ASJ Corporation and Antonio San Juan vs Spouses

Efren and Mau2ra Evangelista

March 16, 2016

G.R. No. 158086 Feb. 14, 2008

FACTS

This case is a petition for review on certiorari on the decision of the Court of Appeals affirming
the decision of the Regional Trial Court of Malolos, Bulacan Branch 9 in Civil Case No. 745-M-
93.

Respondents Efren and Maura Evangelista are owners of R.M. Sy Chicks, a business engaged
in selling chicks and egg by-products. For hatching and incubation of eggs, they availed the
services of ASJ Corp., owned by San Juan and his family.

After years of doing business with the ASJ Corp., the respondents delayed payments for the
services of ASJ Corp, prompting owner San Juan to refuse the release of the hatched egg. The
respondents tendered Php 15,000 to San Juan for partial payment which San Juan accepted
but he still insisted on the full settlement of respondents’ accounts before releasing the chicks
and by-products. He also threated the respondents that he would impound their vehicle and
detain them at the hatchery compound if they should come back unprepared to fully settle their
accounts with him.

The parties tried to settle amicably before police authorities but failed. The respondents then
filed with the RTC an action for damages based on the retention of the chicks and by-products
by the petitioners.

The RTC held ASJ Corp. and San Juan solidarily liable for the actual and moral damages and
attorney’s fees. On appeal, the Court of Appeals affirmed the decision and added exemplary
damages. Hence, this petition.

ISSUE

Whether or not the petitioner’s retention of the chicks and by-products on account of
respondents’ failure to pay the corresponding fees justified.

HELD

Yes. The retention has legal basis, although the threats had none. Under Article 1248 of the
Civil Code, the creditor cannot be compelled to accept partial payments from the debtor, unless
there is an express stipulation to that effect. It was the respondents who violated the reciprocity
in contracts, hence, the petitioners have the right of retention. This case is a case on non-
performance of reciprocal obligation.
Reciprocal obligations are those which arise from the same cause, wherein each party is a
debtor and a creditor of the other such that the performance of one is conditioned upon the
simultaneous fulfillment of the other.

Since respondents are guilty of delay in the performance of their obligations, they are liable to
pay petitioners actual damages.

The petition was partly granted. The respondents were ordered to pay petitioners for actual
damages. The actual, exemplary and moral damages laid down by the Court of Appeals were
retained.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-56170 January 31, 1984

HILARIO JARAVATA petitioner,

vs.
THE HON. SANDIGANBAYAN and THE PEOPLE OF THE PHILIPPINES, respondents.

Franco L. Loyola and Sabas Cacananta for petitioner.

The Solicitor General for respondents.

ABAD SANTOS, J.:

This is a petition to review the decision of the Sandiganbayan in Criminal Case No. 873.

Hilario Jaravata was accused of violating Section 3(b) of Republic Act No. 3019, as amended,
said to have been committed in the following manner:

That on or about the period from April 30, 1979 to May 25, 1979, in the
Municipality of Tubao, Province of La Union, Philippines, and within the
jurisdiction of this Honorable Court, the abovenamed accused, being then the
Assistant Principal of the Leones Tubao, La Union Barangay High School and
with the use of his influence as such public official and taking advantage of his
moral and official ascendancy over his classroom teachers, with deliberate intent
did then and there wilfully, unlawfully and feloniously made demand and actually
received payments from other classroom teachers, ROMEO DACAYANAN,
DOMINGO LOPEZ, MARCELA BAUTISTA, and FRANCISCO DULAY various
sums of money, namely: P118.00, P100.00, P50.00 and P70.00 out of their
salary differentials, in consideration of accused having officially intervened in the
release of the salary differentials of the six classroom teachers, to the prejudice
and damage of the said classroom teachers, in the total amount of THREE
HUNDRED THIRTY EIGHT (P338.00) PESOS, Philippine Currency. (Decision,
p.1-2.)

After trial, the Sandiganbayan rendered the following judgment:

WHEREFORE, accused is hereby found guilty beyond reasonable doubt for

Violation of Section 3(b), Republic Act No. 3019, as amended, and he is hereby
sentenced to suffer an indeterminate imprisonment ranging from ONE (1) YEAR,
is minimum, to FOUR (4) YEARS, as maximum, to further suffer perpetual
special disqualification from public office and to pay the costs.

No pronouncement as to the civil liability it appearing that the money given to the
accused was already refunded by him. (Id. pp, 16-17.)

The petition raises factual and legal issues but for obvious reasons Our decision shall deal with
the legal issue only.

The Sandiganbayan states in its decision the following:

A perusal of the conflicting versions of the prosecution and the defense shows
that there is no dispute that [complainants] Ramos, Lloren, Lopez, Dacayanan,
Dulay and Bautista are classroom teachers of the Leones Barangay High School
with accused as their assistant principal and [Conrado Baltazar as the
administrator; that on January 5, 1979, accused informed the classroom teachers
of the approval of the release of their salary differentials for 1978 and to facilitate
its payment accused and the classroom teachers agreed that accused follow-up
the papers in Manila with the obligation on the part of the classroom teachers to
 reimburse the accused of his expenses; that accused incurred expenses in the
total amount of P220.00 and there being six classroom teachers, he divided said
amount by six or at the rate of P36.00 each; that the classroom teachers actually
received their salary differentials and pursuant to said agreement, they, with the
exception of Lloren and Ramos, gave the accused varying amounts but as
Baltazar did not approve it, he ordered the accused to return the money given to
him by Lopez, Dacayanan, Dulay and Bautista, and accused complied (Pp. 7-8.)

The decision also recites that "the evidence is overwhelming to show that accused received
more than the rightful contribution of P36.00 from four classroom teachers, namely: Lopez,
Dulay, Dacayanan and Bautista. Lopez categorically declared that he gave the accused
P100.00 (TSN, p. 5, August 21, 1980 hearing) after he received his salary differential or an
excess of P64.00. So with Dulay, that he gave P70.00 to the accused (TSN, p. 16, supra) or an
excess of P34.00; Dacayanan, that he gave to the accused P118.00 (TSN, p. 26, supra) or an
excess of P82.00, and Bautista, that he gave to the accused P50.00 (TSN, p. 38, supra) or an
excess of P14.00. In short, the total amount received by the accused in excess of the share of
the classroom teachers in the reimbursement of his expenses is P194.00. " (P. 9.)

Republic Act No. 3019, otherwise known as the Anti-Graft and Corrupt Practices Act
provides, inter alia the following:

Sec. 3. Corrupt practices of public officers. — In addition to acts or omissions of

public officers already penalized by existing law, the following shall constitute
corrupt practices of any public officer and are hereby declared to be unlawful:

xxx xxx xxx

(b) Directly or indirectly requesting or receiving any gift, present, share,

percentage, or benefit, for himself or for any other person in connection with any
contract or transaction between the Government and any other party, wherein
the public officer in his official capacity has to intervene under the law.

xxx xxx xxx

The legal issue is whether or not, under the facts stated, petitioner Jaravata violated the above-
quoted provision of the statute.

A simple reading of the provision has to yield a negative answer.

There is no question that Jaravata at the time material to the case was a "public officer" as
defined by Section 2 of R.A. No. 3019, i.e. "elective and appointive officials and employees,
permanent or temporary, whether in the classified or unclassified or exempt service receiving
compensation, even normal from the government." It may also be said that any amount which
Jaravata received in excess of P36.00 from each of the complainants was in the concept of a
gift or benefit. The pivotal question, however, is whether Jaravata, an assistant principal of a
high school in the boondocks of Tubao, La Union, "in his official capacity has to intervene under
the law" in the payment of the salary differentials for 1978 of the complainants. It should be
noted that the arrangement was "to facilitate its [salary differential] payment accused and the
classroom teachers agreed that accused follow-up the papers in Manila with the obligation on
the part of the classroom teachers to reimburse the accused of his expenses.

In Our opinion, Sec. 3(b) of R.A. No. 3019, refers to a public officer whose official intervention is
required by law in a contract or transaction.

There is no law which invests the petitioner with the power to intervene in the payment of the
salary differentials of the complainants or anyone for that matter. Far from exercising any power,
the petitioner played the humble role of a supplicant whose mission was to expedite payment of
the salary differentials. In his official capacity as assistant principal he is not required by law to
intervene in the payment of the salary differentials. Accordingly, he cannot be said to have
violated the law afore-cited although he exerted efforts to facilitate the payment of the salary
differentials.

WHEREFORE, the petition is hereby granted and the judgment of the Sandiganbayan
convicting the petitioner is set aside. Costs de oficio.

SO ORDERED.
Fernando, C.J., Teehankee, Makasiar, Aquino, Concepcion, Jr., Guerrero, De Castro,
Melencio-Herrera, Plana, Escolin, Relova and Gutierrez, Jr., JJ., concur.
 [ GR No. 1299, Nov 10, 1903 ]

VICENTE PEREZ v. EUGENIO POMAR +

DECISION

2 Phil. 682

TORRES, J.:
In a decision dated February 9, 1903, the judge of the Sixth Judicial District, deciding a case
brought by the plaintiff against the defendant for the recovery of wages due and unpaid, gave
judgment against the latter for the sum of $600 and the costs of suit, less the sum of $50,
Mexican.
On August 27,11)02, Don Vicente Perez filed in the Court of First Instance of Laguna a
complaint, which was amended on the 17th of January of this year, asking that the court
determine the amount due the plaintiff, at the customary rate of compensation for interpreting in
these Islands, for services rendered the Tabacalera Company, and that, in view of the
circumstances of the case, judgment be rendered in his favor for such sum. The complaint also
asked that the defendant be condemned to the payment of damages in the sum of $3,200, gold,
together with the costs of suit. In this complaint it was alleged that Don Eugenio Pomar, as
general agent of the Compana General de Tabacos in the said province1, verbally requested
the plaintiff on the 8th of December, 1901, to act as interpreter between himself and the military
authorities; that after the date mentioned the plaintiff continued to render such services up to
and including Hay 31, 1002; that he had accompanied the defendant, Pomar, during that time at
conferences between the latter and the colonel commanding the local garrison, and with various
officers and doctors residing in the capital, and at conferences with Captain Lemen in the town
of Pilar, and with the. major in command at the town of Pagsanjan,. concerning the shipment of
goods from Manila, and with respect to goods shipped from the towns of Santa Cruz, Pilar, and
Pagsanjan to this city; that the plaintiff during this period of time was at the disposal of the
defendant, Pomar, and held himself in readiness to render services whenever required; that on
this account his private business, and especially a soap factory established in the capital, was
entirely abandoned; that to the end that such services might be punctually rendered, the agent,
Pomar, assured him that the Tabacalera Company ahvays generously repaid services rendered
it, and that he therefore did not trouble himself about his inability to devote the necessary
amount of time to his business, the defendant going so far as to make him flattering promises of
employment with the company, which he did not accept; that these statements were made in
the absence of witnesses and that therefore his only proof as to the same was Mr. Pomar's
word as a gentleman; that the employees of the company did not understand English, and by
reason of the plaintiff's mediation between the agent and the military authorities large profits
were obtained, as would appear from the account and letterpress books of the agency
corresponding to those dates. In the amended complaint it was added that the defendant, on
behalf of the company, offered to remunerate the plaintiff for the services rendered in the most
advantageous manner in which such services are compensated, in view of the circumstances
under which they were requested; and that the plaintiff, by rendering the company such
services, was obliged to abandon his own business, the manufacture of soap, and thereby
suffered damages in the sum of $3,200, United States currency.
The defendant, on the 25th of September, 1902, filed an answer asking for the dismissal of the
complaint, with costs to the plaintiff. In his answer the defendant denied the allegation in the first
paragraph of the complaint, stating that it was wholly untrue that the company, and the1
defendant as its agent, had solicited the services of thv, plaintiff as interpreter before the military
authorities for the period stated, or for any other period, or that the plaintiff had accompanied
Pomar at the conferences mentioned, concerning shipments from Manila and exports from
some of the towns of the province to this capital. He stated that he; especially denied paragraph
2 of the complaint, as it was absolutely untrue that the plaintiff had been at the disposal of the
defendant for the purpose of rendering such services; that he therefore had not been obliged to
abandon his occupation or his soap factory, and that the statement that an offer of employment
with the company had been made to him was false. The defendant also denied that through the
mediation of the plaintiff the company and himself had obtained large profits. The statements in
paragraphs 6, 7, 8, and 9 of the complaint were also denied. The defendant stated that, on
account of the friendly relations which sprang up between the plaintiff and himself, the former
borrowed from him from time to time money amounting to $175 for the purposes of his
business, and that he had also delivered to the plaintiff 36 arrobas of oil worth $106, and three
packages of resin for use in coloring his soap; that the plaintiff accompanied the defendant to
Pagsanjan, Pilar, and other towns when the latter made business trips to them for the purpose
of extending his business and mercantile relations therein; that on these excursions, as well as
on private and official visits which he had to make, the plaintiff occasionally accompanied him
through motives of friendship, and especially because of the free transportation given him, and
not on behalf of the company of which he was never interpreter and for which he rendered no
services ; that the plaintiff in these conferences acted as interpreter of his own free will, without
being requested to do so by the defendant and without any offer of payment or compensation;
that therefore there existed no legal relation whatever between the company and the plaintiff,
and that the defendant, when accepting the spontaneous, voluntary, and officious services of
the plaintiff, did so in his private capacity and not as agent of the company, and that it was for
this reason that he refused to enter into negotiations with the plaintiff, he being in no way
indebted to the latter. The defendant concluded by saying that he answered in his individual
capacity.
A complaint having been filed against the Compania General de Tabacos and Don Eugenio
Pomar, its agent in the Province of Laguna, the latter, having been duly summoned, replied to
the complaint, which was subsequently amended, and stated that he made such reply in his
individual capacity and not as agent of the company, with which the plaintiff had had no legal
relations. The suit was instituted between the plaintiff and Pomar, who, as such, accepted the
issue and entered into the controversy without objection, opposed the claim of the plaintiff, and
concluded by asking that the complaint be dismissed, with the costs to the plaintiff. Under these
circumstances and construing the statutes liberally, we think it proper to decide the case
pending between both parties in accord- ance with law and the strict principles of justice.
From the oral testimony introduced at the trial, it appears that the plaintiff, Perez, did on various
occasions render Don Eugenio Pomar services as interpreter of English; and that he obtained
passes and accompanied the defendant upon his journeys to some of the towns in the Province
of Laguna. It does not appear from the evidence, however, that the plaintiff was constantly at
the disposal of the defendant during the period of six months, or that he rendered services as
such interpreter continuously and daily during that period of time.
It does not appear that any written contract was entered into between the parties for the
employment of the plaintiff as interpreter, or that any other innominate contract was entered
into; but whether the plaintiff's services were solicited or whether they were offered to the
defendant for his assistance, inasmuch as these services were accepted and made use of by
the latter, we must consider that there was a tacit and mutual consent as to the rendition of the
services. Tin's gives rise to the obligation upon the person benefited by the services to make
compensation therefor, since the bilateral obligation to render service as interpreter, on the one
hand, and on the other to pay for the services rendered, is thereby incurred. (Arts. 1088, 1089,
and 1262 of the Civil Code). The supreme court of Spain in its decision of February 12, 1889,
holds, among other things, "that not only is there an express and tacit consent which produces
real contracts but there is also a presumptive consent which is the basis of quasi contracts, this
giving rise to the multiple juridical relations which result in obligations for the delivery of a thing
or the rendition of a service."
Notwithstanding the denial of the defendant, it is unquestionable that it Avas with his consent
that the plaintiff rendered him services as interpreter, thus aiding him at a time when, owing to
the existence of an insurrection in the province1, the most disturbed conditions prevailed. It
follows, hence, that there was consent on the part of both in the rendition of such services as
interpreter. Such service1 not being contrary to law or to good custom, it was a perfectly licit
object of contract, and such a contract must necessarily have existed between the parties, as
alleged by the plaintiff. (Art. 1271, Civil Code.)
The consideration for the contract is also evident, it being clear that a mutual benefit was
derived in consequence of the service rendered. It is to be supposed that the defendant
accepted these services and that the plaintiff in turn rendered them with the expectation that the
benefit would be reciprocal. This shows the concurrence of the three elements necessary under
article 1261 of the Civil Code to constitute a contract of lease of service, or other innominate
contract, from which an obligation has arisen and whose fulfillment is now demanded.
Article 1254 of the Civil Code provides that a contract exists the moment that one or more
persons consent to be bound, with respect to another or others, to deliver some thing or to
render some service. Article 1255 provides that the contracting parties may establish such
covenants, terms, and conditions as they deem convenient, provided they are not contrary to
law, morals, or public policy. Whether the service was solicited or offered, the fact remains that
Perez rendered to Pomar services as interpreter. As it does not appear that he did this
gratuitously, the duty is imposed upon the defendant, he having accepted the benefit of the
sendee, to pay a just compensation therefor, by virtue of the innominate contract of facio ut dex
implicitly established.
The obligations arising from this contract are reciprocal, and, apart from the general provisions
with respect to contracts and obligations, the special provisions concerning contracts for lease
of services are applicable by analogy.
In this special contract, as determined by article 1544 of the Civil Code, one of the parties
undertakes to render the other a service for a price certain. The tacit agreement and consent of
both parties with respect to the service rendered by the plaintiff, and the reciprocal benefits
accruing to each, are the best evidence of the fact that there was an implied contract sufficient
to create a legal bond, from which arose enforceable rights and obligations of a bilateral
character.
In contracts the will of the contracting parties is law, this being a legal doctrine based upon the
provisions of articles 1254, 1258, 1262, 1278, 1281, 1282, and 1289 of the Civil Code. If it is a
fact sufficiently proven that the defendant, Pomar, on various occasions consented to accept an
interpreter's services, rendered in his behalf and not gratuitously, it is but just that he should pay
a reasonable remuneration therefor, because it is a well-known principle of law that no one
should be permitted to enrich himself to the damage of another.
With respect to the value of the services rendered on different occasions, the most important of
which was the first, as it does not appear that any salary was fixed upon by the parties at the
time the services were accepted, it devolves upon the court to determine, upon the evidence
presented, the value of such services, taking into consideration the few occasions on which they
were rendered. The fact that no fixed or determined consideration for the rendition of the
services was agreed upon does not necessarily involve a violation of the provisions of article
1544 of the Civil Code, because at the time of the agreement this consideration was capable of
being made certain. The discretionary power of the court, conferred upon it by the law, in also
supported by the decisions of the supreme court of Spain, among which may be cited that of
October 18, 1899, which holds as follows: "That as stated in the article of the Code cited, which
follows the provisions of law 1, title 8, of the fifth partida, the contract for lease of services is one
in which one of the parties undertakes to make some thing or to render some service to the
other for a certain price, the existence of such a price being understood, as this court has held
not only when the price has been expressly agreed upon but also when it may be determined by
the custom and frequent use of the place in which such services were rendered."
No exception was taken to the judgment below by the plaintiff on account of the rejection of his
claim for damages. The decision upon this point is, furthermore, correct.
Upon the supposition that the recovery of the plaintiff should not exceed 200 Mexican pesos,
owing to the inconsiderable number of times he acted as interpreter, it is evident that the
contract thus implicitly entered into was not required to be in writing and that therefore it does
not fall within article 1280 of the Civil Code; nor is it included Within the provisions of section
335 of the Code of Civil Procedure, as this innominate contract is not covered by that section.
The contract of lease of services is not included in any of the. cases expressly designated by
that section of the procedural law, as affirmed by the appellant. The interpretation of the other
articles of the Code alleged to have been infringed has also been stated fully in this opinion.
For the reasons stated, we are of the opinion that judgment should be rendered against Don
Eugenio Pomar for the payment to the plaintiff of the sum of 200 Mexican pesos, from which will
be deducted the sum of 50 pesos due the defendant by the plaintiff. No special declaration is
made as to the costs of this instance. The judgment below is accordingly affirmed in so far as it
agrees with this opinion, and reversed in so far as it may be in conflict therewith. Judgment will
be entered accordingly twenty days after this decision is filed.
Arellano, C. J., Willard and Mapa, JJ., concur.
MCDONOUGH, J., with whom concurs COOPER, J., dissenting:
I dissent from the opinion of the majority. In my opinion there is no legal evidence in the case
from which the court may conclude that the recovery should be 200 Mexican pesos. I am
therefore in favor of affirming the judgment.
Johnson, J., did not sit in this case.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 34840 September 23, 1931

NARCISO GUTIERREZ, plaintiff-appellee,

vs.
BONIFACIO GUTIERREZ, MARIA V. DE GUTIERREZ, MANUEL GUTIERREZ, ABELARDO
VELASCO, and SATURNINO CORTEZ, defendants-appellants.

