Art.

1423

Article 1423. Obligations are civil or natural. Civil obligations give a right of action to compel
their performance. Natural obligations, not being based on positive law but on equity and
natural law, do not grant a right of action to enforce their performance, but after voluntary
fulfillment by the obligor, they authorize the retention of what has been delivered or rendered
by reason thereof. Some natural obligations are set forth in the following articles.

Artikulo 1423. Ang obligasyon ay civil o natural. Obligasyong sibil ay nagbibigay ng hakbang
para iutos ang pagsasagawa. Obligasyong natural, ay hindi ayon sa positibong batas ngunit sa
equity at natural law, hindi nagbibigay ng karapatan sa isang hakbang para ipatupad ang
pagsasagawa, ngunit pagkatapos ng boluntaryong pagsasakatuparan ng may utang ,
pinapayagan nila ang pagpapanatili ng kung ano mang naibigay o naisagawa para sa
kadahilanan nito. May ilang natural obligation ay tinatalaga sa mga susunod na artikulo.

CIVIL OBLIGATIONS AND NATURAL OBLIGATIONS DISTINGUISHED

Article 1423 gives the distinctions between civil obligations and natural obligations, viz.:
(1) Civil obligations arise from law, contracts, quasi-contracts, delicts, and quasi-delicts (Art.
1157.), while natural obligations are based not on positive law but on equity and natural law;
and
(2) Civil obligations give a right of action in courts of justice to compel their fulfi llment or
performance (Art. 1156.), while natural obligations do not grant such right of action to enforce
their performance.
Voluntary fulfillment means that the debtor complied with the same even if he knew that he
could not have been legally forced to do so.
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EXAMPLES
obligation to pay interest for use of money, even if not agreed upon in writing. 
(b) duty to support natural or spurious children (even if not recognized voluntarily or by judicial
compulsion and even if there is a judgment denying recognition).
(c) giving of material and financial assistance to children upon their marriage.

 G.R. No. 243733, January 12, 2021 ]

EDITA A. DE LEON, LARA BIANCA L. SARTE, AND RENZO EDGAR L. SARTE, PETITIONERS,
VS. THE MANUFACTURERS LIFE INSURANCE COMPANY (PHILS.) INC., ZENAIDA S.
SARTE, JESSICA SARTE-GUSTILO, VILMA C. CAPARROS, EDGAR ALVIN C. CAPARROS,
AND ROBERTO MORENO, RESPONDENTS.
DECISION
CARANDANG, J.:
Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court
(Rules) filed by petitioners to assail the Decision2 dated July 20, 2017 and the Resolution3 dated
December 13, 2018 of the Court of Appeals (CA) in CA-G.R. C.V No. 106718, which denied
reconsideration and thereby affirmed the Decision4 dated December 22, 2015 of the Regional
Trial Court of Makati City, Branch 139 (RTC) in Civil Case No. 04-941.
Facts of the Case
This case has its origins from a complaint for interpleader filed by respondent Manufacturers Life
Insurance Company (Phils.) Inc. (Manulife) on August 12, 2004, before the RTC to determine the
rightful recipients of the proceeds of three life insurance policies issued to the late Edgar H.
Sarte (Sarte), who passed away on December 23, 2003.5
During his lifetime, Sarte sired three sets of children: (1) with his legitimate wife Zenaida S. Sarte
(Zenaida), he had Jessica S. Sarte-Gustilo (Jessica) and Edgard Eldon S. Sarte (Eldon); (2) with
Vilma C. Caparros (Vilma), he had Edgar Alvin C. Sarte (Alvin) and Edgar Angelo C. Sarte
(Angelo); and (3) with Edita De Leon (Edita), he had Lara Bianca L. Sarte (Lara) and Renzo
Edgar L. Sarte (Renzo).6
Three life insurance policies subject to this case, all with revocable beneficiaries, viz.:

POLICY DATE POLICY LIFE COVERAGE DESIGNATED

NO. OF OWNER INSURED AMOUNT AS
ISSUE REVOCABLE
BENEFICIARIES
IN THE POLICY

"Policy 4321987- August Systems Edgar H. P1,000,000.00 STI & Zenaida

1"7 2 25, Technology, Sarte Sarte
1994 Inc. (STI)

"Policy 4319830- August STI Edgar H. P1,000,000.00 STI & Zenaida

2"8 8 1, Sarte Sarte
1991

"Policy 4319831- Sept. STI Edgar H. P2,000,000.00 Edgar Alvin C.

3"9 6 3, Sarte Sarte
1991

On March 1, 2002, Sarte executed Beneficiary Designation Forms (BDFs) modifying the
beneficiaries of the subject policies.10

Policy 1 STI & Zenaida Sarte  —> Zenaida Sarte & Jessica Sarte-Gustillo

Policy 2 STI & Zenaida Sarte —> Zenaida Sarte & Renzo Edgar L. Sarte
 Policy 3 Edgar Alvin C. Sarte —> Edgar Alvin C. Sarte and Renzo Edgar L. Sarte

The March 1, 2002 BDFs were all processed by Manulife and the changes were registered in the
company's internal records.11
However, on July 31, 2002, Sarte executed another set of BDFs, changing the beneficiaries of
the subject policies to effect the following changes:

