SUSPENSIVE CONDITION;

II. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE QUESTIONED

PHRASE IS INDEED A CONDITION, THE COURT OF APPEALS ERRED IN NOT
FINDING, THAT THE SAID CONDITION HAD ALREADY BEEN FULFILLED;

III. ASSUMING FOR THE SAKE OF ARGUMENT THAT THE QUESTIONED

PHRASE IS INDEED A CONDITION, THE COURT OF APPEALS ERRED IN
HOLDING THAT THE IMPOSITION OF SAID CONDITION PREVENTED THE
PERFECTION OF THE CONTRACT OF SALE DESPITE THE EXPRESS OFFER
AND ACCEPTANCE CONTAINED IN THE DEED OF OPTION;
 IV. THE COURT OF APPEALS ERRED IN FINDING THAT THE DEED OF OPTION
IS VOID FOR LACK OF CONSIDERATION;

V. THE COURT OF APPEALS ERRED IN HOLDING THAT A DISTINCT

CONSIDERATION IS NECESSARY TO SUPPORT THE DEED OF OPTION
DESPITE THE EXPRESS OFFER AND ACCEPTANCE CONTAINED THEREIN. (p.
12, Rollo)

The pivotal issue to be resolved in this case is the validity of the Deed of Option whereby the
private respondents agreed to sell their lot to petitioners "whenever the need of such sale arises,
either on our part (private respondents) or on the part of Julio Villamor and Marina Villamor
(petitioners)." The court a quo, rule that the Deed of Option was a valid written agreement
between the parties and made the following conclusions:

xxx xxx xxx

It is interesting to state that the agreement between the parties are evidence by a writing,
hence, the controverting oral testimonies of the herein defendants cannot be any better
than the documentary evidence, which, in this case, is the Deed of Option (Exh. "A" and
"A-a")

The law provides that when the terms of an agreement have been reduced to writing it is
to be considered as containing all such terms, and therefore, there can be, between the
parties and their successors in interest no evidence of their terms of the agreement, other
than the contents of the writing. ... (Section 7 Rule 130 Revised Rules of Court)
Likewise, it is a general and most inflexible rule that wherever written instruments are
appointed either by the requirements of law, or by the contract of the parties, to be the
repositories and memorials of truth, any other evidence is excluded from being used,
either as a substitute for such instruments, or to contradict or alter them. This is a matter
both of principle and of policy; of principle because such instruments are in their nature
and origin entitled to a much higher degree of credit than evidence of policy, because it
would be attended with great mischief if those instruments upon which man's rights
depended were liable to be impeached by loose collateral evidence. Where the terms of
an agreement are reduced to writing, the document itself, being constituted by the parties
as the expositor of their intentions, it is the only instrument of evidence in respect of that
agreement which the law will recognize so long as it exists for the purpose of evidence.
(Starkie, EV, pp. 648, 655 cited in Kasheenath vs. Chundy, W.R. 68, cited in Francisco's
Rules of Court, Vol. VII Part I p. 153) (Emphasis supplied, pp. 126-127, Records).

The respondent appellate court, however, ruled that the said deed of option is void for lack of
consideration. The appellate court made the following disquisitions:

Plaintiff-appellees say they agreed to pay P70.00 per square meter for the portion
purchased by them although the prevailing price at that time was only P25.00 in
consideration of the option to buy the remainder of the land. This does not seem to be the
case. In the first place, the deed of sale was never produced by them to prove their claim.
 Defendant-appellants testified that no copy of the deed of sale had ever been given to
them by the plaintiff-appellees. In the second place, if this was really the condition of the
prior sale, we see no reason why it should be reiterated in the Deed of Option. On the
contrary, the alleged overprice paid by the plaintiff-appellees is given in the Deed as
reason for the desire of the Villamors to acquire the land rather than as a consideration for
the option given to them, although one might wonder why they took nearly 13 years to
invoke their right if they really were in due need of the lot.

At all events, the consideration needed to support a unilateral promise to sell is a dinstinct
one, not something that is as uncertain as P70.00 per square meter which is allegedly
'greatly higher than the actual prevailing value of lands.' A sale must be for a price certain
(Art. 1458). For how much the portion conveyed to the plaintiff-appellees was sold so
that the balance could be considered the consideration for the promise to sell has not been
shown, beyond a mere allegation that it was very much below P70.00 per square meter.

The fact that plaintiff-appellees might have paid P18.00 per square meter for another land
at the time of the sale to them of a portion of defendant-appellant's lot does not
necessarily prove that the prevailing market price at the time of the sale was P18.00 per
square meter. (In fact they claim it was P25.00). It is improbable that plaintiff-appellees
should pay P52.00 per square meter for the privilege of buying when the value of the land
itself was allegedly P18.00 per square meter. (pp. 34-35, Rollo)

As expressed in Gonzales v. Trinidad, 67 Phil. 682, consideration is "the why of the contracts,
the essential reason which moves the contracting parties to enter into the contract." The cause or
the impelling reason on the part of private respondent executing the deed of option as appearing
in the deed itself is the petitioner's having agreed to buy the 300 square meter portion of private
respondents' land at P70.00 per square meter "which was greatly higher than the actual
reasonable prevailing price." This cause or consideration is clear from the deed which stated:

That the only reason why the spouses-vendees Julio Villamor and Marina V. Villamor
agreed to buy the said one-half portion at the above stated price of about P70.00 per
square meter, is because I, and my husband Roberto Reyes, have agreed to sell and
convey to them the remaining one-half portion still owned by me ... (p. 26, Rollo)

The respondent appellate court failed to give due consideration to petitioners' evidence which
shows that in 1969 the Villamor spouses bough an adjacent lot from the brother of Macaria
Labing-isa for only P18.00 per square meter which the private respondents did not rebut. Thus,
expressed in terms of money, the consideration for the deed of option is the difference between
the purchase price of the 300 square meter portion of the lot in 1971 (P70.00 per sq.m.) and the
prevailing reasonable price of the same lot in 1971. Whatever it is, (P25.00 or P18.00) though
not specifically stated in the deed of option, was ascertainable. Petitioner's allegedly paying
P52.00 per square meter for the option may, as opined by the appellate court, be improbable but
improbabilities does not invalidate a contract freely entered into by the parties.

The "deed of option" entered into by the parties in this case had unique features. Ordinarily, an
optional contract is a privilege existing in one person, for which he had paid a consideration and
which gives him the right to buy, for example, certain merchandise or certain specified property,
from another person, if he chooses, at any time within the agreed period at a fixed price
(Enriquez de la Cavada v. Diaz, 37 Phil. 982). If We look closely at the "deed of option" signed
by the parties, We will notice that the first part covered the statement on the sale of the 300
square meter portion of the lot to Spouses Villamor at the price of P70.00 per square meter
"which was higher than the actual reasonable prevailing value of the lands in that place at that
time (of sale)." The second part stated that the only reason why the Villamor spouses agreed to
buy the said lot at a much higher price is because the vendor (Reyeses) also agreed to sell to the
Villamors the other half-portion of 300 square meters of the land. Had the deed stopped there,
there would be no dispute that the deed is really an ordinary deed of option granting the
Villamors the option to buy the remaining 300 square meter-half portion of the lot in
consideration for their having agreed to buy the other half of the land for a much higher price.
But, the "deed of option" went on and stated that the sale of the other half would be made
"whenever the need of such sale arises, either on our (Reyeses) part or on the part of the Spouses
Julio Villamor and Marina V. Villamor. It appears that while the option to buy was granted to the
Villamors, the Reyeses were likewise granted an option to sell. In other words, it was not only
the Villamors who were granted an option to buy for which they paid a consideration. The
Reyeses as well were granted an option to sell should the need for such sale on their part arise.

In the instant case, the option offered by private respondents had been accepted by the petitioner,
the promise, in the same document. The acceptance of an offer to sell for a price certain created a
bilateral contract to sell and buy and upon acceptance, the offer, ipso facto assumes obligations
of a vendee (See Atkins, Kroll & Co. v. Cua Mian Tek, 102 Phil. 948). Demandabilitiy may be
exercised at any time after the execution of the deed. In Sanchez v. Rigos, No. L-25494, June 14,
1972, 45 SCRA 368, 376, We held:

In other words, since there may be no valid contract without a cause of consideration, the
promisory is not bound by his promise and may, accordingly withdraw it. Pending notice
of its withdrawal, his accepted promise partakes, however, of the nature of an offer to sell
which, if accepted, results in a perfected contract of sale.

A contract of sale is, under Article 1475 of the Civil Code, "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 perform of contracts." Since there was, between
the parties, a meeting of minds upon the object and the price, there was already a perfected
contract of sale. What was, however, left to be done was for either party to demand from the
other their respective undertakings under the contract. It may be demanded at any time either by
the private respondents, who may compel the petitioners to pay for the property or the
petitioners, who may compel the private respondents to deliver the property.

However, the Deed of Option did not provide for the period within which the parties may
demand the performance of their respective undertakings in the instrument. The parties could not
have contemplated that the delivery of the property and the payment thereof could be made
indefinitely and render uncertain the status of the land. The failure of either parties to demand
performance of the obligation of the other for an unreasonable length of time renders the contract
ineffective.
Under Article 1144 (1) of the Civil Code, actions upon written contract must be brought within
ten (10) years. The Deed of Option was executed on November 11, 1971. The acceptance, as
already mentioned, was also accepted in the same instrument. The complaint in this case was
filed by the petitioners on July 13, 1987, seventeen (17) years from the time of the execution of
the contract. Hence, the right of action had prescribed. There were allegations by the petitioners
that they demanded from the private respondents as early as 1984 the enforcement of their rights
under the contract. Still, it was beyond the ten (10) years period prescribed by the Civil Code. In
the case of Santos v. Ganayo,
L-31854, September 9, 1982, 116 SCRA 431, this Court affirming and subscribing to the
observations of the court a quo held, thus:

... Assuming that Rosa Ganayo, the oppositor herein, had the right based on the
Agreement to Convey and Transfer as contained in Exhibits '1' and '1-A', her failure or
the abandonment of her right to file an action against Pulmano Molintas when he was still
a co-owner of the on-half (1/2) portion of the 10,000 square meters is now barred by
laches and/or prescribed by law because she failed to bring such action within ten (10)
years from the date of the written agreement in 1941, pursuant to Art. 1144 of the New
Civil Code, so that when she filed the adverse claim through her counsel in 1959 she had
absolutely no more right whatsoever on the same, having been barred by laches.

It is of judicial notice that the price of real estate in Metro Manila is continuously on the rise. To
allow the petitioner to demand the delivery of the property subject of this case thirteen (13) years
or seventeen (17) years after the execution of the deed at the price of only P70.00 per square
meter is inequitous. For reasons also of equity and in consideration of the fact that the private
respondents have no other decent place to live, this Court, in the exercise of its equity
jurisdiction is not inclined to grant petitioners' prayer.

ACCORDINGLY, the petition is DENIED. The decision of respondent appellate court is

AFFIRMED for reasons cited in this decision. Judgement is rendered dismissing the complaint in
Civil Case No. C-12942 on the ground of prescription and laches.

SO ORDERED.

G.R. No. 165647               March 26, 2009

PHILIPPINES FIRST INSURANCE CO., INC., Petitioner,

vs.
WALLEM PHILS. SHIPPING, INC., UNKNOWN OWNER AND/OR UNKNOWN
CHARTERER OF THE VESSEL M/S "OFFSHORE MASTER" AND "SHANGHAI
FAREAST SHIP BUSINESS COMPANY," Respondents.

DECISION

TINGA, J.:

Before us is a Rule 45 petition1 which seeks the reversal of the Decision2 and Resolution3 of the
Court of Appeals in CA-G.R. No. 61885. The Court of Appeals reversed the Decision4 of the
Regional Trial Court (RTC) of Manila, Branch 55 in Civil Case No. 96-80298, dismissing the
complaint for sum of money.

The facts of the case follow.5

On or about 2 October 1995, Anhui Chemicals Import & Export Corporation loaded on board
M/S Offshore Master a shipment consisting of 10,000 bags of sodium sulphate anhydrous 99
PCT Min. (shipment), complete and in good order for transportation to and delivery at the port of
Manila for consignee, L.G. Atkimson Import-Export, Inc. (consignee), covered by a Clean Bill
of Lading. The Bill of Lading reflects the gross weight of the total cargo at 500,200
kilograms.6 The Owner and/or Charterer of M/V Offshore Master is unknown while the shipper
of the shipment is Shanghai Fareast Ship Business Company. Both are foreign firms doing
business in the Philippines, thru its local ship agent, respondent Wallem Philippines Shipping,
Inc. (Wallem).7

On or about 16 October 1995, the shipment arrived at the port of Manila on board the vessel M/S
Offshore Master from which it was subsequently discharged. It was disclosed during the
discharge of the shipment from the carrier that 2,426 poly bags (bags) were in bad order and
condition, having sustained various degrees of spillages and losses. This is evidenced by the
Turn Over Survey of Bad Order Cargoes (turn-over survey) of the arrastre operator, Asian
Terminals, Inc. (arrastre operator).8 The bad state of the bags is also evinced by the arrastre
operator’s Request for Bad Order Survey.9

Asia Star Freight Services, Inc. undertook the delivery of the subject shipment from the pier to
the consignee’s warehouse in Quezon City,10 while the final inspection was conducted jointly by
the consignee’s representative and the cargo surveyor. During the unloading, it was found and
noted that the bags had been discharged in damaged and bad order condition. Upon inspection, it
was discovered that 63,065.00 kilograms of the shipment had sustained unrecovered spillages,
while 58,235.00 kilograms had been exposed and contaminated, resulting in losses due to
depreciation and downgrading.11

On 29 April 1996, the consignee filed a formal claim with Wallem for the value of the damaged
shipment, to no avail. Since the shipment was insured with petitioner Philippines First Insurance
Co., Inc. against all risks in the amount of ₱2,470,213.50,12 the consignee filed a formal
claim13 with petitioner for the damage and losses sustained by the shipment. After evaluating the
invoices, the turn-over survey, the bad order certificate and other documents,14 petitioner found
the claim to be in order and compensable under the marine insurance policy. Consequently,
petitioner paid the consignee the sum of ₱397,879.69 and the latter signed a subrogation receipt.

Petitioner, in the exercise of its right of subrogation, sent a demand letter to Wallem for the
recovery of the amount paid by petitioner to the consignee. However, despite receipt of the letter,
Wallem did not settle nor even send a response to petitioner’s claim.15

Consequently, petitioner instituted an action before the RTC for damages against respondents for
the recovery of ₱397,879.69 representing the actual damages suffered by petitioner plus legal
interest thereon computed from the time of the filing of the complaint until fully paid and
attorney’s fees equivalent to 25% of the principal claim plus costs of suit.

In a decision16 dated 3 November 1998, the RTC ordered respondents to pay petitioner

₱397,879.69 with 6% interest plus attorney’s fees and costs of the suit. It attributed the damage
and losses sustained by the shipment to the arrastre operator’s mishandling in the discharge of
the shipment. Citing Eastern Shipping Lines, Inc. v. Court of Appeals,17 the RTC held the
shipping company and the arrastre operator solidarily liable since both the arrastre operator and
the carrier are charged with and obligated to deliver the goods in good order condition to the
consignee. It also ruled that the ship functioned as a common carrier and was obliged to observe
the degree of care required of a common carrier in handling cargoes. Further, it held that a notice
of loss or damage in writing is not required in this case because said goods already underwent a
joint inspection or survey at the time of receipt thereof by the consignee, which dispensed with
the notice requirement.