L.D. Lockwood for appellants Velasco and Cortez.

San Agustin and Roxas for other appellants.
Ramon Diokno for appellee.

MALCOLM, J.:

This is an action brought by the plaintiff in the Court of First Instance of Manila against the five
defendants, to recover damages in the amount of P10,000, for physical injuries suffered as a
result of an automobile accident. On judgment being rendered as prayed for by the plaintiff, both
sets of defendants appealed.

On February 2, 1930, a passenger truck and an automobile of private ownership collided while
attempting to pass each other on the Talon bridge on the Manila South Road in the municipality
of Las Piñas, Province of Rizal. The truck was driven by the chauffeur Abelardo Velasco, and
was owned by Saturnino Cortez. The automobile was being operated by Bonifacio Gutierrez, a
lad 18 years of age, and was owned by Bonifacio's father and mother, Mr. and Mrs. Manuel
Gutierrez. At the time of the collision, the father was not in the car, but the mother, together will
several other members of the Gutierrez family, seven in all, were accommodated therein. A
passenger in the autobus, by the name of Narciso Gutierrez, was en route from San Pablo,
Laguna, to Manila. The collision between the bus and the automobile resulted in Narciso
Gutierrez suffering a fracture right leg which required medical attendance for a considerable
period of time, and which even at the date of the trial appears not to have healed properly.

It is conceded that the collision was caused by negligence pure and simple. The difference
between the parties is that, while the plaintiff blames both sets of defendants, the owner of the
passenger truck blames the automobile, and the owner of the automobile, in turn, blames the
truck. We have given close attention to these highly debatable points, and having done so, a
majority of the court are of the opinion that the findings of the trial judge on all controversial
questions of fact find sufficient support in the record, and so should be maintained. With this
general statement set down, we turn to consider the respective legal obligations of the
defendants.

In amplification of so much of the above pronouncement as concerns the Gutierrez family, it

may be explained that the youth Bonifacio was in incompetent chauffeur, that he was driving at
an excessive rate of speed, and that, on approaching the bridge and the truck, he lost his head
and so contributed by his negligence to the accident. The guaranty given by the father at the
time the son was granted a license to operate motor vehicles made the father responsible for
the acts of his son. Based on these facts, pursuant to the provisions of article 1903 of the Civil
Code, the father alone and not the minor or the mother, would be liable for the damages caused
by the minor.

We are dealing with the civil law liability of parties for obligations which arise from fault or
negligence. At the same time, we believe that, as has been done in other cases, we can take
cognizance of the common law rule on the same subject. In the United States, it is uniformly
held that the head of a house, the owner of an automobile, who maintains it for the general use
of his family is liable for its negligent operation by one of his children, whom he designates or
permits to run it, where the car is occupied and being used at the time of the injury for the
pleasure of other members of the owner's family than the child driving it. The theory of the law is
that the running of the machine by a child to carry other members of the family is within the
scope of the owner's business, so that he is liable for the negligence of the child because of the
relationship of master and servant. (Huddy On Automobiles, 6th ed., sec. 660; Missell vs. Hayes
[1914], 91 Atl., 322.) The liability of Saturnino Cortez, the owner of the truck, and of his
chauffeur Abelardo Velasco rests on a different basis, namely, that of contract which, we think,
has been sufficiently demonstrated by the allegations of the complaint, not controverted, and the
evidence. The reason for this conclusion reaches to the findings of the trial court concerning the
position of the truck on the bridge, the speed in operating the machine, and the lack of care
employed by the chauffeur. While these facts are not as clearly evidenced as are those which
convict the other defendant, we nevertheless hesitate to disregard the points emphasized by the
trial judge. In its broader aspects, the case is one of two drivers approaching a narrow bridge
from opposite directions, with neither being willing to slow up and give the right of way to the
other, with the inevitable result of a collision and an accident.

The defendants Velasco and Cortez further contend that there existed contributory negligence
on the part of the plaintiff, consisting principally of his keeping his foot outside the truck, which
occasioned his injury. In this connection, it is sufficient to state that, aside from the fact that the
defense of contributory negligence was not pleaded, the evidence bearing out this theory of the
case is contradictory in the extreme and leads us far afield into speculative matters.

The last subject for consideration relates to the amount of the award. The appellee suggests
that the amount could justly be raised to P16,517, but naturally is not serious in asking for this
sum, since no appeal was taken by him from the judgment. The other parties unite in
challenging the award of P10,000, as excessive. All facts considered, including actual
expenditures and damages for the injury to the leg of the plaintiff, which may cause him
permanent lameness, in connection with other adjudications of this court, lead us to conclude
that a total sum for the plaintiff of P5,000 would be fair and reasonable. The difficulty in
approximating the damages by monetary compensation is well elucidated by the divergence of
opinion among the members of the court, three of whom have inclined to the view that P3,000
would be amply sufficient, while a fourth member has argued that P7,500 would be none too
much.

In consonance with the foregoing rulings, the judgment appealed from will be modified, and the
plaintiff will have judgment in his favor against the defendants Manuel Gutierrez, Abelardo
Velasco, and Saturnino Cortez, jointly and severally, for the sum of P5,000, and the costs of
both instances.

Avanceña, C.J., Johnson, Street, Villamor, Ostrand, Romualdez, and Imperial, JJ., concur.

VILLA-REAL, J.:

I vote for an indemnity of P7,500.

Facts:
On February 2,1930, a passenger truck and an automobile of private ownership collided while
attempting to pass each other on the Talon bridge on the Manila South Road in the
municipality of Las Piñas, Province of Rizal
The automobile was being operated by Bonifacio Gutierrez, a lad 18 years of age
At the time of the... collision, the father was not in the car, but the mother, together with several
other members of the Gutierrez family
T... he collision between the bus and the automobile resulted in Narciso Gutierrez suffering a
fractured right leg which required medical attendance for a considerable period of time, and
which even at the date of the trial appears not to... have healed properly.
Issues:
The guaranty given by the father at the time the son was granted a license to operate motor
vehicles made the father responsible for the acts of... his son.
Ruling:
the father alone and not the minor or the mother, would be liable for the damages caused by the
mino... r
Principles:
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-6913 November 21, 1913

THE ROMAN CATHOLIC BISHOP OF JARO, plaintiff-appellee,

vs.
GREGORIO DE LA PEÑA, administrator of the estate of Father Agustin de la
Peña, defendant-appellant.

J. Lopez Vito, for appellant.

Arroyo and Horrilleno, for appellee.

MORELAND, J.:

This is an appeal by the defendant from a judgment of the Court of First Instance of Iloilo,
awarding to the plaintiff the sum of P6,641, with interest at the legal rate from the beginning of
the action.

It is established in this case that the plaintiff is the trustee of a charitable bequest made for the
construction of a leper hospital and that father Agustin de la Peña was the duly authorized
representative of the plaintiff to receive the legacy. The defendant is the administrator of the
estate of Father De la Peña.

In the year 1898 the books Father De la Peña, as trustee, showed that he had on hand as such
trustee the sum of P6,641, collected by him for the charitable purposes aforesaid. In the same
year he deposited in his personal account P19,000 in the Hongkong and Shanghai Bank at
Iloilo. Shortly thereafter and during the war of the revolution, Father De la Peña was arrested by
the military authorities as a political prisoner, and while thus detained made an order on said
bank in favor of the United States Army officer under whose charge he then was for the sum
thus deposited in said bank. The arrest of Father De la Peña and the confiscation of the funds in
the bank were the result of the claim of the military authorities that he was an insurgent and that
the funds thus deposited had been collected by him for revolutionary purposes. The money was
taken from the bank by the military authorities by virtue of such order, was confiscated and
turned over to the Government.

While there is considerable dispute in the case over the question whether the P6,641 of trust
funds was included in the P19,000 deposited as aforesaid, nevertheless, a careful examination
of the case leads us to the conclusion that said trust funds were a part of the funds deposited
and which were removed and confiscated by the military authorities of the United States.

That branch of the law known in England and America as the law of trusts had no exact
counterpart in the Roman law and has none under the Spanish law. In this jurisdiction,
therefore, Father De la Peña's liability is determined by those portions of the Civil Code which
relate to obligations. (Book 4, Title 1.)

Although the Civil Code states that "a person obliged to give something is also bound to
preserve it with the diligence pertaining to a good father of a family" (art. 1094), it also provides,
following the principle of the Roman law, major casus est, cui humana infirmitas resistere non
potest, that "no one shall be liable for events which could not be foreseen, or which having been
foreseen were inevitable, with the exception of the cases expressly mentioned in the law or
those in which the obligation so declares." (Art. 1105.)

By placing the money in the bank and mixing it with his personal funds De la Peña did not
thereby assume an obligation different from that under which he would have lain if such deposit
had not been made, nor did he thereby make himself liable to repay the money at all hazards. If
the had been forcibly taken from his pocket or from his house by the military forces of one of the
combatants during a state of war, it is clear that under the provisions of the Civil Code he would
have been exempt from responsibility. The fact that he placed the trust fund in the bank in his
personal account does not add to his responsibility. Such deposit did not make him a debtor
who must respond at all hazards.

We do not enter into a discussion for the purpose of determining whether he acted more or less
negligently by depositing the money in the bank than he would if he had left it in his home; or
whether he was more or less negligent by depositing the money in his personal account than he
would have been if he had deposited it in a separate account as trustee. We regard such
discussion as substantially fruitless, inasmuch as the precise question is not one of negligence.
There was no law prohibiting him from depositing it as he did and there was no law which
changed his responsibility be reason of the deposit. While it may be true that one who is under
obligation to do or give a thing is in duty bound, when he sees events approaching the results of
which will be dangerous to his trust, to take all reasonable means and measures to escape or, if
unavoidable, to temper the effects of those events, we do not feel constrained to hold that, in
choosing between two means equally legal, he is culpably negligent in selecting one whereas
he would not have been if he had selected the other.

The court, therefore, finds and declares that the money which is the subject matter of this action
was deposited by Father De la Peña in the Hongkong and Shanghai Banking Corporation of
Iloilo; that said money was forcibly taken from the bank by the armed forces of the United States
during the war of the insurrection; and that said Father De la Peña was not responsible for its
loss.

The judgment is therefore reversed, and it is decreed that the plaintiff shall take nothing by his
complaint.

Arellano, C.J., Torres and Carson, JJ., concur.

Separate Opinions

TRENT, J., dissenting:

I dissent. Technically speaking, whether Father De la Peña was a trustee or an agent of the
plaintiff his books showed that in 1898 he had in his possession as trustee or agent the sum of
P6,641 belonging to the plaintiff as the head of the church. This money was then clothed with all
the immunities and protection with which the law seeks to invest trust funds. But when De la
Peña mixed this trust fund with his own and deposited the whole in the bank to
his personal account or credit, he by this act stamped on the said fund his own private marks
and unclothed it of all the protection it had. If this money had been deposited in the name of De
la Peña as trustee or agent of the plaintiff, I think that it may be presumed that the military
authorities would not have confiscated it for the reason that they were looking for insurgent
funds only. Again, the plaintiff had no reason to suppose that De la Peña would attempt to strip
the fund of its identity, nor had he said or done anything which tended to relieve De la Peña
from the legal reponsibility which pertains to the care and custody of trust funds.

The Supreme Court of the United States in the United State vs. Thomas (82 U. S., 337), at page
343, said: "Trustees are only bound to exercise the same care and solicitude with regard to the
trust property which they would exercise with regard to their own. Equity will not exact more of
them. They are not liable for a loss by theft without their fault. But this exemption ceases when
they mix the trust-money with their own, whereby it loses its identity, and they become mere
debtors."

If this proposition is sound and is applicable to cases arising in this jurisdiction, and I entertain
no doubt on this point, the liability of the estate of De la Peña cannot be doubted. But this court
in the majority opinion says: "The fact that he (Agustin de la Peña) placed the trust fund in the
bank in his personal account does not add to his responsibility. Such deposit did not make him a
debtor who must respond at all hazards. . . . There was no law prohibiting him from depositing it
as he did, and there was no law which changed his responsibility, by reason of the deposit."

I assume that the court in using the language which appears in the latter part of the above
quotation meant to say that there was no statutory law regulating the question. Questions of this
character are not usually governed by statutory law. The law is to be found in the very nature of
the trust itself, and, as a general rule, the courts say what facts are necessary to hold the
trustee as a debtor.
If De la Peña, after depositing the trust fund in his personal account, had used this money for
speculative purposes, such as the buying and selling of sugar or other products of the country,
thereby becoming a debtor, there would have been no doubt as to the liability of his estate.
Whether he used this money for that purpose the record is silent, but it will be noted that a
considerable length of time intervened from the time of the deposit until the funds were
confiscated by the military authorities. In fact the record shows that De la Peña deposited on
June 27, 1898, P5,259, on June 28 of that year P3,280, and on August 5 of the same year
P6,000. The record also shows that these funds were withdrawn and again deposited all
together on the 29th of May, 1900, this last deposit amounting to P18,970. These facts strongly
indicate that De la Peña had as a matter of fact been using the money in violation of the trust
imposed in him. lawph!1.net

If the doctrine announced in the majority opinion be followed in cases hereafter arising in this
jurisdiction trust funds will be placed in precarious condition. The position of the trustee will
cease to be one of trust.
Facts:
plaintiff is the trustee of a charitable bequest made for the construction of a leper hospital and
that Father Agustin de la Peña was the duly authorized representative of the plaintiff to receive
the legacy. The defendant is... the administrator of the estate of Father De la Peña.
1898 the books of Father De la Peña, as trustee, showed that he had on hand as such trustee
the sum of P6,641
In the same year he deposited in his personal account P19,000 in the Hongkong and Shanghai
Bank at Iloilo.
Shortly thereafter and during the war of the revolution, Father De la Peña was arrested by the
military authorities as a political prisoner, and while thus detained made an order on said bank
in favor of the United States Army officer under whose charge he... then was for the sum thus
deposited in said bank. The arrest of Father De la Peña and the confiscation of the funds in the
bank were the result of the claim of the military authorities that he was an insurgent and that the
funds thus deposited had been collected by him for... revolutionary purposes. The money was
taken from the bank by the military authorities by virtue of such order, was confiscated and
turned over to the Government.
In this jurisdiction, therefore, Father De la Peña's liability is determined by those portions of the
Civil Code which... relate to obligations.
Issues:
WON Father dela Pena (or his estate) is liable for the funds lost while in trust.... trust funds
Ruling:
By placing the money in the bank and mixing it with his personal funds De la Peña did not
thereby assume an obligation different from that under which he would have lain if such deposit
had not been made, nor did he thereby make himself liable to repay the money at... all
hazards. If the money had been forcibly taken from his pocket or from his house by the military
forces of one of the combatants during a state of war, it is clear that under the provisions of the
Civil Code he would have been exempt from responsibility. The fact... that he placed the trust
fund in the bank in his personal account does not add to his responsibility. Such deposit did not
make him a debtor who must respond at all hazards.
We regard such discussion as substantially fruitless, inasmuch as the precise question is not
one of negligence. There was no law prohibiting him from depositing it as he did and... there
was no law which changed his responsibility by reason of the deposit.
The court, therefore, finds and declares that the money which is the subject matter of this action
was deposited by Father De la Peña in the Hongkong and Shanghai Banking Corporation of
Iloilo; that said money was forcibly taken from the bank by the armed forces of the United
Sates during the war of the insurrection; and that said Father De la Peña was not responsible
for its loss. The judgment is therefore reversed, and it is decreed that the plaintiff shall take
nothing by his complaint.
DISSENTING OPINION, TRENT... when De la Peña mixed this trust fund with his own and
deposited the whole in the bank to his personal account or credit, he by this act stamped on the
said fund... his own private marks and unclothed it of all the protection it had. If this money had
been deposited in the name of De la Peña as trustee or agent of the plaintiff, I think that it may
be presumed that the military authorities would not have confiscated it for the reason... that they
were looking for insurgent funds only. Again, the plaintiff had no reason to suppose that De la
Peña would attempt to strip the fund of its identity, nor had he said or done anything which
tended to relieve De la Peña from the legal responsibility which pertains... to the care and
custody of trust funds.
Principles:
Although the Civil Code states that "a person obliged to give something is also bound to
preserve it with the diligence pertaining to a good father of a family" (art. 1094), it also provides,
following the principle of the Roman law, major casus est, cui humana infirmitas... resistere non
potest, that "no one shall be liable for events which could not be foreseen, or which having been
foreseen were inevitable, with the exception of the cases expressly mentioned in the law or
those in which the obligation so declares." (Art. 1105.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-12342 August 3, 1918

A. A. ADDISON, plaintiff-appellant,
vs.
MARCIANA FELIX and BALBINO TIOCO, defendants-appellees.

Thos. D. Aitken for appellant.