Policy 1 Zenaida Sarte & Jessica Sarte-Gustillo —> Renzo Edgar L. Sarte12

Policy 2 Zenaida Sarte & Renzo Edgar L. Sarte —> Renzo Edgar L. Sarte13

Policy 3 Edgar Alvin C. Sarte and Renzo Edgar L. Sarte —> Lara Bianca L. Sarte14

The second set of BDFs were prepared by Sarte's long-time personal and business secretary,
Veneranda Canta Gealogo (Gealogo) who witnessed Sarte signing them. Sarte executed said
BDFs supposedly with the intention that his minor children acquire equal amounts from his
insurance policies. "Nothing Follows"15 was typewritten beneath the portion where the names of
Lara and Renzo were indicated. Gealogo made photocopies of the said BDFs and the originals
were then delivered by Sarte's messenger, Allan Quiñones, to Betty Alejandro Cepeda (Cepeda),
the Manulife servicing agent in charge of the subject policies.16
On October 22, 2009, before she could adduce evidence on her behalf, Cepeda passed away
and has since then been represented in this case by her son, herein respondent Roberto
Alejandro Moreno Jr.17 In her pleading, Cepeda admitted to receiving the originals of the said
BDFs, but observed that the designated beneficiaries, Lara and Renzo, were still minors, but no
trustee or individual capacitated to act in their behalf was designated as required by Manulife.
The BDFs could have been easily corrected by the designation of a trustee. However, since
"Nothing Follows"18 was typewritten on the BDFs, such a correction could not be made. Cepeda
declined to affix her signature on the BDFs and alleged that she returned them to Sarte through
Gealogo.19 Gealogo denied ever receiving them20 and testified that Cepeda called her,
inquiring as to who should be designated as the trustees of the minors. Gealogo claimed to have
faxed to Cepeda a tabulation21 indicating the names of the trustees, but only on January 19,
2004, after Mr. Sarte's death on December 23, 2003.22 Gealogo said that the fax transmittal slip
of the tabulation was printed on thermal paper, which could be easily erased, so she stamped
the word "faxed" on the same. Other than the said transmittal slip, Gealogo said she had no
other proof that she actually faxed the document to Cepeda's office.23
Before Sarte died, he gave to Edita the originals of four insurance policies, two of which [Policies
1 and 2 are the subject policies of this case.24 She also received photocopies of the BDFs dated
July 31, 2002.25 Sometime after Sarte's death, Edita met with Cepeda at the latter's office to
process the insurance claims in behalf of her children. However, in that meeting, Cepeda initially
denied receiving the said BDFs and that she had no record of them. A week later, they went to
Manulife's office to check the records. They were accompanied by Gealogo. At that meeting,
Edita presented the following documents to Manulife's representatives in support of her claim: 1)
an Acknowledgment Receipt of the July 31, 2002 BDFs signed by Cepeda's secretary, Lynn
Gagan; 2) the trip report of Allan Quiñones; 3) a matrix of Sarte's insurance policies and a copy
of the tabulation which were provided to her by Yolanda Domingo, who was Sarte's executive
assistant. Manulife, however, did not release the proceeds to her. 26
On January 20, 2004, Edita wrote to Manulife's head office seeking assistance for her
claim.27 Manulife, through their Claims Manager, Jessie Bell Victoriano (Victoriano), responded
by mail on February 2, 2004, suggesting that Sarte's three families settle their claims amicably to
avoid costly litigation.28
On March 25, 2004, Zenaida met with Victoriano to inquire into her claims on Sarte's policies that
she knew of, including Policy 2. In that meeting, Victoriano revealed to Zenaida that as per the
insurer's records, she was also named in Policy 1 as co-beneficiary with Renzo. Two months
after, Manulife still did not release the proceeds of the said policies. So, Zenaida set another
meeting with Victoriano, at which point she was informed of Edita's claims on the subject
policies. Victoriano thus asked Zenaida for more time.29
Victoriano testified that the subject BDFs dated July 31, 2002, appeared to be valid as they
contained Sarte's signature.30 It was because of this that Manulife was in doubt as to the rightful
beneficiaries of the subject policies. Thus on August 12, 2004, it filed the complaint31 for
interpleader against: (1) Zenaida and Jessica; (2) minor Alvin, to be represented by his mother,
Vilma; and (3) minors Lara and Renzo, to be represented by their mother, Edita. The RTC gave
due course to the complaint, summoned the interpleaded parties, and ordered them to file their
respective answers.32
Zenaida S. Sarte and Jessica S. Sarte-Gustilo's claim
Zenaida and Jessica argued that as per Manulife's own records, they are entitled to the full
proceeds of Policy 1. In addition, Zenaida claimed half of the proceeds of Policy 2. They
asserted no claim over Policy 3. However, they filed a counterclaim against Manulife, arguing
that the insurer was in bad faith for filing the complaint for interpleader despite knowing that
Zenaida and Jessica are beneficiaries on record for Policies 1 and 2.33
Edgar Alvin C. Sarte's claim
Alvin made no claim over Policies 1 and 2. However, he claimed all of the proceeds to Policy 3,
in which he was originally named as the lone beneficiary. At the time the interpleader was
instituted, Alvin's mother Vilma had possession of the original of Policy 3. Like Zenaida and
Jessica, Arvin also argued that the complaint was a frivolous suit as Manulife already knew,
based on its records, that he is solely entitled to Policy 3. As such, Manulife is liable for
damages.34
Lara Bianca L. Sarte and Renzo Edgar L. Sarte's claim
Lara and Renzo maintained that on July 31, 2002, their father executed BDFs instituting Renzo
as the sole beneficiary of Policies 1 and 2 and Lara as the sole beneficiary of Policy 3. These
BDFs were submitted to Betty Q. Alejandro, a.k.a. Betty Cepeda (Cepeda), the Manulife
servicing agent in charge of the subject policies. Meanwhile, they also filed a counterclaim
against Manulife, arguing that the insurer should be liable for compensatory damages for failing
to reflect the BDFs in their records despite Sarte having done all that was necessary to effect the
changes.35
The third-party complaint against the servicing agent, Betty Cepeda
Lara and Renzo also filed a third-party complaint against Cepeda, averring that should the
proceeds are not given to them due to Cepeda's failure to register the BDFs, then the latter
should be made to pay the amount of the proceeds plus damages.36
In her Answer with Counterclaim,37 Cepeda alleged that sometime in February 2002, Sarte's
secretary Veneranda C. Gealogo requested forms for the changes of beneficiary designations.
Cepeda had wanted to meet Sarte in person to discuss the matter, but Gealogo insisted on
having the forms. The forms were filled in and returned to Cepeda in March 2002, resulting in
changes of the beneficiaries as they now appear in Manulife's records.38
In July 2002, Gealogo again returned with four BDFs, three of which pertain to the subject
policies. Cepeda denied registering these BDFs because the intended beneficiaries are minors
(herein Lara and Renzo) and as per company policy, the insured must designate trustees who
may act on such minors. However, they could not be rectified in that manner because "Nothing
Follows" was typed on the form. Cepeda thus declined to affix her signature in the forms and
sent them back to Gealogo. Cepeda maintains that, thereafter, she never received the BDFs with
the required corrections. She maintains that Gealogo had ample time, from July 31, 2002 until
December 23, 2003 to return the BDFs with the necessary corrections. However, Gealogo never
did. As such, Gealogo is the only one to blame. Cepeda thus contended that the third-party
complaint was entirely baseless and that she is entitled to damages for having to defend herself
against a frivolous suit.39
Manulife's stance
Manulife has consistently been neutral as to the issue of the rightful beneficiaries of the subject
policies. Against the counterclaims, however, it maintained that interpleader is a remedy that it is
entitled to and which it has availed in good faith. As such, it should not be made liable for filing
the interpleader suit. However, it claimed for costs of suit and attorney's fees, arguing that it was
only compelled to file the interpleader due to the conflicting claims of the interpleaded parties.40
Eden Broñosa (Broñosa), Manulife's Vice President for Clients Services and Customer Care,
was presented as an adverse witness by herein petitioners. Manulife's internal rules and
procedure for changing beneficiary designation was established from her testimony, thus:
1. the insured must submit to Manulife a duly completed and signed BDF;
2. the servicing agent, in this case Cepeda, is authorized by Manulife to accept the BDF in behalf
of Manulife;
3. if the designated beneficiary is a minor, the insured must also designate a trustee as per
company policy;
4. a BDF for a minor without a designated trustee is deemed an incomplete form;
5. incomplete BDFs need not be transmitted by the servicing agent to Manulife and shall be
returned to the insured for necessary corrections;
6. complete BDFs are transmitted to Manulife, processed, and stamped registered once entered
into their records;
7. Manulife then sends the insured a letter confirming the designation.41
Manulife, however, made no comment as to the legal significance of the aforesaid internal rules
in resolving the interpleader, leaving such matter to the trial court.
Ruling of the Regional Trial Court
From the terms of the subject policies, the RTC found the following provisions on "Beneficiary
Designation" and "Change of Beneficiary," as relevant to the issues of this case:
Beneficiary Designation. Whenever a beneficiary is designated either in this policy or by a
declaration in writing by the Owner, such beneficiary will be deemed to be beneficially entitled to
the proceeds of the policy, if and when the policy becomes payable upon the life insured's death.
xxx
Change of beneficiary. To the extent allowed by law, during the life insured's lifetime the Owner
can change the beneficiary designation from time to time by written notice in form satisfactory to
the Company [Manulife]. The company assumes no responsibility for the validity of such written
notice.42
Based on these provisions, the RTC took the view that in order for the BDFs to be effective, the
same must have been processed, approved, and registered in Manulife's records. The July 31,
2002 BDFs were rejected by Cepeda for non-compliance with Manulife's internal company policy
on the designation of trustees for minor beneficiaries, Lara and Renzo. As a consequence, it was
not registered in Manulife's records. On the other hand, the March 1, 2002 BDFs were duly filled
in, signed by Cepeda, transmitted to Manulife's office, and registered into their records.43
Furthermore, the trial court found that the Manulife was not in bad faith in filing the complaint for
interpleader. Nor were the interpleaded parties in bad faith for claiming the proceeds of the
subject policies. The trial court also found no fault on the part of Cepeda.44 Thus, the RTC
disposed of the case as follows:
WHEREFORE, premises considered, this Court RENDERS JUDGMENT as follows:
(1) Plaintiff The Manufacturer's Life Insurance Company (Phils.), Inc. is hereby DIRECTED to
release the insurance proceeds of the following policies to the beneficiaries as appearing in its
records, thus:

POLICY NO. COVERAGE AMOUNT DESIGNATED BENEFICIARIES

4321987-2 Php 1,000,000.00 Zenaida Sarte and Jessica Sarte-Gustillo

4319830-8 Php 1,000,000.00 Zenaida Sarte and Renzo Edgar L. Sarte

4319831-6 Php 2,000,000.00 Edgar Alvin C. Sarte and Renzo Edgar L. Sarte

(2) The compulsory counterclaims of the conflicting claimants against the plaintiff are
hereby DENIED FOR LACK OF MERIT;
(3) The claims for attorney's fees and costs of suit of plaintiff against the defendants are
hereby DENIED FOR LACK OF MERIT;
(4) The third party complaint against third party defendant is hereby DISMISSED for insufficiency
of evidence; and
(5) The compulsory counterclaims of third party defendant against third party plaintiff are
hereby DENIED FOR LACK OF MERIT.
Furnish copies of this Decision to the parties and there respective counsels.
SO ORDERED.45
Ruling of the Court of Appeals
On appeal to the CA,46 the petitioners maintained that the July 31, 2002 BDFs effectively
changed the beneficiaries of the subject policies in favor of Lara and Renzo. They argued that
Sarte had complied with all the requirements of the policy provision on "Change of Beneficiary"
by merely filling up and signing Manulife BDFs designating Lara and Renzo and transmitting the
same to Cepeda, Manulife's agent. They also maintained that Sarte had complied with the
trustee designation requirement when Gealogo faxed to Cepeda a tabulation with a list of names
of trustees, even while maintaining that the BDFs or the policies themselves do not indicate the
necessity of a trustee.47
Zenaida,48 Jessica,49 Vilma,50 Alvin,51 and Betty Cepeda52 defended the RTC's decision and
argued that since the July 31, 2002 BDFs were not in a form satisfactory to Manulife, owing to
the fact that no trustee was designated, no change in beneficiary designation was effected. They
maintained that the RTC was correct in ordering Manulife to release the proceeds according to
the latter's records. Manulife maintained its neutral stance.53
The CA agreed with the RTC as to the result, but clarified that the petitioners were only able to
submit photocopies of the July 31, 2002 BDFs. The RTC had categorically ruled that Sarte had
executed the said BDFs, to wit: "[t]he evidence shows that the insured executed a Beneficiary
Designation Form changing the beneficiaries in the subject policies in favor of minor defendants
Lara Bianca and Renzo Edgar."54 However, the CA reasoned that according to the Best
Evidence Rule, under Section 3, Rule 129, the due authenticity and execution of said documents
was not established. Moreover, the CA found that there is no positive proof that the originals
existed and that the photocopies cannot be given evidentiary value.55
The petitioners moved for reconsideration, but the CA denied it as the arguments raised were
mere reiterations.56 Hence, this petition.
Issues
The issues to be resolved by the Court are as follows:
1. whether the subject insurance policies required Sarte to designate a trustee for minor
beneficiaries;
2. whether the CA correctly applied the Best Evidence Rule to the photocopies of the BDFs
dated July 31, 2002; and
3. whether Sarte effected a change of beneficiary designation by written notice in form
satisfactory to the Company by mere submission of the BDFs dated July 31, 2002 to Manulife's
servicing agent, Cepeda.
Ruling of the Court
The petition is meritorious.
In the interest of substantial
justice, the petition is given due
course despite having a
defective verification and
certificate of non-forum shopping.
Before discussing the substantive merits of this case, We must first deal with a procedural issue
concerning the verification and certification against forum shopping attached to the petition. It
appears that the petitioners themselves have not executed it and has been signed by their
counsel instead. Respondents argue that this is in violation of Section 5, Rule 7 and is cause for
the summary dismissal of the petition.57
Ordinarily, respondents would be correct; however, the Court has, on occasion, liberally applied
its rules of procedure in the interest of substantial justice. In the case of Bacolor v. VL Makabali
Memorial Hospital, Inc.,58 We summarized some guidelines to follow when confronted with a
defective verification or certificate against forum shopping, viz:
xxxx
2) As to verification, non-compliance therewith or a defect therein does not necessarily render
the pleading fatally defective. The court may order its submission or correction or act on the
pleading if the attending circumstances are such that strict compliance with the Rule may be
dispensed with in order that the ends of justice may be served thereby.
xxxx
4) As to certification against forum shopping, non compliance therewith or a defect therein, unlike
in verification, is generally not curable by its subsequent submission or correction thereof, unless
there is a need to relax the Rule on the ground of "substantial compliance" or presence of
"special circumstances or compelling reasons".59 (Emphasis and underscoring supplied).
The interests of substantial justice are paramount at all times. The Rules shall be liberally
construed in order to promote their objective of securing a just, speedy and inexpensive
disposition of every action and proceeding.60 Law and jurisprudence grant to courts the
prerogative to relax compliance with procedural rules of even the most mandatory
character.61 This is not to say that adherence to the Rules could be dispensed with. However,
exigencies and situations might occasionally demand flexibility in their application.62 In Bank of
the Philippine Islands v. Dando,63 the Court restated the reasons that may provide justification
for a court to suspend a strict adherence to procedural rules, such as:
(a) matters of life, liberty, honor or property; (b) the existence of special or compelling
circumstances; (c) the merits of the case; (d) a cause not entirely attributable to the fault or
negligence of the party favored by the suspension of the rules; (e) a lack of any showing that the
review sought is merely frivolous and dilatory; and (f) the fact that the other party will not be
unjustly prejudiced thereby.64 (Emphasis supplied)
We find that the CA and the RTC committed errors of judgment, as extensively discussed below,
which We cannot ignore on the mere technicality that the petition has a defective verification
and/or certificate of non-forum shopping.
Sarte was not contractually required to designate a trustee for minor beneficiaries.
Petitioners protest that the RTC and CA erred in disposing the case based on Manulife's internal
rules. They argue that said rules are not binding upon either Sarte or the petitioners.65
We agree.
The written instrument in which a contract of insurance is set forth, is called a policy of
insurance.66 In relation thereto, Section 227 of the Insurance Code (Presidential Decree No.
612), provides:
Section 227. In the case of individual life or endowment insurance, the policy shall contain in
substance the following conditions:
x x x x.
(c) A provision that the policy shall constitute the entire contract between the parties, but if the
company desires to make the application a part of the contract it may do so provided a copy of
such application shall be indorsed upon or attached to the policy when issued, and in such case
the policy shall contain a provision that the policy and the application therefor shall constitute the
entire contract between the parties; (Emphasis and underscoring supplied)
Thus, the subject policies of this case uniformly contain the following provision:
CONTRACT
The application for this policy, any Medical Evidence form and any written statements and
answers furnished evidence of insurability, copies of all of which are attached, and the policy,
constitute the entire contract.
Only the President or a Vice-President of the Company has power on behalf of the Company to
change, modify or waive the provisions of the policy, and then only in writing.
The Company will not be bound by any promise or representation heretofore or hereafter made
by or to any agent or person other than as specified above.67 (Emphasis and underscoring
supplied.)
Upon a careful examination of the subject policies, We find that nothing in their provisions
require the observance of Manulife's internal rules. As such, the policies themselves do not
require either that the insured designate a trustee if his chosen beneficiaries are minors or that
the BDFs be processed and registered into Manulife's records. Neither does the Insurance Code
(or any statute) or its implementing rules and regulations require the same.
In The Wellex Group, Inc. v. U-Land Airlines, Co. Ltd.,68 the Court said:
An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The
obligation is constituted upon the concurrence of the essential elements thereof, viz:
(a) The vinculum juris or juridical tie which is the efficient cause established by the various
sources of obligations (law, contracts, quasi-contracts, delicts and quasi-delicts); (b) the object
which is the prestation or conduct, required to be observed (to give, to do or not to do); and (c)
the subject-persons who, viewed from the demandability of the obligation, are the active
(obligee) and the passive (obligor) subjects69
The cause is the vinculum juris or juridical tie that essentially binds the parties to the
obligation. This linkage between the parties is a binding relation that is the result of their bilateral
actions, which gave rise to the existence of the contract.70 (Emphasis and underscoring
supplied)
In this case, the vinculum juris between Sarte and Manulife are the subject policies themselves.
Since the terms of the policies do not mention anything about Manulife's internal rules, there is
no juridical tie that binds Sarte to said internal rules. As such, the policies do not obligate the
insured to designate trustees for minor beneficiaries. Neither was it legally necessary for the July
31, 2002 BDFs to be registered in Manulife's internal records so that Lara and Renzo may
acquire a vested interest in the subject policies. Simply put, Manulife's internal rules are not a
legal norm that has any relevance in the resolution of the issues of this case. Such internal rules
are merely for the guidance of the personnel, employees, and officers of Manulife.
Parenthetically, We must clarify to petitioners that life insurance proceeds are not part of the
estate of the insured. Under Section 85(e) of the National Internal Revenue Code,71 such
proceeds may be included in the gross estate, subject to certain exceptions, but merely for the
purpose of computing the estate tax due. Nevertheless, We must stress that the designation of a
beneficiary in an insurance policy is categorically different from the institution of a testamentary
heir. Therefore, We cannot give credence to petitioners' arguments that they are entitled to the
proceeds of the subject policies because that was supposedly Sarte's way of ensuring that his
three families would equally share in his wealth.72 This Court has resolved this case by applying
the pertinent laws on contracts and insurance on the established facts, not on some perceived
estate planning scheme that Sarte had supposedly put in place.
The fundamental error in the CA and the RTC's reasoning is that they have premised the entirety
of their judgments upon the assumption that Manulife's internal rules were binding upon the
insured. Not only did the lower courts lack legal basis in applying Manulife's rules, they were not
mindful of the proper application of the parol evidence rule under Section 10, Rule 130 of the
Rules,73 that when the terms of an agreement have been reduced to writing, it is considered as
containing all the terms agreed upon and there can be, between the parties and their successors
in interest, no evidence of such terms other than the contents of the written agreement. It forbids
any addition to the terms of a written agreement by testimony showing that the parties orally
agreed on other terms before the signing of the document.
In fact, the presentation of the Manulife internal rules was not called for as the procedural
conditions necessary for the presentation of parol evidence are not present in this case. A party
may present evidence to modify, explain, or add to the terms of a written agreement if he puts in
issue in his pleadings either: (a) an intrinsic ambiguity, mistake, or imperfection in the written
agreement; (b) the failure of the written agreement to express the parties' true intent and
agreement; (c) the validity of the written agreement; or (d) the existence of other terms agreed to
by the parties or their successors in interest after the execution of the written agreement. The
issue must be squarely presented.74 In this case, the terms of the subject policy were not put it
in issue in either Manulife's complaint or in any of the interpleaded parties' respective answers.
As such, the introduction of Manulife's internal rules was not a proper application of the parol
evidence rule. Consequently, such rules cannot be made to "modify, explain, or add" to the
contract stipulations expressly stated in the subject policies. The terms of the subject policies,
therefore, are exclusively those which are stated within the four corners of the document.
One might argue that it was necessary to present Manulife's internal rules to clarify certain
provisions of the subject policies. However, we have ruled that although parol evidence is
admissible to explain the contract's meaning, it cannot serve to incorporate into the contract
additional conditions which are not mentioned at all in the contract unless there is fraud or
mistake.75
Moreover, it was made abundantly clear by the testimony of Broñosa, Manulife's Vice President
for Clients Services and Customer Care, that a trustee was not indispensable, rather only
advisable, viz:
(ATTY. CARAG)
Q: Madam Witness, life insurance contracts do not require the participation of beneficiaries in
their execution, do they?
WITNESS (BROÑOSA):
A: No, sir.
Q: In other words, as you have earlier said that the insured can make a minor his beneficiary
without naming the trustee, am I correct?
A: In our procedure and guidelines, when the insured name (sic) a minor as a beneficiary, we
always require a trustee in behalf of the minor beneficiary.
Q: Why? Do you have written rules in that respect?
A: Yes, sir.
Q: Do you have them with you?
A: We have processed guideline (sic) wherein we can show that it is indeed written there that a
trustee must be named on the minor beneficiary.
Q: Precisely I'm asking you if you have written rules in that respect?
A: Yes, sir.
Q: Do you have them with you?
A: Yes, sir.
Q: May I have them please?
A: Yes, sir.
Q: Witness coming up with a multi-page document, Your Honor, in answer of the question
whether or not the company has rules concerning the naming of a trustee for minor beneficiaries.
A: On page 3 out of page 11 it is clearly stated. Definition of Terminologies on minor beneficiaries
under second paragraph.
Q: Page 3 of 11-page document classified as Process of Transaction documented under these
were: Change of Beneficiary Designation. And you referred to the second paragraph?
A: Yes, sir.
Q: Which I will read for the record, "When minor children are designated as beneficiaries, it is
ADVISABLE to designate a trustee to receive the insurance proceeds on their behalf during the
minority. If no trustee is named and the share of each minor and the policy exceeds Php
50,000.00, the company will require either a Court bond if the proceeds will be paid to the
minor's surviving parents or letter of guardianship if the minor is completely orphan. As general
rule, the designation of minors as irrevocable beneficiaries should be discouraged because of
legal matters. Naming a trustee is always needed for minor beneficiaries." Now, my question is
on the word "advisable". The first sentence reads, "When minor children are designated as
beneficiaries, it is advisable to designate a trustee to receive the insurance proceed on their
behalf during their minority." You, of course, observed the use of the word "advisable". Now,
under the provisions that were read to you, does the non-designation of a trustee or guardian for
a minor beneficiary named in a beneficiary change invalidate the beneficiary change?
ATTY. CABRAL: Your honor, may we object? It is already legal in nature and the witness is not
competent to testify thereon and that is very (sic) reason why we filed this interpleader, Your
Honor, for the Court to decide whether the beneficiary designation making this case was proper.
COURT: Objection sustained.
ATTY. CARAG: I will withdraw my question, Your Honor. Your Honor, may we request that the
document be left with (sic) Court?
COURT: Can you do that, Atty. Cabral?
ATTY. ESPINA: Your honor, the pertinent provisions applicable to this case has already been
read. It is already on record so there is no need to include the entire Rules and Regulations of
Manulife on record.
ATTY. CARAG: As a matter of fact, Your Honor, I was on the focus on that provision so that is
why -
COURT: That is why the objection here of Atty. Espina is for you not to mark that anymore.
Anyway, you have read into record the pertinent portion. x x x.76 (Emphasis and underscoring
supplied)
Upon clarificatory questioning by the trial judge, Broñosa further testified as follows:
COURT: For the Court. You said your company requires the appointment of trustee for a minor
beneficiary and the purpose of that is to make the beneficiary designation as what?
WITNESS: We always require the appointed trustee for minor beneficiaries the purpose of that is
if there is a death claim, we can already know to whom we can transact the proceeds on the
behalf of the minor beneficiaries BUT OF COURSE WE WILL STILL BE NEEDING COURT
APPOINTED GUARDIAN.
COURT: Despite the appointment of trustee?
WITNESS: Yes, Your Honor.
COURT: But you said earlier it is at the option of the insured to name or not nem (sic) the
trustee?
WITNESS: Yes, Your Honor.
COURT: So the failure to name a trustee does not invalidate the beneficiary designation, is that
what you are saying?
WITNESS: As a general rule, Yes, Your Honor.
COURT: But insofar as your company is concerned?
WITNESS: As far as Manulife is concerned, we require appointing of trustee, Your Honor.
COURT: You require it but assuming the insured did not name?
WITNESS: We can accept still the beneficiary claim unless it is submitted to Manulife for
processing and recording. If the insured does not want to put a trustee or to designate a trustee
on behalf of the minor beneficiaries, we can still effect the change on the beneficiary provided
that the insured put it in writing that he does not want to put or designate a trustee on behalf of
the minor trustee. x x x 77 (Emphasis, underscoring and capitalization supplied.)
Indeed, regardless of whether or not a trustee was designated, Manulife would still have to
comply with requirements under Section 180 of the Insurance Code (P.D. 612), to wit:
Section 180. An insurance upon life may be made payable on the death of the person, or on his
surviving a specified period, or otherwise contingently on the continuance or cessation of life.
Every contract or pledge for the payment of endowments or annuities shall be considered a life
insurance contract for purpose of this Code
In the absence of a judicial guardian, the father, or in the latter's absence or incapacity, the
mother, or any minor, who is an insured or a beneficiary under a contract of life, health or
accident insurance, may exercise, in behalf of said minor, any right under the policy, without
necessity of court authority or the giving of a bond, where the interest of the minor in the
particular act involved does not exceed twenty thousand pesos. Such right may include, but shall
not be limited to, obtaining a policy loan, surrendering the policy, receiving the proceeds of the
policy, and giving the minor's consent to any transaction on the policy. (Emphasis and
underscoring supplied)
In light of the foregoing, it is clear that Manulife's internal rules are only for its own operational
convenience.  There is absolutely no legal reason why they should be the parameter by which
ℒαwρhi ৷