The Court of Appeals reversed and set aside the RTC’s decision.18 According to the appellate
court, there is no solidary liability between the carrier and the arrastre operator because it was
clearly established by the court a quo that the damage and losses of the shipment were attributed
to the mishandling by the arrastre operator in the discharge of the shipment. The appellate court
ruled that the instant case falls under an exception recognized in Eastern

Shipping Lines.19 Hence, the arrastre operator was held solely liable to the consignee.

Petitioner raises the following issues:

1. Whether or not the Court of Appeals erred in not holding that as a common carrier, the
carrier’s duties extend to the obligation to safely discharge the cargo from the vessel;

2. Whether or not the carrier should be held liable for the cost of the damaged shipment;

3. Whether or not Wallem’s failure to answer the extra judicial demand by petitioner for
the cost of the lost/damaged shipment is an implied admission of the former’s liability for
said goods;

4. Whether or not the courts below erred in giving credence to the testimony of Mr.
Talens.
It is beyond question that respondent’s vessel is a common carrier.20 Thus, the standards for
determining the existence or absence of the respondent’s liability will be gauged on the degree of
diligence required of a common carrier. Moreover, as the shipment was an exercise of
international trade, the provisions of the Carriage of Goods

by Sea Act21 (COGSA), together with the Civil Code and the Code of Commerce, shall apply.22

The first and second issues raised in the petition will be resolved concurrently since they are
interrelated.

It is undisputed that the shipment was damaged prior to its receipt by the insured consignee. The
damage to the shipment was documented by the turn-over survey23 and Request for Bad Order
Survey.24 The turn-over survey, in particular, expressly stipulates that 2,426 bags of the shipment
were received by the arrastre operator in damaged condition. With these documents, petitioner
insists that the shipment incurred damage or losses while still in the care and responsibility of
Wallem and before it was turned over and delivered to the arrastre operator.

The trial court, however, found through the testimony of Mr. Maximino Velasquez Talens, a
cargo surveyor of Oceanica Cargo Marine Surveyors Corporation, that the losses and damage to
the cargo were caused by the mishandling of the arrastre operator. Specifically, that the torn
cargo bags resulted from the use of steel hooks/spikes in piling the cargo bags to the pallet board
and in pushing the bags by the stevedores of the arrastre operator to the tug boats then to the
ports.25 The appellate court affirmed the finding of mishandling in the discharge of cargo and it
served as its basis for exculpating respondents from liability, rationalizing that with the fault of
the arrastre operator in the unloading of the cargo established it should bear sole liability for the
cost of the damaged/lost cargo.

While it is established that damage or losses were incurred by the shipment during the unloading,
it is disputed who should be liable for the damage incurred at that point of transport. To address
this issue, the pertinent laws and jurisprudence are examined.

Common carriers, from the nature of their business and for reasons of public policy, are bound to
observe extraordinary diligence in the vigilance over the goods transported by them.26 Subject to
certain exceptions enumerated under Article 173427 of the Civil Code, common carriers are
responsible for the loss, destruction, or deterioration of the goods. The extraordinary
responsibility of the common carrier lasts from the time the goods are unconditionally placed in
the possession of, and received by the carrier for transportation until the same are delivered,
actually or constructively, by the carrier to the consignee, or to the person who has a right to
receive them.28

For marine vessels, Article 619 of the Code of Commerce provides that the ship captain is liable
for the cargo from the time it is turned over to him at the dock or afloat alongside the vessel at
the port of loading, until he delivers it on the shore or on the discharging wharf at the port of
unloading, unless agreed otherwise. In Standard Oil Co. of New York v. Lopez Castelo,29 the
Court interpreted the ship captain’s liability as ultimately that of the shipowner by regarding the
captain as the representative of the ship owner.
Lastly, Section 2 of the COGSA provides that under every contract of carriage of goods by sea,
the carrier in relation to the loading, handling, stowage, carriage, custody, care, and discharge of
such goods, shall be subject to the responsibilities and liabilities and entitled to the rights and
immunities set forth in the Act.30 Section 3 (2) thereof then states that among the carriers’
responsibilities are to properly and carefully load, handle, stow, carry, keep, care for, and
discharge the goods carried.

The above doctrines are in fact expressly incorporated in the bill of lading between the shipper
Shanghai Fareast Business Co., and the consignee, to wit:

4. PERIOD OF RESPONSIBILITY. The responsibility of the carrier shall commence from the
time when the goods are loaded on board the vessel and shall cease when they are discharged
from the vessel.

The Carrier shall not be liable of loss of or damage to the goods before loading and after
discharging from the vessel, howsoever such loss or damage arises.31

On the other hand, the functions of an arrastre operator involve the handling of cargo deposited
on the wharf or between the establishment of the consignee or shipper and the ship's
tackle.32 Being the custodian of the goods discharged from a vessel, an arrastre operator's duty is
to take good care of the goods and to turn them over to the party entitled to their possession.33

Handling cargo is mainly the arrastre operator's principal work so its drivers/operators or
employees should observe the standards and measures necessary to prevent losses and damage to
shipments under its custody.34

In Fireman’s Fund Insurance Co. v. Metro Port Service, Inc.35 the Court explained the
relationship and responsibility of an arrastre operator to a consignee of a cargo, to quote:

The legal relationship between the consignee and the arrastre operator is akin to that of a
depositor and warehouseman. The relationship between the consignee and the common carrier is
similar to that of the consignee and the arrastre operator. Since it is the duty of the ARRASTRE
to take good care of the goods that are in its custody and to deliver them in good condition to the
consignee, such responsibility also devolves upon the CARRIER. Both the ARRASTRE and the
CARRIER are therefore charged with and obligated to deliver the goods in good condition to the
consignee.(Emphasis supplied) (Citations omitted)

The liability of the arrastre operator was reiterated in Eastern Shipping Lines, Inc. v. Court of
Appeals36 with the clarification that the arrastre operator and the carrier are not always and
necessarily solidarily liable as the facts of a case may vary the rule.

Thus, in this case the appellate court is correct insofar as it ruled that an arrastre operator and a
carrier may not be held solidarily liable at all times. But the precise question is which entity had
custody of the shipment during its unloading from the vessel?
The aforementioned Section 3(2) of the COGSA states that among the carriers’ responsibilities
are to properly and carefully load, care for and discharge the goods carried. The bill of lading
covering the subject shipment likewise stipulates that the carrier’s liability for loss or damage to
the goods ceases after its discharge from the vessel. Article 619 of the Code of Commerce holds
a ship captain liable for the cargo from the time it is turned over to him until its delivery at the
port of unloading.

In a case decided by a U.S. Circuit Court, Nichimen Company v. M./V. Farland,37 it was ruled
that like the duty of seaworthiness, the duty of care of the cargo is non-delegable,38 and the
carrier is accordingly responsible for the acts of the master, the crew, the stevedore, and his other
agents. It has also been held that it is ordinarily the duty of the master of a vessel to unload the
cargo and place it in readiness for delivery to the consignee, and there is an implied obligation
that this shall be accomplished with sound machinery, competent hands, and in such manner that
no unnecessary injury shall be done thereto.39 And the fact that a consignee is required to furnish
persons to assist in unloading a shipment may not relieve the carrier of its duty as to such
unloading.40

The exercise of the carrier’s custody and responsibility over the subject shipment during the
unloading actually transpired in the instant case during the unloading of the shipment as testified
by Mr. Talens, the cargo surveyor, to quote:

Atty. Repol:

- Do you agree with me that Wallem Philippines is a shipping [company]?

A Yes, sir.

Q And, who hired the services of the stevedores?

A The checker of the vessel of Wallem, sir.41

xxx

Q Mr. Witness, during the discharging operation of this cargo, where was the master of
the vessel?

A On board the vessel, supervising, sir.

Q And, observed the discharging operation?

A Yes, sir.

Q And, what did the master of the vessel do when the cargo was being unloaded from the
vessel?

A He would report to the head checker, sir.

 Q He did not send the stevedores to what manner in the discharging of the cargo from the
vessel?

A And head checker po and siyang nagpapatakbo ng trabaho sa loob ng barko, sir.42

xxx

Q Is he [the head checker] an employee of the company?

A He is a contractor/checker of Wallem Philippines, sir.43

Moreover, the liability of Wallem is highlighted by Mr. Talen’s notes in the Bad Order
Inspection, to wit:

"The bad order torn bags, was due to stevedores[‘] utilizing steel hooks/spikes in piling the cargo
to [the] pallet board at the vessel’s cargo holds and at the pier designated area before and after
discharged that cause the bags to torn [sic]."44 (Emphasis supplied)

The records are replete with evidence which show that the damage to the bags happened before
and after their discharge45 and it was caused by the stevedores of the arrastre operator who were
then under the supervision of Wallem.1awphi1.net

It is settled in maritime law jurisprudence that cargoes while being unloaded generally remain
under the custody of the carrier. In the instant case, the damage or losses were incurred during
the discharge of the shipment while under the supervision of the carrier. Consequently, the
carrier is liable for the damage or losses caused to the shipment. As the cost of the actual damage
to the subject shipment has long been settled, the trial court’s finding of actual damages in the
amount of ₱397,879.69 has to be sustained.

On the credibility of Mr. Talens which is the fourth issue, the general rule in assessing credibility
of witnesses is well-settled:

x x x the trial court's evaluation as to the credibility of witnesses is viewed as correct and entitled
to the highest respect because it is more competent to so conclude, having had the opportunity to
observe the witnesses' demeanor and deportment on the stand, and the manner in which they
gave their testimonies. The trial judge therefore can better determine if such witnesses were
telling the truth, being in the ideal position to weigh conflicting testimonies. Therefore, unless
the trial judge plainly overlooked certain facts of substance and value which, if considered, might
affect the result of the case, his assessment on credibility must be respected.46

Contrary to petitioner’s stance on the third issue, Wallem’s failure to respond to its demand letter
does not constitute an implied admission of liability. To borrow the words of Mr. Justice Oliver
Wendell Holmes, thus:

A man cannot make evidence for himself by writing a letter containing the statements that he
wishes to prove. He does not make the letter evidence by sending it to the party against whom he
wishes to prove the facts [stated therein]. He no more can impose a duty to answer a charge than
he can impose a duty to pay by sending goods. Therefore a failure to answer such adverse
assertions in the absence of further circumstances making an answer requisite or natural has no
effect as an admission.47

With respect to the attorney’s fees, it is evident that petitioner was compelled to litigate this
matter to protect its interest. The RTC’s award of ₱20,000.00 as attorney’s fees is reasonable.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals dated 22 June
2004 and its Resolution dated 11 October 2004 are REVERSED and SET ASIDE. Wallem is
ordered to pay petitioner the sum of ₱397,879.69, with interest thereon at 6% per annum from
the filing of the complaint on 7 October 1996 until the judgment becomes final and executory.
Thereafter, an interest rate of 12% per annum shall be imposed.48 Respondents are also ordered
to pay petitioner the amount of ₱20,000.00 for and as attorney’s fees, together with the costs of
the suit.

SO ORDERED.

G.R. No. L-13660             November 13, 1918

E. M. BACHRACH, plaintiff-appellee,
vs.
VICENTE GOLINGCO, defendant-appellant.

Ramon Diokno for appellant.

No appearance for appellee.

STREET, J.:

This is a suit for the recovery of a sum of money claimed as a balance due to the plaintiff on a
promissory note. From a judgment in favor of the plaintiff for the sum of P8461, as principal,
with interest thereon at the rate of 8 per cent per annum from the 10th day of July, 1916, until
paid, and for the further sum of P2,115.25, as a stipulated attorney's fee, the defendant has
appealed.

The note in question represents the purchase price of an automobile truck which the plaintiff sold
to the defendant at the time the note was executed. As security for the payment of said
indebtedness, the plaintiff took a chattel mortgage on the truck; and after the note had matured
this chattel mortgage was foreclosed. At the foreclosure sale the plaintiff himself became the
purchaser for the sum of P539, which amount was credited upon the indebtedness.

Of the questions raised by the defense only two in our opinion require serious consideration. The
first has reference to irregularities in the foreclosure of the chattel mortgage; the second to the
validity of the agreement for 25 per cent as an attorney's fee for collection.

We find that the requirements of section 14 of Act No. 1508 (the Chattel Mortgage of Law) were
not observed in the sale of the truck. The irregularity consists in the fact the truck was brought by
Bachrach from Albay (which was the place of residence of the mortgagor) to the city of Manila
and here sold by the sheriff of the city at the instance of the plaintiff. There is no evidence that
the mortgagor consented to the removal of the truck to Manila or to the sale that was effected in
the city; and it must therefore be held that the sale was improperly accomplished. The statute
requires that the mortgage chattel shall be sold in the municipality where the mortgagor resides,
or where the property is situated; and the latter expression has reference to the place where the
thing is being kept for use by the mortgagor, not any place where the mortgagee may choose to
carry it when he takes it out of the custody of the mortgagor. It is admitted that notice of the
same was not posted anywhere in the municipality of Albay, as required in the section cited; and
of course publication there would have of little or no value when the sale was to be made in
Manila.

The effect of this irregularity was, in our opinion, to make the plaintiff liable to the defendant for
the full value of the truck at the time the plaintiff thus carried it off to be sold; and of course the
burden is on the defendant to prove the amount of the damage to which he was thus subjected.
With reference to the condition of the truck when it was sold, we find the following statement in
the testimony of Bachrach:

Q. What was the condition of the truck at the time it was sold? — At the time of the sale,
everything that wasn't actually built on the truck was removed; tires removed, generator,
lamps, dynamo, everything that could be taken off with a monkeywrench was removed. It
was in a criminal condition.

Q. Was the body of the truck, or the chassis, and the motor on at the time you purchased
it at the sheriff's sale? — A. No.lawphil.net

Q. Had it been removed? — A. Yes. We had a telegram from the sheriff of Tabaco,
saying that the day he was to load the truck for Manila, he had a protest from Golingco
demanding the body, and I telegraphed the sheriff to deliver the body to Golingco, and
send the truck.

There is no evidence to contradict Bachrach's testimony on this point; and we are bound to credit
him when he states his conclusion that the value of the truck at the time it was sold was the
amount he paid for it. In the absence of proof to the contrary this must also be taken to be its
value at the time it was brought away from Albay. It results that the defendant has failed to prove
that he suffered any damage whatever by the irregular manner in which the sale was conducted.
This brings us to the question of the amount of the attorney's fee allowed by the trial court. It is
provided in the note given by the defendant for the purchase price of the truck that, in the event it
becoming necessary to employ counsel to enforce its collection, the maker is to pay an additional
twenty-five per cent "as fees for the attorney collecting the same." The trial court gave judgment
for the full amount due on the note and for an additional sum of P2,115.25, for attorney's fees.
The appellant assigns this as error and argues that the agreement to pay an attorney's fee, in
addition to the principal and stipulated interest, is void as usurious and as being grossly
excessive.

We are of the opinion that it may lawfully be stipulated in favor of the creditor, whether the
obligation be evidenced by promissory note or otherwise, that in the event that it becomes
necessary, by reason of the delinquency of the debtor, to employ counsel to enforce payment of
the obligation, a reasonable attorney's fee shall be paid by the debtor, in addition to the amount
due for principal and interest. The legality of such a stipulation, when annexed to a negotiate
instrument is expressly recognized by the Negotiable Instruments Law ((Act No. 2031, sec. 2,
par. E). Inasmuch as the statutory allowance for attorney's fees, as costs, is notoriously less than
the amount which attorneys are entitled to receive from their clients, unless such a stipulation is
made and enforced, it follows that a creditor may be compelled to pay, out of the money due
him, a considerable sum as the necessary cost of enforcing payment by the delinquent debtor.