Modesto Reyes and Eliseo Ymzon for appellees.

FISHER, J.:

By a public instrument dated June 11, 1914, the plaintiff sold to the defendant Marciana Felix,
with the consent of her husband, the defendant Balbino Tioco, four parcels of land, described in
the instrument. The defendant Felix paid, at the time of the execution of the deed, the sum of
P3,000 on account of the purchase price, and bound herself to pay the remainder in
installments, the first of P2,000 on July 15, 1914, and the second of P5,000 thirty days after the
issuance to her of a certificate of title under the Land Registration Act, and further, within ten
years from the date of such title P10, for each coconut tree in bearing and P5 for each such tree
not in bearing, that might be growing on said four parcels of land on the date of the issuance of
title to her, with the condition that the total price should not exceed P85,000. It was further
stipulated that the purchaser was to deliver to the vendor 25 per centum of the value of the
products that she might obtain from the four parcels "from the moment she takes possession of
them until the Torrens certificate of title be issued in her favor."

It was also covenanted that "within one year from the date of the certificate of title in favor of
Marciana Felix, this latter may rescind the present contract of purchase and sale, in which case
Marciana Felix shall be obliged to return to me, A. A. Addison, the net value of all the products
of the four parcels sold, and I shall obliged to return to her, Marciana Felix, all the sums that she
may have paid me, together with interest at the rate of 10 per cent per annum."

In January, 1915, the vendor, A. A. Addison, filed suit in Court of First Instance of Manila to
compel Marciana Felix to make payment of the first installment of P2,000, demandable in
accordance with the terms of the contract of sale aforementioned, on July 15, 1914, and of the
interest in arrears, at the stipulated rate of 8 per cent per annum. The defendant, jointly with her
husband, answered the complaint and alleged by way of special defense that the plaintiff had
absolutely failed to deliver to the defendant the lands that were the subject matter of the sale,
notwithstanding the demands made upon him for this purpose. She therefore asked that she be
absolved from the complaint, and that, after a declaration of the rescission of the contract of the
purchase and sale of said lands, the plaintiff be ordered to refund the P3,000 that had been paid
to him on account, together with the interest agreed upon, and to pay an indemnity for the
losses and damages which the defendant alleged she had suffered through the plaintiff's non-
fulfillment of the contract.

The evidence adduced shows that after the execution of the deed of the sale the plaintiff, at the
request of the purchaser, went to Lucena, accompanied by a representative of the latter, for the
purpose of designating and delivering the lands sold. He was able to designate only two of the
four parcels, and more than two-thirds of these two were found to be in the possession of one
Juan Villafuerte, who claimed to be the owner of the parts so occupied by him. The plaintiff
admitted that the purchaser would have to bring suit to obtain possession of the land (sten.
notes, record, p. 5). In August, 1914, the surveyor Santamaria went to Lucena, at the request of
the plaintiff and accompanied by him, in order to survey the land sold to the defendant; but he
surveyed only two parcels, which are those occupied mainly by the brothers Leon and Julio
Villafuerte. He did not survey the other parcels, as they were not designated to him by the
plaintiff. In order to make this survey it was necessary to obtain from the Land Court a writ of
injunction against the occupants, and for the purpose of the issuance of this writ the defendant,
in June, 1914, filed an application with the Land Court for the registration in her name of four
parcels of land described in the deed of sale executed in her favor by the plaintiff. The
proceedings in the matter of this application were subsequently dismissed, for failure to present
the required plans within the period of the time allowed for the purpose.
The trial court rendered judgment in behalf of the defendant, holding the contract of sale to be
rescinded and ordering the return to the plaintiff the P3,000 paid on account of the price,
together with interest thereon at the rate of 10 per cent per annum. From this judgment the
plaintiff appealed.

In decreeing the rescission of the contract, the trial judge rested his conclusion solely on the
indisputable fact that up to that time the lands sold had not been registered in accordance with
the Torrens system, and on the terms of the second paragraph of clause (h) of the contract,
whereby it is stipulated that ". . . within one year from the date of the certificate of title in favor of
Marciana Felix, this latter may rescind the present contract of purchase and sale . . . ."

The appellant objects, and rightly, that the cross-complaint is not founded on the hypothesis of
the conventional rescission relied upon by the court, but on the failure to deliver the land sold.
He argues that the right to rescind the contract by virtue of the special agreement not only did
not exist from the moment of the execution of the contract up to one year after the registration of
the land, but does not accrue until the land is registered. The wording of the clause, in fact,
substantiates the contention. The one year's deliberation granted to the purchaser was to be
counted "from the date of the certificate of title ... ." Therefore the right to elect to rescind the
contract was subject to a condition, namely, the issuance of the title. The record show that up to
the present time that condition has not been fulfilled; consequently the defendant cannot be
heard to invoke a right which depends on the existence of that condition. If in the cross-
complaint it had been alleged that the fulfillment of the condition was impossible for reasons
imputable to the plaintiff, and if this allegation had been proven, perhaps the condition would
have been considered as fulfilled (arts. 1117, 1118, and 1119, Civ. Code); but this issue was not
presented in the defendant's answer.

However, although we are not in agreement with the reasoning found in the decision appealed
from, we consider it to be correct in its result. The record shows that the plaintiff did not deliver
the thing sold. With respect to two of the parcels of land, he was not even able to show them to
the purchaser; and as regards the other two, more than two-thirds of their area was in the
hostile and adverse possession of a third person.

The Code imposes upon the vendor the obligation to deliver the thing sold. The thing is
considered to be delivered when it is placed "in the hands and possession of the vendee." (Civ.
Code, art. 1462.) It is true that the same article declares that the execution of a public
instruments is equivalent to the delivery of the thing which is the object of the contract, but, in
order that this symbolic delivery may produce the effect of tradition, it is necessary that the
vendor shall have had such control over the thing sold that, at the moment of the sale, its
material delivery could have been made. It is not enough to confer upon the purchaser
the ownership and the right of possession. The thing sold must be placed in his control. When
there is no impediment whatever to prevent the thing sold passing into the tenancy of the
purchaser by the sole will of the vendor, symbolic delivery through the execution of a public
instrument is sufficient. But if, notwithstanding the execution of the instrument, the purchaser
cannot have the enjoyment and material tenancy of the thing and make use of it himself or
through another in his name, because such tenancy and enjoyment are opposed by the
interposition of another will, then fiction yields to reality — the delivery has not been effected.

As Dalloz rightly says (Gen. Rep., vol. 43, p. 174) in his commentaries on article 1604 of the
French Civil code, "the word "delivery" expresses a complex idea . . . the abandonment of the
thing by the person who makes the delivery and the taking control of it by the person to whom
the delivery is made."

The execution of a public instrument is sufficient for the purposes of the abandonment made by
the vendor; but it is not always sufficient to permit of the apprehension of the thing by the
purchaser.

The supreme court of Spain, interpreting article 1462 of the Civil Code, held in its decision of
November 10, 1903, (Civ. Rep., vol. 96, p. 560) that this article "merely declares that when the
sale is made through the means of a public instrument, the execution of this latter is equivalent
to the delivery of the thing sold: which does not and cannot mean that this fictitious tradition
necessarily implies the real tradition of the thing sold, for it is incontrovertible that, while its
ownership still pertains to the vendor (and with greater reason if it does not), a third person may
be in possession of the same thing; wherefore, though, as a general rule, he who purchases by
means of a public instrument should be deemed . . . to be the possessor in fact, yet this
presumption gives way before proof to the contrary."
It is evident, then, in the case at bar, that the mere execution of the instrument was not a
fulfillment of the vendors' obligation to deliver the thing sold, and that from such non-fulfillment
arises the purchaser's right to demand, as she has demanded, the rescission of the sale and
the return of the price. (Civ. Code, arts. 1506 and 1124.)

Of course if the sale had been made under the express agreement of imposing upon the
purchaser the obligation to take the necessary steps to obtain the material possession of the
thing sold, and it were proven that she knew that the thing was in the possession of a third
person claiming to have property rights therein, such agreement would be perfectly valid. But
there is nothing in the instrument which would indicate, even implicitly, that such was the
agreement. It is true, as the appellant argues, that the obligation was incumbent upon the
defendant Marciana Felix to apply for and obtain the registration of the land in the new registry
of property; but from this it cannot be concluded that she had to await the final decision of the
Court of Land Registration, in order to be able to enjoy the property sold. On the contrary, it was
expressly stipulated in the contract that the purchaser should deliver to the vendor one-fourth
"of the products ... of the aforesaid four parcels from the moment when she takes possession of
them until the Torrens certificate of title be issued in her favor." This obviously shows that it was
not forseen that the purchaser might be deprived of her possession during the course of the
registration proceedings, but that the transaction rested on the assumption that she was to
have, during said period, the material possession and enjoyment of the four parcels of land.

Inasmuch as the rescission is made by virtue of the provisions of law and not by contractual
agreement, it is not the conventional but the legal interest that is demandable.

It is therefore held that the contract of purchase and sale entered into by and between the
plaintiff and the defendant on June 11, 1914, is rescinded, and the plaintiff is ordered to make
restitution of the sum of P3,000 received by him on account of the price of the sale, together
with interest thereon at the legal rate of 6 per annum from the date of the filing of the complaint
until payment, with the costs of both instances against the appellant. So ordered.

Torres, Johnson, Street, Malcolm and Avanceña, JJ., concur.

[ GR No. 12342, Aug 03, 1918 ]

A. A. ADDISON v. MARCIANA FELIX +

DECISION

38 Phil. 404

FISHER, J.:
By a public instrument dated June 11, 1914, the plaintiff sold to the defendant Marciana Felix,
with the consent of her husband, the defendant Balbino Tioco, four parcels of land, described in
the instrument. The defendant Felix paid, at the time of the execution of the deed, the sum of
P3,000 on account of the purchase price, and bound herself to pay the remainder in
installments, the first of P2,000 on July 15, 1914, the second of P5,000 thirty days after the
issuance to her of a certificate of title under the Land Registration Act, and further, within ten
years from the date of such title, P10 for each cocoanut tree in bearing and "P5 for each such
tree not in bearing, that might be growing on said four parcels of land on the date of the
issuance of title to her, with the condition that the total price should not exceed P85,000. It was
further stipulated that the purchaser was to deliver to the vendor 25 per centum of the value of
the products that she might obtain from the four parcels "from the moment she takes
possession of them until the Torrens certificate of title be issued in her favor."
It was also covenanted that "within one year from the date of the certificate of title in favor of
Marciana Felix, this latter may rescind the present contract of purchase and sale, in which case
Marcianar'Felix shall be obliged to return to me, A. A. Addison, the net value of all the products
of the four parcels sold, and I shall be obliged to return to her, Marciana Felix, all the sums that
she may have paid me, together with interest at the rate of 10 per cent per annum."
In January, 1915, the vendor, A. A. Addison, filed suit in the Court of First Instance of Manila to
compel Marciana Felix to make payment of the first installment of P2,000, demandable, in
accordance with the terms of the contract of sale aforementioned, on July 15, 1914, and of the
interest in arrears, at the stipulated rate of 8 per cent per annum. The defendant,, jointly with her
husband, answered the complaint and alleged by way of special defense that the plaintiff had
absolutely failed to deliver to the defendant the lands that were the subject matter of the sale,
notwithstanding the demands made upon him for this purpose. She therefore asked that she be
absolved from the complaint, and that, after a declaration of the rescission of the contract of the
purchase and sale of saidjands, the plaintiff be ordered refund the P3,000 that had been paid to
him on account, together with the interest agreed upon, and to pay an indemnity for the losses
and damages which the defendant alleged she had suffered through the plaintiff's nonfulfilment
of the contract.
The evidence adduced shows that after the execution of the deed of sale the plaintiff, at the
request of the purchaser, went to Lucena, accompanied by a representative of the latter, for the
purpose of designating and delivering the lands sold. He was able to designate only two of the
four parcels, and more than two-thirds of these two were found to be in the possession of one
Juan Villafuerte, who claimed to be the owner of the parts so occupied by him. The plaintiff
admitted that the purchaser would have to bring suit to obtain possession of the land (sten.
notes, record, p. 5). In August, 1914, the surveyor Santamaria went to Lucena, at the request of
the plaintiff and accompanied by him, in order to survey the land sold to the defendant; but he
surveyed only two parcels, which are those occupied mainly by the brothers Leon and Julio
Villafuerte. He did not survey the other parcels, as they were not designated to him by the
plaintiff. In order to make this survey it was necessary to obtain from the Land Court a writ of
injunction against the occupants, and for the purpose of the issuance of this'writ the defendant,
in June, 1914, filed an application with the Land Court for the registration in her name of the four
parcels of land described in the deed of sale executed in her favor by the plaintiff. The
proceedings in the matter of this application were subsequently dismissed, for failure to present
the required plans within the period of the time allowed for the purpose.
The trial court rendered judgment in behalf of the defendant holding the contract of sale to be
rescinded and ordering the return to the plaintiff of the P3,000 paid on account of the price,
together with interest thereon at the rate of 10 per cent per annum. From this judgment the
plaintiff appealed.
In decreeing the rescission of the contract, the trial judge rested his conclusion solely on the
indisputable fact that up to that time the lands sold had not been registered in accordance with
the Torrens system, and on the terms of the second paragraph of clause (h) of the contract,
whereby it is stipulated that "* * * within one year from the date of the certificate of title in favor
of Marciana Felix, this latter may rescind the present contract of purchase and sale * * *."
The appellant objects, and rightly, that the cross complaint is not founded on the hypothesis of
the conventional rescission relied upon by the court, but on the failure to deliver the land sold.
He argues that the right to rescind the contract by virtue of the special agreement not only did
not exist from the moment of the execution of the contract up to one year after the registration of
the land, but does not accrue until the land is registered. The wording of the clause, in fact,
substantiates the contention. The one year's deliberation granted to the purchaser was to be
counted "from the date of the certificate of title * * *." Therefore the right to elect to rescind the
contract was subject to a condition, namely, the issuance of the title. The record shows that up
to the present time that condition has not been fulfilled; consequently the defendant cannot be
heard to invoke a right which depends on the existence of that condition. If in the cross-
complaint it had been alleged that the fulfillment of the condition was impossible for reasons
imputable to the plaintiff, and if this allegation had been proven, perhaps the condition would
have been considered as fulfilled (arts, 1117, 1118, and 1119, Civ. Code); but this issue was not
presented in the defendant's answer.
However, although we are not in agreement with the reasoning found in the decision appealed
from, we consider it to be correct in its result. The record shows that the plaintiff did not deliver
the thing sold. With respect to two of the parcels of land, he was not even able to show them to
the purchaser; and as regards the other two, more than two-thirds of their area was in the
hostile and adverse possession of a third person.
The Code imposes upon the vendor the obligation to deliver the thing sold. The thing is
considered to be delivered when it is placed "in the hands and possession of the vendee." (Civ.
Code, art. 1462.) It is true that the same article declares that the execution of a public
instrument is equivalent to the delivery of the thing which is the object of the contract, but, in
order that this symbolic delivery may produce the effect of tradition, it is necessary that the
vendor shall have had such control over the thing sold that, at the moment of the sale, its
material delivery could have been made. It is not enough to confer upon the purchaser
the ownership and the right of possession. The thing sold must be placed in his control. When
there is no impediment whatever to prevent the thing sold passing into the tenancy of the
purchaser by the sole will of the vendor, symbolic delivery through the execution of a public
instrument is sufficient. But if, notwithstanding the execution of the instrument, the purchaser
cannot have the enjoyment and material tenancy of the thing and make use of it himself or
through another in his name, because such tenancy and enjoyment are opposed by the
interposition of another will, then fiction yields to reality the delivery has not been effected.
As Dalloz rightly says (Gen. Rep., vol. 43, p. 174) in his commentaries on article 1604 of the
French Civil Code, "the word 'delivery' expresses a complex idea * * * the abandonment of the
thing by the person who makes the delivery and the taking control of it by the person to whom
the delivery is made."
The execution of a public instrument is sufficient for the purposes of the abandonment made by
the vendor, but it is not always sufficient to permit of the apprehension of the thing by the
purchaser.
The supreme court of Spain, interpreting article 1462 of the Civil Code, held in its decision of
November 10, 19Q3, (Civ. Rep., vol. 96, p. 560) that this article "merely declares that when the
sale is made through the means of a public instrument, the execution of this latter is equivalent
to the delivery of the thing sold: which does not and cannot mean that this fictitious tradition
necessarily implies the real tradition of the thing sold, for it is incontrovertible that, while its
ownership still pertains to the vendor (and with greater reason if it does not), a third person may
be in possession of the same thing; wherefore, though, as a general rule, he who purchases by
means of a public instrument should be deemed * * * to be the possessor in fact, yet this
presumption gives way before proof to the contrary."
It is evident, then, in the case at bar, that the mere execution of the instrument was not a
fulfillment of the vendor's obligation to deliver the thing sold, and. that from such nonfulfillment
arises the purchaser's right to demand, as she has demanded, the rescission of the sale and
the return of the price. (Civ. Code, arts. 1506 and 1124.)
Of course if the sale had been made under the express agreement of imposing upon the
purchaser the obligation to take the necessary steps to pbtain the material possession of the
thing sold, and it were proven that she knew that the thing was in the possession of a third
person claiming to have property rights therein, such agreement would be perfectly valid. But
there is nothing in the instrument which would indicate, even implicitly, that such was the
agreement. It,is true, as the appellant argues, that the obligation was ineumbent upon the
defendant Marciana Felix to apply for and obtain the registration of the land in the new registry
of property; but from this it cannot be concluded that she had to await the final decision of the
Court of Land Registration, in order to be able to enjoy the property sold. On the contrary, it was
expressly stipulated in the contract that the purchaser should deliver to the vendor one-fourth
"of the products * * * of the aforesaid four parcels from the moment when she takes possession
of them until the Torrens certificate of title be issued in her favor." This obviously shows that it
was not foreseen that the purchaser might be deprived of her possession during the course of
the registration proceedings, but that the transaction rested on the assumption that she was to
have, during said period, the material possession and enjoyment of the four parcels of land.
Inasmuch as the rescission is made by virtue of the provisions of law and not by contractual
agreement, it is not the conventional but the legal interest that is demandable.
It is therefore held that the contract of purchase and sale entered into by and between the
plaintiff and the defendant on June 11,1914, is rescinded, and the plaintiff is ordered to make
restitution of tlie sum of P3,000 received by him on account of the price of the sale, together
with interest thereon at the legal rate of 6 per cent per annum from the date of the filing of the
complaint until payment, with the costs of both instances against the appellant So ordered.
Torres, Johnson, Street, Malcolm, and Avanceña, JJ.,concur.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 107737 October 1, 1999

JUAN L. PEREZ, LUIS KEH, CHARLIE LEE and ROSENDO G. TANSINSIN, JR., petitioners,
vs.
COURT OF APPEALS, LUIS CRISOSTOMO and VICENTE ASUNCION, respondents.