the conflicting claims over Sarte's life insurance policies are judged. The conflicting claims of the
interpleaded parties must be resolved with reference only to the express provisions of the
subject policies.
The provisions of the subject policies relating to designation of beneficiaries have been
substantially complied with by the insured
The petitioners and the lower courts are not agreed on the point at which the change in
beneficiary is effected. Petitioners contend that all that was required of the insured is to
designate his beneficiary in a Manulife form and submit the same to Manulife or one of its agents
– in this case, Cepeda.78 The CA and RTC take the view that there are subsequent steps that
must have been complied with, culminating m the registration of the BDF in Manulife's
records.79
Once again, We do not agree with the lower courts' reliance on Manulife's internal rules in
resolving this question for reasons already explained above. Nowhere in the subject policies is it
provided that the beneficiary designation must go through the internal mechanisms of the insurer
and then entered into its records before such designation becomes binding.
To recall, the subject policies provide that "...a beneficiary is designated either in the policy or by
a declaration in writing by the Owner"80 and that "during the life insured's lifetime the Owner can
change the beneficiary designation from time to time by written notice in form satisfactory to the
Company."81 Other provisions of the policy make it clear that claims are not settled on the basis
of Manulife's records. For example, the policies provide that a claimant must provide proof of
his/her right to receive payment. Thus:
SETTLEMENT ON DEATH, MATURITY OR
SURRENDER
The policy will be settled in accordance with its terms on receipt by the Company of due proof of
the life insured's death (and of his age unless previously admitted), or on the policy's maturity as
an endowment or its surrender for its cash value. Due proof of the claimant's right to receive
payment will be required when such settlement is made.82 (Emphasis supplied)
On the cover page of the policies, the following is written:
Subject to this policy's provisions, the death benefit proceeds under the policy will be paid to the
beneficiary immediately upon receipt by the Company of due proof of the life insured's death.
Such proceeds will include the policy's face amount together with any other benefit payable
under the policy's terms because of such death.83 (Emphasis and underscoring supplied)
Meanwhile, at the back of the subject policies, it is stated:
IMPORTANT NOTICE
When you wish to obtain payment of any benefit under the policy, write to the Company's Head
Office at the address below or communicate with the nearest authorized representative of the
Company. By so doing, time and expense may be saved, since the Company will furnish free of
charge the required forms for completion with any necessary advice and
instructions.84 (Emphasis and underscoring supplied)
The clear import of all of these provisions is that the insurer will not pay a claim after conducting
a quick name-check in its own records. Otherwise, Manulife's interpleader complaint is improper.
We agree with the trial court, however, that Manulife was prudent in withholding payment to any
of the claimants and that interpleader is proper in this case.85 At most, the records can only
create a presumption that the beneficiaries registered therein are entitled to the benefits.
However, such a presumption does not foreclose the possibility that other persons may have
been designated by the insured prior to his death. Thus, the interpleaded parties in this case
may prove that he/she is entitled to the proceeds in one of only two ways, either (a) that he/she
was originally named as beneficiary in the policy and that the insured made no subsequent
designations; or (b) that although he/she was not the beneficiary originally named in the policy,
he/she was the last person designated as beneficiary, and the insurer was notified of such
designation.
Having said that, We may summarize the positions of the interpleaded parties as follows:
Zenaida and Jessica's claim rests on the BDFs dated March 1, 2002;86 Alvin's claim rests on the
fact that he was the original beneficiary in Policy 3; while Lara and Renzo's claim rests on the
BDFs dated July 31, 2002.87
The case now turns on whether the BDFs dated July 31, 200288 effected a "change [of]
beneficiary designation by written notice x x x in form satisfactory to the Company."89 The issue
may be dissected as follows: (1) whether the insured had notified the insurer of the beneficiary
designation in writing; and (2) whether notice was in a form satisfactory to the insurer.
It is worth recalling that the RTC categorically made the factual finding that Sarte indeed
executed the BDFs dated July 31, 2002. The RTC said: "[t]he evidence shows that the insured
executed a (sic) Beneficiary Designation Form changing the beneficiaries in the subject policies
in favor of minor defendants Lara Bianca and Renzo Edgar. While the forms were transmitted to
third party defendant, [Cepeda], insured's agent, the same was however returned to the insured,
through his secretary, because the same were incomplete as no trustee was designated for the
minor beneficiaries."90 The RTC allowed the photocopies into evidence. The CA disagreed with
the RTC on this point, explaining that under the Best Evidence Rule, the photocopies of the July
31, 2002 BDFs are not sufficient to prove their authenticity and due execution.91 When the
factual findings of the CA are contrary to those of the trial court, a review of the facts is
permitted.92 After reviewing the records, We find that the RTC took the correct view on this
matter.
Under the Best Evidence Rule, which is now called the Original Document Rule under the 2019
Revised Rules on Evidence (A.M. No. 19-08-15-SC),93 when the subject of inquiry is the
contents of a document, writing, recording, photograph or other record, no evidence is be
admissible other than the original document itself, except in the following cases:
(a) When the original is lost or destroyed, or cannot be produced in court, without bad faith on
the part of the offeror; x x x94
In this case, it is clear that the subject of inquiry is the contents of the July 31, 2002 BDFs,
specifically the designation of Lara and Renzo as beneficiaries. However, petitioners were only
able to present photocopies of the said BDFs, which is secondary evidence. In Citibank, N.A.
Mastercard v. Teodoro,95 We said that before a party is allowed to adduce secondary evidence
to prove the contents of the original, the offeror must prove the following: (l) the existence or due
execution of the original; (2) the loss and destruction of the original or the reason for its
nonproduction in court; and (3) on the part of the offeror, the absence of bad faith to which the
unavailability of the original can be attributed.96 We find that these predicates had been
complied with during trial.
In this case, the existence of the July 31, 2002 BDFs were established by Gealogo's positive
testimony that she saw Sarte signing them.97 In fact, she was the one who prepared the
originals for Sarte to sign.98 Moreover, there is evidence that the originals were received by
Lynn Gagan, Cepeda's secretary.99
The manner of proving the execution of a document depends on its classification. Indubitably,
the July 31, 2002 BDFs are private documents as understood in Section 19 of Rule
132.100 Proving private documents are provided for under Section 20 of the same rule, viz.:
Section 20. Proof of private documents. - Before a private document offered as authentic is
received in evidence, its due execution must be proved by any of the following means:
(a) By anyone who saw the document executed or written;
(b) By evidence of the genuiness of the signature or handwriting of the maker[;] or
(c) By other evidence showing its due execution and authenticity. (Emphasis and underscoring
on (a) supplied; underscoring on (b) and (c) removed)
Again, the execution was duly proven by Gealogo's testimony that she saw Sarte sign the
original July 31, 2002 BDFs.101
Petitioners proved the loss or reason for nonproduction in court by admitting that Edita only
received photocopies of the July 31, 2002 BDFs and so was not in a position to present the
originals.102 Gealogo also testified that she gave the originals to Cepeda, who in turn alleged
that she returned them to Sarte. Unfortunately, she could not account as their whereabouts as
she passed away before she could adduce her own evidence.
Section 5 of Rule 130 provides for the manner by which the contents of a lost or destroyed
original document may be proven, viz:
Section 5. When original document is unavailable. - When the original document has been lost or
destroyed, or cannot be produced in court, the offeror, upon proof of its execution or existence
and the cause of its unavailability without bad faith on his or her part, may prove its contents by a
copy, or by recital of its contents in some authentic document, or by the testimony of witnesses in
the order stated. (Emphasis supplied)
The contents of the original July 31, 2002 BDFs were duly proven in this case by the
photocopies of the originals and by the testimony Gealogo, who was the very person who typed
in the name of Lara and Renzo in the originals and who saw Sarte signing them.103
Lastly, there is no evidence that the unavailability of the original BDFs was due to bad faith on
the part of the petitioners. As stated above, petitioners candidly admitted that they never had
possession of the originals and that Edita only received photocopies of the BDFs.104 There is
simply no evidence that they are at fault for the loss or nonproduction of the originals.
From the foregoing, We find that the RTC correctly admitted the photocopies of the July 31, 2002
BDFs into evidence and, on the basis of which, found that Sarte had indeed designated Lara and
Renzo as his beneficiaries in the subject policies.
By the contract of agency, a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter.105 In the case
of Filipinas Life Assurance Company v. Pedroso,106 We bound the principal, an insurance
company, for an act by its insurance agent done within the scope of authority.107 As Manulife's
agent, Cepeda was authorized to receive the BDFs. This was confirmed by Broñosa.108 Receipt
by Cepeda was duly proven by Quinones' testimony and the Acknowledgment
Receipt.109 Cepeda, in fact, had confirmed in her Answer that she had received the originals of
the July 31, 2002 BDFs.110 Furthermore, under the doctrine of imputed knowledge, notice to the
agent is deemed notice to the principal.111 Thus, upon Cepeda's receipt of the July 31, 2002
BDFs, Manulife is deemed to have been notified of the designations therein.
We now turn to the second part of the issue, which is whether the July 31, 2002 BDFs were in
"form satisfactory to the Company."112 The question is not without difficulty as the policies do
not set out a list of requirements or a criteria to meet what may be considered as "satisfactory" to
Manulife. The clause, therefore, admits of any number of interpretations. Petitioners contend that
"satisfactory form" refers to the physical pro forma document which Manulife itself provides to
clients when the latter wish to change their beneficiaries. Thus, they argue that the July 31, 2002
BDFs were in satisfactory form.113 On the other hand, the RTC and the CA's considers a
"satisfactory form" as not only one that has been duly-filled up by the insured, but that has also
been processed by Manulife, approved, registered in the records, and then confirmed to the
insured by mail.114 Thus, the lower courts applied a "stricter" standard. It appears that the
question is one of first impression in our jurisdiction, but one that is familiar to American courts,
to whom We may reasonably refer considering that the law on life insurance first came to our
shores during the Commonwealth period with the enactment of the Insurance Act of 1914. As
one scholar in 1969 observed:
Reservation to the insured of the right to change the beneficiary has produced a kind of backlash
in many courts. Policies containing this reservation specify a procedure by which such changes
are to be accomplished and usually stipulate that such changes are not to take effect until this
procedure is fully carried out. Courts in many cases made strict adherence to these contract
terms a condition of the effectiveness of any attempted change. This approach undoubtedly was
prompted in part by a desire to provide some protection to beneficiaries whose interests had
been so easily reduced from a vested interest to a mere expectancy. Subsequently, however, the
strict compliance approach produced a counterreaction as courts, uncomfortable with a dogma
requiring them at times to disregard the plain intention of the insured, evolved a "substantial
compliance" principle rendering effective any attempted change in which the insured had done
all he reasonably could do to accomplish it.115 (Emphasis and underscoring supplied)
The "substantial compliance" principle has been otherwise expressed as follows:
A clearly proved intention to change is not sufficient, if any of the formal requirements are
lacking, except: when the insured has done all in his power to comply with such requirements,
but has failed to surrender the policy because it is beyond his control, equity will protect the
rights of the intended beneficiary; or if the insured has pursued the courses pointed out by the
policy..., and has done all required of him to effect a change, but dies before the new certificate
has been issued... equity will decree that to be done which ought to be done, and regard the
change as fully completed.116 (Emphasis supplied)
On the whole, the substantial compliance view appears to be more in tune with our doctrines on
contract law relevant to the instant case.  Article 1377 of the New Civil Code117 provides that
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the interpretation of obscure words or stipulations in a contract shall not favor the party who
caused the obscurity. In this case, absent a clear stipulation as to what might constitute
"satisfactory form", such clause cannot be interpreted in a manner that would be more
burdensome to the insured. To reiterate Our discussion above, We cannot require strict
adherence to Manulife's internal standards when the insured was not contractually bound to
them to begin with.
Furthermore, under Article 1373 of the New Civil Code,118 if some stipulation of any contract
should admit of several meanings, it shall be understood as bearing that import which is most
adequate to render it effectual. So that the right of the insured to designate his chosen
beneficiary – both under the subject policies and Section 11 of the Insurance Code119 – might
be given effect in the circumstances of this case, it is more just to take the substantial
compliance view. Sarte had substantially complied with all that was required of him under the
subject policies to designate Lara and Renzo as his beneficiaries. Since Cepeda had received
the originals of the July 31, 2002 BDFs, Manulife is deemed to have been notified in writing of
said beneficiary designations. Such notice was sufficient to vest Lara and Renzo with rights over
the proceeds of the subject policy.
That said, We have to correct certain premises in the CA and RTC's disposition of Manulife's
prayer for attorney's fees, the counterclaims, the third-party complaint, and the third-party
counterclaim. We deal first with the third-party complaint and the third-party counterclaim which
were rightly dismissed by the lower court. Petitioner's cause of action in their third-party
complaint was based on Cepeda's failure to cause the recording of the July 31, 2002
BDFs.120 As We have said above, such recording was not necessary to effect the beneficiary
designation. Consequently, Cepeda cannot be made liable on that basis. We also cannot grant
Cepeda's counterclaim for actual, moral, temperate, nominal, exemplary damages, attorney's
fees and costs of suit.121 Her death denied her the chance to adduce sufficient evidence to
support of her counterclaim. In fact, all that was entered into evidence on her behalf mostly
constitutes her achievements and awards as a Manulife agent.122 More importantly, however,
her causes of action is specific to her person and not predicated on property rights or interests.
In Bonilla v. Barcena,123 We said that an action does not survive if "the injury complained of is to
the person, the property and rights of property affected being incidental." 124
Meanwhile, the counterclaims against Manulife must fail as the latter had properly availed of the
remedy of interpleader. In the case of Bank of Commerce v. Planters Development Bank125 We
said that "through this remedy, the stakeholder [Manulife] can join all competing claimants in a
single proceeding to determine conflicting claims without exposing the stakeholder to the
possibility of having to pay more than once on a single liability. It was developed on the theory
that the stakeholder should not be forced to take the personal risk of evaluating the
claims."126 Thus, We cannot fault Manulife for bringing the conflicting claimants into one judicial
proceeding via interpleader which is relatively better than possibly having to face multiple suits
and so unnecessarily expend the resources of the parties and the courts.
However, under Article 2209 of the New Civil Code,127 when a debtor delays in his obligation to
pay money, he may be made to pay legal interest, which is 6% per annum unless another rate
was stipulated.128 It is not disputed that Manulife had the obligation to pay the proceeds of the
subject policies upon notice of Sarte's death. As soon as its obligation to pay arose, it should
have consigned the proceeds to the court; otherwise, it incurs delay in payment. It is of no
moment that Manulife did not know at the time who the rightful beneficiary is. In Philippine
National Bank v. Chan,129 We said:
"Consignation is the act of depositing the thing due with the court or judicial authorities whenever
the creditor cannot accept or refuses to accept payment. [I]t generally requires a prior tender of
payment."130
Under Article 1256 of the Civil Code, consignation alone is sufficient even without a prior tender
of payment a) when the creditor is absent or unknown or does not appear at the place of
payment; b) when he is incapacitated to receive the payment at the time it is due; c) when,
without just cause, he refuses to give a receipt; d) when two or more persons claim the same
right to collect; and e) when the title of the obligation has been lost.131 (Emphasis and
underscoring supplied)
Meanwhile, under Article 1169 of the New Civil Code,132 those obliged to deliver or to do
something incur in delay from the time the obligee judicially or extrajudicially demands the
fulfillment of the obligation. In Nacar v. Gallery Frames,133 We clarified that where the demand
is established with reasonable certainty, the legal interest of 6% per annum shall begin to run
from the time the claim is made judicially or extrajudicially.134 In this case, Edita claimed that
she met with Cepeda on January 8, 2004. However, this was not established by evidence. What
is undisputed, however, is that on January 21, 2004, Manulife received Edita's letter reiterating
her children's claim over the subject policies.135 Therefore, we find it fitting that the legal interest
rate of 6% per annum be applied on the proceeds of the subject policies starting from January
21, 2004.
Corollary to the above, we cannot grant Manulife's prayer for attorney's fees and expenses of
litigation. There must be factual, legal, and equitable justification for attorney's fees and the
award thereof is within the discretion of the court taking into account the circumstances of each
case.136 We agree with the lower courts that Manulife was not injured when the interpleaded
parties pursued their respective claims. As discussed above, their conflicting claims was brought
about by their different views as to how a beneficiary is designated. These differences have now
been settled.
WHEREFORE, the petition is GRANTED. The Decision dated July 20,2017 and the Resolution
dated December 13, 2018 of the Court of Appeals in CA-G.R. C.V. No. 106718 are
hereby REVERSED and SET ASIDE. Respondent the Manufacturers Life Insurance Company
(Phils.) Inc., is hereby ORDERED to release the proceeds of life insurance policies 4321987-2 &
4319830-8 to Renzo Edgar L. Sarte and of life insurance policy 4319831-6 to Lara Bianca L.
Sarte with six percent (6%) interest per annum beginning January 21, 2004 until fully paid.
SO ORDERED.
Peralta, C.J., (Chairperson), Caguioa, Zalameda, and Gaerlan, JJ., concur.