Such a stipulation is not void as usurious, even when added to a contract for the payment of the
highest rate of interest permissible. The purpose of such a stipulation is not to increase in any
respect the benefits ultimately to accrue to the creditor. It is true that such a stipulation may be
made for the purpose of concealing usury; but that is a matter of proof to be determined in each
case upon the evidence.

We cite, with approval, the ruling of the supreme court of Georgia upon this question, as follows:

A contract to pay attorney's fees for collecting, in addition to principal and interest, is not,
on its face, usurious; nor does it become usurious by reducing the debt to judgment, and
including in the judgment ten per cent for attorney's fees.

The law . . . recognizes the validity of such a stipulation, and it meets the justice of the
case very frequently for the debtor to pay for the collection rather than the creditor, . . .
We do not mean to intimate that usury might not be covered up by such a stipulation, that
it might not be a disguise, or contrivance for the concealment of usury; but there is no
such indication in this case. There is no evidence that it was not a bona fide stipulation to
cover the contingency of having to incur expense in collecting this debt. (National bank
of Athens vs. Danforth, 80 Ga., 55.)

But the principle that it may be lawfully stipulated that the legal expense involved in the
collection of a debt shall be defrayed by the debtor does not imply that such stipulations must be
enforced in accordance with their terms, no matter how injurious or oppressive they may be. The
lawful purpose to be accomplished by such a stipulation is to permit the creditor to receive the
whole amount due him under his contract without the deduction of the expenses caused by the
delinquency of the debtor. It should not be permitted for him to convert such a stipulation into a
source of speculative profit at the expense of the debtor.

Contracts for attorney's services in this jurisdiction stand upon an entirely different footing from
contracts for the payment of compensation for any other services. By the express provision of
section 29 of the Code of Civil Procedure, an attorney is not entitled in the absence of express
contract to recover more than a reasonable compensation for his services; and even where an
express contract is made the court can ignore it and limit the recovery to reasonable
compensation if the amount of the stipulated fee is found by the court to be unreasonable. This is
a very different rule from that announced in section 1091 of the Civil Code with reference to the
obligation of contract in general, where it is said that such obligation has the force of law
between the contracting parties. Had the plaintiff herein made an express contract to pay his
attorney an uncontingent fee of P2,115.25, for the services to be rendered in reducing the note
here in suit to judgment, it would not have been enforceable against him had he seen fit to
oppose it, as such a fee is obviously far greater than is necessary to remunerate the attorney for
the work involved and is therefore unreasonable. In order to enable the court to ignore an express
contract for an attorney's fees, it is not necessary to show, as in other contracts, that it is contrary
to morality or public policy (art. 1255, Civil Code). It is enough that it is unreasonable or
unconscionable.

We are not unmindful of the fact that the question as to the propriety of the stipulation for
attorney's fee does not here arise directly between the creditor in this note and the attorney into
whose hands he might place the note for collection. The stipulation is contained in the contract
between the creditor and his debtor; and the attorney could not be held bound thereby.
Nevertheless we think the same rule applies as if the question had arisen directly between
attorney and client. As the court has power to fix the fee as between the attorney and the client, it
must necessarily have the right to say whether a stipulation, like this, inserted in a promissory
note is valid. A different ruling, as may be readily seen, would make it exceedingly easy to evade
the usury laws. As stated at the beginning of this discussion, the lawful purpose to be
accomplished by such stipulation is to permit the creditor to receive the amount due without the
deduction of the expenses caused by the delinquency of the debtor. It must not be used as a cloak
for an exorbitant exaction.

We are therefore of the opinion that we are authorized to reduce the amount in question to a sum
which will enable the plaintiff to pay a reasonable compensation to his attorney; and we think
that P800 is sufficient for this purpose. It is possible that, as a matter of fact, the plaintiff may
have contracted with his attorney for the performances of the services to be rendered him in this
matter for a sum less than P800, and had it been so made to appear, we would have reduced the
amount recoverable, under this particular clause of the note, to the corresponding sum. No
evidence having been adduced upon this point, however, we are compelled to exercise our
discretion and make use of our professional knowledge as to the reasonable compensation to
which an attorney would be entitled for the performance of such services as those which the
plaintiff in this case has had occasion to require from his counsel.

Wherefore it is ordered that the plaintiff have and recover of the defendant the sum of P8,461,
with interest thereon at the rate of 8 per centum per annum, from the tenth day of July, 1916,
until paid, and for the further sum of P800 as attorney's fees, and for the statutory costs of both
instances, exclusive of the statutory allowance for attorney's fees. So ordered.

G.R. No. L-25885 January 31, 1972

LUZON BROKERAGE CO., INC., plaintiff-appellee,

vs.
MARITIME BUILDING CO., INC., and MYERS BUILDING CO., INC., defendants,
MARITIME BUILDING CO., INC., defendant-appellant.

Ross, Salcedo, Del Rosario, Bito and Misa for plaintiff-appellee.

C. R. Tiongson and L. V. Simbulan and Araneta, Mendoza and Papa for defendant Myers
Building Co., Inc.

Ambrosio Padilla Law Offices for defendant-appellant Maritima Building Co., Inc.

REYES, J.B.L., J.:p

Direct appeal (prior to the effectivity of Republic Act 5440) by Maritime Building Co., Inc. from
a decision of the Court of First Instance of Manila (in its Civil Case No. 47319), the dispositive
part of which provides as follows:

FOR ALL THE FOREGOING CONSIDERATIONS, judgment is hereby

rendered declaring that the Myers Building Co., Inc. is entitled to receive the
rentals which the plaintiff has been paying, including those already deposited in
Court, thereby relieving the plaintiff of any obligation to pay the same to any
other party, and ordering the Maritime Building Co., Inc. to pay the commission
fees paid by the Myers Building Co., Inc. to the Clerk of this Court, plus the sum
of P3,000.00 as and for attorney's fees.

On the cross-claim by the Myers Building Co., Inc., the Maritima Building Co.,
Inc. is hereby ordered to pay the Myers Building Co., Inc. the sum of P10,000.00
damages, plus the sum of P30,000.00, representing rentals wrongfully collected
by it from the plaintiff corresponding to the months of March, April and May,
1961 and the costs hereof.
The antecedents of the litigation are summarized in the appealed judgment thus:

This is an action for interpleading.

It appears that on April 30, 1949, in the City of Manila, the defendant Myers
Building Co., Inc., owner of three parcels of land in the City of Manila, together
with the improvements thereon, entered into a contract entitled "Deed of
Conditional Sale" in favor of Bary Building Co., Inc., later known as Maritime
Building Co., Inc., whereby the former sold the same to the latter for
P1,000,000.00, Philippine currency. P50,000.00 of this price was paid upon the
execution of the said contract and the parties agreed that the balance of
P950,000.00 was to be paid in monthly installments at the rate of P10,000.00 with
interest of 5% per annum until the same was fully paid.

In Par. (O), they agreed that in case of failure on the part of the vendee to pay any
of the installments due and payable, the contract shall be annulled at the option of
the vendor and all payments already made by vendee shall be forfeited and the
vendor shall have right to re-enter the property and take possession thereof.

Later, the monthly installment of P10,000.00 above-stipulated with 5% interest

per annum was amended or decreased to P5,000.00 per month and the interest
was raised to 5-1/2% per annum. The monthly installments under the contract was
regularly paid by the Bary Building Co., Inc. and/or the Maritime Co., Inc. until
the end of February, 1961. It failed to pay the monthly installment corresponding
to the month of March 1961, for which the Vice-President, George Schedler, of
the Maritime Building Co., Inc., wrote a letter to the President of Myers, Mr. C.
Parsons, requesting for a moratorium on the monthly payment of the installments
until the end of the year 1961, for the reason that the said company was
encountering difficulties in connection with the operation of the warehouse
business. However, Mr. C. Parsons, in behalf of the Myers Estate, answered that
the monthly payments due were not payable to the Myers Estate but to the Myers
Building Co., Inc., and that the Board of Directors of the Myers Co., Inc. refused
to grant the request for moratorium for suspension of payments under any
condition.

Notwithstanding the denial of this request for moratorium by the Myers Board of
Directors the Maritime Building Co., Inc. failed to pay the monthly installments
corresponding to the months of March, April and May, 1961. Whereupon, on May
16, 1961, the Myers Building Co., Inc. made a demand upon the Maritime
Building Co., Inc., for the payment of the installments that had become due and
payable, which letter, however, was returned unclaimed.

Then, on June 5, 1961, the Myers Building Co., Inc. wrote the Maritime Building
Co., Inc. another letter advising it of the cancellation of the Deed of Conditional
Sale entered into between them and demanding the return of the possession of the
 properties and holding the Maritime Building Co., Inc. liable for use and
occupation of the said properties at P10,000.00 monthly.

In the meantime, the Myers Building Co., Inc. demanded upon the Luzon
Brokerage Co., Inc. to whom the Maritime Building Co., Inc. leased the
properties, the payment of monthly rentals of P10,000.00 and the surrender of the
same to it. As a consequence, the Luzon Brokerage Co., Inc. found itself in a
payment to the wrong party, filed this action for interpleader against the Maritime
Building Co., Inc.

After the filing of this action, the Myers Building Co., Inc. in its answer filed a
cross-claim against the Maritime Building Co., Inc. praying for the confirmation
of its right to cancel the said contract. In the meantime, the contract between the
Maritime Building Co., Inc. and the Luzon Brokerage Co., Inc. was extended by
mutual agreement for a period of four (4) more years, from April, 1964 to March
31, 1968.

The Maritime Building Co., Inc. now contends (1) that the Myers Building Co.,
Inc. cannot cancel the contract entered into by them for the conditional sale of the
properties in question extrajudicially and (2) that it had not failed to pay the
monthly installments due under the contract and, therefore, is not guilty of having
violated the same.

It should be further elucidated that the suspension by the appellant Maritime Building Co., Inc.
(hereinafter called Maritime) of the payment of installments due from it to appellee Myers
Building Co., Inc. (hereinafter designated as Myers Corporation) arose from an award of
backwages made by the Court of Industrial Relations in favor of members of Luzon Labor Union
who served the Fil-American forces in Bataan in early 1942 at the instance of the employer
Luzon Brokerage Co. and for which F. H. Myers, former majority stockholder of the Luzon
Brokerage Co., had allegedly promised to indemnify E. M. Schedler (who controlled Maritime)
when the latter purchased Myers' stock in the Brokerage Company. Schedler contended that he
was being sued for the backpay award of some P325,000, when it was a liability of Myers, or of
the latter's estate upon his death. In his letter to Myers Corporation (Exhibit "11", Maritime)
dated 7 April 1961 (two months and ten days before the initial complaint in the case at bar),
Schedler claimed the following:

At all times when the F. H. Myers Estate was open in the Philippine Islands and
open in San Francisco, the Myers Estate or heirs assumed the defense of the
Labor Union claims and led us to believe that they would indemnify us therefrom.

Recently, however, for the first time, and after both the Philippine and San
Francisco F. H. Myers Estates were closed, we have been notified that the F. H.
Myers indemnity on the Labor Union case will not be honored, and in fact Mrs.
Schedler and I have been sued in the Philippines by my successor in interest, Mr.
Wentholt, and have been put to considerable expense.
 You are advised that my wife and I, as the owners of the Maritime Building
Company, intend to withhold any further payments to Myers Building Company
or Estate, in order that we can preserve those funds and assets to set off against
the potential liability to which I am now exposed by the failure of the Myers heirs
to honor the indemnity agreement pertaining to the Labor claims.

The trial court found the position of Schedler indefensible, and that Maritime, by its failure to
pay, committed a breach of the sale contract; that Myers Company, from and after the breach,
became entitled to terminate the contract, to forfeit the installments paid, as well as to repossess,
and collect the rentals of, the building from its lessee, Luzon Brokerage Co., in view of the terms
of the conditional contract of sale stipulating that:

(d) It is hereby agreed, covenanted and stipulated by and between the parties
hereto that the Vendor will execute and deliver to the Vendee a definite or
absolute deed of sale upon the full payment by the vendee of the unpaid balance
of the purchase price hereinabove stipulated; that should the Vendee fail to pay
any of the monthly installments, when due, or otherwise fail to comply with any
of the terms and conditions herein stipulated, then this Deed of Conditional Sale
shall automatically and without any further formality, become null and void, and
all sums so paid by the Vendee by reason thereof, shall be considered as rentals
and the Vendor shall then and there be free to enter into the premises, take
possession thereof or sell the properties to any other party.

xxx xxx xxx

(o) In case the Vendee fails to make payment or payments, or any part thereof, as
herein provided, or fails to perform any of the covenants or agreements hereof,
this contract shall, at the option of the Vendor, be annulled and, in such event, all
payments made by the Vendee to the Vendor by virtue of this contract shall be
forfeited and retained by the Vendor in full satisfaction of the liquidated damages
by said Vendor sustained; and the said Vendor shall have the right to forthwith re-
enter, and take possession of, the premises subject-matter of this contract.

"The remedy of forfeiture stated in the next-preceding paragraph shall not be

exclusive of any other remedy, but the Vendor shall have every other remedy
granted it by virtue of this contract, by law, and by equity."

From the judgment of the court below, the dispositive portion whereof has been transcribed at
the start of this opinion, Myers duly appealed to this Court.

The main issue posed by appellant is that there has been no breach of contract by Maritime; and
assuming that there was one, that the appellee Myers was not entitled to rescind or resolve the
contract without recoursing to judicial process.

It is difficult to understand how appellant Maritime can seriously contend that its failure or
refusal to pay the P5,000 monthly installments corresponding to the months of March, April and
May, 1961 did not constitute a breach of contract with Myers, when said agreement (transcribed
in the Record on Appeal, pages 59-71) expressly stipulated that the balance of the purchase price
(P950,000) —

shall be paid at the rate of Ten Thousand Pesos (P10,000) monthly on or before
the 10th day of each month with interest at 5% per annum, this amount to be first
applied on the interest, and the balance paid to the principal thereof; and the
failure to pay any installment or interest when due shall ipso facto cause the
whole unpaid balance of the principal and interest to be and become immediately
due and payable. (Contract, paragraph b; Record on Appeal, page 63)

Contrary to appellant Maritime's averments, the default was not made in good faith. The text of
the letter to Myers (Exhibit "11", Maritime), heretofore quoted, leaves no doubt that the non-
payment of the installments was the result of a deliberate course of action on the part of
appellant, designed to coerce the appellee Myers Corporation into answering for an alleged
promise of the late F. H. MYERS to indemnify E. W. Schedler, the controlling stock-holder of
appellant, for any payments to be made to the members of the Luzon Labor Union. This is
apparent also from appellant's letter to his counsel (Exhibit "12", Maritime):

... I do not wish to deposit pesos representing the months of March, April and
May, since the Myers refusal to honor the indemnity concerning the labor claims
has caused me to disburse (sic) roughly $10,000.00 to date in fees, cost and travel
expenses. However, if the Myers people will deposit in trust with Mr. C. Parsons
25,000 pesos to cover my costs to date, I will then deposit with Mr. Parsons, in
trust, 15,000 pesos for March, April and May and will also post a monthly deposit
of 5,000 pesos until the dispute is settled. The dispute won't be settled in my
mind, unless and until:

a) The Myers people indemnify me fully the labor cases;

b) The labor cases are terminated favorably to Luzon Brokerage and no liability
exists;

c) The Myers people pay any judgment entered on the labor cases thereby
releasing me; or

d) It is finally determined either in San Francisco or in the Philippines by a court

that the Myers heirs must honor the indemnity which Mr. F. H. Myers promised
when I purchased Luzon Brokerage Company.