GONZAGA-REYES, J.:

This is a petition for review on certiorari of the Decision 1 of the Court of Appeals affirming the
decision of the Regional Trial Court of Bulacan, Branch 9 2 that disposed of Civil Case No.
5610-M (Luis Crisostomo v. Luis Keh, Juan Perez, Charlie Kee and Atty. Rosendo G. Tansinsin,
Jr.) as follows:

WHEREFORE, premises considered, judgment is hereby rendered:

a) directing defendant JUAN PEREZ to allow plaintiff LUIS

CRISOSTOMO to occupy and operate the "Papaya Fishpond" for
a period of 5 1/2 years at the rental rates of P150,000.00 for the
first six months and P175,000.00 for the remaining five years (the
same rates provided for in Exh. 4);

b) ordering defendants LUIS KEH, CHARLIE LEE, JUAN PEREZ

and Atty. ROSENDO TANSINSIN, JR. to pay unto the plaintiff the
amounts of P150,000.00 as actual damages; P20,000.00 as moral
damages; P20,000.00 as exemplary damages; and P10,000.00 as
attorney's fees, plus the costs of the suit;

c) directing the release, delivery or payment directly to plaintiff

LUIS CRISOSTOMO of the amounts of P128,572.00 and
P123,993.85, including the interests which may have already
accrued thereon, deposited with the Paluwagan ng Bayan Savings
Bank (Paombong, Bulacan Branch) in the name of the Clerk of
Court and/or Deputy Clerk of Court Rodrigo C. Libunao under this
Court's Order dated February 14, 1980; however, the plaintiff is
required to pay defendant Perez the corresponding rental on the
fishpond for the period June 1979-January 1980 based on the rate
of P150,000.00 per annum, deducting therefrom the amount of
P21,428.00 already paid to and received by then co-usufructuary
Maria Perez (Exh. E);

d) dismissing the defendants' separate counter-claims for

damages, for lack of merit; and

e) dismissing the Pleading in Intervention Pro Interesse Suo filed

by VICENTE ASUNCION on the ground of lis pendens.

SO ORDERED.

The facts upon which the Court of Appeals based its Decision are the following:

Along with Maria Perez, Fructuosa Perez, Victoria Perez, Apolonio Lorenzo and Vicente
Asuncion, petitioner Juan Perez is a usufructuary of a parcel of land popularly called the
"Papaya Fishpond." Covered by Transfer Certificate of Title No. 8498 of the Registry of Deeds
for the Province of Bulacan, the fishpond is located in Sto. Rosario, Hagonoy, Bulacan and has
an area of around 110 hectares. On June 5, 1975, the usufructuaries entered into a contract
leasing the fishpond to Luis Keh for a period of five (5) years and renewable for another five (5)
years by agreement of the parties, under the condition that for the first five-year period the
annual rental would be P150,000.00 and for the next five years, P175,000.00. Paragraph 5 of
the lease contract states that the lessee "cannot sublease" the fishpond "nor assign his rights to
anyone." 3

Private respondent Luis Crisostomo, who reached only the 5th grade, is a businessman
engaged in the operation of fishponds. On September 20, 1977, while he was at his fishpond in
Almazar, Hermosa, Bataan, his bosom friend named Ming Cosim arrived with petitioner Charlie
Lee. The two persuaded private respondent to take over the operation of "Papaya Fishpond" as
petitioner Lee and his partner, petitioner Luis Keh, were allegedly losing money in its operation.
Private respondent having acceded to the proposal, sometime in December of that year, he and
petitioners Lee and Keh executed a written agreement denominated as "pakiao buwis" whereby
private respondent would take possession of the "Papaya Fishpond" from January 6, 1978 to
June 6, 1978 in consideration of the amount of P128,000.00 broken down as follows:
P75,000.00 as rental, P50,000.00 for the value of milkfish in the fishpond and P3,000 for labor
expenses. Private respondent paid the P75,000.00 to petitioner Keh at the house of petitioner
Lee in Sta. Cruz, Hagonoy, Bulacan in the presence of Lee's wife, brother-in-law and other
persons. He paid the balance to petitioner Lee sometime in February or March 1978 because
he was uncertain as to the right of petitioners Keh and Lee to transfer possession over the
fishpond to him. Private respondent made that payment only after he had received a copy of a
written agreement dated January 9, 1978 4 whereby petitioner Keh ceded, conveyed and
transferred all his "rights and interests" over the fishpond to petitioner Lee, "up to June 1985."
From private respondent's point of view, that document assured him of continuous possession
of the property for as long as he paid the agreed rentals of P150,000.00 until 1980 and
P.175,000.00 until 1985.1âwphi1.nêt

For the operation of the fishpond from June 1978 to May 1979, private respondent,
accompanied by Ming Cosim and Ambrocio Cruz, paid the amount of P150,000.00 at the
Malabon, Metro Manila office of petitioner Keh. The following receipt was issued to him:

RECEIPT

June 6, 1978

P150.000,00

Received from Mr. LUIS KEH the sum of ONE HUNDRED FIFTY THOUSAND
PESOS (P150,000.00), Philippine Currency, as full payment of the yearly leased
rental of the Papaya Fishpond for the year beginning June 1978 and ending on
May 1979. The next payment shall be made on June 6, 1979.

Said sum was paid in Producers Bank of the Philippines Check No. (illegible)
164595 dated June 6, 1978.

Mr. Luis Keh has not transferred his rights over the fishpond to any person.

Caloocan City, June 6, 1978.

JUAN L. PEREZ ET AL.

By:

(Sgd.)

Rosendo G. Tansinsin, Jr.

CONFORME TO THE ABOVE:

(Sgd.)

LUIS KEH

Handwritten below that receipt but above the signature of petitioner Charlie Lee, are the
following: "Rec'd from Luis Crisostomo sum of one hundred fifty-four thousand
P154,000.00 for above payment. 5
Private respondent incurred expenses for repairs in and improvement of the fishpond in the total
amount of P486,562.65. 6 However, sometime in June 1979, petitioners Tansinsin and Juan
Perez, in the company of men bearing armalites, went to the fishpond and presented private
respondent with a letter dated June 7, 1979 showing that petitioner Luis Keh had surrendered
possession of the fishpond to the usufructuaries.

Because of the threat to deprive him of earnings of around P700,000.00 that the 700,000
milkfish in the fishpond would yield, and the refusal of petitioners Keh, Juan Perez and Lee to
accept the rental for June 5, 1979 to June 6, 1980, private respondent filed on June 14, 1979
with the then Court of First Instance of Bulacan an action for injunction and damages. He
prayed for the issuance of a restraining order enjoining therein defendants Keh, Perez and Lee
from entering the premises and taking possession of the fishpond. He also prayed for actual
damages of P50,000.00, moral damages of P20,000.00, exemplary damages in an amount that
the court might award, and attorney's fees of P10,000.00. 7

That same day, June 14, 1979, the lower court granted the prayer for a restraining order. On
November 13, 1979, Crisostomo paid one of the usufructuaries, Maria Perez (who died in
1984), the amount of P21,428.00 as her 1/7 share of the annual rental of the fishpond for 1979-
80. Maria Perez issued a notarized receipt for that amount. 8

On January 11, 1980, the court lifted the restraining order thereby effectively depriving private
respondent of possession over the fishpond. On February 14, 1980, the parties submitted a
partial compromise agreement with the following stipulations:

1. The amount of P128,572.00 that private respondent deposited

as rental with the Office of the Clerk of Court under O.R. No.
21630 dated November 15, 1979 be withdrawn from that office
and deposited with the Paluwagan ng Bayan Savings & Loan
Association, Inc. (Paombong, Bulacan branch) and which deposit
shall not be withdrawn unless authorized by the court; and

2. The plaintiff could personally harvest milkfish "with commercial

value" in the presence of Perez and under the supervision of the
deputy clerk of court within the appointed period and that the net
proceeds of the sale (P123,993.85 per the Report dated March 4,
1980 of the deputy clerk of court) be deposited in the name of the
deputy clerk of court of Branch 6 of the then Court of First
Instance of Bulacan with the same branch of the Paluwagan ng
Bayan Savings & Loan Association, Inc. and which deposit shall
not be withdrawn unless upon order of the court after hearing.

The court approved that agreement on that same date.

Thereafter, the usufructuaries entered into a contract of lease with Vicente Raymundo and
Felipe Martinez for the six-year period of June 1, 1981 to May 30, 1987 in consideration of the
annual rentals of P550,000.00 for the first two years and P400,000.00 for the next four years.
Upon expiration of that lease, the same property was leased to Pat Laderas for P1 million a
year.

The complaint was later amended to include petitioner Tansinsin, the alleged administrator of
the fishpond, as one of the defendants. 9 Except in the joint answer that the defendants had
filed, petitioners Keh and Lee did not appear before the court. Neither did they testify.

In their defense, petitioners Juan Perez and Tansinsin presented evidence to prove that they
had negotiated for the lease of the property with Benito Keh in 1975. However, they averred, for
reasons unknown to petitioner Perez, in the contract of lease that petitioner Tansinsin prepared,
petitioner Luis Keh was named as lessee. Petitioner Perez had never met Keh or Lee but
according to petitioner Tansinsin, petitioner Luis Keh was substituted for Benito Keh because
the latter was preoccupied with his other businesses. Sometime in 1979, petitioner Keh's agent
named Catalino Alcantara relayed to petitioner Perez, Keh's intention to surrender possession
of the fishpond to the usufructuaries. Because petitioner Perez demanded that said intention
should be made in writing, on June 5, 1979, Perez received from Keh a letter to that effect.

When private respondent received a copy of that letter of petitioner Keh, he took the position
that petitioner Perez had no right to demand possession of the fishpond from him because
Perez had no contract with him. Private respondent was allowed four (4) months within which to
vacate the premises but he immediately filed the complaint for injunction and damages.
Thereafter, private respondent's counsel, Atty. Angel Cruz and other persons tried to prevail
upon petitioner Perez to allow private respondent to occupy the property for three (3) more
years. Petitioner Perez declined that proposition.

On September 6, 1989, the lower court rendered the aforesaid decision. It arrived at the
conclusion that the defendants therein "conspired with one another to exploit the plaintiff's
naivete and educational inadequacies and, in the process, to defraud him by inducing him into
taking possession of the "Papaya Fishpond" in their fond hope that, as soon as the plaintiff —
applying his known expertise as a successful fishpond operator — shall have considerably
improved the fishpond, they will regain possession of the premises and offer the lease thereof to
other interested parties at much higher rental rates as laid bare by supervening realities." That
conclusion was founded on the following:

1. The plaintiffs (private respondent Crisostomo's) testimony bears

the "hallmarks of truth: candid, straightforward and uncontrived."
He had proven himself a "much more credible witness than his
opponents."

2. The notarized receipt of Maria Perez of her share as a

usufructuary in the rental for 1979-80 is a "clear avowal of
plaintiffs legitimate operation of the "Papaya Fishpond" as
assignee or transferee thereof." It was impossible for the other
usufructuaries, especially Juan Perez who was residing in the
same locality and actively involved in the "affairs of the fishpond,"
not to have known that plaintiff occupied the fishpond for one and
a half years as assignee of Keh and Lee. It was unbelievable that
both Tansinsin and Perez would only perceive the plaintiff as a
mere encargado of Keh and Lee.

3. The receipt whereby Tansinsin acknowledged payment of

P150,000.00 as rental for June 1978-May 1979 bears "tell-tale
signs" of the conspiracy. Firstly, the statement "Mr. Luis Keh has
not transferred his rights over the fishpond to any person" is
entirely irrelevant to that receipt unless it was intended "to
preempt plaintiff's claim of rights and interests over the said
property as either sub-lessee or assignee." Secondly, Keh's
having signified "Conforme to the above" is a gratuitous notation
as it actually indicates that the money came from the
plaintiff. Thirdly, Atty. Tansinsin's receipt of the amount for and in
behalf of "JUAN L. PEREZ ET AL." illustrates his "active and
dominant role in the affairs" of the fishpond whether as
administrator thereof or as beneficiary of a share from its fruits.

4. Service upon plaintiff of Keh's letter surrendering possession of

the fishpond implied that defendants knew that plaintiff was in
possession thereof. That they resorted to the intimidating
presence of armed men is proof that they expected the plaintiff to
refuse to give up possession of the property. These circumstances
"completely belie the protestations of Perez and Tansinsin of lack
of knowledge of the contract entered into" between the plaintiff,
and Lee and Keh.

5. The nonpresentation of Lee and Keh on the witness stand by

Atty. Tansinsin "can very well be construed as a smart maneuver
to cover up the sinister cabal for deception inferrable from the
attendant facts and circumstances." In their joint answer, Keh and
Lee tried to relieve Perez of any liability in favor of the plaintiff.
That is understandable "because, should the Court disregard the
reliance of Perez on the prohibition against sub-lease or
assignment of the "Papaya Fishpond", then all the defendants
shall have exposed themselves to unavoidable liability for the acts
complained of by the plaintiff."

6. Atty. Tansinsin was the common legal counsel of all the

defendants and, by his testimony, even the plaintiff. Atty.
Tansinsin's denial that he was plaintiffs counsel was his way of
"deflecting plaintiffs imputations of professional improprieties
 against him." Plaintiff must have assumed that Atty. Tansinsin was
also his lawyer considering that they were "on very friendly terms"
and therefore Atty. Tansinsin might have been instrumental in
dispelling whatever fears plaintiff had entertained as regards the
business transactions involved.

7. The fact that the fishpond was subsequently rented out for
astronomical amounts is proof that the plaintiff had considerably
improved the fishpond. 10

The lower court added:

Bluntly yet succinctly put, the foregoing circumstances when viewed collectively
with other cogent aspects of the instant case inexorably lead to the Court's well-
considered view that the defendants — tempted by the bright prospect of a
lucrative business coup — embarked themselves in an egregious scheme to take
undue advantage of the gullibility of the plaintiff who, as borne by ensuing events,
proved himself an ideal victim to prey upon: pathetically unsuspecting yet only
too eager to invest his material resources and self-acquired technical know-how
to redeem what was then a dwindling business enterprise from total collapse.
Plaintiffs impressive performance, alas, only redounded ultimately to the
supreme benefit exclusively of the defendants. A classic case of "ako ang
nagsaing, iba ang kumain!"

The defendants elevated the case to the Court of Appeals which, as earlier mentioned, affirmed
the decision of the trial court and disposed of the appeal on February 18, 1992 as follows:

WHEREFORE, in view of all the foregoing, judgment appealed from, is hereby

AFFIRMED.

However, intervenor-appellant is hereby declared co-usufructuary of the Papaya

fishpond, and is, therefore, entitled to all rights and interest due to the
usufructuaries of the said fishpond.

SO ORDERED.

On the defendant-appellants' contention that the principle of res judicata should be applied
because the Court of Appeals had ruled on the issue of possession in CA-G.R. No. 10415-R, a
petition for certiorari and injunction with preliminary mandatory injunction, the Court of Appeals
held that said principle was unavailing. The petition in CA-G.R. No. 10415-R involved a writ of
injunction "which presupposes the pendency of a principal or main action." Moreover, the
decision in that case did not resolve the issue of who should be in possession of the Papaya
Fishpond as findings of fact of the trial court cannot be reviewed in
a certiorari proceeding.1âwphi1.nêt

The Court of Appeals ruled further that appellee Crisostomo "cannot be considered a possessor
in bad faith, considering that he took possession of the fishpond when appellants Keh and Lee
assigned to him appellant Keh's leasehold right." It held that appellant Perez knew of the
transfer of possession of the fishpond to appellee and that the receipt evidencing payment of
the 1978-1979 rental even bears an expressed admission by Lee that the payment came from
appellee Crisostomo.

Agreeing with the court a quo that "defendants-appellants employed fraud to the damage and
prejudice of plaintiff-appellee," the Court of Appeals held that appellants should be held liable
for damages. As regards the intervention pro interesse suo, the appellate court ruled that the
same should be allowed because, even if the litigation would not be technically binding upon
him, complications might arise that would prejudice his rights. Pointing out that a usufruct may
be transferred, assigned or disposed of, the Court of Appeals ruled that the intervenor cannot be
excluded as a usufructuary because he had acquired his right as such from a sale in execution
of the share of Jorge Lorenzo, one of the usufructuaries of the fishpond.

Herein petitioners filed a motion for the reconsideration of that Decision of the Court of Appeals.
They alleged that the Decision was premature because it was rendered when they had not yet
even received a copy of the intervenor's brief wherein assignments of errors that directly
affected their rights and interests were made. They insisted that the principle of res judicata was
applicable because in G.R. No. 64354, this Court upheld the Decision of the Court of Appeals in
CA-G.R. No. 10415. They added that appellee Crisostomo was guilty of forum shopping
because the issue of possession had been "squarely decided" in CA-G.R. No. 10415. They
stressed that the contract of lease between Keh and the usufructuaries prohibited subleasing of
the fishpond; that by the receipt dated June 6, 1978, it was Keh who paid the rental; that
appellee Crisostomo was a perjured witness because in the notebook showing his expenses,
the amount of P150,000.00 for rentals does not appear; that the term of the contract had
expired and there was no renewal thereof, and that the consideration of P150,000.00 was
grossly inadequate. They averred that the Court of Appeals erred in awarding damages that
were not prayed for in the second amended complaint and that amounts not specified in the
complaint were awarded as damages. They disclaimed that Atty. Tansinsin was the
administrator of the fishpond.

On October 30, 1992, the Court of Appeals denied the motion for reconsideration for lack of
merit. It ruled that the Decision was not prematurely promulgated "considering that the
intervention proceeding is solely between intervenor and defendants-appellants, which is
completely separable and has nothing to do with the merits of the appeal."