Footnotes
60 Section 6, Rule 1, Rules of Court.
Section 6. Construction - These Rules shall be liberally construed in order to promote their
objective of securing a just, speedy and inexpensive disposition of every action and proceeding.
Section 49. The written instrument in which a contract of insurance is set forth, is called a policy
of insurance.
71 (E) Proceeds of Life Insurance. - To the extent of the amount receivable by the estate of the
deceased, his executor, or administrator, as insurance under policies taken out by the decedent
upon his own life, irrespective of whether or not the insured retained the power of revocation, or
to the extent of the amount receivable by any beneficiary designated in the policy of insurance,
except when it is expressly stipulated that the designation of the beneficiary is irrevocable.
72 Rollo, pp. 71-75.
73 3. Parol Evidence Rule
Section 10. Evidence of written agreements. - When the terms of an agreement have been
reduced to writing, it is considered as containing all the terms agreed upon and there can be,
between the parties and their successors in interest, no evidence of such terms other than the
contents of the written agreement.
Section 3. Original Document Must Be Produced; Exceptions.- When the subject of inquiry is the
contents of a document, writing, recording, photograph or other record, no evidence is
admissible other than the original document itself, except in the following cases:
(a) When the original is lost or destroyed, or cannot be produced in court, without bad faith on
the part of the offeror;
(b) When the original is in the custody or under the control of the party against whom the
evidence is offered, and the latter fails to produce it after reasonable notice, or the original
cannot be obtained by local judicial processes or procedures;
(c) When the original consists of numerous accounts or other documents which cannot be
examined in court without great loss of time and the fact sought to be established from them is
only the general result of the whole;
(d) When the original is a public record in the custody of a public officer or is recorded in a public
office; and
(e) When the original is not closely-related to a controlling issue.
100 Section 19. Classes of Documents. - For the purpose of their presentation in evidence,
documents are either public or private.
Public documents are:
(a) The written official acts, or records of the sovereign authority, official bodies and tribunals,
and public officers, whether of the Philippines, or of a foreign country;
(b) Documents acknowledged before a notary public except last wills and testaments;
(c) Documents that are considered public documents under treaties and conventions which are
in force between the Philippines and the country of source; and
(d) Public records, kept in the Philippines, of private documents required by law to be entered
therein.
All other writings are private.
105 Article 1868 of the New Civil Code.
Article 1868. By the contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the latter.
.
117 The interpretation of obscure words or stipulations in a contract shall not favor the party who
caused the obscurity.
118 Article 1373. If some stipulation of any contract should admit of several meanings, it shall be
understood as bearing that import which is most adequate to render it effectual.
119 Section 11. The insured shall have the right to change the beneficiary he designated in the
policy, unless he has expressly waived this right in said policy.
127 Article 2209. If the obligation consists in the payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the
payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which
is six per cent per annum.
132 Article 1169. Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their obligation. x x x.