Yet appellant Maritime (assuming that it had validly acquired the claims of its president and
controlling stockholder, E. M. Schedler) could not ignore the fact that whatever obligation F. H.
Myers or his estate had assumed in favor of Schedler with respect to the Luzon Brokerage labor
case was not, and could not have been, an obligation of appellee corporation (Myers Building
Company). No proof exists that the board of directors of the Myers Corporation had agreed to
assume responsibility for the debts (if any) that the late Myers or his heirs had incurred in favor
of Schedler. Not only this, but it is apparent from the letters quoted heretofore that Schedler had
allowed the estate proceedings of the late F. M. Myers to close without providing for any
contingent liability in Schedler's favor; so that by offsetting the alleged debt of Myers to him,
against the balance of the price due under the "Deed of Conditional Sale", appellant Maritime
was in fact attempting to burden the Myers Building Company with an uncollectible debt, since
enforcement thereof against the estate of F. H. Myers was already barred.

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 intentional 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.

From another point of view, it is irrelevant whether appellant Maritime's infringement of its
contract was casual or serious, for as pointed out by this Court in Manuel vs. Rodriguez, 109
Phil. 1, at page 10 —

The contention of plaintiff-appellant that Payatas Subdivision Inc. had no right to

cancel the contract as there was only a "casual breach" is likewise untenable. In
contracts to sell, where 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, 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.

But it is argued for Maritime that even if it had really violated the Contract of Conditional Sale
with Myers, the latter could not extrajudicially rescind or resolve the contract, but must first
recourse to the courts. While recognizing that paragraph (d) of the deed of conditional sale
expressly provides inter alia —

that should the Vendee fail to pay any of the monthly installments when due, or
otherwise fail to comply with any of the terms and conditions herein
stipulated, then this Deed of Conditional Sale shall automatically and without any
further formality, become null and void, and all sums so paid by the Vendee by
reason thereof shall be considered as rentals.. (Emphasis supplied)
herein appellant Maritime avers that paragraph (e) of the deed contemplates that a suit should be
brought in court for a judicial declaration of rescission. The paragraph relied upon by Maritime is
couched in the following, terms:

(e) It is also hereby agreed, covenanted and stipulated by and between the parties
hereto that should the Vendor rescind this Deed of Conditional Sale, for any of
the reasons stipulated in the preceding paragraph, the Vendee by these presents
obligates itself to peacefully deliver the properties subject of this contract to the
Vendor, and in the event that the Vendee refuses to peacefully deliver the
possession of the properties subject of this contract to the Vendor in case of
rescission, and a suit should be brought in court by the Vendor to seek judicial
declaration of rescission and take possession of the properties subject of this
contract, the Vendee hereby obligates itself to pay all the expenses to be incurred
by reason of such suit and in addition obligates itself to pay the sum of
P10,000.00, in concept of damages, penalty and attorney's fees.

Correlation of this paragraph (e) with the preceding paragraph (d) of the Deed of Conditional
Sale (quoted in page 5 of this opinion) reveals no incompatibility between the two; and the suit
to "be brought in Court by the Vendor to seek judicial declaration of rescission" is provided for
by paragraph(e) only in the eventuality that, notwithstanding the automatic annulment of the
deed under paragraph (d), the Vendee "refuses to peacefully deliver the possession of the
properties subject of this contract". The step contemplated is logical since the Vendor can not, by
himself, dispossess the Vendee manu militari, if the latter should refuse to vacate despite the
violation of the contract, since no party can take the law in his own hands. But the bringing of
such an action in no way contradicts or restricts the automatic termination of the contract in case
the Vendee (i.e., appellant Maritime) should not comply with the agreement.

Anyway, this Court has repeatedly held that —

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 vs.
Commissioner of Customs, L-28235, 30 January 1971, 37 SCRA 327, 334,, and
cases cited therein).1 (Emphasis supplied.)

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 vs. Court of Appeals, L-27549, 30 Sept. 1969; 29 SCRA
504).

The obvious remedy of the party opposing the rescission for any reason being to file the
corresponding action to question the rescission and enforce the agreement, as indicated in our
decision in University of the Philippines vs. Walfrido de los Angeles,
L-28602, 29 September 1970, 35 SCRA 107.
 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 may consider it
resolved or rescinded, and act accordingly, without previous court action, but it
proceeds at its own risk. For it is only the final judgment of the corresponding
court that will conclusively and finally settle whether the action taken was or was
not correct in law. But the law definitely does not require that the contracting
party who believes itself injured must first file suit and wait for a judgment before
taking extrajudicial steps to protect its interest. Otherwise, the party injured by the
other's breach will have to passively sit and watch its damages accumulate during
the pendency of the suit until the final judgment of rescission is rendered when
the law itself requires that he should exercise due diligence to minimize its own
damages (Civil Code, Article 2203).

Maritime likewise invokes Article 1592 of the Civil Code of the Philippines as entitling it to pay
despite its default:

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.

Assuming arguendo that Article 1592 is applicable, the cross-claim filed by Myers against

Maritime in the court below constituted a judicial demand for rescission that satisfies the
requirements of said article.

But even if it were not so, appellant overlooks that its contract with appellee Myers is 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 specified
condition precedent, which is to pay the installments as they fell due.
The distinction between contracts of sale and contract to sell with reserved title has been
recognized by this Court in repeated decisions2 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.

Maritime's appeal that it would be iniquituous that it should be compelled to forfeit the P973,000
already paid to Myers, as a result of its failure to make good a balance of only P319,300.65,
payable at P5,000 monthly, becomes unimpressive when it is considered that while obligated to
pay the price of one million pesos at P5,000 monthly, plus interest, Maritime, on the other hand,
had leased the building to Luzon Brokerage, Inc. since 1949; and Luzon paid P13,000 a month
rent, from September, 1951 to August 1956, and thereafter until 1961, at P10,000 a month, thus
paying a total of around one and a half million pesos in rentals to Maritime. Even adding to
Maritime's losses of P973,000 the P10,000 damages and P3,000 attorneys' fees awarded by the
trial court, it is undeniable that appellant Maritime has come out of the entire transaction still at a
profit to itself.

There remains the procedural objection raised by appellant Maritime to this interpleader action
filed by the Luzon Brokerage Co., the lessee of the building conditionally sold by Myers to
Maritime. It should be recalled that when Maritime defaulted in its payments to Myers, and the
latter notified the former that it was cancelling the contract of conditional sale, Myers also
notified Luzon Brokerage, Maritime's lessee of the building, of the cancellation of the sale, and
demanded that Luzon should pay to Myers the rentals of the building beginning from June, 1961,
under penalty of ejectment (Record on Appeal, pages 14-15). In doubt as to who was entitled to
the rentals, Luzon filed this action for interpleader against Myers and Maritime, and deposited
the rentals in court as they fell due. The appellant Maritime moved to dismiss on the ground that
(a) Luzon could not entertain doubts as to whom the rentals should be paid since Luzon had
leased the building from Maritime since 1949, renewing the contract from time to time, and
Myers had no right to cancel the lease; and (b) that Luzon was not a disinterested party, since it
tended to favor appellee Myers. The court below overruled Maritime's objections and We see no
plausible reason to overturn the order. While Myers was not a party to the lease, its cancellation
of the conditional sale of the premises to Maritime, Luzon's lessor, could not but raise reasonable
doubts as to the continuation of the lease, for the termination of the lessor's right of possession of
the premises necessarily ended its right to the rentals falling due thereafter. The preceding
portion of our opinion is conclusive that Luzon's doubts were grounded under the law and the
jurisprudence of this Court.

No adequate proof exists that Luzon was favoring any one of the contending parties. It was
interested in being protected against prejudice deriving from the result of the controversy,
regardless of who should win. For the purpose it was simpler for Luzon to compel the disputants
to litigate between themselves, rather than chance being sued by Myers, and later being
compelled to proceed against Maritime to recoup its losses. In any event, Maritime ultimately
confirmed the act of Luzon in suing for interpleader, by agreeing to renew Luzon's lease in 1963
during the pendency of the present action, and authorizing Luzon to continue depositing the
rentals in court "until otherwise directed by a court of competent jurisdiction" (Exhibit "18-
Maritime"). The procedural objection has thus become moot.
PREMISES CONSIDERED, the appealed decision should be, and hereby is, affirmed, and
appellant Maritime Building Co., as well as appellee Luzon Brokerage Co., are further ordered to
surrender the premises to the appellee Myers Building Co. Costs against appellant.

G.R. No. L-25885 November 16, 1978

LUZON BROKERAGE CO., INC., plaintiff-appellee,

vs.
MARITIME BUILDING CO., INC. AND MYERS BUILDING CO., INC., defendants,
MARITIME BUILDING CO., INC., defendant-appellant.

RESOLUTION ON SECOND
MOTION FOR RECONSIDERATION

TEEHANKEE, J.:

The Court denies appellant Maritime Building Co. Inc.'s (Maritime) Second Motion for
Reconsideration of October 7, 1972 on the following grounds and considerations:

1. A party litigant is entitled to only one Supreme Court to adjudicate his suit and should not be
permitted to keep a case pending by repetitious reiterations of the same contentions (already
repeatedly and lengthily discussed by appellant and extensively dealt with and rejected by the
Court in its decision of January 21, 1972 and extended resolution of August 18, 1972) in the
expectation that his claim may eventually gain acceptance from vital changes in the Court's
composition with the passage of time.

2. The second motion for reconsideration raises no new grounds but is merely a reiteration of the
self-same arguments already found to be unmeritorious and rejected for the reasons and
considerations extensively discussed in the Court's decision of January 31, 1972 (6 years and 8
months ago) and in the Resolution of August 18, 1972 denying the first motion for
reconsideration. Such second motions for reconsideration are patently pro forma and serve no
apparent purpose but to gain time and therewith vital changes in the Court's composition. Such
dilatory motions should have long been denied in consonance with public interest and public
policy which demand that judgments of courts determining controversies should not be left
hanging but should become final at some definite time fixed by law or by a rule of
practice recognized by law and that the Court's time and attention should not be inordinately
diverted to this case which is of no special significance but is a "mere adjudication of adversary
rights between two litigants" (although they may be of "some substantial financial standing" 1 )
to the prejudice of other cases in its fun docket which are still awaiting the Court's determination
and judgment.

3. In the 81 volumes of Supreme Court Reports Annotated, there appears the preface written by
now Chief Justice Castro wherein he stresses the importance of precedents and the governing
principle of stare decisis which have given consistency and stability to the law." The whole
thrust of appellant's stand since the filing of the case on June 17, 1961 up to its
pending second motion for reconsideration (seventeen years later) has been to ask the Court to
disregard the rule of stare decisis and to overturn the long- standing doctrine of 39 years
upholding the promissor's contractual right, as stipulated in contracts to sell, to declare the
contract cancelled upon breach thereof and the putative buyer's failure to pay the stipulated
installments which is simply an event that prevent(s) the obligation of the vendor to convey title
from acquiring binding force" 2 and ruling that Article 1592 (formerly Article 1504) of the New
Civil Code 3 (which grants the vendee of immovable property the right to pay even after the
expiration of the period for payment despite a stipulation to the contrary, as long as no demand
by suit or notarial act has been made upon him but further provides that "after the demand, the
Court may not grant him a new term") does not apply to a contract to sell.

The Court has seen no valid reason for yielding to the appellant's insistent importunings to cast
aside the precedents (as an exception in its case) and to disregard the contractual stipulations,
freely entered into by it with the assistance of counsel and with full awareness of the import of
the covenanted terms and conditions and of the legal consequence of breach thereof in
accordance with past precedents, as the binding law between the parties.

4. The governing law and precedents which demand denial of the second motion for
reconsideration as stated and reiterated in the decision and resolution denying reconsideration
may briefly be summarized 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 P10,000.00 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 sell 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. 4 (I)n contracts
to sell, where 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 ..." 5

(d) It should be noted, however, that Maritime's breach was far from casual but a most serious
breach of contract: since the execution of the contract to sell on April 30, 1949, Maritime, after
paying the P50,000. down payment, was merely paying for the balance of the purchase price in
the sum of P950,000.00 with the property's own rental earnings of P13,000.00, later P10,000.00,
a month from the lessee Luzon Brokerage Co. Maritime had as of the time of its willful refusal
and failure to pay the stipulated installments of P5,000.00 a month collected a total of
P1,500,000.00 in rentals from the property, out of which it had paid Myers P973,000.00 on
account of both the principal and stipulated 5% interest per annum, 6 leaving still a substantial
unpaid balance of P319,300.65 on the principal with a net gain of P527,000.00 out of the
collected rentals alone for Maritime. Yet, Maritime had deliberately defaulted on the monthly
installments due after its request for a suspension of payments until the close of 1961 had been
expressly rejected "under any condition" by Myers and then nevertheless withheld the payments
and gave Myers notice that it would "withhold any further payments" unless the heirs of the late
F.H. Myers honored a totally unconnected alleged personal promise of the F.H. Myers to
indemnify it for a possible liability of about P396,000.00 to a labor union in connection with a
completely different transaction (which alleged liability was already barred against the estate of
F. H. Myers and with which appellee Myers corporation had nothing whatsoever to do).

(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 interpleader in the court
below constituted a judicial demand for rescission of the contract and by the very provision of
the cited codal article, 7 "after the demand, the court may not grant him a new term' for payment;
and

(f) Assuming 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 no "just cause" as shown above, for the fixing of a further period. Assuming further that
Article 1234 of the Civil Code which provides that "(I)f 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" could be applied, Maritime cannot invoke its
benefits because as shown above there has not been substantial performance on its part and it has
been guilty of bad faith in defaulting on and withholding payment of the stipulated installments.

5. The enactment on September 14, 1972 by Congress of Republic Act No. 6552 entitled "An
Act to Provide Protection to Buyers of Real Estate on Installment Payments" (known also as the
Maceda law) has now placed the 39-year old jurisprudence of this Court (recognizing the right of
cancellation of the contract of conditional sale of real estate or on installments upon failure to
pay the stipulated installments and retention or forfeiture as rentals of the installments previously
paid) into the category of a law (insofar as industrial lots and commercial buildings as is the case
at bar are concerned) which is now beyond overturning even by this Court. The Court cannot
now deny or refuse to honor Myers contractual right of cancellation which is now reaffirmed
and recognized by the law itself and is no longer a matter of precedents or doctrinal
jurisprudence.