In the instant petition for review on certiorari, petitioners raise six (6) grounds for giving due
course to it. 11 Those grounds may be distilled into the following: (a) the applicability of the
principle of res judicata; (b) the premature promulgation of the Decision of the Court of Appeals,
and (c) private respondent was not a sublesee of the fishpond under the law.

In arguing that the principle of res judicata applies in this case, petitioners rely on the portion of
the Decision 12 of the Court of Appeals in CA-G.R. No. 10415 that states:

We find no basis for declaring respondent Judge guilty of grave abuse of

discretion on this regard. The trial court's finding that petitioner does not appear
entitled to any contract or law to retain possession of the fishpond in question
since he is neither an assignee or sub-lessee and, therefore, merely a stranger to
the contract of lease is a finding of fact review of which is not proper in
a certiorari proceedings. Not only is petitioner not a party to the lease agreement
over the fishpond in question but also the very authority upon which he
predicates his possession over the fishpond — that the leasehold right of Luis
Keh had been assigned to him — undoubtedly lacks basis for the very
contract between Luis Keh and the lessors expressly provides —

That the lessee cannot sub-lease above-described fishpond nor

assign his rights to anyone.

xxx xxx xxx

(Emphasis supplied by petitioners.) 13

Petitioners assert that said Decision of the Court of Appeals which was in effect upheld by this
Court when it denied the petition for review on certiorari in G.R. No. 64354 (Luis Crisostomo v.
Intermediate Appellate Court), 14 is "res judicata to the issue of possession in this
case." 15 However, as expressed in that quoted portion of the Decision in CA-G.R. No. 10415,
the issue of whether private respondent is an assignee or a sub-lessee "is a finding of fact
review of which is not proper in a certiorari proceeding" or the proceeding in that case.

CA-G.R. No. 10415 was spawned by the lifting on January 11, 1980 of the restraining order
previously issued by the trial court on June 14, 1979. Private respondent filed a special civil
action of certiorari and injunction with preliminary mandatory injunction and/or mandatory
restraining order to question the order of January 11, 1980. Thus, the issue in that petition was
whether or not the trial court gravely abused its discretion in lifting the restraining order. The
statement in that Decision of the Court of Appeals that a writ of preliminary injunction may be
denied "if the party applying for it has insufficient title or interest to sustain it and no claim to an
ultimate relief (is) sought" by no means resolved the issue of who is entitled to possess the
fishpond. In denying the petition for certiorari, the Court of Appeals was simply saying that there
was no reason to restore private respondent to the possession of the fishpond pursuant to the
restraining order that he had earlier obtained. The issue of possession was collaterally
discussed only to resolve the propriety of the lifting of the restraining order based on evidence
available at that time. Hence, there was no judgment on the merits in the main case or in Civil
Case No. 5610-M. Simply put, the Decision in CA-G.R. No. 10415 involves an interlocutory
order on the propriety of the lifting of the restraining order and not a judgment on the merits of
Civil Case No. 5610-M.
For res judicata to apply, the following requisites must concur: (a) the former judgment must be
final; (b) the court which rendered it had jurisdiction over the subject matter and the parties; (c)
the judgment must be on the merits, and (d) there must be between the first and second actions
identity of parties, subject matter and causes of action. 16 The Decision in CA-G.R. No. 10415
having resolved only an interlocutory matter, the principle of res judicata cannot be applied in
this case. There can be no res judicata where the previous order in question was not an order or
judgment determinative of an issue of fact pending before the court but was only an
interlocutory order because it required the parties to perform certain acts for final
adjudication. 17 In this case, the lifting of the restraining order paved the way for the possession
of the fishpond on the part of petitioners and/or their representatives pending the resolution of
the main action for injunction. In other words, the main issue of whether or not private
respondent may be considered a sublessee or a transferee of the lease entitled to possess the
fishpond under the circumstances of the case had yet to be resolved when the restraining order
was lifted.

Petitioners assail the Court of Appeals' Decision as "premature" and therefore null and void,
because prior to the promulgation of that Decision, private respondent-intervenor Vicente
Asuncion failed to furnish them with a copy of his brief the assignment of errors of which
allegedly "directly" affected their rights and interests. 18 While it is true that petitioners were
deprived of the opportunity to contravene the allegations of the intervenor in his brief, that fact
can not result in the nullity of the Decision of the Court of Appeals. 19 Vicente Asuncion
intervened pro interesse suo or "according to his interest." 20 Intervention pro interessse suo is
a mode of intervention in equity wherein a stranger desires to intervene for the purpose of
asserting a property right in the res, or thing, which is the subject matter of the litigation, without
becoming a formal plaintiff or defendant, and without acquiring control over the course of a
litigation, which is conceded to the main actors therein. 21 In this case, intervenor Vicente
Asuncion aimed to protect his right as a usufructuary. Inasmuch as he has the same rights and
interests as petitioner Juan Perez, any judgment rendered in the latter's favor entitled him to
assert his right as such usufructuary against his co-usufructuary. Should said intervenor claim
his share in the usufruct, no rights of the petitioners other than those of Juan Perez would be
prejudiced thereby.

Worth noting is the fact that after the trial court had allowed Vicente Asuncion's intervention pro
interesse suo, petitioner Juan Perez filed a petition for certiorari docketed as CA-G.R. No.
13519 to set aside the order denying his motion to dismiss the pleading in intervention. In its
Decision of January 27, 1988, the Seventh Division of the Court of Appeals 22 denied the petition
for certiorari for lack of merit. It upheld the trial court's ruling to allow the intervention pro
interesse suo to protect Vicente Asuncion's right as a co-usufructuary in the distribution or
disposition of the amounts representing the rentals that were deposited with the court. That
Vicente Asuncion had filed Civil Case No. 8215-M seeking recovery of his alleged share in the
fruits of the Papaya Fishpond from 1978 would not be a reason for the dismissal of the motion
for intervention pursuant to Rule 16, Sec. 1 (e) of the Rules of Court. 23 The Court of Appeals
explained as follows:

Indeed, if by means of intervention a stranger to a lawsuit is permitted to

intervene without thereby becoming a formal plaintiff or defendant (Joaquin v.
Herrera, 37 Phil. 705, 723 [1918]), then there is in the case at bar no identity of
parties to speak of. Lis pendens as a ground for a motion to dismiss requires as
a first element identity of parties in the two cases.

Nor is there an identity of relief sought. Civil Case No. 8295-M seeks an
accounting of the proceeds of the fishpond while Civil Case No. 5610-M is for
injunction to prevent the petitioner from retaking the fishpond from Luis
Crisostomo. The herein private respondent sought to intervene in the latter case
simply to protect his right as usufructuary in the money deposited in the court by
the plaintiff Luis Crisostomo. We hold that in allowing the intervention in this case
the trial court acted with prudence and exercised its discretion wisely. 24

Unconvinced by the Court of Appeals' Decision in CA-G.R. SP No. 13519, petitioner Juan Perez
filed a petition for review on certiorari with this Court under G.R. No. 82096. On May 9, 1988,
this Court denied the petition on the grounds that the issues raised are factual and that there is
no sufficient showing that the findings of the respondent court are not supported by substantial
evidence or that the court had committed any reversible error in the questioned judgment. 25 The
Resolution of the Court dated May 9, 1988 became final and executory on August 26, 1988. 26

Moreover, granting that the intervention be considered as Vicente Asuncion's "appeal," a

litigant's failure to furnish his opponent with a copy of his appeal does not suffice to warrant
dismissal of that appeal. In such an instance, all that is needed is for the court to order the
litigant to furnish his opponent with a copy of his appeal. 27 This is precisely what happened in
this case. On May 13, 1992, the Court of Appeals issued a Resolution directing counsel for
intervenor to furnish herein petitioners with a copy of intervenor Vicente Asuncion's brief within a
10-day period. It also granted petitioners an opportunity to file a reply-brief or memorandum and
the intervenor, a reply to said memorandum. 28 That Resolution is proper under the premises
because, by the nature of an intervention pro interesse suo, it can proceed independently of the
main action. Thus, in the Resolution of October 30, 1992, in resolving the issue of the alleged
prematurity of its Decision, the Court of Appeals held that "the proceeding is solely between
intervenor and defendants-appellants, which is completely separable and has nothing to do with
the merits of the appeal." 29

At the hearing of Civil Case No. 5610-M, petitioner Juan Perez attempted to establish the death
on October 14, 1979 of Jorge Lorenzo, 30 the usufructuary from whom Vicente Asuncion derived
his right to intervene pro interesse suo. Since under Article 603 of the Civil Code a usufruct is
extinguished "by the death of the usufructuary, unless a contrary intention clearly appears,"
there is no basis by which to arrive at the conclusion that the usufruct originally exercised by
Jorge Lorenzo has indeed been extinguished or, on the contrary, has survived Lorenzo's
demise on account of provisions in the document constituting the usufruct. That matter is best
addressed in Civil Case No. 8215-M wherein Vicente Asuncion seeks his share as a transferee
of the usufruct established for Jorge Lorenzo. All that is discussed here is the matter of
intervention pro interesse suo vis-a-vis the issue of prematurity of the Decision of the Court of
Appeals.

Petitioners' principal argument against the Court of Appeals' Decision in favor of private
respondent Crisostomo is that he could not have been an assignee or sub-lessee of the
fishpond because no contract authorized him to be so. Petitioners' argument is anchored on
factual issues that, however, have no room for discussion before this Court. It is well-entrenched
doctrine that questions of fact are not proper subjects of appeal by certiorari under Rule 45 of
the Rules of Court as this mode of appeal is confined to questions of law. 31 Factual findings of
the Court of Appeals are conclusive on the parties and carry even more weight when said court
affirms the factual findings of the trial
court. 32 Accordingly, this review shall be limited to questions of law arising from the facts as
found by both the Court of Appeals and the trial court.

Admittedly, the contract between the usufructuaries and petitioner Keh has a provision barring
the sublease of the fishpond. However, it was petitioner Keh himself who violated that provision
in offering the operation of the fishpond to private respondent. Apparently on account of private
respondent's apprehensions as regards the right of petitioners Keh and Lee to transfer
operation of the fishpond to him, on January 9, 1978, petitioner Keh executed a document
ceding and transferring his rights and interests over the fishpond to petitioner Lee. That the
same document might have been a ruse to inveigle private respondent to agree to their
proposal that he operate the fishpond is of no moment. The fact is, petitioner Keh did transfer
his rights as a lessee to petitioner Lee in writing and that, by virtue of that document, private
respondent acceded to take over petitioner Keh's rights as a lessee of the fishpond.

Although no written contract to transfer operation of the fishpond to private respondent was
offered in evidence, 33 the established facts further show that petitioner Juan Perez and his
counsel, petitioner Tansinsin, knew of and acquiesced to that arrangement by their act of
receiving from the private respondent the rental for 1978-79. By their act of receiving rental from
private respondent through the peculiarly written receipt dated June 6, 1978, petitioners Perez
and Tansinsin were put in estoppel to question private respondent's right to possess the
fishpond as a lessee. Estoppel in pais arises when one, by his acts, representations or
admissions, or by his own silence when he ought to speak out, intentionally or through culpable
negligence, induces another to believe certain facts to exist and such other rightfully relies and
acts on such belief, so that he will be prejudiced if the former is permitted to deny the existence
of such facts. 34

Nevertheless, we hesitate to grant private respondent's prayer that he should be restored to the
possession of the fishpond as a consequence of his unjustified ejectment therefrom. To restore
possession of the fishpond to him would entail violation of contractual obligations that the
usufructuaries have entered into over quite a long period of time now. Supervening events, such
as the devaluation of the peso as against the dollar as well as the addition of improvements in
the fishpond that the succeeding lessees could have introduced, have contributed to the
increase in rental value of the property. To place private respondent in the same position he
was in before the lifting of the restraining order in 1980 when he was deprived the right to
operate the fishpond under the contract that already expired in 1985 shall be to sanction
injustice and inequity. This Court, after all, may not supplant the right of the usufructuaries to
enter into contracts over the fishpond through this Decision. Nonetheless, under the
circumstances of the case, it is but proper that private respondent should be properly
compensated for the improvements he introduced in the fishpond.1âwphi1.nêt

Art. 1168 of the Civil Code provides that when an obligation "consists in not doing and the
obligor does what has been forbidden him, it shall also be undone at his expense." The lease
contract prohibited petitioner Luis Keh, as lessee, from subleasing the fishpond. In entering into
the agreement for pakiao-buwis with private respondent, not to mention the apparent artifice
that was his written agreement with petitioner Lee on January 9, 1978, petitioner Keh did exactly
what was prohibited of him under the contract — to sublease the fishpond to a third party. That
the agreement for pakiao-buwis was actually a sublease is borne out by the fact that private
respondent paid petitioners Luis Keh and Juan Perez, through petitioner Tansinsin the amount
of annual rental agreed upon in the lease contract between the usufructuaries and petitioner
Keh. Petitioner Keh led private respondent to unwittingly incur expenses to improve the
operation of the fishpond. By operation of law, therefore, petitioner Keh shall be liable to private
respondent for the value of the improvements he had made in the fishpond or for P486,562.65
with interest of six percent (6%) per annum from the rendition of the decision of the trial court
on September 6, 1989. 35

The law supports the awards of moral and exemplary damages in favor of private respondent
and against the petitioners. Their conspiratorial scheme to utilize private respondent's expertise
in the operation of fishponds to bail themselves out of financial losses has been satisfactorily
established to warrant a ruling that they violated Article 21 of the Civil Code and therefore
private respondent should be entitled to an award of moral damages. Article 21 states that
"(a)ny person who wilfully causes loss or injury to another in a manner that is contrary to morals,
good customs or public policy shall compensate the latter for the damage." Exemplary damages
shall likewise be awarded pursuant to Article 2229 of the Civil Code. 36 Because private
respondent was compelled to litigate to protect his interest, attorney's fees shall also be
awarded. 37

WHEREFORE, in light of the foregoing premises, the decision of the Court of Appeals is
AFFIRMED insofar as it (a) directs the release to private respondent of the amounts of
P128,572.00 and P123,993.85 deposited with the Paluwagan ng Bayan Savings Bank in
Paombong, Bulacan and (b) requires private respondent Crisostomo to pay petitioner Juan
Perez the rental for the period June 1979 to January 1980 at the rate of P150,000.00 per
annum less the amount of P21,428.00 already paid to usufructuary Maria Perez. It should,
however, be subject to the MODIFICATIONS that:

1. Petitioner Luis Keh shall pay private respondent Luis

Crisostomo in the amount of P486,562.25 with legal interest from
the rendition of the judgment in Civil Case No. 5610-M or on
September 6, 1989, and

2. Petitioners be made liable jointly and severally liable for moral

damages of P50,000.00, exemplary damages of P20,000 and
attorney's fees of P10,000.00.

No costs.

SO ORDERED.

Melo, Vitug, Panganiban and Purisima, JJ., concur.

Footnotes

1 Penned by Associate Justice Consuelo Ynares-Santiago and concurred in by

Associate Justices Ricardo L. Pronove, Jr. and Nicolas P. Lapeña, Jr.

2 Presided by Judge D. Roy A. Masadao, Jr.

3 Exh. 2-Motion.

4 Exh. B.

5 Exh. 3-Motion; Record of Civil Case No. 5610-M, Vol. I, p. 9.

6 Exh. C.

7 Complaint in Civil Case No. 5610-M.

8 Exh. E., p. 831, Vol. II, Records.

9 Record of Civil Case No. 5610-M, p. 42.

10 Rollo, pp. 130-132.

11 Petition, pp. 14-17.

12 Penned by Associate Justice Serafin R. Cuevas and concurred in by

Associate Justices Vicente V. Mendoza and Luis A. Javellana.

13 Petition, pp. 13-14; Record, pp. 224-225.

14 Rollo in G.R. No. 64354, p. 113.

15 Petition, p. 14.

16 A.G. Development Corporation v. Court of Appeals, G.R. No. 111662,

October 23, 1997, 281 SCRA 155, 158-159.

17 Philippine Coal Miner's Union v. Cebu Portland Cement Co., et al., 119 Phil.
1063 (1964).

18 Petition, p. 15.

19 Failure to file brief is not a ground for the nullity of a decision rendered without
such brief. In one case, this Court held that the absence of briefs in an appeal
cannot deter this Court from deciding it (Fireman's Fund Insurance Co. v. Maersk
Line Far East Service, 137 Phil. 344, 346 [1969]).

20 2 BOUVIER'S LAW DICTIONARY 2727 (3rd Revision).

21 MORENO, PHILIPPINE LAW DICTIONARY 3rd ed., p. 243 citing Joaquin v.

Herrera, 37 Phil. 723 (1918).

22 Composed of Associate Justices Vicente Mendoza, Gloria C. Paras and

Conrado T. Limcaoco.

23 This provides for the dismissal of an action where there is another action
pending between the same parties for the same cause.

24 Rollo in G.R. No. 82096, "Juan L. Perez v. Court of Appeals and Vicente
Asuncion," pp. 17-18.

25 Ibid., p. 32.

26 Ibid., p. 46. RTC Decision in Civil Case No. 5610-M, p. 4; Rollo of G.R. No.
107737, p. 123.

27 Precision Electronics Corporation v. NLRC, G.R. No. 86657, October 23,

1989, 178 SCRA 667, 670.

28 Rollo, p. 254.

29 Ibid., p. 54.

30 TSN, September 9, 1987, pp. 4-11.

31 Valmonte v. Court of Appeals, L-41621, February 18, 1999 citing Far East
Bank & Trust Company v. Court of Appeals, 326 Phil. 15 (1996).
 32 Fortune Motors (Phils.) Corporation v. Court of Appeals, 335 Phil. 315, 330
(1997).

33 The agreement on pakiao-buwis could no longer be located (CA Decision, p.

4).

34 Roblett Industrial Construction Corporation v. Court of Appeals, 334 Phil. 62,

67 (1997).

35 Philippine Airlines, Inc. v. Court of Appeals, 341 Phil. 624, 633-634 (1997).

36 This article provides that: "Exemplary or corrective damages are imposed, by

way of example or correction for the public good, in addition to the moral,
temperate, liquidated or compensatory damages."