G.R. No. 109125 December 2, 1994

ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners,
vs.
THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT
CORPORATION, respondents.
Antonio M. Albano for petitioners.
Umali, Soriano & Associates for private respondent.

VITUG, J.:
Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04
December 1991, in CA-G.R. SP No. 26345 setting aside and declaring without force
and effect the orders of execution of the trial court, dated 30 August 1991 and 27
September 1991, in Civil Case No. 87-41058.
The antecedents are recited in good detail by the appellate court thusly:
On July 29, 1987 a Second Amended Complaint for Specific Performance was filed by
Ang Yu Asuncion and Keh Tiong, et al., against Bobby Cu Unjieng, Rose Cu Unjieng
and Jose Tan before the Regional Trial Court, Branch 31, Manila in Civil Case No. 87-
41058, alleging, among others, that plaintiffs are tenants or lessees of residential and
commercial spaces owned by defendants described as Nos. 630-638 Ongpin Street,
Binondo, Manila; that they have occupied said spaces since 1935 and have been
religiously paying the rental and complying with all the conditions of the lease contract;
that on several occasions before October 9, 1986, defendants informed plaintiffs that
they are offering to sell the premises and are giving them priority to acquire the same;
that during the negotiations, Bobby Cu Unjieng offered a price of P6-million while
plaintiffs made a counter offer of P5-million; that plaintiffs thereafter asked the
defendants to put their offer in writing to which request defendants acceded; that in
reply to defendant's letter, plaintiffs wrote them on October 24, 1986 asking that they
specify the terms and conditions of the offer to sell; that when plaintiffs did not receive
any reply, they sent another letter dated January 28, 1987 with the same request; that
since defendants failed to specify the terms and conditions of the offer to sell and
because of information received that defendants were about to sell the property,
plaintiffs were compelled to file the complaint to compel defendants to sell the property
to them.
Defendants filed their answer denying the material allegations of the complaint and
interposing a special defense of lack of cause of action.
After the issues were joined, defendants filed a motion for summary judgment which
was granted by the lower court. The trial court found that defendants' offer to sell was
never accepted by the plaintiffs for the reason that the parties did not agree upon the
terms and conditions of the proposed sale, hence, there was no contract of sale at all.
Nonetheless, the lower court ruled that should the defendants subsequently offer their
property for sale at a price of P11-million or below, plaintiffs will have the right of first
refusal. Thus the dispositive portion of the decision states:
WHEREFORE, judgment is hereby rendered in favor of the defendants and against the
plaintiffs summarily dismissing the complaint subject to the aforementioned condition
that if the defendants subsequently decide to offer their property for sale for a purchase
price of Eleven Million Pesos or lower, then the plaintiffs has the option to purchase the
property or of first refusal, otherwise, defendants need not offer the property to the
plaintiffs if the purchase price is higher than Eleven Million Pesos.
SO ORDERED.
Aggrieved by the decision, plaintiffs appealed to this Court in
CA-G.R. CV No. 21123. In a decision promulgated on September 21, 1990 (penned by
Justice Segundino G. Chua and concurred in by Justices Vicente V. Mendoza and
Fernando A. Santiago), this Court affirmed with modification the lower court's
judgment, holding:
In resume, there was no meeting of the minds between the parties concerning the sale
of the property. Absent such requirement, the claim for specific performance will not lie.
Appellants' demand for actual, moral and exemplary damages will likewise fail as there
exists no justifiable ground for its award. Summary judgment for defendants was
properly granted. Courts may render summary judgment when there is no genuine
issue as to any material fact and the moving party is entitled to a judgment as a matter
of law (Garcia vs. Court of Appeals, 176 SCRA 815). All requisites obtaining, the
decision of the court a quo is legally justifiable.
WHEREFORE, finding the appeal unmeritorious, the judgment appealed from is
hereby AFFIRMED, but subject to the following modification: The court a quo in the
aforestated decision gave the plaintiffs-appellants the right of first refusal only if the
property is sold for a purchase price of Eleven Million pesos or lower; however,
considering the mercurial and uncertain forces in our market economy today. We find
no reason not to grant the same right of first refusal to herein appellants in the event
that the subject property is sold for a price in excess of Eleven Million pesos. No
pronouncement as to costs.
SO ORDERED.
The decision of this Court was brought to the Supreme Court by petition for review
on certiorari. The Supreme Court denied the appeal on May 6, 1991 "for insufficiency in
form and substances" (Annex H, Petition).
On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by
this Court, the Cu Unjieng spouses executed a Deed of Sale (Annex D, Petition)
transferring the property in question to herein petitioner Buen Realty and Development
Corporation, subject to the following terms and conditions:
1. That for and in consideration of the sum of FIFTEEN MILLION PESOS
(P15,000,000.00), receipt of which in full is hereby acknowledged, the VENDORS
hereby sells, transfers and conveys for and in favor of the VENDEE, his heirs,
executors, administrators or assigns, the above-described property with all the
improvements found therein including all the rights and interest in the said property free
from all liens and encumbrances of whatever nature, except the pending ejectment
proceeding;
2. That the VENDEE shall pay the Documentary Stamp Tax, registration fees for the
transfer of title in his favor and other expenses incidental to the sale of above-
described property including capital gains tax and accrued real estate taxes.
As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu Unjieng
spouses was cancelled and, in lieu thereof, TCT No. 195816 was issued in the name of
petitioner on December 3, 1990.
On July 1, 1991, petitioner as the new owner of the subject property wrote a letter to
the lessees demanding that the latter vacate the premises.
On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner brought
the property subject to the notice of lis pendens regarding Civil Case No. 87-41058
annotated on TCT No. 105254/T-881 in the name of the Cu Unjiengs.
The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in Civil
Case No. 87-41058 as modified by the Court of Appeals in CA-G.R. CV No. 21123.
On August 30, 1991, respondent Judge issued an order (Annex A, Petition) quoted as
follows:
Presented before the Court is a Motion for Execution filed by plaintiff represented by
Atty. Antonio Albano. Both defendants Bobby Cu Unjieng and Rose Cu Unjieng
represented by Atty. Vicente Sison and Atty. Anacleto Magno respectively were duly
notified in today's consideration of the motion as evidenced by the rubber stamp and
signatures upon the copy of the Motion for Execution.
The gist of the motion is that the Decision of the Court dated September 21, 1990 as
modified by the Court of Appeals in its decision in CA G.R. CV-21123, and elevated to
the Supreme Court upon the petition for review and that the same was denied by the
highest tribunal in its resolution dated May 6, 1991 in G.R. No.
L-97276, had now become final and executory. As a consequence, there was an Entry
of Judgment by the Supreme Court as of June 6, 1991, stating that the aforesaid
modified decision had already become final and executory.
It is the observation of the Court that this property in dispute was the subject of
the Notice of Lis Pendens and that the modified decision of this Court promulgated by
the Court of Appeals which had become final to the effect that should the defendants
decide to offer the property for sale for a price of P11 Million or lower, and considering
the mercurial and uncertain forces in our market economy today, the same right of first
refusal to herein plaintiffs/appellants in the event that the subject property is sold for a
price in excess of Eleven Million pesos or more.
WHEREFORE, defendants are hereby ordered to execute the necessary Deed of Sale
of the property in litigation in favor of plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur
Go for the consideration of P15 Million pesos in recognition of plaintiffs' right of first
refusal and that a new Transfer Certificate of Title be issued in favor of the buyer.
All previous transactions involving the same property notwithstanding the issuance of
another title to Buen Realty Corporation, is hereby set aside as having been executed
in bad faith.
SO ORDERED.
On September 22, 1991 respondent Judge issued another order, the dispositive
portion of which reads:
WHEREFORE, let there be Writ of Execution issue in the above-entitled case directing
the Deputy Sheriff Ramon Enriquez of this Court to implement said Writ of Execution
ordering the defendants among others to comply with the aforesaid Order of this Court
within a period of one (1) week from receipt of this Order and for defendants to execute
the necessary Deed of Sale of the property in litigation in favor of the plaintiffs Ang Yu
Asuncion, Keh Tiong and Arthur Go for the consideration of P15,000,000.00 and
ordering the Register of Deeds of the City of Manila, to cancel and set aside the title
already issued in favor of Buen Realty Corporation which was previously executed
between the latter and defendants and to register the new title in favor of the aforesaid
plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go.
SO ORDERED.
On the same day, September 27, 1991 the corresponding writ of execution (Annex C,
Petition) was issued.1
On 04 December 1991, the appellate court, on appeal to it by private respondent, set
aside and declared without force and effect the above questioned orders of the court a
quo.
In this petition for review on certiorari, petitioners contend that Buen Realty can be held
bound by the writ of execution by virtue of the notice of lis pendens, carried over on
TCT No. 195816 issued in the name of Buen Realty, at the time of the latter's purchase
of the property on 15 November 1991 from the Cu Unjiengs.
We affirm the decision of the appellate court.
A not too recent development in real estate transactions is the adoption of such
arrangements as the right of first refusal, a purchase option and a contract to sell. For
ready reference, we might point out some fundamental precepts that may find some
relevance to this discussion.
An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code).
The obligation is constituted upon the concurrence of the essential elements
thereof, viz: (a) The vinculum juris or juridical tie which is the efficient cause
established by the various sources of obligations (law, contracts, quasi-contracts,
delicts and quasi-delicts); (b) the object which is the prestation or conduct; required to
be observed (to give, to do or not to do); and (c) the subject-persons who, viewed from