6. The plea for equitable considerations on behalf of Maritime has no basis in law and in fact. As
shown above, it acted with dolo or bad faith and must bear the consequences of its deliberate
withholding of, and refusal to make, the monthly payments, notwithstanding Myers' rejection of
its request for suspension of payments, by asserting against Myers corporation (as if it had a right
of offset) a totally unconnected alleged personal liability to it of the late F. H. Myers and seeking
to burden Myers corporation for such liability which it could no longer collect from F.H. Myers.
Maritime still came out of the cancelled contract with a net profit of P527,000.60 derived totally
from the rental-earnings of the property. On the other hand, Myers acted but in consonance with
law and equity and established precedents of 39 years standing in asserting its right of
cancellation pursuant to the express provisions of the contract which constitutes the law between
the parties, and the mandate of Article 1159 of the Civil Code that "Obligations arising from
contracts have the force of law between the contracting parties and should be complied with,
in good faith. As the Court stressed in Garcia vs. Rita Legarda Inc. 8 "when the contract is thus
cancelled, the agreement of the parties is in reality being fulfilled. Indeed, the power thus granted
can not be said to be immoral, much less unlawful, for it could be exercised - not arbitrarily -
but only upon the other contracting party committing the breach of contract of non-payment of
the installments agreed upon. Obviously, all that said party had to do to prevent the other from
exercising the power to cancel the contract was for him to comply with his part of the contract".
This is aside from the fact that what is involved here is a pure business contract between two big
real estate corporations and to paraphrase Justice Fernando 9 such a plea for equity would not
elicit, especially from the higher tribunals, an affirmative response since considering their
economic status they are "very likely ... to be able to protect themselves in the clinches."

What follows now is an amplification of the above grounds and considerations which were stated
in precise form or by way of a brief summary of the essential points for denying Maritime's
second and pro forma motion for reconsideration which somehow remained pending in this
Court for six (6) years now.

1. A party is entitled to only one Supreme Court, vital changes in the Court's composition since
1972; Justice Barredo's dissent never gathered sufficient votes to reverse.

A party litigant is entitled to only one Supreme Court to adjudicate his suit, but here over six
years after this Court (the Concepcion Court 1966-April 17, 1973) had rendered the decision of
January 31, 1972 affirming on appeal the trial court's decision and the resolution of August 18,
1972 denying reconsideration, the composition of the Court has so radically changed that out of
the present membership of twelve, only four members of the Court who took part in the original
decision and resolution of January 31, and August 18, 1972 remain and this Court (the Castro
Court, December 22, 1975) may truly be said to be in effect another Supreme Court. The
very raison d'etre of courts, more so the Supreme Court, is to put an end to controversy and
public policy and sound practice demand that no second motion for reconsideration be kept
pending this long as to allow the litigant to speculate on changes in the membership of the Court
and to have another Supreme Court review his lost case once more.
(a) The original decision at bar of January 31, 1972 10 (penned by Justice J.B.L. Reyes, retired on
August 19, 1972) affirming on direct appeal (prior to the effectivity of Republic Act 5440) the
judgment of the Court of First Instance of Manila of November 26, 1965, was unanimously
concurred in by nine members of its ten-member composition then namely, (Concepcion, C.J.,
Reyes, Makalintal (A.C.J. April 17, 1973, C.J. October 24, 1973 to Dec. 22, 1975), Zaldivar,
Castro, (now C.J.) Teehankee, Barredo, Villamor and Makasiar, JJ. with Justice Fernando having
inhibited himself and not taking part.

(b) This same Court with a full membership of eleven denied appellant's motion for
reconsideration of March 27, 1972 in its extended and signed 8-page Resolution of August 18,
1972 11 (penned by Justice J.B.L. Reyes on the eve of his retirement in consonance with the
Court's tradition of the ponente disposing with the Court of pending motions for reconsideration
before his retirement). A majority of six of the original nine Justices, namely Concepcion, C.J.,
Reyes, Makalintal (in the result), Castro, Teehankee and Makasiar, JJ. concurred in the
resolution. Justice Barredo, however, dissented with an 86-page opinion and was joined by
Justice Zaldivar and a new member Justice Antonio (appointed on April 10, 1972). Justice
Fernando maintained his inhibition and took no part, while the eleventh member Justice Esguerra
(a new member appointed on June 21, 1972 to fill the vacancy left by Justice Villamor who
retired on April 12, 1972) likewise inhibited himself and did not take part.

(c) It is readily seen that during the pendency for six (6) years of appellant's second motion for
reconsideration of October 7, 1972 the Court's composition has seen vital changes. Only four of
the original 10-member Court that rendered the decision of January 31, 1972 are still members,
namely, now Chief Justice Castro, and Justice Teehankee, Barredo and Makasiar. As noted
above, Justice Fernando had inhibited himself and did not take part in the case.

(d) In the six-year interval, the Court's membership was increased to fifteen and the retirement
age of new appointees reduced to 65 years under the 1973 Constitution. Ten (10) new
members joined the Supreme Court in this interval (all after the 1973 Constitution except the first
two named), as follows: Antonio, Esguerra (retired on June 19, 1976), Estanislao Fernandez
(retired on March 28, 1975), Muñoz Palma, Aquino, Concepcion Jr., Martin (retired on January
12, 1978), Santos, Ramon Fernandez and Guerrero, JJ., so that in effect this is another Supreme
Court. There is no call for such special treatment for a simple private case — of no public import
at all — of cancellation of a conditional sale effected in accordance with the contract between the
parties which has the binding force of law between them and which is backed up by the 39-year
standing jurisprudence of this Code now confirmed and given statutory force by the Maceda
law.

(e) Maritime's second motion for reconsideration violates the warning given by the Court
in Zarate vs. Director of Lands 12 that litigants should not be "allowed to speculate on changes in
the personnel of the Court" and to keep importuning the Court for "reagitation, reexamination
and reformulation." Although stated in support of the principle of the "law of the case" this
warning is equally and specially applicable to motions for reconsideration, particularly a second
motion for reconsideration, when vital changes have taken place in the Court's membership as
has happened:
 ... Without the rule there would be no end to criticism, reagitation, re-
examination and reformulation. In short, there would be endless litigation. It
would be, intolerable if parties litigant were allowed to speculate on changes in
the personnel of a court, or on t chance of our rewriting propositions once gravely
ruled on solemn argument and handed down as the law of a given case. An itch to
reopen questions foreclosed on a first appeal would result in the foolishness of the
inquisitive youth who pulled up his corn to see how it grew, Courts are allowed, if
they so choose, to act like ordinary sensible persons. The administration of justice
is a practical affair. The rule is a practical and a good one of frequent and
beneficial use. (Mangold v. Bacon, 237 Mo. 496).

(f) Withal let it be noted that during this period of six years as vital changes in its membership
were taking place, periodic tentative votes were taken on the pending second motion for
reconsideration and on no occasion were there ever mustered the required eight votes to support
Justice Barredo's dissent and to reverse the original decision. (Of the writer's own knowledge,
even Justice Zaldivar who had joined Justice Barredo's dissent in the August 18, 1972 resolution
denying reconsideration had expressed second thoughts about such dissent and was ready to
rejoin the original majority, when he compulsory retired from the Court on September 13, 1974).

2. Second motion for reconsideration is pro forma — "a mere dilatory strategy" which should
have been given short shrift long ago.

(a) Maritime's second motion for reconsideration has raised no new grounds or special

circumstances not available at the time of the filing of the first motion for reconsideration but is
merely a reiteration of reasons and arguments or amplification thereof which have already been
considered, weighed and resolved adversely and which serve no apparent purpose but to gain
time and therewith possible changes in the Court's composition. As invariably held by the Court,
such second motions which are based on grounds already existing at the time of the first motion
are clearly pro forma. 13

As such pro forma motion for reconsideration (although with leave) such second motion
deserves no further consideration and should be denied in consonance with the Court's consistent
stand against multiplicity of motions (Rule 52, sec. 1) in the interest of avoiding further delay in
the remand of a case already decided and to avoid needless slowdowns in the Court's disposition
of other cases in its full docket which are more deserving of its study and attention. Cases
entitled to preferential attention under the law have incurred in delay because of the inordinate
time and attention this case has received, including the preparation and submittal intra-Court of
extensive research papers and memoranda.

(b) As has ever been stressed since the early case of Arnedo vs. Llorente (18 Phil. 257, 263
[1911])" controlling and irresistible reasons of public policy and of sound practice in the
courts demand that at the risk of occasional error, judgments of courts determining controversies
submitted to them should become final at some definite time fixed by law, or by a rule of
practice recognized by law, so as to be thereafter beyond the control even of the court which
rendered them for the purpose of correcting errors of fact or of law, into which, in the opinion of
the court it may have fallen. The very purpose for which the courts are organized is to put an end
to controversy, to decide the questions submitted to the litigants, and to determine the respective
rights of the parties."

(c) Now Chief Justice Castro succinctly restated the pro forma doctrine in Dacanay vs.
Alvendia thus: "Mere citation and/or amplification of authorities not previously brought to the
court's attention on the same argument does not remove the pleading from the ambit of the pro
forma doctrine. The Rules of Court, looking with disfavor on piecemeal argumentation, have
provided the omnibus motion rule, whereunder "(A) motion attacking a pleading or proceeding
shall include an objections then available, and all objections not so included shall be deemed
waived." The salutary purpose of the rule is to obviate multiplicity of motions as wen
as discourage dilatory pleadings. As we said in Medran vs. Court of Appeals, 'litigants should
not be allowed to reiterate Identical motions, speculating on the possible change of opinion of
the Court or of the judges thereof.' The mere citation of additional authorities by the petitioner in
his last motion for reconsideration reiterating his thrice-rejected Identical arguments as to the
sufficiency of his amended complaints did not salvage the said motion from the proper
application thereto of the pro forma doctrine." 14

(d) Justice Barredo in Lucas vs. Mariano 15 emphasized that "it is in the public interest and
consistent with the public policy, that controversial rights in property be settled as soon as
possible in order to promote stability in all matters affected thereby" and that a second motion
for reconsideration which contains "mere iterations and reiterations of the same points and
arguments over and over again ... becomes, in effect, a mere dilatory strategy and consequently
nothing more than pro forma " The pertinent excerpts from said case are fully applicable, mutatis
mutandis to the case at bar:

Looking at this case from other angles, however, the Court is inclined to agree
with private respondents that the order of dismissal of September 16, 1965 has
already become final and executory. Taking all relevant matters into
consideration, We are loathe to let this litigation to protract further. Involving as it
does the ownership and possession of a rather large piece of residential land, it is
in the public interest and consistent with the public policy, that controversial
rights in property be settled as soon as possible, in order to promote stability in
all matters affected thereby that this case is terminated right here in this
proceeding, it being within the authority of this Court to do so in the premises.

Not only have petitioners had enough occasions and opportunities to present their
main contentions and to be heard amply on them, but, more than that, We see no
possibility that their pretensions, whether factual or legal, can prosper. In their
complaint in the court below, as well as in their various motions for
reconsideration in relation to as many of its orders and their oppositions to the
motions for reconsideration also on the part of private respondents, petitioners
have as often lengthily discussed and explained repeatedly their position as to all
aspects of their claim of title. We have gone over all these representations and We
find them to be mere iterations and reiterations of the same points and arguments
over and over again. Thus both the first and second motions for reconsideration
of petitioners respectively dated November 5, 1965 and January 25, 1966 raised
 exactly the same issues as their opposition to the motions to dismiss separately
filed by private respondents. When the opportunity to appeal to a higher court is
open to a party aggrieved by an order of an inferior court, tribunal, commission or
body, our procedural rules allow the filing of only one motion for reconsideration
of its final order and judgment, and a second motion may be filed only when there
is need to raise new points or matters not touched upon in the first motion, since
otherwise, litigations will unnecessarily drag in the trial courts to the obvious
detriment of the interests of justice not only in the particular case on hand but
more so in the other cases pending in the court which cannot be attended to. As
earlier noted, a second motion for reconsideration is actually a motion for
reconsideration only of the order of denial of the first motion and if it does not
raise any new issue relative to the first order, naturally, it cannot affect the
legality and validity thereof, and becomes, in effect, a mere dilatory strategy and
consequently, nothing more than pro forma An attempt to have a reconsideration
of the denial of a previous plea for reconsideration is not conducive to a speedy
administration of justice. After all, the party aggrieved has a more effective
recourse by appealing immediately to the appropriate appellate tribunal.

In the lower courts, the pro forma motion does not stop the period for appeal from slipping away
— and results in the judgment sought to be appealed becoming final and executory. In this Court,
the pro forma first and/or second motion for reconsideration (although with leave of Court) —
which merely reiterate the same grounds already considered and resolved in its decision or
resolution denying due course (as the case may be) — have similarly been treated and the
decision or resolution sought to be reconsidered have invariably been denied with a declaration
of finality and entry of judgment, by virtue of "controlling and irresistible reasons of public
policy and of sound practice in the courts" which demand an end to litigation at some definite
point of time as a "fundamental concept in the organization of civil society." Interest republicae
ut sit finis litium. 15-a

3. The governing principle of stare decisis.

In each volume of Supreme Court Reports Annotated, Chief Justice Castro's preface cites the
governing principle of precedents and stare decisis "which has given consistency and stability to
the law" by which lawyers and litigants may know the law in concrete controverted cases, thus:

In his famous essay, the Path of the Law, Justice Oliver Wendell Holmes defined
law as a prediction of what the court will do.

The prediction is based on precedents. The governing principle, which has

given consistency and stability to the law, is stare decisis et petition quieta
movere (follow past precedents and do not disturb what has been settled).

The officials enforcing statutory law and regulations,

the lawyers and litigants seeking to know the law in concrete controverted cases,
and the judges in adversary litigations, should be well posted on precedents.
Such precedents and jurisprudence of this Court form part of our legal system by force of the
provision of Article 8 of the new Civil Code that "Judicial decisions applying or interpreting the
laws or the Constitution shall form a part of the legal system of the Philippines" and may not be
lightly treated.

Reconsideration may not be granted without doing violence to this cardinal principle and
overturning well established principles and provisions of law such as freedom of contract which
is the law between the parties as provided by Article 1306 of the Civil Code 16 the right of a
vendor in contracts to sell or conditional sales with reserved title to cancel the sale upon failure
of the vendee to pay the stipulated installments and retain the sums already paid (which has now
been elevated into the category of a law in the case of industrial and commercial real properties
as in this case by the Maceda law, and which not even this Court can now overturn) and that he
who pleads for equity must come to court with clean hands.

4. The governing law and precedents.

The governing law and established precedents which demand peremptory denial of the second
motion for reconsideration have been hereinabove stated, supra.17 Suffice it to herein underscore
the following.

(a) As stated in the Court's decision, the vendor's right in contracts to sell with reserved title to
extrajudicially cancel the sale upon failure of the vendee to pay the stipulated installments and
retain the sums or installments already received has long been recognized by the well-established
doctrine of 39 years standing. "(T)he distinction between contracts of sale and contracts
to sell with reserved title has been recognized by this Court in repeated decisions (Manila Racing
Club vs. Manila Jockey Club, 69 Phil. 57; Caridad Estates vs. Santero, 71 Phil. 114; Miranda vs.
Caridad Estates, L-2077, 3 October 1950; Jocson vs. Capitol Subdivision, L-6573, 28 February
1955; Manuel vs. Rodriguez, 109 Phil. 1; see also Sing Yee Cuan, Inc. vs. Santos [C App.] 47 O.
G. 6372) 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." 18

(b) In the Resolution of August 18, 1972, Justice J.B.L. Reyes further stressed for the Court that:
"(M)ovant Maritime's insistence upon the application to the present case of Art. 1191 of the Civil
Code of the Philippines (tacit resolutory condition in reciprocal obligations) studiously ignores
the fact that Myers' obligation to convey the property was expressly made subject to
a suspensive (precedent) condition of tile punctual and full payment of the balance of the
purchase price."