37 Art. 2208 (2), Civil Code.

DIVISION

[ GR No. 107737, Oct 01, 1999 ]

JUAN L. PEREZ v. CA +

DECISION

374 Phil. 388

GONZAGA-REYES, J.:
This is a petition for review on certiorari of the Decision[1] of the Court of Appeals affirming the
decision of the Regional Trial Court of Bulacan, Branch 9[2] that disposed of Civil Case No.
5610-M (Luis Crisostomo v. Luis Keh, Juan Perez, Charlie Kee and Atty. Rosendo G.
Tansinsin, Jr.) as follows:
"WHEREFORE, premises considered, judgment is hereby rendered:
a) directing defendant JUAN PEREZ to allow plaintiff LUIS CRISOSTOMO to occupy and
operate the `Papaya Fishpond' for a period of 5 ½ years at the rental rates of P150,000.00 for
the first six months and P175,000.00 for the remaining five years (the same rates provided for in
Exh. 4);
b) ordering defendants LUIS KEH, CHARLIE LEE, JUAN PEREZ and ATTY. ROSENDO
TANSINSIN, JR. to pay unto the plaintiff the amounts of P150,000.00 as actual damages;
P20,000.00 as moral damages; P20,000.00 as exemplary damages; and P10,000.00 as
attorney's fees, plus the costs of the suit;
c) directing the release, delivery or payment directly to plaintiff LUIS CRISOSTOMO of the
amounts of P128,572.00 and P123,993.85, including the interests which may have already
accrued thereon, deposited with the Paluwagan ng Bayan Savings Bank (Paombong, Bulacan
Branch) in the name of the Clerk of Court and/or Deputy Clerk of Court Rodrigo C. Libunao
under this Court's Order dated February 14, 1980; however, the plaintiff is required to pay
defendant Perez the corresponding rental on the fishpond for the period June 1979-January
1980 based on the rate of P150,000.00 per annum, deducting therefrom the amount of
P21,428.00 already paid to and received by then co-usufructuary Maria Perez (Exh. E);
d) dismissing the defendants' separate counter-claims for damages, for lack of merit; and
e) dismissing the Pleading in Intervention Pro Interesse Suo filed by VICENTE ASUNCION on
the ground of lis pendens.
SO ORDERED."
The facts upon which the Court of Appeals based its Decision are the following:
Along with Maria Perez, Fructuosa Perez, Victoria Perez, Apolonio Lorenzo and Vicente
Asuncion, petitioner Juan Perez is a usufructuary of a parcel of land popularly called the
"Papaya Fishpond." Covered by Transfer Certificate of Title No. 8498 of the Registry of Deeds
for the Province of Bulacan, the fishpond is located in Sto. Rosario, Hagonoy, Bulacan and has
an area of around 110 hectares. On June 5, 1975, the usufructuaries entered into a contract
leasing the fishpond to Luis Keh for a period of five (5) years and renewable for another five (5)
years by agreement of the parties, under the condition that for the first five-year period the
annual rental would be P150,000.00 and for the next five years, P175,000.00. Paragraph 5 of
the lease contract states that the lessee "cannot sublease" the fishpond "nor assign his rights to
anyone."[3]
Private respondent Luis Crisostomo, who reached only the 5th grade, is a businessman
engaged in the operation of fishponds. On September 20, 1977, while he was at his fishpond in
Almazar, Hermosa, Bataan, his bosom friend named Ming Cosim arrived with petitioner Charlie
Lee. The two persuaded private respondent to take over the operation of "Papaya Fishpond" as
petitioner Lee and his partner, petitioner Luis Keh, were allegedly losing money in its operation.
Private respondent having acceded to the proposal, sometime in December of that year, he and
petitioners Lee and Keh executed a written agreement denominated as "pakiao buwis" whereby
private respondent would take possession of the "Papaya Fishpond" from January 6, 1978 to
June 6, 1978 in consideration of the amount of P128,000.00 broken down as follows:
P75,000.00 as rental, P50,000.00 for the value of milkfish in the fishpond and P3,000 for labor
expenses. Private respondent paid the P75,000.00 to petitioner Keh at the house of petitioner
Lee in Sta. Cruz, Hagonoy, Bulacan in the presence of Lee's wife, brother-in-law and other
persons. He paid the balance to petitioner Lee sometime in February or March 1978 because
he was uncertain as to the right of petitioners Keh and Lee to transfer possession over the
fishpond to him. Private respondent made that payment only after he had received a copy of a
written agreement dated January 9, 1978[4] whereby petitioner Keh ceded, conveyed and
transferred all his "rights and interests" over the fishpond to petitioner Lee, "up to June 1985."
From private respondent's point of view, that document assured him of continuous possession
of the property for as long as he paid the agreed rentals of P150,000.00 until 1980 and
P175,000.00 until 1985.
For the operation of the fishpond from June 1978 to May 1979, private respondent,
accompanied by Ming Cosim and Ambrocio Cruz, paid the amount of P150,000.00 at the
Malabon, Metro Manila office of petitioner Keh. The following receipt was issued to him:
"R E C E I P T
June 6, 1978
P150,000.00
Received from Mr. LUIS KEH the sum of ONE HUNDRED FIFTY THOUSAND PESOS
(P150,000.00), Philippine Currency, as full payment of the yearly leased rental of the Papaya
Fishpond for the year beginning June 1978 and ending on May 1979. The next payment shall
be made on June 6, 1979.
Said sum was paid in Producers Bank of the Philippines Check No. (illegible) 164595 dated
June 6, 1978.
Mr. Luis Keh has not transferred his rights over the fishpond to any person.
Caloocan City, June 6, 1978.
JUAN L. PEREZ ET AL.
By:
(Sgd.)
Rosendo G. Tansinsin, Jr.
CONFORME TO THE ABOVE:
(Sgd.)
LUIS KEH
Handwritten below that receipt but above the signature of petitioner Charlie Lee, are the
following: "Rec'd from Luis Crisostomo sum of one hundred fifty-four thousand P154,000.00 for
above payment."[5]
Private respondent incurred expenses for repairs in and improvement of the fishpond in the total
amount of P486,562.65.[6] However, sometime in June 1979, petitioners Tansinsin and Juan
Perez, in the company of men bearing armalites, went to the fishpond and presented private
respondent with a letter dated June 7, 1979 showing that petitioner Luis Keh had surrendered
possession of the fishpond to the usufructuaries.
Because of the threat to deprive him of earnings of around P700,000.00 that the 700,000
milkfish in the fishpond would yield, and the refusal of petitioners Keh, Juan Perez and Lee to
accept the rental for June 5, 1979 to June 6, 1980, private respondent filed on June 14, 1979
with the then Court of First Instance of Bulacan an action for injunction and damages. He
prayed for the issuance of a restraining order enjoining therein defendants Keh, Perez and Lee
from entering the premises and taking possession of the fishpond. He also prayed for actual
damages of P50,000.00, moral damages of P20,000.00, exemplary damages in an amount that
the court might award, and attorney's fees of P10,000.00.[7]
That same day, June 14, 1979, the lower court granted the prayer for a restraining order. On
November 13, 1979, Crisostomo paid one of the usufructuaries, Maria Perez (who died in
1984), the amount of P21,428.00 as her 1/7 share of the annual rental of the fishpond for 1979-
80. Maria Perez issued a notarized receipt for that amount.[8]
On January 11, 1980, the court lifted the restraining order thereby effectively depriving private
respondent of possession over the fishpond. On February 14, 1980, the parties submitted a
partial compromise agreement with the following stipulations:
1. The amount of P128,572.00 that private respondent deposited as rental with the Office of the
Clerk of Court under O.R. No. 21630 dated November 15, 1979 be withdrawn from that office
and deposited with the Paluwagan ng Bayan Savings & Loan Association, Inc. (Paombong,
Bulacan branch) and which deposit shall not be withdrawn unless authorized by the court; and
2. The plaintiff could personally harvest milkfish "with commercial value" in the presence of
Perez and under the supervision of the deputy clerk of court within the appointed period and
that the net proceeds of the sale (P123,993.85 per the Report dated March 4, 1980 of the
deputy clerk of court) be deposited in the name of the deputy clerk of court of Branch 6 of the
then Court of First Instance of Bulacan with the same branch of the Paluwagan ng Bayan
Savings & Loan Association, Inc. and which deposit shall not be withdrawn unless upon order of
the court after hearing.
The court approved that agreement on that same date.
Thereafter, the usufructuaries entered into a contract of lease with Vicente Raymundo and
Felipe Martinez for the six-year period of June 1, 1981 to May 30, 1987 in consideration of the
annual rentals of P550,000.00 for the first two years and P400,000.00 for the next four years.
Upon expiration of that lease, the same property was leased to Pat Laderas for P1 million a
year.
The complaint was later amended to include petitioner Tansinsin, the alleged administrator of
the fishpond, as one of the defendants.[9] Except in the joint answer that the defendants had
filed, petitioners Keh and Lee did not appear before the court. Neither did they testify.
In their defense, petitioners Juan Perez and Tansinsin presented evidence to prove that they
had negotiated for the lease of the property with Benito Keh in 1975. However, they averred, for
reasons unknown to petitioner Perez, in the contract of lease that petitioner Tansinsin prepared,
petitioner Luis Keh was named as lessee. Petitioner Perez had never met Keh or Lee but
according to petitioner Tansinsin, petitioner Luis Keh was substituted for Benito Keh because
the latter was preoccupied with his other businesses. Sometime in 1979, petitioner Keh's agent
named Catalino Alcantara relayed to petitioner Perez, Keh's intention to surrender possession
of the fishpond to the usufructuaries. Because petitioner Perez demanded that said intention
should be made in writing, on June 5, 1979, Perez received from Keh a letter to that effect.
When private respondent received a copy of that letter of petitioner Keh, he took the position
that petitioner Perez had no right to demand possession of the fishpond from him because
Perez had no contract with him. Private respondent was allowed four (4) months within which to
vacate the premises but he immediately filed the complaint for injunction and damages.
Thereafter, private respondent's counsel, Atty. Angel Cruz, and other persons tried to prevail
upon petitioner Perez to allow private respondent to occupy the property for three (3) more
years. Petitioner Perez declined that proposition.
On September 6, 1989, the lower court rendered the aforesaid decision. It arrived at the
conclusion that the defendants therein "conspired with one another to exploit the plaintiff's
naivete and educational inadequacies and, in the process, to defraud him by inducing him into
taking possession of the `Papaya Fishpond' in their fond hope that, as soon as the plaintiff
applying his known expertise as a successful fishpond operator shall have considerably
improved the fishpond, they will regain possession of the premises and offer the lease thereof to
other interested parties at much higher rental rates as laid bare by supervening realities." That
conclusion was founded on the following:
1. The plaintiff's (private respondent Crisostomo's) testimony bears the "hallmarks of truth:
candid, straightforward and uncontrived." He had proven himself a "much more credible witness
than his opponents."
2. The notarized receipt of Maria Perez of her share as a usufructuary in the rental for 1979-80
is a "clear avowal of plaintiff's legitimate operation of the 'Papaya Fishpond' as assignee or
transferee thereof." It was impossible for the other usufructuaries, especially Juan Perez who
was residing in the same locality and actively involved in the "affairs of the fishpond," not to
have known that plaintiff occupied the fishpond for one and a half years as assignee of Keh and
Lee. It was unbelievable that both Tansinsin and Perez would only perceive the plaintiff as a
mere encargado of Keh and Lee.
3. The receipt whereby Tansinsin acknowledged payment of P150,000.00 as rental for June
1978-May 1979 bears "tell-tale signs" of the conspiracy. Firstly, the statement "Mr. Luis Keh has
not transferred his rights over the fishpond to any person" is entirely irrelevant to that receipt
unless it was intended "to preempt plaintiff's claim of rights and interests over the said property
as either sub-lessee or assignee." Secondly, Keh's having signified "Conforme to the above" is
a gratuitous notation as it actually indicates that the money came from the plaintiff. Thirdly, Atty.
Tansinsin's receipt of the amount for and in behalf of "JUAN L. PEREZ ET AL." illustrates his
"active and dominant role in the affairs" of the fishpond whether as administrator thereof or as
beneficiary of a share from its fruits.
4. Service upon plaintiff of Keh's letter surrendering possession of the fishpond implied that
defendants knew that plaintiff was in possession thereof. That they resorted to the intimidating
presence of armed men is proof that they expected the plaintiff to refuse to give up possession
of the property. These circumstances "completely belie the protestations of Perez and Tansinsin
of lack of knowledge of the contract entered into" between the plaintiff, and Lee and Keh.
5. The nonpresentation of Lee and Keh on the witness stand by Atty. Tansinsin "can very well
be construed as a smart maneuver to cover up the sinister cabal for deception inferrable from
the attendant facts and circumstances." In their joint answer, Keh and Lee tried to relieve Perez
of any liability in favor of the plaintiff. That is understandable "because, should the Court
disregard the reliance of Perez on the prohibition against sub-lease or assignment of the
'Papaya Fishpond', then all the defendants shall have exposed themselves to unavoidable
liability for the acts complained of by the plaintiff."
6. Atty. Tansinsin was the common legal counsel of all the defendants and, by his testimony,
even the plaintiff. Atty. Tansinsin's denial that he was plaintiff's counsel was his way of
"deflecting plaintiff's imputations of professional improprieties against him." Plaintiff must have
assumed that Atty. Tansinsin was also his lawyer considering that they were "on very friendly
terms" and therefore Atty. Tansinsin might have been instrumental in dispelling whatever fears
plaintiff had entertained as regards the business transactions involved.
7. The fact that the fishpond was subsequently rented out for astronomical amounts is proof that
the plaintiff had considerably improved the fishpond.[10]
The lower court added:
"Bluntly yet succinctly put, the foregoing circumstances when viewed collectively with other
cogent aspects of the instant case inexorably lead to the Court's well-considered view that the
defendants tempted by the bright prospect of a lucrative business coup embarked themselves in
an egregious scheme to take undue advantage of the gullibility of the plaintiff who, as borne by
ensuing events, proved himself an ideal victim to prey upon: pathetically unsuspecting yet only
too eager to invest his material resources and self-acquired technical know-how to redeem what
was then a dwindling business enterprise from total collapse. Plaintiff's impressive performance,
alas, only redounded ultimately to the supreme benefit exclusively of the defendants. A classic
case of "ako ang nagsaing, iba ang kumain!"
The defendants elevated the case to the Court of Appeals which, as earlier mentioned, affirmed
the decision of the trial court and disposed of the appeal on February 18, 1992 as follows:
"WHEREFORE, in view of all the foregoing, judgment appealed from, is hereby AFFIRMED.
However, intervenor-appellant is hereby declared co-usufructuary of the Papaya fishpond, and
is, therefore, entitled to all rights and interest due to the usufructuaries of the said fishpond.
SO ORDERED."
On the defendant-appellants' contention that the principle of res judicata should be applied
because the Court of Appeals had ruled on the issue of possession in CA-G.R. No. 10415-R, a
petition for certiorari and injunction with preliminary mandatory injunction, the Court of Appeals
held that said principle was unavailing. The petition in CA-G.R. No. 10415-R involved a writ of
injunction "which presupposes the pendency of a principal or main action." Moreover, the
decision in that case did not resolve the issue of who should be in possession of the Papaya
Fishpond as findings of fact of the trial court cannot be reviewed in a certiorari proceeding.
The Court of Appeals ruled further that appellee Crisostomo "cannot be considered a possessor
in bad faith, considering that he took possession of the fishpond when appellants Keh and Lee
assigned to him appellant Keh's leasehold right." It held that appellant Perez knew of the
transfer of possession of the fishpond to appellee and that the receipt evidencing payment of
the 1978-1979 rental even bears an expressed admission by Lee that the payment came from
appellee Crisostomo.
Agreeing with the court a quo that "defendants-appellants employed fraud to the damage and
prejudice of plaintiff-appellee," the Court of Appeals held that appellants should be held liable
for damages. As regards the intervention pro interesse suo, the appellate court ruled that the
same should be allowed because, even if the litigation would not be technically binding upon
him, complications might arise that would prejudice his rights. Pointing out that a usufruct may
be transferred, assigned or disposed of, the Court of Appeals ruled that the intervenor cannot be
excluded as a usufructuary because he had acquired his right as such from a sale in execution
of the share of Jorge Lorenzo, one of the usufructuaries of the fishpond.
Herein petitioners filed a motion for the reconsideration of that Decision of the Court of Appeals.
They alleged that the Decision was premature because it was rendered when they had not yet
even received a copy of the intervenor's brief wherein assignments of errors that directly
affected their rights and interests were made. They insisted that the principle of res judicata was
applicable because in G.R. No. 64354, this Court upheld the Decision of the Court of Appeals in
CA G.R. No. 10415. They added that appellee Crisostomo was guilty of forum shopping
because the issue of possession had been "squarely decided" in CA-G.R. No. 10415. They
stressed that the contract of lease between Keh and the usufructuaries prohibited subleasing of
the fishpond; that by the receipt dated June 6, 1978, it was Keh who paid the rental; that
appellee Crisostomo was a perjured witness because in the notebook showing his expenses,
the amount of P150,000.00 for rentals does not appear; that the term of the contract had
expired and there was no renewal thereof, and that the consideration of P150,000.00 was
grossly inadequate. They averred that the Court of Appeals erred in awarding damages that
were not prayed for in the second amended complaint and that amounts not specified in the
complaint were awarded as damages. They disclaimed that Atty. Tansinsin was the
administrator of the fishpond.
On October 30, 1992, the Court of Appeals denied the motion for reconsideration for lack of
merit. It ruled that the Decision was not prematurely promulgated "considering that the
intervention proceeding is solely between intervenor and defendants-appellants, which is
completely separable and has nothing to do with the merits of the appeal."
In the instant petition for review on certiorari, petitioners raise six (6) grounds for giving due
course to it.[11] Those grounds may be distilled into the following: (a) the applicability of the
principle of res judicata; (b) the premature promulgation of the Decision of the Court of Appeals,
and (c) private respondent was not a sublesee of the fishpond under the law.
In arguing that the principle of res judicata applies in this case, petitioners rely on the portion of
the Decision[12] of the Court of Appeals in CA-G.R. No. 10415 that states:
"We find no basis for declaring respondent Judge guilty of grave abuse of discretion on this
regard. The trial court's finding that petitioner does not appear entitled to any contract or law to
retain possession of the fishpond in question since he is neither an assignee or sub-lessee and,
therefore, merely a stranger to the contract of lease is a finding of fact review of which is not
proper in a certiorari proceedings. Not only is petitioner not a party to the lease agreement over
the fishpond in question but also the very authority upon which he predicates his possession
over the fishpond that the leasehold right of Luis Keh had been assigned to him undoubtedly
lacks basis for the very contract between Luis Keh and the lessors expressly provides
'That the lessee cannot sub-lease above-described fishpond nor assign his rights to anyone.'
xxx xxx x x x."
(Underscoring supplied by petitioners.)[13]
Petitioners assert that said Decision of the Court of Appeals which was in effect upheld by this
Court when it denied the petition for review on certiorari in G. R. No. 64354 (Luis Crisostomo v.
Intermediate Appellate Court),[14] is "res judicata to the issue of possession in this
case."[15] However, as expressed in that quoted portion of the Decision in CA-G.R. No. 10415,
the issue of whether private respondent is an assignee or a sub-lessee "is a finding of fact
review of which is not proper in a certiorari proceeding" or the proceeding in that case.
CA-G.R. No. 10415 was spawned by the lifting on January 11, 1980 of the restraining order
previously issued by the trial court on June 14, 1979. Private respondent filed a special civil
action of certiorari and injunction with preliminary mandatory injunction and/or mandatory
restraining order to question the order of January 11, 1980. Thus, the issue in that petition was
whether or not the trial court gravely abused its discretion in lifting the restraining order. The
statement in that Decision of the Court of Appeals that a writ of preliminary injunction may be
denied "if the party applying for it has insufficient title or interest to sustain it and no claim to an
ultimate relief (is) sought" by no means resolved the issue of who is entitled to possess the
fishpond. In denying the petition for certiorari, the Court of Appeals was simply saying that there
was no reason to restore private respondent to the possession of the fishpond pursuant to the
restraining order that he had earlier obtained. The issue of possession was collaterally
discussed only to resolve the propriety of the lifting of the restraining order based on evidence
available at that time. Hence, there was no judgment on the merits in the main case or in Civil
Case No. 5610-M. Simply put, the Decision in CA-G.R. No. 10415 involves an interlocutory
order on the propriety of the lifting of the restraining order and not a judgment on the merits of
Civil Case No. 5610-M.
For res judicata to apply, the following requisites must concur: (a) the former judgment must be
final; (b) the court which rendered it had jurisdiction over the subject matter and the parties; (c)
the judgment must be on the merits, and (d) there must be between the first and second actions
identity of parties, subject matter and causes of action.[16] The Decision in CA-G.R. No. 10415
having resolved only an interlocutory matter, the principle of res judicata cannot be applied in
this case. There can be no res judicata where the previous order in question was not an order or
judgment determinative of an issue of fact pending before the court but was only an
interlocutory order because it required the parties to perform certain acts for final adjudication.
[17]
In this case, the lifting of the restraining order paved the way for the possession of the
fishpond on the part of petitioners and/or their representatives pending the resolution of the
main action for injunction. In other words, the main issue of whether or not private respondent
may be considered a sublessee or a transferee of the lease entitled to possess the fishpond
under the circumstances of the case had yet to be resolved when the restraining order was
lifted.
Petitioners assail the Court of Appeals' Decision as "premature" and therefore null and void,
because prior to the promulgation of that Decision, private respondent-intervenor Vicente
Asuncion failed to furnish them with a copy of his brief the assignment of errors of which
allegedly "directly" affected their rights and interests.[18] While it is true that petitioners were
deprived of the opportunity to contravene the allegations of the intervenor in his brief, that fact
can not result in the nullity of the Decision of the Court of Appeals.[19] Vicente Asuncion
intervened pro interesse suo or "according to his interest."[20] Intervention pro interesse suo is a
mode of intervention in equity wherein a stranger desires to intervene for the purpose of
asserting a property right in the res, or thing, which is the subject matter of the litigation, without
becoming a formal plaintiff or defendant, and without acquiring control over the course of a
litigation, which is conceded to the main actors therein.[21] In this case, intervenor Vicente
Asuncion aimed to protect his right as a usufructuary. Inasmuch as he has the same rights and
interests as petitioner Juan Perez, any judgment rendered in the latter's favor entitled him to
assert his right as such usufructuary against his co-usufructuary. Should said intervenor claim
his share in the usufruct, no rights of the petitioners other than those of Juan Perez would be
prejudiced thereby.
Worth noting is the fact that after the trial court had allowed Vicente Asuncion's intervention pro
interesse suo, petitioner Juan Perez filed a petition for certiorari docketed as CA-G.R. No.
13519 to set aside the order denying his motion to dismiss the pleading in intervention. In its
Decision of January 27, 1988, the Seventh Division of the Court of Appeals[22] denied the petition
for certiorari for lack of merit. It upheld the trial court's ruling to allow the intervention pro
interesse suo to protect Vicente Asuncion's right as a co-usufructuary in the distribution or
disposition of the amounts representing the rentals that were deposited with the court. That
Vicente Asuncion had filed Civil Case No. 8215-M seeking recovery of his alleged share in the
fruits of the Papaya Fishpond from 1978 would not be a reason for the dismissal of the motion
for intervention pursuant to Rule 16, Sec. 1 (e) of the Rules of Court.[23] The Court of Appeals
explained as follows:
"Indeed, if by means of intervention a stranger to a lawsuit is permitted to intervene without
thereby becoming a formal plaintiff or defendant (Joaquin v. Herrera, 37 Phil. 705, 723 [1918] ),
then there is in the case at bar no identity of parties to speak of. Lis pendens as a ground for a
motion to dismiss requires as a first element identity of parties in the two cases.
Nor is there an identity of relief sought. Civil Case No. 8295-M seeks an accounting of the
proceeds of the fishpond while Civil Case No. 5610-M is for injunction to prevent the petitioner
from retaking the fishpond from Luis Crisostomo. The herein private respondent sought to
intervene in the latter case simply to protect his right as usufructuary in the money deposited in
the court by the plaintiff Luis Crisostomo. We hold that in allowing the intervention in this case
the trial court acted with prudence and exercised its discretion wisely."[24]
Unconvinced by the Court of Appeals' Decision in CA-G.R. SP No. 13519, petitioner Juan Perez
filed a petition for review on certiorari with this Court under G.R. No. 82096. On May 9, 1988,
this Court denied the petition on the grounds that the issues raised are factual and that there is
no sufficient showing that the findings of the respondent court are not supported by substantial
evidence or that the court had committed any reversible error in the questioned judgment. [25] The
Resolution of the Court dated May 9, 1988 became final and executory on August 26, 1988. [26]
Moreover, granting that the intervention be considered as Vicente Asuncion's "appeal," a
litigant's failure to furnish his opponent with a copy of his appeal does not suffice to warrant
dismissal of that appeal. In such an instance, all that is needed is for the court to order the
litigant to furnish his opponent with a copy of his appeal.[27] This is precisely what happened in
this case. On May 13, 1992, the Court of Appeals issued a Resolution directing counsel for
intervenor to furnish herein petitioners with a copy of intervenor Vicente Asuncion's brief within a
10-day period. It also granted petitioners an opportunity to file a reply-brief or memorandum and
the intervenor, a reply to said memorandum.[28] That Resolution is proper under the premises
because, by the nature of an intervention pro interesse suo, it can proceed independently of the
main action. Thus, in the Resolution of October 30, 1992, in resolving the issue of the alleged
prematurity of its Decision, the Court of Appeals held that "the proceeding is solely between
intervenor and defendants-appellants, which is completely separable and has nothing to do with
the merits of the appeal."[29]
At the hearing of Civil Case No. 5610-M, petitioner Juan Perez attempted to establish the death
on October 14, 1979 of Jorge Lorenzo,[30] the usufructuary from whom Vicente Asuncion derived
his right to intervene pro interesse suo. Since under Article 603 of the Civil Code a usufruct is
extinguished "by the death of the usufructuary, unless a contrary intention clearly appears,"
there is no basis by which to arrive at the conclusion that the usufruct originally exercised by
Jorge Lorenzo has indeed been extinguished or, on the contrary, has survived Lorenzo's
demise on account of provisions in the document constituting the usufruct. That matter is best
addressed in Civil Case No. 8215-M wherein Vicente Asuncion seeks his share as a transferee
of the usufruct established for Jorge Lorenzo. All that is discussed here is the matter of
intervention pro interesse suo vis-à-vis the issue of prematurity of the Decision of the Court of
Appeals.
Petitioners' principal argument against the Court of Appeals' Decision in favor of private
respondent Crisostomo is that he could not have been an assignee or sub-lessee of the
fishpond because no contract authorized him to be so. Petitioners' argument is anchored on
factual issues that, however, have no room for discussion before this Court. It is well-entrenched
doctrine that questions of fact are not proper subjects of appeal by certiorari under Rule 45 of
the Rules of Court as this mode of appeal is confined to questions of law.[31] Factual findings of
the Court of Appeals are conclusive on the parties and carry even more weight when said court
affirms the factual findings of the trial court.[32] Accordingly, this review shall be limited to
questions of law arising from the facts as found by both the Court of Appeals and the trial court.
Admittedly, the contract between the usufructuaries and petitioner Keh has a provision barring
the sublease of the fishpond. However, it was petitioner Keh himself who violated that provision
in offering the operation of the fishpond to private respondent. Apparently on account of private
respondent's apprehensions as regards the right of petitioners Keh and Lee to transfer
operation of the fishpond to him, on January 9, 1978, petitioner Keh executed a document
ceding and transferring his rights and interests over the fishpond to petitioner Lee. That the
same document might have been a ruse to inveigle private respondent to agree to their
proposal that he operate the fishpond is of no moment. The fact is, petitioner Keh did transfer
his rights as a lessee to petitioner Lee in writing and that, by virtue of that document, private
respondent acceded to take over petitioner Keh's rights as a lessee of the fishpond.
Although no written contract to transfer operation of the fishpond to private respondent was
offered in evidence,[33] the established facts further show that petitioner Juan Perez and his
counsel, petitioner Tansinsin, knew of and acquiesced to that arrangement by their act of
receiving from the private respondent the rental for 1978-79. By their act of receiving rental from
private respondent through the peculiarly written receipt dated June 6, 1978, petitioners Perez
and Tansinsin were put in estoppel to question private respondent's right to possess the
fishpond as a lessee. Estoppel in pais arises when one, by his acts, representations or
admissions, or by his own silence when he ought to speak out, intentionally or through culpable
negligence, induces another to believe certain facts to exist and such other rightfully relies and
acts on such belief, so that he will be prejudiced if the former is permitted to deny the existence
of such facts.[34]
Nevertheless, we hesitate to grant private respondent's prayer that he should be restored to the
possession of the fishpond as a consequence of his unjustified ejectment therefrom. To restore
possession of the fishpond to him would entail violation of contractual obligations that the
usufructuaries have entered into over quite a long period of time now. Supervening events, such
as the devaluation of the peso as against the dollar as well as the addition of improvements in
the fishpond that the succeeding lessees could have introduced, have contributed to the
increase in rental value of the property. To place private respondent in the same position he
was in before the lifting of the restraining order in 1980 when he was deprived the right to
operate the fishpond under the contract that already expired in 1985 shall be to sanction
injustice and inequity. This Court, after all, may not supplant the right of the usufructuaries to
enter into contracts over the fishpond through this Decision. Nonetheless, under the
circumstances of the case, it is but proper that private respondent should be properly
compensated for the improvements he introduced in the fishpond.
Article 1168 of the Civil Code provides that when an obligation "consists in not doing and the
obligor does what has been forbidden him, it shall also be undone at his expense." The lease
contract prohibited petitioner Luis Keh, as lessee, from subleasing the fishpond. In entering into
the agreement for pakiao-buwis with private respondent, not to mention the apparent artifice
that was his written agreement with petitioner Lee on January 9, 1978, petitioner Keh did exactly
what was prohibited of him under the contract to sublease the fishpond to a third party. That the
agreement for pakiao-buwis was actually a sublease is borne out by the fact that private
respondent paid petitioners Luis Keh and Juan Perez, through petitioner Tansinsin the amount
of annual rental agreed upon in the lease contract between the usufructuaries and petitioner
Keh. Petitioner Keh led private respondent to unwittingly incur expenses to improve the
operation of the fishpond. By operation of law, therefore, petitioner Keh shall be liable to private
respondent for the value of the improvements he had made in the fishpond or for P486,562.65
with interest of six percent (6%) per annum from the rendition of the decision of the trial court on
September 6, 1989.[35]
The law supports the awards of moral and exemplary damages in favor of private respondent
and against the petitioners. Their conspiratorial scheme to utilize private respondent's expertise
in the operation of fishponds to bail themselves out of financial losses has been satisfactorily
established to warrant a ruling that they violated Article 21 of the Civil Code and therefore
private respondent should be entitled to an award of moral damages. Article 21 states that
"(a)ny person who wilfully causes loss or injury to another in a manner that is contrary to morals,
good customs or public policy shall compensate the latter for the damage." Exemplary damages
shall likewise be awarded pursuant to Article 2229 of the Civil Code.[36] Because private
respondent was compelled to litigate to protect his interest, attorney's fees shall also be
awarded.[37]
WHEREFORE, in light of the foregoing premises, the decision of the Court of Appeals is
AFFIRMED insofar as it (a) directs the release to private respondent of the amounts of
P128,572.00 and P123,993.85 deposited with the Paluwagan ng Bayan Savings Bank in
Paombong, Bulacan and (b) requires private respondent Crisostomo to pay petitioner Juan
Perez the rental for the period June 1979 to January 1980 at the rate of P150,000.00 per annum
less the amount of P21,428.00 already paid to usufructuary Maria Perez. It should, however, be
subject to the MODIFICATIONS that:
1. Petitioner Luis Keh shall pay private respondent Luis Crisostomo in the amount of
P486,562.25 with legal interest from the rendition of the judgment in Civil Case No. 5610-M or
on September 6, 1989, and
2. Petitioners be made liable jointly and severally liable for moral damages of P50,000.00,
exemplary damages of P20,000 and attorney's fees of P10,000.00.
No costs.
SO ORDERED.
Melo (Chairman), Vitug, Panganiban, and Purisima, JJ., concur.