the demandability of the obligation, are the active (obligee) and the passive (obligor)
subjects.
Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a
meeting of minds between two persons whereby one binds himself, with respect to the
other, to give something or to render some service (Art. 1305, Civil Code). A contract
undergoes various stages that include its negotiation or preparation, its perfection and,
finally, its consummation. Negotiation covers the period from the time the prospective
contracting parties indicate interest in the contract to the time the contract is concluded
(perfected). The perfection of the contract takes place upon the concurrence of the
essential elements thereof. A contract which is consensual as to perfection is so
established upon a mere meeting of minds, i.e., the concurrence of offer and
acceptance, on the object and on the cause thereof. A contract which requires, in
addition to the above, the delivery of the object of the agreement, as in a pledge
or commodatum, is commonly referred to as a real contract. In a solemn contract,
compliance with certain formalities prescribed by law, such as in a donation of real
property, is essential in order to make the act valid, the prescribed form being thereby
an essential element thereof. The stage of consummation begins when the parties
perform their respective undertakings under the contract culminating in the
extinguishment thereof.
Until the contract is perfected, it cannot, as an independent source of obligation, serve
as a binding juridical relation. In sales, particularly, to which the topic for discussion
about the case at bench belongs, the contract is perfected when a person, called the
seller, obligates himself, for a price certain, to deliver and to transfer ownership of a
thing or right to another, called the buyer, over which the latter agrees. Article 1458 of
the Civil Code provides:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract to Sell" where
invariably the ownership of the thing sold is retained until the fulfillment of a positive
suspensive condition (normally, the full payment of the purchase price), the breach of
the condition will prevent the obligation to convey title from acquiring an obligatory
force.2 In Dignos vs. Court of Appeals (158 SCRA 375), we have said that, although
denominated a "Deed of Conditional Sale," a sale is still absolute where the contract is
devoid of any proviso that title is reserved or the right to unilaterally rescind is
stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to
the buyer upon actual or constructive delivery (e.g., by the execution of a public
document) of the property sold. Where the condition is imposed upon the perfection of
the contract itself, the failure of the condition would prevent such perfection. 3 If the
condition is imposed on the obligation of a party which is not fulfilled, the other party
may either waive the condition or refuse to proceed with the sale (Art. 1545, Civil
Code).4
An unconditional mutual promise to buy and sell, as long as the object is made
determinate and the price is fixed, can be obligatory on the parties, and compliance
therewith may accordingly be exacted.5
An accepted unilateral promise which specifies the thing to be sold and the price to
be paid, when coupled with a valuable consideration distinct and separate from the
price, is what may properly be termed a perfected contract of option. This contract is
legally binding, and in sales, it conforms with the second paragraph of Article 1479 of
the Civil Code, viz:
Art. 1479. . . .
An accepted unilateral promise to buy or to sell a determinate thing for a price certain
is binding upon the promissor if the promise is supported by a consideration distinct
from the price. (1451a)6
Observe, however, that the option is not the contract of sale itself.7 The optionee has
the right, but not the obligation, to buy. Once the option is exercised timely, i.e., the
offer is accepted before a breach of the option, a bilateral promise to sell and to buy
ensues and both parties are then reciprocally bound to comply with their respective
undertakings.8
Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect
promise (policitacion) is merely an offer. Public advertisements or solicitations and the
like are ordinarily construed as mere invitations to make offers or only as proposals.
These relations, until a contract is perfected, are not considered binding commitments.
Thus, at any time prior to the perfection of the contract, either negotiating party may
stop the negotiation. The offer, at this stage, may be withdrawn; the withdrawal is
effective immediately after its manifestation, such as by its mailing and not necessarily
when the offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a
period is given to the offeree within which to accept the offer, the following rules
generally govern:
(1) If the period is not itself founded upon or supported by a consideration, the offeror is
still free and has the right to withdraw the offer before its acceptance, or, if an
acceptance has been made, before the offeror's coming to know of such fact, by
communicating that withdrawal to the offeree (see Art. 1324, Civil Code; see also
Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to a
unilateral promise to sell under Art. 1479, modifying the previous decision in South
Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural
Bank of Parañaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA
368). The right to withdraw, however, must not be exercised whimsically or arbitrarily;
otherwise, it could give rise to a damage claim under Article 19 of the Civil Code which
ordains that "every person must, in the exercise of his rights and in the performance of
his duties, act with justice, give everyone his due, and observe honesty and good
faith."
(2) If the period has a separate consideration, a contract of "option" is
deemed perfected, and it would be a breach of that contract to withdraw the offer
during the agreed period. The option, however, is an independent contract by itself,
and it is to be distinguished from the projected main agreement (subject matter of the
option) which is obviously yet to be concluded. If, in fact, the optioner-offeror withdraws
the offer before its acceptance (exercise of the option) by the optionee-offeree, the
latter may not sue for specific performance on the proposed contract ("object" of the
option) since it has failed to reach its own stage of perfection. The optioner-offeror,
however, renders himself liable for damages for breach of the option. In these cases,
care should be taken of the real nature of the consideration given, for if, in fact, it has
been intended to be part of the consideration for the main contract with a right of
withdrawal on the part of the optionee, the main contract could be deemed perfected; a
similar instance would be an "earnest money" in a contract of sale that can evidence its
perfection (Art. 1482, Civil Code).
In the law on sales, the so-called "right of first refusal" is an innovative juridical relation.
Needless to point out, it cannot be deemed a perfected contract of sale under Article
1458 of the Civil Code. Neither can the right of first refusal, understood in its normal
concept, per se be brought within the purview of an option under the second
paragraph of Article 1479, aforequoted, or possibly of an offer under Article 13199 of the
same Code. An option or an offer would require, among other things,10 a clear certainty
on both the object and the cause or consideration of the envisioned contract. In a right
of first refusal, while the object might be made determinate, the exercise of the right,
however, would be dependent not only on the grantor's eventual intention to enter into
a binding juridical relation with another but also on terms, including the price, that
obviously are yet to be later firmed up. Prior thereto, it can at best be so described as
merely belonging to a class of preparatory juridical relations governed not by contracts
(since the essential elements to establish the vinculum juris would still be indefinite and
inconclusive) but by, among other laws of general application, the pertinent scattered
provisions of the Civil Code on human conduct.
Even on the premise that such right of first refusal has been decreed under a final
judgment, like here, its breach cannot justify correspondingly an issuance of a writ of
execution under a judgment that merely recognizes its existence, nor would it sanction
an action for specific performance without thereby negating the indispensable element
of consensuality in the perfection of contracts.11 It is not to say, however, that the right
of first refusal would be inconsequential for, such as already intimated above, an
unjustified disregard thereof, given, for instance, the circumstances expressed in Article
1912 of the Civil Code, can warrant a recovery for damages.
The final judgment in Civil Case No. 87-41058, it must be stressed, has merely
accorded a "right of first refusal" in favor of petitioners. The consequence of such a
declaration entails no more than what has heretofore been said. In fine, if, as it is here
so conveyed to us, petitioners are aggrieved by the failure of private respondents to
honor the right of first refusal, the remedy is not a writ of execution on the judgment,
since there is none to execute, but an action for damages in a proper forum for the
purpose.
Furthermore, whether private respondent Buen Realty Development Corporation, the
alleged purchaser of the property, has acted in good faith or bad faith and whether or
not it should, in any case, be considered bound to respect the registration of the lis
pendens in Civil Case No. 87-41058 are matters that must be independently
addressed in appropriate proceedings. Buen Realty, not having been impleaded in Civil
Case No. 87-41058, cannot be held subject to the writ of execution issued by
respondent Judge, let alone ousted from the ownership and possession of the property,
without first being duly afforded its day in court.
We are also unable to agree with petitioners that the Court of Appeals has erred in
holding that the writ of execution varies the terms of the judgment in Civil Case No. 87-
41058, later affirmed in CA-G.R. CV-21123. The Court of Appeals, in this regard, has
observed:
Finally, the questioned writ of execution is in variance with the decision of the trial court
as modified by this Court. As already stated, there was nothing in said decision 13 that
decreed the execution of a deed of sale between the Cu Unjiengs and respondent
lessees, or the fixing of the price of the sale, or the cancellation of title in the name of
petitioner (Limpin vs. IAC, 147 SCRA 516; Pamantasan ng Lungsod ng Maynila vs.
IAC, 143 SCRA 311; De Guzman vs. CA, 137 SCRA 730; Pastor vs. CA, 122 SCRA
885).
It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could not
have decreed at the time the execution of any deed of sale between the Cu Unjiengs
and petitioners.
WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the
questioned Orders, dated 30 August 1991 and 27 September 1991, of the court a quo.
Costs against petitioners.
SO ORDERED.
Narvasa, C.J., Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason,
Puno and Mendoza, JJ., concur.
Kapunan, J., took no part.
Feliciano, J., is on leave.
 