He cited the express stipulations of the contract of conditional sale thus:

(d) It is hereby agreed, covenanted and stipulated by and between the parties
hereto that the Vendor will execute, and deliver to the Vendee a definite or
absolute deed of sale upon the full payment by the Vendee of the unpaid balance
of the purchase price hereinabove stipulated; that should the Vendee fail to pay
 any of the monthly installments, when due, or otherwise fail to comply with any of
the terms and conditions herein stipulated, then this deed of conditional sale shall
automatically and without any further formality, become null and void, and all
sums so paid by the Vendee by reason thereof, shall be considered as rentals and
the vendor shall then and there be free to enter into the premises, take possession
thereof or sell the properties to any other party.

xxx xxx xxx

(i) Title to the properties subject of this contract remains with the Vendor and
shall pass to, an be transferred in the name of the Vendee only upon complete
payment of the full price above agreed upon. (Emphasis supplied).

He had previously cited in the decision the acceleration clause in the contract that: "... the failure
to pay any installment or interest when due shall ipso facto cause the whole unpaid balance of the
principal and interest to be and become immediately due and payable." 19

He thus articulated the inescapable conclusion that the express contractual stipulations "make it
crystal clear that the full payment of the price (through the punctual performance of the monthly
payments) was a condition precedent to the execution of the final sale and to the transfer of the
property from Myers to Maritime; so that there was to be no actual sale until and unless full
payment was made. It is uncontroverted that none was here made. The upshot of all these
stipulations is that in seeking the ouster of 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 express terms," citing from the well known Spanish commentators, Castan and
Puig Pena.

(c) The Resolution of August 18, 1972 likewise clearly disposed of Maritime's contention that its
breach of contract was casual thus: "there is no point in discussing whether or not Maritime's
breach of contract was casual or serious, since the issue here is whether the suspensive condition
(of paying P5,000.00 monthly until full price is paid) was or was not fulfilled, and it is not open
to dispute that the stipulated suspensive condition was left unaccomplished through the
deliberate actions of movant Maritime. The stubborn fact is that there can be no rescission or
resolution of an obligation as yet non-existent, because the suspensive condition did not happen.

Resolving Identical arguments, as those of Maritime, this Court ruled in Manuel vs. Rodriguez.
109 Phil. 9-10, as follows:

... Plaintiff-appellant, however, argues (Errors I-IV; VI; VIII) that the Payatas
Subdivision had no right to cancel the contract, as there was no demand by suit or
notarial act, as provided by Article 1504 of the old Code (Art. 1592, N. C. C.).
This is without merit, because Article 1504 requiring demand by suit or notarial
act in case the vendor or 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 suspensive condition, such as full payment of the price (Caridad Estates
vs. Santero, 71 Phil. 114, 121; Albea vs. Inquimboy, 86 Phil. 476; 47 OFF. Gaz.
 Supp. 12, p. 131; Jocson vs. Capitol Subdivision Inc. et al., L-6573, February 28,
1955; Miranda vs. Caridad Estates, L-2077 and Aspuria vs. Caridad Estates,
L2121, October 23, 1950).

The contention of plaintiff-appellant that Payatas Subdivision inc. had no right to

cancel the contract as there was only a 'casual breach' is likewise untenable. In
contracts to sell, where 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 even that prevented the obligation of the vendor to convey
title from acquiring binding 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.

(d) It should also be appreciated that Maritime's breach of contract, far from being casual, was of
the gravest character. As stated above, this was pure business contract between two real estate
corporations where Maritime as conditional vendee got the most liberal terms and
was purchasing the property out of the property's rental earnings with plenty to spare for its own
gains. Thus, it was receiving the rentals from the property of P10,000.00 a month (or
P120,000.00 per annum) and had only to pay punctually the stipulated monthly installments of
only P5,000.00 a month (or P60,000.00 per annum leaving it with a clear superavit of
P60,000.00 every year). Under these circumstances, the only condition demanded by Myers as
vendee was that Maritime pay religiously the monthly installments when due under pain of
automatic voiding of the contract for non-fulfillment of the suspensive (precedent) condition of
punctual and full payment of the balance of the purchase price.

Yet, Maritime willfully and deliberately defaulted on the payments due since March,
1961 notwithstanding that its request for a suspension of payments until the end of 1961 had
been expressly rejected "under any condition" by Myers and notwithstanding that it was
collecting from the lessee Luzon Brokerage Co. the corresponding rentals of P10,000.00 monthly
for March, April and May, 1961 or a total of P30,000.00 (double the amount of the stipulated
monthly installments due from it). Worse, it injected a totally unconnected alleged personal
promise of the late F.H. Myers to indemnify it for a possible liability to a labor union of some
P396,000.00 in connection with a completely separate transaction totally unrelated to their
contract to sell and gave notice that it was "withholding any further payments" unless the heirs of
the deceased honored his claim, notwithstanding that it was already barred against the deceased's
estate which had already been closed.

As further noted in the Court's Resolution of August 18, 1972, "(M)aritime's bad faith is further
confirmed by Schedler's letter to his counsel informing the latter that the attorneys in the United
States were trying to reopen the closed Myers' estate to be able to file a contingent claim therein.
And yet he was already seeking to burden Myers' Corporation with that very obligation."

(e) Maritime's breach of Contract therefore was most serious:

1. It refused to pay the monthly installments from March to May, 1961 totalling P15,000.00
notwithstanding that it had the money and had collected the corresponding rentals in double the
amount of P30,000.00 for said months. (The trial court's judgment as affirmed by this Court
consequently sentenced Maritime inter alia to pay Myers "the sum of P30,000.00 representing
rentals wrongfully collected by (Maritime) from the plaintiff in interpleader corresponding to the
months of March, April and May, 1961";

2. Its unpaid balance on account of the purchase price amounted to almost one-third of the
stipulated price in the sum of P319,300.65 which besides the stipulated interest became
immediately due and payable under the contract's acceleration clause;

3. Having breached the contract, Maritime completely foiled Myers' plans for investment and
utilization of the monthly installments as due. Worse, Maritime did not honor either its
obligation extrajudicially to return the property, so much so that since March, 1961 Myers could
not avail of the fruits and rentals of its reserved title which had then reverted absolutely to it with
the cancellation of the contract, so much so that the lessee Luzon Brokerage Co. had to file the
interpleader below and all the rentals which properly belong to Myers as owner since then have
been tied up in Court for seventeen (17) long years to the present.

4. And it is the height of irony for Maritime to plead now that the accumulated rentals on the
property — which it had prevented Myers from rightfully making use of as the lawful owner all
these seventeen (17) long years come up to seven figures — to contend that after all it had
willfully failed only to pay the three months' installments in March to May, 1961. This is not all
Maritime failed to pay. It also failed to pay the whole unpaid balance of P319,300.65 besides the
stipulated interests which under the acceleration clause
became immediately due and payable upon default. The rentals that Luzon Brokerage Co. as
plaintiff in interpleader deposited monthly with the trial court beginning June, 1961 were not
sufficient at the time of default in March 1961 to pay — this unpaid balance. But the whole irony
of it is that these rentals belonged no longer to Maritime but solely and wholly to Myers as
the lawful owner in whom its reserved title had reverted by virtue of the cancellation of the
contract due to Maritime's willful and deliberate default with dolo.

5. As the Court pointed out in Garcia vs. Rita Legarda, Inc. 20 the buyer on installments has only
himself to blame for the power of cancellation "could be exercised - not arbitrarily —
but only upon the other party committing the breach of contract of non-payment of the
installments agreed upon" and that to avoid the stipulated and foreseen consequences of
cancellation and forfeiture of all previous payments all that (the buyer) had to do ... was
to comply with (its) part of the bargain. Having failed to do so, (it) really have no valid reason to
complain". Parenthetically, due to the most liberal terms of the contract, Maritime here, despite
cancellation and forfeiture of all previous installments in the concept of rentals, still came out of
the transaction with a gain of P527,000.00 and a net gain of P514,000.00 after deducting the
P13,000.00 in stipulated damages and attorneys' fees granted by the trial court's decision as
affirmed by this Court due to Myers having had to avail of judicial recourse to enforce its right of
cancellation and regain possession of its property.
(f) Finally, no case can be cited where this Court has denied the vendor on installments the
stipulated right of cancellation of the contract to sell or of sale on installments
of industrial or commercial real estate with forfeiture of an previous payments upon breach of
the contract by failure to pay the stipulated installments when due in line with the long line of
precedents above cited. As discussed in the next following part, this right of cancellation in the
case of industrial and commercial properties is now expressly recognized in the Maceda law.

(g) The agitation by Maritime for reexamination of the Court's 39-year old doctrine of the
vendor's right of extrajudicial cancellation with forfeiture of previous payments (assuming that it
is not barred by the enactment of R.A. 6522) cannot be properly done in this case which was
decided more than six (6) years ago (on January 31, 1972 with reconsideration denied in the
extended Resolution of August 18, 1972) and been frequently cited authoritatively in law books
and treatises including Maritime's counsel, former Senator Ambrosio Padilla's extensive
Annotations on the Civil Code and the Philippine Law Journal's Survey of Philippine Law and
Jurisprudence 21 citing anew the "important distinction" drawn by this Court between a contract
of sale and a contract to sell, to which latter contract Article 1592 of the Civil Code has always
been held to be inapplicable. The bench and bar would needlessly be subjected to confusion if
now this case which has been cited for over 6 years as maintaining the 39-year old doctrine re
cancellation of contracts to sell should all of a sudden no longer be a valid authority.

The Court itself has rejected pleas for reexamination of the doctrine in petitions filed after this
Court's decision and Resolution of August 18, 1972 at bar citing Justice Barredo's dissent in
support thereof, as in the petition in L-44593 entitled Lim Hu vs. Court of Appeals, wherein the
Court denied the petition per its Resolution of March 18, 1977 22 and denied reconsideration per
its Resolution of June 6, 1977. 23

5. R.A. 6552 (Maceda Law) expressly recognizes vendor's right of cancellation of sale on
installments of industrial and commercial properties with full retention of previous payments.

(a) The enactment on September 14, 1972 by Congress of Republic Act No. 6552 entitled "An
Act to Provide Protection to Buyer of Real Estate on installment Payments" which inter
alia compels the seller of real estate on installments (but excluding industrial lots, commercial
buildings among others from the Act's coverage) to grant one month's grace period for every one
year of installments made before the contract to sell may be cancelled for non-payment of the
installments due forecloses any overturning of this Court's long-established jurisprudence.
Republic Act 6552 recognizes in conditional sales of all kinds of real estate (industrial and
commercial as well as residential) the non-applicability of Article 1592 (1504)Civil Code to such
contracts to sell on installments and the right of the seller to cancel the contract (in accordance
with the established doctrine of this Court) upon non-payment "which is simply an event
that prevents the obligation of the vendor to convey title from acquiring binding force." (Manuel
vs. Rodriguez, 109 Phil. 1, 10, per Reyes, J.B.L.). The Act in modifying the terms and
application of Art. 1592 Civil Code reaffirms the vendor's right to cancel unqualifiedly in the
case of "industrial lots and commercial buildings (as in the case at bar) and requires a grace
period in other cases, particularly residential lots, with a refund of certain percentages of
payments made on account of the cancelled contract. 24
(b) Since Congress has through R.A. 6552 adopted into law the 39-year jurisprudence of the
Court and recognized that in the sale of industrial lots and commercial buildings (as in the case
at bar), non-payment of installments is simply an event that prevents the conditional obligation
of the vendor to convey title from acquiring binding force and entitles the vendor to cancel the
conditional contract, the Court can no longer overturn the doctrine long enunciated by it for 39
years since it would be in effect overturning the law itself. Certainly, the Court cannot deny
Myers' right of cancellation recognized by the law itself.

(c) Justice Barredo explained and premised his extensive 86-page dissent, as follows:

Considering that Our decision in this case is a unanimous one penned by no less

than Justice J.B.L. Reyes whose views on the legal issues We have resolved
are admittedly authoritative, ordinarily, my concurrence in a denial resolution
should be practically a matter of course. After going over the motion for
reconsideration, however, my curiosity was aroused by it principally on two
points, namely, (1) the unhappy and helpless plight of thousands upon thousands
of subdivision buyers who under the ruling We laid down are bound to suffer the
loss of their life earnings only because of an oversight or difficulty in paying one
or two installments, unless We firmed up the doctrine laid down by the Chief
Justice in Javier or We made clearer their right to avail of Article 1592 of the
New Civil Code under so called contracts or promises to sell which are in vogue
in subdivision sales; and (2) the clarification once and for all of the juridical
concepts We have been adopting in Our decisions concerning promises or
contracts to sell with reservation of title, lest We perpetuate a posture in doctrinal
law which may be questioned later. 25

(1) Congress in enacting in September 1972 Republic Act 6552 (the Maceda law), has by law
which is its proper and exclusive province (and not that of this Court which is not supposed to
legislate judicially) has taken care of Justice Barredo's concern over "the unhappy and helpless
plight of thousands upon thousands of subdivision buyers" of residential lots.

The Act even in residential properties recognizes and reaffirms the vendor's right to cancel the
contract to sell upon breach and non-payment of the stipulated installments but requires a grace
period after at least two years of regular installment payments (of one month for every one year
of installment payments made, but to be exercise by the buyer only once in every five years of
the life of the contract) with a refund of certain percentages of payments made on account of the
cancelled contract (starting with fifty percent with gradually increasing percentages after five
years of installments). In case of industrial and commercial properties, as in the case at bar, the
Act recognizes and reaffirms the Vendor's right unqualifiedly to cancel the sale upon the buyer's
default.

(2) As to the clarification of "juridical concepts", the decision and resolution penned by Justice J.
B. L. Reyes are quite clear that in cases of contracts to sell with reserved title, non-payment of
the stipulated installment is simply the failure of a positive suspensive condition - an event that
prevents the conditional obligation of the vendor to convey title from acquiring binding force and
entitles the vendor to cancel the conditional contract. Justice Barredo's premise that there was no
such thing as a promise to sell under the Spanish Civil Code and that Article 1478 of the
Philippine Civil Code (1950) providing that "ART. 1478. The parties may stipulate that
ownership in the thing shall not pass to the purchaser until he has fully paid the price" is an
entirely new concept not recognized in the Spanish Civil Code is with all due respect a
misconception and error, for said Article 1478 merely incorporated in the Philippine Civil Code
a principle long recognized in Spanish in Philippine jurisprudence. The Court's decision and
Resolution of August 18, 1972 cited Castan, Derecho Civil, Vol. 3, 7th Ed. page 129 and Pairo's
Teoria de Obligaciones, the line of Philippine decisions prior to the effectivity in 1950 of the
Philippine Civil Code, as well as decisions of the Supreme Court of Spain, all holding to the
same effect that:

El repetido convenio de no quedar transferido al comprador el dominio

completo de la hasta el completo pago del precio envuelve sustancialmente una
verdadera condicion suspensiva TS Sent. 11 March 1929) (Emphasis supplied).

El vendedor por razon de esta reserva solo transmite el difrute de la cosa entrega
mientras el precio no sea totalmente entregado (TS. sent. 7 March 1906). 26

(d) Justice Barredo's reply re the enactment of R.A. 6552 (the Maceda law) on September 14,
1972 is that it "need not be considered because it is based on the new Civil Code" (1950) and not
on the old Code which was in force at the time that the parties executed their contract in 1949.
This is not quite the case.