[1]
Penned by Associate Justice Consuelo Ynares-Santiago and concurred in by Associate
Justices Ricardo L. Pronove, Jr. and Nicolas P. Lapeña, Jr.
[2]
Presided by Judge D. Roy A. Masadao, Jr.
[3]
Exh. 2-Motion.
[4]
Exh. B.
[5]
Exh. 3- Motion; Record of Civil Case No. 5610-M, Vol. I, p. 9.
[6]
Exh. C.
[7]
Complaint in Civil Case No. 5610-M.
[8]
Exh. E., p. 831, Vol. II, Records.
[9]
Record of Civil Case No. 5610-M, p. 42.
[10]
Rollo, pp. 130-132.
[11]
Petition, pp. 14-17.
[12]
Penned by Associate Justice Serafin R. Cuevas and concurred in by Associate Justices
Vicente V. Mendoza and Luis A. Javellana.
[13]
Petition, pp. 13-14; Record, pp. 224-225.
[14]
Rollo in G. R. No. 64354, p. 113.
[15]
Petition, p. 14.
[16]
A.G. Development Corporation v. Court of Appeals, G.R. No. 111662, October 23, 1997, 281
SCRA 155, 158-159.
[17]
Philippine Coal Miner's Union v. Cebu Portland Cement Co., et al., 119 Phil. 1063 (1964).
[18]
Petition, p. 15.
[19]
Failure to file brief is not a ground for the nullity of a decision rendered without such brief. In
one case, this Court held that the absence of briefs in an appeal cannot deter this Court from
deciding it (Fireman's Fund Insurance Co. v. Maersk Line Far East Service, 137 Phil. 344,
346[1969]).
[20]
2 BOUVIER'S LAW DICTIONARY 2727 (3rd Revision).
[21]
MORENO, PHILIPPINE LAW DICTIONARY 3rd ed., p. 243 citing Joaquin v. Herrera, 37 Phil.
723 (1918).
[22]
Composed of Associate Justices Vicente Mendoza, Gloria C. Paras and Conrado T.
Limcaoco.
[23]
This provides for the dismissal of an action where there is another action pending between
the same parties for the same cause.
[24]
Rollo in G.R. No. 82096, "Juan L. Perez v. Court of Appeals and Vicente Asuncion," pp. 17-
18.
[25]
Ibid., p. 32.
[26]
Ibid., p. 46. RTC Decision in Civil Case No. 5610-M, p. 4; Rollo of G.R. No. 107737, p. 123.
[27]
Precision Electronics Corporation v. NLRC, G.R. No. 86657, October 23, 1989, 178 SCRA
667, 670.
[28]
Rollo, p. 254.
[29]
Ibid., p. 54.
[30]
TSN, September 9, 1987, pp. 4-11.
[31]
Valmonte v. Court of Appeals, L-41621, February 18, 1999 citing Far East Bank & Trust
Company v. Court of Appeals, 326 Phil. 15 (1996).
[32]
Fortune Motors (Phils.) Corporation v. Court of Appeals, 335 Phil. 315, 330 (1997).
[33]
The agreement on pakiao-buwis could no longer be located (CA Decision, p. 4).
[34]
Roblett Industrial Construction Corporation v. Court of Appeals, 334 Phil. 62, 67 (1997).
[35]
Philippine Airlines, Inc. v. Court of Appeals, 341 Phil. 624, 633-634 (1997).
[36]
This article provides that: "Exemplary or corrective damages are imposed, by way of example
or correction for the public good, in addition to the moral, temperate, liquidated or compensatory
damages."
[37]
Art. 2208 (2), Civil Code.
G.R. No. 141968 February 12, 2001

THE INTERNATIONAL CORPORATE BANK (now UNION BANK OF THE

PHILIPPINES), petitioner,
vs.
SPS. FRANCIS S. GUECO and MA. LUZ E. GUECO, respondents.

KAPUNAN, J.:

The respondent Gueco Spouses obtained a loan from petitioner International Corporate Bank
(now Union Bank of the Philippines) to purchase a car - a Nissan Sentra 1600 4DR, 1989
Model. In consideration thereof, the Spouses executed promissory notes which were payable in
monthly installments and chattel mortgage over the car to serve as security for the
notes.1âwphi1.nêt

The Spouses defaulted in payment of installments. Consequently, the Bank filed on August 7,
1995 a civil action docketed as Civil Case No. 658-95 for "Sum of Money with Prayer for a Writ
of Replevin"1 before the Metropolitan Trial Court of Pasay City, Branch 45.2 On August 25, 1995,
Dr. Francis Gueco was served summons and was fetched by the sheriff and representative of
the bank for a meeting in the bank premises. Desi Tomas, the Bank's Assistant Vice President
demanded payment of the amount of P184,000.00 which represents the unpaid balance for the
car loan. After some negotiations and computation, the amount was lowered to P154,000.00,
However, as a result of the non-payment of the reduced amount on that date, the car was
detained inside the bank's compound.

On August 28, 1995, Dr. Gueco went to the bank and talked with its Administrative Support,
Auto Loans/Credit Card Collection Head, Jefferson Rivera. The negotiations resulted in the
further reduction of the outstanding loan to P150,000.00.