6 It is well to note that when the consideration given, for what otherwise would have
been an option, partakes the nature in reality of a part payment of the purchase price
(termed as "earnest money" and considered as an initial payment thereof), an actual
contract of sale is deemed entered into and enforceable as such.
7 Enriquez de la Cavada vs. Diaz, 37 Phil. 982.
8 Atkins, Kroll & Co., Inc., vs. Cua Hian Tek, 102 Phil. 948.
9 Article 1319, Civil Code, provides:
Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract. The offer must be
certain and the acceptance absolute. A qualified acceptance constitutes a counter-
offer. (Emphasis supplied.)
10 It is also essential for an option to be binding that valuable consideration distinct
from the price should be given (see Montilla vs. Court of Appeals, 161 SCRA 167; Sps.
Natino vs. IAC, 197 SCRA 323; Cronico vs. J.M. Tuason & Co., Inc., 78 SCRA 331).
11 See Article 1315 and 1318, Civil Code; Madrigal & Co. vs. Stevenson & Co., 15 Phil.
38; Salonga vs. Ferrales, 105 SCRA 359).
12 Art. 19. Every person must, in the exercise of his rights and in the performance of
his duties, act with justice, give everyone his due, and observe honesty and good faith.
13 The decision referred to reads:
In resume, there was no meeting of the minds between the parties concerning the sale
of the property. Absent such requirement, the claim for specific performance will not lie.
Appellants' demand for actual, moral and exemplary damages will likewise fail as there
exists no justifiable ground for its award. Summary judgment for defendants was
properly granted. Courts may render summary judgment when there is no genuine
issue as to any material fact and the moving party is entitled to a judgment as a matter
of law (Garcia vs. Court of Appeals, 176 SCRA 815). All requisites obtaining, the
decision of the court a quo is legally justifiable.
WHEREFORE, finding the appeal unmeritorious, the judgment appealed from is
hereby AFFIRMED, but subject to the following modification: The court a quo in the
aforestated decision, gave the plaintiffs — considering the mercurial and uncertain
forces in our market economy today. We find no reason not to grant the same right of
first refusal to herein appellants in the event that the subject property is sold for a price
in excess of Eleven Million pesos. No pronouncement as to costs.

Article 1158.
 February 24, 2017cdizonblog

Article 1158. Obligations derived from law are not presumed. Only those expressly determined
in this Code or in special laws are demandable, and shall be regulated by the precepts of the law
which establishes them; and as to what has not been foreseen, by the provisions of this Book.
(1090)
Agreement Unnecessary. – The law cannot exist as a source of obligations, unless the acts to
which its principles may be applied exist. But once those acts or facts exist, the obligations
arising therefrom by virtue of express provisions of the law are entirely independent of the of
the parties. Such obligations and their correlative rights are govern by the law by which they are
created.
Obligation Not Presumed. – Under the terms of this article, obligations derived from law are
not to be presumed. Only those expressly provided for in this code or in special laws are
enforceable.
Article 1158 refers to legal obligations or obligations arising from law. They are not presumed
because because they are considered a burden upon the obligor. They are the exception, not
the rule. To be demandable, they must be clearly set forth in the law, i.e., the Civil Code or
special laws. Thus:
1. An employer has no obligation to furnish free legal assistance to his employees because
no law requires this, and therefore, an employee may not recover from his employer the
amount he may have paid a lawyer hired by him to recover damages caused to said
employee by a stranger or strangers while in the performance of his duties. ( De la Cruz
vs. Northern Theatrical Enterprise, 95 Phil. 739)
2. A private school has no legal obligation to provide clothing allowance to its teachers
because there is no law which imposes this obligation upon schools. But a person who
wins money in gambling has the duty to return his winnings to the loser. This obligation
is provided by law. (Art. 2014)
Under Article 1158, Special laws refer to all other laws not contained in the Civil Code. Examples
of such laws are  Corporate Code, Negotiable Instruments Law, Insurance Code, National
Internal Revenue Code, Revised Penal Code, Labor Code, etc

Article 1159
March 26, 2016
OBLIGATIONS ARISING FROM CONTRACTS HAVE THE FORCE OF LAW BETWEEN THE
CONTRACTING PARTIES AND SHOULD BE COMPLIED WITH IN GOOD FAITH.

          Ang mga obligasyon na nag simula sa mga kontrata at nagkaroon ng bisa sa batas sa pagitan
ng mga nagkasundong partido ay dapat gampanan ito ng may mabuting kalooban.

*Distinction between Obligation and Contract

Obligation – is a judicial necessity to give, to do or not to do (1156), while

Contract – is the meeting of the minds between two persons whereby one bind himself with respect
to the other, to give something or to render some services. (Art.1305)

Obligation Arising from contracts – it is an established doctrine of law and sustained by the settled
practice of the courts, that a man obligates himself to do that to which he promises to be bound,
because that which is agreed to in a contract is the law between such contracting parties. This rule,
however, is subject to a condition that a court is not contrary to law, morals, good customs, public
order, or public policy.

Title Five
CIVIL LIABILITY
Chapter One
PERSON CIVILLY LIABLE FOR FELONIES

Art. 100. Civil liability of a person guilty of felony. — Every person criminally

liable for a felony is also civilly liable. chanrobles virtual law library

BOOK IV
OBLIGATIONS AND CONTRACTS
Title. I. - OBLIGATIONS
CHAPTER 1
GENERAL PROVISIONS

Art. 1156. An obligation is a juridical necessity to give, to do or not to do. (n)

Art. 1157. Obligations arise from:

(1) Law;

(2) Contracts;

(3) Quasi-contracts;

(4) Acts or omissions punished by law; and

(5) Quasi-delicts. (1089a)

Art. 1158. Obligations derived from law are not presumed. Only those expressly determined in this Code or in
special laws are demandable, and shall be regulated by the precepts of the law which establishes them; and as to
what has not been foreseen, by the provisions of this Book. (1090)

Art. 1159. Obligations arising from contracts have the force of law between the contracting parties and should be
complied with in good faith. (1091a)

Art. 1160. Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, Title XVII, of
this Book. (n)

Art. 1161. Civil obligations arising from criminal offenses shall be governed by the penal laws, subject to the
provisions of Article 2177, and of the pertinent provisions of Chapter 2, Preliminary Title, on Human Relations,
and of Title XVIII of this Book, regulating damages. (1092a)

Art. 1162. Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title XVII of
this Book, and by special laws. (1093a)
 

CHAPTER 2
NATURE AND EFFECT OF OBLIGATIONS
Art. 1163. Every person obliged to give something is also obliged to take care of it with the proper diligence of a
good father of a family, unless the law or the stipulation of the parties requires another standard of care. (1094a)

Art. 1164. The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises.
However, he shall acquire no real right over it until the same has been delivered to him. (1095)

Art. 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him
by Article 1170, may compel the debtor to make the delivery.

If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the
debtor.

If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same
interest, he shall be responsible for any fortuitous event until he has effected the delivery. (1096)

Art. 1166. The obligation to give a determinate thing includes that of delivering all its accessions and accessories,
even though they may not have been mentioned. (1097a)

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

This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may
be decreed that what has been poorly done be undone. (1098)

Art. 1168. When the obligation consists in not doing, and the obligor does what has been forbidden him, it shall
also be undone at his expense. (1099a)

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

However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declare; or

(2) When from the nature and the circumstances of the obligation it appears that the designation of the
time when the thing is to be delivered or the service is to be rendered was a controlling motive for the
establishment of the contract; or

(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay
by the other begins. (1100a)

Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those
who in any manner contravene the tenor thereof, are liable for damages. (1101)

Art. 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future
fraud is void. (1102a)

Art. 1172. Responsibility arising from negligence in the performance of every kind of obligation is also
demandable, but such liability may be regulated by the courts, according to the circumstances. (1103)

Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the
nature of the obligation and corresponds with the circumstances of the persons, of the time and of the place.
When negligence shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2, shall apply.

If the law or contract does not state the diligence which is to be observed in the performance, that which is
expected of a good father of a family shall be required. (1104a)

Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when
the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which
could not be foreseen, or which, though foreseen, were inevitable. (1105a)

Art. 1175. Usurious transactions shall be governed by special laws. (n)

Art. 1176. The receipt of the principal by the creditor without reservation with respect to the interest, shall give
rise to the presumption that said interest has been paid.
The receipt of a later installment of a debt without reservation as to prior installments, shall likewise raise the
presumption that such installments have been paid. (1110a)

Art. 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may
exercise all the rights and bring all the actions of the latter for the same purpose, save those which are inherent
in his person; they may also impugn the acts which the debtor may have done to defraud them. (1111)

Art. 1178. Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there has been no
stipulation to the contrary. (1112)