The point is that Congress thru R.A. 6552 adopted and elevated into law the 39-year old
jurisprudence and now reaffirms as law the doctrine held by the Court since 1939 (when it first
ruled that Article 1504 [now Article 1592] of the Civil Code is not applicable to contracts to sell
or conditional sales). In other words, Congress could have overturned the doctrine by providing
nevertheless that there can no longer be an automatic cancellation upon the buyer's default and
failure to pay the stipulated installments, i.e. by outlawing this standard provision in tens if not
hundreds, of thousands of such installments contracts. Since such standard right of cancellation
of the sale upon the buyer's default with the seller's retention of all previous payments (sustains
Myers' cancellation of the sale, as has always been upheld by this Court) has now been expressly
recognized and ratified by the law. it is now — beyond this Court's power to reexamine and
overturn its said doctrine (with the end of denying Myers' right of cancellation) since such right
is now recognized and reaffirmed by the law itself and not even this Court can overturn and go
against the law itself. (In sensu contrario, and this is where Justice Barredo's reply would have
relevance, if RA 6552 had outlawed the seller's right of cancellation, since it was enacted only in
September, 1972. it certainly would be open to the grave question of whether it could retroact
and negate buyer's right of cancellation of the sale as recognized under the Court's established
doctrine).

6. No basis for plea for equitable considerations, — on balance, Maritime comes off the
cancellation with a net gain of over P500,000.00 from the property's rental earnings; contract is
pure business contract between two big real estate corporations and their contract is the law
between them; corporations are not people and their business is simply business.
(a) There is no basis for the plea for equitable consideration petitions and even Justice Barredo in
his memorandum to the Court of July 27, 1978 that "I am not aware that there is any such appeal
[for equity] in the record." His thesis is that the Court's rulings in Tuason vs. Javier, 31 SCRA
829 and Legarda vs. Saldaña, 55 SCRA 324 which involved small residential subdivision lots be
applied to this million-peso transaction between two big real estate corporations on the premise
that "(T)o insist that the ruling applied in one case should also be applied in another where the
facts are similar and to disregard the difference in the economic positions of the parties involved
is not an appeal for equity but for plain legal justice." Javier's case involved a
small residential subdivision lot with a price of P3,691.20 and the Court in the interest of justice
and equity granted the buyer an additional period of sixty days since the buyer had substantially
complied with the contract in good faith. 27 Saldaña's case in turn involved the purchase of two
small residential lots and the Court found that "the appellate court's judgment finding that of the
total sum of P3,582.06 (including interests of P 1,889.78) already paid by respondent (which was
more than the value of two lots), the sum applied by petitioners to the principal alone in the
amount of P 1,682.28 was already more than the value of one lot of P 1,500.00 and hence one of
the two lots as chosen by respondent would be considered as fully paid, is fair and just and in
accordance with law and equity," while the cancellation of the sale for the other lot due to failure
to pay the installments was upheld. 28 It should be noted that the buyer Saldaña therein "adhered
to the validity of the doctrine of the Caridad Estates cases (Caridad Estates vs. Santero, 71 Phil.
114; Miranda vs. Caridad Estates, L-2077, Oct. 3, 1950)" but disputed its applicability
contending inter alia that the sellers "were equally in default as the lots were completely under
water ..." 29

It is patently seen that there is no parity nor justification for applying said cases to the one at bar.
The said cases involved merely small residential subdivision lots where the price had been in
fact substantially paid in good faith and the Court's ruling therein was the precursor to the
enactment of RA 6522 which provided certain measures of protection for the buyers
of residential lots but recognized and reaffirmed the vendor's right of cancellation of contracts
to sell without refund of previous payments upon the buyer's default in sales of commercial and
industrial properties, as in the case at bar.

(b) The Court expressly found no basis for the application of equity under the facts of the case at
bar, thus:

Maritime also pleads that as the stipulated forfeiture of the monthly payments
already made is in fact a penalty, and the same should be equitably reduced. We
fin(t no justification for such reduction for the following reasons:

a) Maritime intentionally risked the penalty by deliberately refusing to make the

monthly payments for March to May, 1961, and trying to inject into its contract
with Myers corporation the totally unconnected personal promise of F. H. Myers
to indemnify its eventual liability to the Luzon Labor Union, allegedly made on
the occasion of the sale of the Luzon (Stevedoring) to E. Schedler by F. H. Myers,
and trying to extrajudicially force Myers corporation to assume responsibility for
such liability.
 b) Under Article 1234 of the present Civil Code, an obligation must
be substantially performed in good faith, for such performance to stand in lieu of
payment, Maritime, on the contrary, acted with dolo or bad faith, and is not a
position to invoke the benefits of the article.

c) Maritime's loss of the forfeited payments was more than balanced by the rentals
it received from the Luzon Brokerage as lessee of the building for the
corresponding periods, at a rate of double the monthly payments required of
Maritime under its contract with Myers. 30

In terms of pesos and centavos, Maritime received a total amount of some P1,500,000.00 from
the property's own rental earnings. By virtue of its willful default and the resulting cancellation
of the sale, the P973,000.00 previously paid by it to Myers out of the same rental
earnings as installments on account of the principal and interest (with an
unpaid balance of P319,000.65 representing still almost 1/3 of the principal agreed price) were
retained by Myers as rentals in turn from Maritime under the express terms of their contract,
since Maritime was the one collecting the rentals from the property's lessee at double the rate of
its installments and continued to do so until May, 1961 despite its default three months earlier in
May. Still, Maritime came out of the cancelled sale with excess earnings from the
property's rentals of P527,000.00 Maritime really has no valid reason to complain of having lost
the right to the property and the larger share of the rentals — for all that "(it) had to do ... was to
comply with its part of the bargain. 31

(c) The injunction of how Chief Justice Castro in Dy Pac Workers Union vs. Dy Pac & Co.
Inc. 32 that "equitable considerations ... cannot offset the demands of public policy and public
interest which are also responsive to the tenets of equity" is controlling here, viz: "(T)he
equitable considerations that led the lower court to take the action complained of cannot
offset the demands of public policy and public interest — which are also responsive to the tenets
of equity — requiring that all issues passed upon in decisions or final order that have become
executory, be deemed conclusively disposed of and definitely closed, for, otherwise, there would
be no end to litigations, thus setting at naught the main role of courts of justice, which is to assist
in the enforcement of the rule of law and the maintenance of peace and order, by settling
justiciable controversies with finality."

(d) This is out a case involving two big real estate corporations which entered into the contract to
sell with the assistance of counsel and with full awareness of the import of the covenants, terms
and conditions expressly stipulated and of the legal consequences of non-compliance therewith.
Their contract is the binding law between them and equity cannot be pleaded by one who has not
come with clean hands nor complied therewith in good faith as mandated by Article 1159 of the
Civil Code (supra, page 5) but instead willfully and deliberately breached the contract and
refused to pay the stipulated installments despite prior rejection "under any condition" of its
request for suspension of payments and its having collected the property's rentals out of which it
could easily pay the stipulated installments.

This suit represents a mere adjudication of private adversary rights between two litigants with no
significance in terms of doctrinal value since Maritime only pleads that it be given special
treatment and that the cancellation of its contract be somehow rejected notwithstanding Myers I
clear and incontrovertible right under the contract and the law to do so and Maritime's willful and
deliberate breach of the contract in bad faith.

Justice Fernando's observation in Chemplex vs. Pamatian 33 that "struggles between prototypes of

what was referred to by Roosevelt as economic royalists, do not automatically elicit, especially
from the high tribunals, an affirmative response to the plea that they be heard"; that "the morality
of the business world is not the morality of institutions of rectitude like the pulpit and the
academe"; and "... It is not the interest of the parties as such, but the significant it possesses in
terms of its doctrinal value, that supplies the criterion. Chafee had occasion to refer to an opinion
of Justice Frankfurter which implies that what is decisive is a question of import for public policy
presented, not a mere adjudication of adversary rights between the two litigants. At any rate,
such a mode of viewing the matter is not likely to be productive of injustice to the main
protagonists before us who, considering their economic status, are very likely, to paraphrase that
caustic but realistic critic of law and of life, Professor Rodell, to be able to protect themselves in
the clinches," may well be heeded.

As was recently observed, "it's time to put an end to the fiction that corporations are
people." 34 The business of big corporation such as the protagonists at bar is business. they are
bound by the law contracts that they enter into and they do not ask for the nor are they entitled to
considerations of equity.

For a final note of the writer. While the vote of Justice Fernando to grant the second motion for
reconsideration when heretofore he has inhibited himself and did not take part in the decision of
January 31, 1972 and Resolution of August 18, 1972 has not proven to be decisive, the writer
took exception and herein makes of record his objection to the participation of Justice Fernando.
This is done in all objectivity and with all due respect. If he had inhibited himself before from
taking part in the decision and resolution against Maritime presumably for valid reasons, the
writer feels that we are entitled to know whether those reasons no longer exist and he feels
uninhibited now to vote for Maritime and granting its second motion for reconsideration. The
writer is all too aware of his views shared with some other member(s) of the Court that their
inhibition or disqualification is a matter of their own personal decision and conscience
notwithstanding the provisions of Rule 137 of the Rules of Court which they consider in a way
as not applicable to member of the Supreme Court. This delicate question has heretofore not
been addressed nor resolved by the Court ... 35 and should be determined once and for all for the
guidance of the bench and bur and the litigants in court.

ACCORDINGLY, and for lack of the necessary votes (five votes for denying the second motion
and seven votes for granting the same 36 , appellant Maritime's second motion for reconsideration
is denied and this denial is final.

Makasiar, Muñoz Palma and Guerrero, JJ., concur

G.R. No. 118746 September 7, 1995

ATTY. WILFREDO TAGANAS, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, MELCHOR ESCULTURA, ET
AL., respondents.

RESOLUTION

FRANCISCO, J.:

Petitioner Atty. Wilfredo E. Taganas represented herein private respondents in a labor suit for
illegal dismissal, underpayment and non-payment of wages, thirteenth-month pay, attorney's fees
and damages conditioned upon a contingent fee arrangement granting the equivalent of fifty
percent of the judgment award plus three hundred pesos appearance fee per hearing.1 The Labor
Arbiter ruled in favor of private respondents and ordered Ultra Clean Services (Ultra) and the
Philippine Tuberculosis Society, Inc., (PTSI) respondents therein, jointly and severally to
reinstate herein private respondents with full backwages, to pay wage differentials, emergency
cost of living allowance, thirteenth-month pay and attorney's fee, but disallowed the claim for
damages for lack of basis.2 This decision was appealed by Ultra and PTSI to the National Labor
Relations Commission (NLRC), and subsequently by PTSI to the Court but to no avail. During
the execution stage of the decision, petitioner moved to enforce his attorney's charging
lien.3 Private respondents, aggrieved for receiving a reduced award due to the attorney's charging
lien, contested the validity of the contingent fee arrangement they have with petitioner, albeit
four of the fourteen private respondents have expressed their conformity thereto.4

Finding the arrangement excessive, the Labor Arbiter ordered the reduction of petitioner's
contingent fee from fifty percent of the judgment award to ten percent, except for the four private
respondents who earlier expressed their conformity.5 Petitioner appealed to NLRC which
affirmed with modification the Labor Arbiter's order by ruling that the ten percent contingent fee
should apply also to the four respondents even if they earlier agreed to pay a higher
percentage.6 Petitioner's motion for reconsideration was denied, hence this petition for certiorari.

The sole issue in this petition is whether or not the reduction of petitioner's contingent fee is
warranted. Petitioner argues that respondent NLRC failed to apply the pertinent laws and
jurisprudence on the factors to be considered in determining whether or not the stipulated amount
of petitioner's contingent fee is fair and reasonable. Moreover, he contends that the invalidation
of the contingent fee agreement between petitioner and his clients was without any legal
justification especially with respect to the four clients who manifested their conformity thereto.
We are not persuaded.
A contingent fee arrangement is an agreement laid down in an express contract between a lawyer
and a client in which the lawyer's professional fee, usually a fixed percentage of what may be
recovered in the action is made to depend upon the success of the litigation.7 This arrangement is
valid in this jurisdiction.8 It is, however, under the supervision and scrutiny of the court to protect
clients from unjust charges.9 Section 13 of the Canons of Professional Ethics states that "[a]
contract for a contingent fee, where sanctioned by law, should be reasonable under all the
circumstances of the case including the risk and uncertainty of the compensation, but should
always be subject to the supervision of a court, as to its reasonableness". Likewise, Rule 138,
Section 24 of the Rules of Court provides:

Sec. 24. Compensation of attorneys; agreement as to fees. — An attorney shall be

entitled to have and recover from his client no more than a reasonable
compensation for his services, with a view to the importance of the subject-matter
of the controversy, the extent of the services rendered, and the professional
standing of the attorney. No court shall be bound by the opinion of attorneys as
expert witnesses as to the proper compensation but may disregard such testimony
and base its conclusion on its own professional knowledge. A written contract for
services shall control the amount to be paid therefor unless found by the court to
be unconscionable or unreasonable.

When it comes, therefore, to the validity of contingent fees, in large measure it depends
on the reasonableness of the stipulated fees under the circumstances of each case. The
reduction of unreasonable attorney's fees is within the regulatory powers of the courts.10

We agree with the NLRC's assessment that fifty percent of the judgment award as attorney's fees
is excessive and unreasonable. The financial capacity and economic status of the client have to
be taken into account in fixing the reasonableness of the fee.11 Noting that petitioner's clients
were lowly janitors who receive miniscule salaries and that they were precisely represented by
petitioner in the labor dispute for reinstatement and claim for backwages, wage differentials,
emergency cost of living allowance, thirteenth-month pay and attorney's fees to acquire what
they have not been receiving under the law and to alleviate their living condition, the reduction
of petitioner's contingent fee is proper. Labor cases, it should be stressed, call for compassionate
justice.

Furthermore, petitioner's contingent fee falls within the purview of Article 111 of the Labor
Code. This article fixes the limit on the amount of attorney's fees which a lawyer, like petitioner,
may recover in any judicial or administrative proceedings since the labor suit where he
represented private respondents asked for the claim and recovery of wages. In fact, We are not
even precluded from fixing a lower amount than the ten percent ceiling prescribed by the article
when circumstances warrant it.12 Nonetheless, considering the circumstances and the able
handling of the case, petitioner's fee need not be further reduced.

The manifestation of petitioner's four clients indicating their conformity with the contingent fee
contract did not make the agreement valid. The contingent fee contract being unreasonable and
unconscionable the same was correctly disallowed by public respondent NLRC even with respect
to the four private respondents who agreed to pay higher percentage. Petitioner is reminded that
as a lawyer he is primarily an officer of the court charged with the duty of assisting the court in
administering impartial justice between the parties. When he takes his oath, he submits himself
to the authority of the court and subjects his professional fees to judicial control.13

WHEREFORE, finding no grave abuse of discretion the assailed NLRC decision is hereby
affirmed in toto.

G.R. No. L-33205 August 31, 1987

LIRAG TEXTILE MILLS, INC., and BASILIO L. LIRAG, petitioners,

vs.
SOCIAL SECURITY SYSTEM, and HON. PACIFICO DE CASTRO, respondents.

FERNAN, J.:

This is an appeal by certiorari involving purely questions of law from the decision rendered by
respondent judge in Civil Case No. Q-12275 entitled "Social Security System versus Lirag
Textile Mills, Inc. and Basilio L. Lirag."

The antecedent facts, as stipulated by the parties during the trial, are as follows:

1. That on September 4, 1961, the plaintiff [herein respondent Social Security

System] and the defendants [herein petitioners] Lirag Textile Mills, Inc. and
Basilio Lirag entered into a Purchase Agreement under which the plaintiff agreed
to purchase from the said defendant preferred shares of stock worth ONE
MILLION PESOS [P1,000,000.00] subject to the conditions set forth in such
agreement;...

2. That pursuant to the Purchase Agreement of September 4, 1961, the plaintiff,

on January 31, 1962, paid the defendant Lirag Textile Mills, Inc. the sum of FIVE
HUNDRED THOUSAND PESOS [P500,000.00] for which the said defendant
issued to plaintiff 5,000 preferred shares with a par value of one hundred pesos
[P10000] per share as evidenced by stock Certificate No. 128, ...

3. That further in pursuance of the Purchase Agreement of September 4, 1961, the

plaintiff paid to the Lirag Textile Mills, Inc. the sum of FIVE UNDRED
THOUSAND PESOS [P500,000.00] for which the said defendant issued to
 plaintiff 5,000 preferred shares with a par value of one hundred pesos [P100.00]
per share as evidenced by Stock Certificate No. 139, ...

4. That in accordance with paragraph 3 of the Purchase Agreement of September

4, 1961 which provides for the repurchase by the Lirag Textile Mills, Inc. of the
shares of stock at regular intervals of one year beginning with the 4th year
following the date of issue, Stock Certificates Nos. 128 and 139 were to be
repurchased by the Lirag Textile Mills, Inc. thus:

CERT. No. AMOUNT DATE OF REDEMPTION

128 P100,000.00 February 14, 1965

100,000.00 February 14, 1966

100,000.00 February 14, 1967

100,000.00 February 14, 1968

100,000.00 February 14, 1969

139 P100,000.00 July 3, 1966

100,000.00 July 3,1967

100,000.00 July 3,1968

100,000.00 July 3, 1969

100,000.00 July 3,1970

5. That to guarantee the redemption of the stocks purchased by the plaintiff, the
payment of dividends, as well as the other obligations of the Lirag Textile Mills,
Inc., defendants Basilio L. Lirag signed the Purchase Agreement of September 4,
1961 not only as president of the defendant corporation, but also as surety so that
should the Lirag Textile Mills, Inc. fail to perform any of its obligations in the
said Purchase Agreement, the surety shall immediately pay to the vendee the
amounts then outstanding pursuant to Condition No. 4, to wit:

To guarantee the redemption of the stocks herein purchased, the

payment of the dividends, as well as other obligations of the
VENDOR herein, the SURETY hereby binds himself jointly and
severally liable with the VENDOR so that should the VENDOR
fail to perform any of its obligations hereunder, the SURETY shall
immediately pay to the VENDEE the amounts then outstanding. '
6. That defendant corporation failed to redeem certificates of Stock Nos. 128 and
139 by payment of the amounts mentioned in paragraph 4 above;

7. That the Lirag Textile Mills, lnc. has not paid dividends in the amounts and
within the period set forth in paragraph 10 of the complaint;*

8. That letters of demands have been sent by the plaintiff to the defendant to
redeem the foregoing stock certificates and pay the dividends set forth in
paragraph 10 of the complaint, but the Lirag Textile Mills, Inc. has not made such
redemption nor made such dividend payments;

9. That defendant Basilio L. Lirag likewise received letters of demand from the
plaintiff requiring him to make good his obligation as surety;

10. That notwithstanding such letters of demand to the defendant Basilio L. Lirag,
Stock Certificates Nos. 128 and 139 issued to plaintiff are still unredeemed and no
dividends have been paid on said stock certificates;

11. That paragraph 5 of the Purchase Agreement provides that should the Lirag
Textile Mills, Inc. fail to effect any of the redemptions stipulated therein, the
entire obligation shall immediately become due and demandable and the Lirag
Textile Mills, Inc., shall, furthermore, be liable to the plaintiff in an amount
equivalent to twelve per cent [12%] of the amount then outstanding as liquidated
damages;

12. That the failure of the Lirag Textile Mills, Inc. to redeem the foregoing
certificates of stock and pay dividends thereon were due to financial reverses, to
wit:

[a] Unrestrained smuggling into the country of textiles from the

United States and other countries;

[b] Unrestricted entry of supposed remmants which competed with

textiles of domestic produce to the disadvantage and economic
prejudice of the latter;

[c] Scarcity of money and the unavailability of financing facilities;

[d] Payment of interest on matured loans extended to defendant

corporation;

[e] Construction of the Montalban plant of the defendant

corporation financed largely through reparation benefits;

[f] Labor problems occasioned by the fact that the defendant

company is financial (sic) unable to improve, in a substantial way,
 the economic plight of its workers as a result of which two costly
strikes had occurred, one in 1965 and another in 1968; and

[g] The occurrence of a fire which destroyed more than 1 million

worth of raw cotton, paralyzed operations partially, increased
overhead costs and wiped out any expected profits that year;

13. That it has been the policy of the plaintiff to be represented in the board of
directors of the corporation or entity which has obtained financial assistance from
the System be it in terms of loans, mortgages or equity investments. Thus,
pursuant to paragraph 6 of the Purchase Agreement of September 4, 1961 which
provides as follows:

The VENDEE shall be allowed to have a representative in the

Board of Directors of the VENDOR with the right to participate in
the discussions and to vote therein;

14. That Messrs. Rene Espina, Bernardino Abes and Heber Catalan were each
issued one common share of stock as a qualifying share to their election to the
Board of Directors of the Lirag Textiles Mills, Inc.;

15. That Messrs. Rene Espina, Bernardino Abes and Heber Catalan, during their
respective tenure as member of the Board of Directors of the Lirag Textile Mills,
Inc. attended the meetings of the said Board, received per diems for their
attendance therein in the same manner and in the same amount as any other
member of the Board of Directors, participated in the deliberations therein and
freely exercised their right to vote in such meetings. However, the per diems
received by the SSS representative do not go to the coffers of the System but
personally to the representative in the said board of directors. 1

For failure of Lirag Textile Mills, Inc. and Basilio L. Lirag to comply with the terms of the
Purchase Agreement, the SSS filed an action for specific performance and damages before the
then Court of First Instance of Rizal, Quezon City, praying that therein defendants Lirag Textile
Mills, Inc. and Basilio L. Lirag be adjudged liable for [1] the entire obligation of P1M which
became due and demandable upon defendants' failure to repurchase the stocks as scheduled; [21
dividends in the amount of P220,000.00; [31 liquidated damages in an amount equivalent to
twelve percent (12%) of the amount then outstanding; [4] exemplary damages in the amount of
P100,000.00 and [5] attorney's fees of P20,000.00.

Lirag Textile Mills, Inc. and Basilio L. Lirag moved for the dismissal of the complaint, but were
denied the relief sought. Thus, they filed their answer with counterclaim, denying the existence
of any obligation on their part to redeem the preferred stocks, on the ground that the SSS became
and still is a preferred stockholder of the corporation so that redemption of the shares purchased
depended upon the financial ability of said corporation. Insofar as defendant Basilio Lirag is
concerned, it was alleged that his liability arises only if the corporation is liable and does not
perform its obligations under the Purchase Agreement. They further contended that no liability
on their part has arisen because of the financial condition of the corporation upon which such
liability was made to depend, particularly the non-realization of any profit or earned surplus.
Thus, the other claims for dividends, liquidated damages and exemplary damages are allegedly
without basis.

After entering into the Stipulation of Facts above-quoted, the parties filed their respective
memoranda and submitted the case for decision.

The lower court, ruling that the purchase agreement was a debt instrument, decided in favor of
SSS and sentenced Lirag Textile Mills, Inc. and Basilio L. Lirag to pay SSS jointly and severally
P1,000,000.00 plus legal interest until the said amount is fully paid; P220,000.00 representing
the 8% per annum dividends on the preferred shares plus legal interest up to the time of actual
payment; P146,400.00 as liquidated damages; and P10,000.00 as attorney's fees. The
counterclaim of Lirag Textile Mills, Inc. and Basilio L. Lirag was dismissed.

Hence, this petition.

Petitioners assign the following errors:

1. The trial court erred in deciding that the Purchase Agreement is a debt
instrument;

2. Respondent judge erred in holding petitioner corporation liable for the payment
of the 8% preferred and cumulative dividends on the preferred shares since the
purchase agreement provides that said dividends shall be paid from the net profits
and earned surplus of petitioner corporation and respondent SSS has admitted that
due to losses sustained since -1964, no dividends had been and can be declared by
petitioner corporation;

3. Respondent judge erred in sentencing petitioners to pay P146,400.00 in

liquidated damages;

4. Respondent judge erred in sentencing petitioners to pay P10,000.00 by way of

attorney's fees;

5. Respondent judge erred in sentencing petitioners to pay interest from the time
of firing the complaint u to the time of full payment both on the P1,000,000.00
invested by respondent SSS in petitioner's corporation and on the P220,000.00
which the SSS claims as dividends due on its investments;

6. Respondent judge erred in holding that petitioner Lirag is liable to redeem the
P1,000,000.00 worth of preferred shares purchased by respondent SSS from
petitioner corporation and the 8% cumulative dividend, it appearing that Lirag
was merely a surety and not an insurer of the obligation;

7. Respondent judge erred in dismissing the counterclaim of petitioners.

The fundamental issue in this case is whether or not the Purchase Agreement entered into by
petitioners and respondent SSS is a debt instrument.

Petitioners claim that respondent SSS merely became and still is a preferred stockholder of the
petitioner corporation, the redemption of the shares purchased by said respondent being
dependent upon the financial ability of petitioner corporation. Petitioner corporation, thus, has no
obligation to redeem the preferred stocks.

On the other hand, respondent SSS claims that the Purchase Agreement is a debt instrument,
imposing upon the petitioners the obligation to pay the amount owed, and creating as between
them the relation of creditor and debtor, not that of a stockholder and a corporation.

We uphold the lower court's finding that the Purchase Agreement is, indeed, a debt instrument.
Its terms and conditions unmistakably show that the parties intended the repurchase of the
preferred shares on the respective scheduled dates to be an absolute obligation which does not
depend upon the financial ability of petitioner corporation. This absolute obligation on the part of
petitioner corporation is made manifest by the fact that a surety was required to see to it that the
obligation is fulfilled in the event of the principal debtor's inability to do so. The unconditional
undertaking of petitioner corporation to redeem the preferred shares at the specified dates
constitutes a debt which is defined "as an obligation to pay money at some fixed future time, or at
a time which becomes definite and fixed by acts of either party and which they expressly or
impliedly, agree to perform in the contract. 2

A stockholder sinks or swims with the corporation and there is no obligation to return the value
of his shares by means of repurchase if the corporation incurs losses and financial reverses, much
less guarantee such repurchase through a surety.

As private respondent rightly contends, if the parties intended it [SSS] to be merely a stockholder
of petitioner corporation, it would have been sufficient that Preferred Certificates Nos. 128 and
139 were issued in its name as the preferred certificates contained all the rights of a stockholder
as well as certain obligations on the part of petitioner corporation. However, the parties did in
fact execute the Purchase Agreement, at the same time that the petitioner corporation issued its
preferred stock to the respondent SSS. The Purchase Agreement serves to define the rights and
obligations of the parties and to establish firmly the liability of petitioners in case of breach of
contract. The Certificates of Preferred Stock serve as additional evidence of the agreement
between the parties, though the precise terms and conditions thereof must be read together with,
and regarded as qualified by the terms and conditions of the Purchase Agreement.

The rights given by the Purchase Agreement to respondent SSS are rights not enjoyed by
ordinary stockholders. This fact could only lead to the conclusion made by the trial court that:

The aforementioned rights specially stipulated for the benefit of the plaintiff
[respondent SSS] suggest eloquently an intention on the part of the plaintiff
[respondent SSS] to facilitate a loan to the defendant corporation upon the latter's
request. In order to afford protection to the plaintiff which otherwise is provided
by means of collaterals, as the plaintiff exacts in its grants of loans in its ordinary
 transactions of this kind, as it is looked upon more as a lending institution rather
than as an investing agency, the purchase agreement supplied these protective
rights which would otherwise be furnished by collaterals to the loan. Thus, the
membership in the board is to have a watchdog in the operation of the business of
the corporation, so as to insure against mismanagement which may result in losses
not entirely unavoidable since payment for purposes of redemption as well as the
dividends is expressly stipulated to come from profits and/or surplus. Such a right
is never exacted by an ordinary stockholder merely investing in the corporation. 3

Moreover, the Purchase Agreement provided that failure on the part of petitioner to repurchase
the preferred shares on the scheduled due dates renders the entire obligation due and
demandable, with petitioner in such eventuality liable to pay 12% of the then outstanding
obligation as liquidated damages. These features of the Purchase Agreement, taken collectively,
clearly show the intent of the parties to be bound therein as debtor and creditor, and not as
corporation and stockholder.

Petitioners' contention that it is beyond the power and competence of petitioner corporation to
redeem the preferred shares or pay the accrued dividends due to financial reverses can not serve
as legal justification for their failure to perform under the Purchase Agreement. The Purchase
Agreement constitutes the law between the parties and obligations arising ex contractu must be
fulfilled in accordance with the stipulations. 4 Besides, it was precisely this eventuality that was
sought to be avoided when respondent SSS required a surety for the obligation.

Thus, it follows that petitioner Basilio L. Lirag cannot deny liability for petitioner corporation's
default. As surety, Basilio L. Lirag is bound immediately to pay respondent SSS the amount then
outstanding.

The obligation of a surety differs from that of a guarantor in that the surety
insures the debt, whereas the guarantor merely insures solvency of the debtor; and
the surety undertakes to pay if the principal does not pay, whereas a guarantor
merely binds itself to pay if the principal is unable to pay. 5

On the liability of petitioners to pay 8% cumulative dividend, We agree with the observation of
the lower court that the dividends stipulated by the parties served evidently as interests. 6 The
amount thereof was fixed at 8% per annum and was not made to depend upon or to fluctuate with
the amount of profits or surplus realized, a clear indication that the parties intended to give a sure
and fixed earnings on the principal loan. The fact that the dividends were supposed to be paid out
of net profits and earned surplus, of which there were none, does not excuse petitioners from the
payment thereof, again for the reason that the undertaking of petitioner Basilio L. Lirag as surety,
included the payment of dividends and other obligations then outstanding.

The award of the sum of P146,400.00 in liquidated damages representing 12% of the amount
then outstanding is correct, considering that petitioners in the stipulation of facts admitted having
failed to fulfill their obligations under the Purchase Agreement. The grant of liquidated damages
in the amount stated is expressly provided for in the Purchase Agreement in case of contractual
breach.
The pronouncement of the lower court for the payment of interests on both the unredeemed
shares and unpaid dividends is also in order. Per stipulation of facts, petitioners did not deny the
fact of non-payment of dividends nor their failure to purchase the preferred shares. Since these
involve sums of money which are overdue, they are bound to earn legal interest from the time of
demand, in this case, judicial, i.e., the time of filing the action.

Petitioner Basilio L. Lirag is precluded from denying his liability under the- Purchase
Agreement. After his firm representation to "pay immediately to the VENDEE the amounts then
outstanding" evidencing his commitment as SURETY, he is estopped from denying the same.
His signature in the agreement carries with it the official imprimatur as petitioner corporation's
president, in his personal capacity as majority stockholder, as surety and as solidary obligor. The
essence of his obligation as surety is to pay immediately without qualification whatsoever if
petitioner corporation does not pay. To have another interpretation of petitioner Lirag's liability
as surety would violate the integrity of the Purchase Agreement as well as the clear and
unmistakable intent of the parties to the same.

WHEREFORE, the decision in Civil Case No. Q-12275 entitled "Social Security System vs.
Lirag Textile Mills, Inc. and Basilio L. Lirag" is hereby affirmed in toto. Costs against
petitioners.

SO ORDERED.