On August 29, 1995, Dr. Gueco delivered a manager's check in amount of P150,000.00 but the
car was not released because of his refusal to sign the Joint Motion to Dismiss. It is the
contention of the Gueco spouses and their counsel that Dr. Gueco need not sign the motion for
joint dismissal considering that they had not yet filed their Answer. Petitioner, however, insisted
that the joint motion to dismiss is standard operating procedure in their bank to effect a
compromise and to preclude future filing of claims, counterclaims or suits for damages.

After several demand letters and meetings with bank representatives, the respondents Gueco
spouses initiated a civil action for damages before the Metropolitan Trial Court of Quezon City,
Branch 33. The Metropolitan Trial Court dismissed the complaint for lack of merit.3

On appeal to the Regional Trial Court, Branch 227 of Quezon City, the decision of the
Metropolitan Trial Court was reversed. In its decision, the RTC held that there was a meeting of
the minds between the parties as to the reduction of the amount of indebtedness and the
release of the car but said agreement did not include the signing of the joint motion to dismiss
as a condition sine qua non for the effectivity of the compromise. The court further ordered the
bank:

1. to return immediately the subject car to the appellants in good working condition;
Appellee may deposit the Manager's check - the proceeds of which have long been
under the control of the issuing bank in favor of the appellee since its issuance, whereas
the funds have long been paid by appellants to .secure said Manager's Check, over
which appellants have no control;

2. to pay the appellants the sum of P50,000.00 as moral damages; P25,000.00 as

exemplary damages, and P25,000.00 as attorney's fees, and

3. to pay the cost of suit.

In other respect, the decision of the Metropolitan Trial Court Branch 33 is hereby
AFFIRMED.4

The case was elevated to the Court of Appeals, which on February 17, 2000, issued the
assailed decision, the decretal portion of which reads:
 WHEREFORE, premises considered, the petition for review on certiorari is hereby
DENIED and the Decision of the Regional Trial Court of Quezon City, Branch 227, in
Civil Case No. Q-97-31176, for lack of any reversible error, is AFFIRMED in toto. Costs
against petitioner.

SO ORDERED.5

The Court of Appeals essentially relied on the respect accorded to the finality of the findings of
facts by the lower court and on the latter's finding of the existence of fraud which constitutes the
basis for the award of damages.

The petitioner comes to this Court by way of petition for review on certiorari under Rule 45 of
the Rules of Court, raising the following assigned errors:

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO

AGREEMENT WITH RESPECT TO THE EXECUTION OF THE JOINT MOTION TO
DISMISS AS A CONDITION FOR THE COMPROMISE AGREEMENT.

II

THE COURT OF APPEALS ERRED IN GRANTING MORAL AND EXEMPLARY

DAMAGES AND ATTORNEY'S FEES IN FAVOR OF THE RESPONDENTS.

III

THE COURT OF APPEALS ERRED IN HOLDING THAT THE PETITIONER RETURN

THE SUBJECT CAR TO THE RESPONDENTS, WITHOUT MAKING ANY PROVISION
FOR THE ISSUANCE OF THE NEW MANAGER'S/CASHIER'S CHECK BY THE
RESPONDENTS IN FAVOR OF THE PETITIONER IN LIEU OF THE ORIGINAL
CASHIER'S CHECK THAT ALREADY BECAME STALE.6

As to the first issue, we find for the respondents. The issue as to what constitutes the terms of
the oral compromise or any subsequent novation is a question of fact that was resolved by the
Regional Trial Court and the Court of Appeals in favor of respondents. It is well settled that the
findings of fact of the lower court, especially when affirmed by the Court of Appeals, are binding
upon this Court.7 While there are exceptions to this rule,8 the present case does not fall under
anyone of them, the petitioner's claim to the contrary, notwithstanding.

Being an affirmative allegation, petitioner has the burden of evidence to prove his claim that the
oral compromise entered into by the parties on August 28, 1995 included the stipulation that the
parties would jointly file a motion to dismiss. This petitioner failed to do. Notably, even the
Metropolitan Trial Court, while ruling in favor of the petitioner and thereby dismissing the
complaint, did not make a factual finding that the compromise agreement included the condition
of the signing of a joint motion to dismiss.

The Court of Appeals made the factual findings in this wise:

In support of its claim, petitioner presented the testimony of Mr. Jefferson Rivera who
related that respondent Dr. Gueco was aware that the signing of the draft of the Joint
Motion to Dismiss was one of the conditions set by the bank for the acceptance of the
reduced amount of indebtedness and the release of the car. (TSN, October 23, 1996,
pp. 17-21, Rollo, pp. 18, 5). Respondents, however, maintained that no such condition
was ever discussed during their meeting of August 28, 1995 (Rollo, p. 32).

The trial court, whose factual findings are entitled to respect since it has the 'opportunity
to directly observe the witnesses and to determine by their demeanor on the stand the
probative value of their testimonies' (People vs. Yadao, et al. 216 SCRA 1, 7 [1992]),
failed to make a categorical finding on the issue. In dismissing the claim of damages of
the respondents, it merely observed that respondents are not entitled to indemnity since
it was their unjustified reluctance to sign of the Joint Motion to Dismiss that delayed the
release of the car. The trial court opined, thus:

'As regards the third issue, plaintiffs' claim for damages is unavailing. First, the
plaintiffs could have avoided the renting of another car and could have avoided
 this litigation had he signed the Joint Motion to Dismiss. While it is true that
herein defendant can unilaterally dismiss the case for collection of sum of money
with replevin, it is equally true that there is nothing wrong for the plaintiff to affix
his signature in the Joint Motion to Dismiss, for after all, the dismissal of the case
against him is for his own good and benefit. In fact, the signing of the Joint
Motion to Dismiss gives the plaintiff three (3) advantages. First, he will recover
his car. Second, he will pay his obligation to the bank on its reduced amount of
P150,000.00 instead of its original claim of P184,985.09. And third, the case
against him will be dismissed. Plaintiffs, likewise, are not entitled to the award of
moral damages and exemplary damages as there is no showing that the
defendant bank acted fraudulently or in bad faith.' (Rollo, p. 15)

The Court has noted, however, that the trial court, in its findings of facts, clearly
indicated that the agreement of the parties on August 28, 1995 was merely for the
lowering of the price, hence -

'xxx On August 28, 1995, bank representative Jefferson Rivera and plaintiff
entered into an oral compromise agreement, whereby the original claim of the
bank of P184,985.09 was reduced to P150,000.00 and that upon payment of
which, plaintiff was informed that the subject motor vehicle would be released to
him.' (Rollo, p. 12)

The lower court, on the other hand, expressly made a finding that petitioner failed to
include the aforesaid signing of the Joint Motion to Dismiss as part of the agreement. In
dismissing petitioner's claim, the lower court declared, thus:

'If it is true, as the appellees allege, that the signing of the joint motion was a
condition sine qua non for the reduction of the appellants' obligation, it is only
reasonable and logical to assume that the joint motion should have been shown
to Dr. Gueco in the August 28, 1995 meeting. Why Dr. Gueco was not given a
copy of the joint motion that day of August 28, 1995, for his family or legal
counsel to see to be brought signed, together with the P150,000.00 in manager's
check form to be submitted on the following day on August 29, 1995? (sic) [I]s a
question whereby the answer up to now eludes this Court's comprehension. The
appellees would like this Court to believe that Dr Gueco was informed by Mr.
Rivera Rivera of the bank requirement of signing the joint motion on August 28,
1995 but he did not bother to show a copy thereof to his family or legal counsel
that day August 28, 1995. This part of the theory of appellee is too complicated
for any simple oral agreement. The idea of a Joint Motion to Dismiss being
signed as a condition to the pushing through a deal surfaced only on August 29,
1995.

'This Court is not convinced by the appellees' posturing. Such claim rests on too
slender a frame, being inconsistent with human experience. Considering the
effect of the signing of the Joint Motion to Dismiss on the appellants' substantive
right, it is more in accord with human experience to expect Dr. Gueco, upon
being shown the Joint Motion to Dismiss, to refuse to pay the Manager's Check
and for the bank to refuse to accept the manager's check. The only logical
explanation for this inaction is that Dr. Gueco was not shown the Joint Motion to
Dismiss in the meeting of August 28, 1995, bolstering his claim that its signing
was never put into consideration in reaching a compromise.' xxx.9

We see no reason to reverse.

Anent the issue of award of damages, we find the claim of petitioner meritorious. In finding the
petitioner liable for damages, both .the Regional Trial Court and the Court of Appeals ruled that
there was fraud on the part of the petitioner. The CA thus declared:

The lower court's finding of fraud which became the basis of the award of damages was
likewise sufficiently proven. Fraud under Article 1170 of the Civil Code of the Philippines,
as amended is the 'deliberate and intentional evasion of the normal fulfillment of
obligation' When petitioner refused to release the car despite respondent's tender of
payment in the form of a manager's check, the former intentionally evaded its obligation
and thereby became liable for moral and exemplary damages, as well as attorney's
fees.10

We disagree.
Fraud has been defined as the deliberate intention to cause damage or prejudice. It is the
voluntary execution of a wrongful act, or a willful omission, knowing and intending the effects
which naturally and necessarily arise from such act or omission; the fraud referred to in Article
1170 of the Civil Code is the deliberate and intentional evasion of the normal fulfillment of
obligation.11 We fail to see how the act of the petitioner bank in requiring the respondent to sign
the joint motion to dismiss could constitute as fraud. True, petitioner may have been remiss in
informing Dr. Gueco that the signing of a joint motion to dismiss is a standard operating
procedure of petitioner bank. However, this can not in anyway have prejudiced Dr. Gueco. The
motion to dismiss was in fact also for the benefit of Dr. Gueco, as the case filed by petitioner
against it before the lower court would be dismissed with prejudice. The whole point of the
parties entering into the compromise agreement was in order that Dr. Gueco would pay his
outstanding account and in return petitioner would return the car and drop the case for money
and replevin before the Metropolitan Trial Court. The joint motion to dismiss was but a natural
consequence of the compromise agreement and simply stated that Dr. Gueco had fully settled
his obligation, hence, the dismissal of the case. Petitioner's act of requiring Dr. Gueco to sign
the joint motion to dismiss can not be said to be a deliberate attempt on the part of petitioner to
renege on the compromise agreement of the parties. It should, likewise, be noted that in cases
of breach of contract, moral damages may only be awarded when the breach was attended by
fraud or bad faith.12 The law presumes good faith. Dr. Gueco failed to present an iota of
evidence to overcome this presumption. In fact, the act of petitioner bank in lowering the debt of
Dr. Gueco from P184,000.00 to P150,000.00 is indicative of its good faith and sincere desire to
settle the case. If respondent did suffer any damage, as a result of the withholding of his car by
petitioner, he has only himself to blame. Necessarily, the claim for exemplary damages must
fait. In no way, may the conduct of petitioner be characterized as "wanton, fraudulent, reckless,
oppressive or malevolent."13

We, likewise, find for the petitioner with respect to the third assigned error. In the meeting of
August 29, 1995, respondent Dr. Gueco delivered a manager's check representing the reduced
amount of P150,000.00. Said check was given to Mr. Rivera, a representative of respondent
bank. However, since Dr. Gueco refused to sign the joint motion to dismiss, he was made to
execute a statement to the effect that he was withholding the payment of the
check.14 Subsequently, in a letter addressed to Ms. Desi Tomas, vice president of the bank,
dated September 4, 1995, Dr. Gueco instructed the bank to disregard the 'hold order" letter and
demanded the immediate release of his car,15 to which the former replied that the condition of
signing the joint motion to dismiss must be satisfied and that they had kept the check which
could be claimed by Dr. Gueco anytime.16 While there is controversy as to whether the
document evidencing the order to hold payment of the check was formally offered as evidence
by petitioners,17 it appears from the pleadings that said check has not been encashed.

The decision of the Regional Trial Court, which was affirmed in toto by the Court of Appeals,
orders the petitioner:

1. to return immediately the subject car to the appellants in good working condition.
Appellee may deposit the Manager's Check - the proceeds of which have long been
under the control of the issuing bank in favor of the appellee since its issuance, whereas
the funds have long been paid by appellants to secure said Manager's Check over which
appellants have no control.18

Respondents would make us hold that petitioner should return the car or its value and that the
latter, because of its own negligence, should suffer the loss occasioned by the fact that the
check had become stale.19 It is their position that delivery of the manager's check produced the
effect of payment20 and, thus, petitioner was negligent in opting not to deposit or use said check.
Rudimentary sense of justice and fair play would not countenance respondents' position.

A stale check is one which has not been presented for payment within a reasonable time after
its issue. It is valueless and, therefore, should not be paid. Under the negotiable instruments
law, an instrument not payable on demand must be presented for payment on the day it falls
due. When the instrument is payable on demand, presentment must be made within a
reasonable time after its issue. In the case of a bill of exchange, presentment is sufficient if
made within a reasonable time after the last negotiation thereof.21

A check must be presented for payment within a reasonable time after its issue,22 and in
determining what is a "reasonable time," regard is to be had to the nature of the instrument, the
usage of trade or business with respect to such instruments, and the facts of the particular
case.23 The test is whether the payee employed such diligence as a prudent man exercises in
his own affairs.24 This is because the nature and theory behind the use of a check points to its
immediate use and payability. In a case, a check payable on demand which was long overdue
by about two and a half (2-1/2) years was considered a stale check.25 Failure of a payee to
encash a check for more than ten (10) years undoubtedly resulted in the check becoming
stale.26 Thus, even a delay of one (1) week27 or two (2) days,28 under the specific circumstances
of the cited cases constituted unreasonable time as a matter of law.

In the case at bar, however, the check involved is not an ordinary bill of exchange but a
manager's check. A manager's check is one drawn by the bank's manager upon the bank itself.
It is similar to a cashier's check both as to effect and use. A cashier's check is a check of the
bank's cashier on his own or another check. In effect, it is a bill of exchange drawn by the
cashier of a bank upon the bank itself, and accepted in advance by the act of its issuance. 29 It is
really the bank's own check and may be treated as a promissory note with the bank as a
maker.30 The check becomes the primary obligation of the bank which issues it and constitutes
its written promise to pay upon demand. The mere issuance of it is considered an acceptance
thereof. If treated as promissory note, the drawer would be the maker and in which case the
holder need not prove presentment for payment or present the bill to the drawee for
acceptance.31

Even assuming that presentment is needed, failure to present for payment within a reasonable
time will result to the discharge of the drawer only to the extent of the loss caused by the
delay.32 Failure to present on time, thus, does not totally wipe out all liability. In fact, the legal
situation amounts to an acknowledgment of liability in the sum stated in the check. In this case,
the Gueco spouses have not alleged, much less shown that they or the bank which issued the
manager's check has suffered damage or loss caused by the delay or non-presentment.
Definitely, the original obligation to pay certainly has not been erased.

It has been held that, if the check had become stale, it becomes imperative that the
circumstances that caused its non-presentment be determined.33 In the case at bar, there is no
doubt that the petitioner bank held on the check and refused to encash the same because of the
controversy surrounding the signing of the joint motion to dismiss. We see no bad faith or
negligence in this position taken by the Bank.1âwphi1.nêt

WHEREFORE, premises considered, the petition for review is given due course. The decision
of the Court of Appeals affirming the decision of the Regional Trial Court is SET ASIDE.
Respondents are further ordered to pay the original obligation amounting to P150,000.00 to the
petitioner upon surrender or cancellation of the manager's check in the latter's possession,
afterwhich, petitioner is to return the subject motor vehicle in good working condition.

SO ORDERED.

Davide, Jr., Puno, Pardo, and Ynares-Santiago, JJ., concur.

Footnotes

1
Rollo, p. 26.

2
This case was eventually dismissed for failure or lack of interest to prosecute (Annex
16), Id., at 158.

3
Rollo, p. 30.

4
Id., at 29.

5
Id., at 35.

6
Id., at 11.

7
Amigo, et al. v. Teves, 96 Phil. 252 (1954).

8
Ramos v. Pepsi Cola, 195 289 (1967).

9
Rollo, pp.31-33.

10
Id., at 34
 11
Legaspi Oil Co., Inc. vs. CA, 224 SCRA 213, 216 (1993).

12
Article 2220 of the NEW CIVIL CODE.

13
Articles 2229 and 2232 of the NEW CIVIL CODE.

14
Rollo, p. 28.

15
Ibid.

16
Id, at 28, 30.

17
Id, at 112.

18
Id., at 29.

19
The check was issued sometime in August 1995. By current banking practice, a check
becomes stale after more than six (6) months. (Pacheco v. Court of Appeals, et al., G.R.
No.126670, December 2, 1999).

20
Citing New Pacific Timber and Supply Co., Inc. v. Severis, 101 SCRA 686 (1980); see
also Tan v. Court of Appeals, 239 SCRA 310 (1994); Tibajio, Jr. v. Court of
Appeals, 223 SCRA 163 (1993).

21
Section 71, Act No. 231, Negotiable Instruments Law (NIL).

22
Section 186, NIL.

23
Section 193, NIL.

24
Jeff Bras. Stones v. McCullough (1934) 188 Ark. 1108, 69 S.W. (2d) 863.

25
Montinola v. Philippine National Bank, 88 Phil. 178 (1951).

26
Papa v. A.U. Valencia and Co., Inc., 289 SCRA 643 (1998).

27
Parker v. Grav., 188 Ark., 68 S.W. (2) 1023.

28
National Plumbing Supple Co. v. Stevenson, 213 Ill. App. 49.

29
Anderson v. Bank of Tupelo, 135 Miss. 351, 100 So. 179; Republic of the Philippines
v. PNB, 3 SCRA 851, 856 (1961).

30
Section 130, NIL.

31
Ist National Bank v. Comm. Ins. Co.,113 Pac. 815.

32
Section. 186, NIL.

33
Crystal v. Court of Appeals, 71 SCRA 443 (1976).

Facts:
The respondents Gueco Spouses obtained a loan from petitioner International Corporate
Bank... the Spouses executed promissory notes which... were payable in monthly installments
and chattel mortgage over the car to serve as security for the notes.
The Spouses defaulted in payment of installments
Bank filed... a civil action... for "Sum of Money with Prayer for a Writ of Replevin"... before the
Metropolitan Trial Court of Pasay City
Gueco was served summons and was fetched by the sheriff and representative of the bank for a
meeting in the bank premises
Gueco went to the bank and talked with its Administrative Support, Auto Loans/Credit Card
Collection Head, Jefferson Rivera. The negotiations resulted in the further reduction of the
outstanding loan to P150,000.00.
Gueco delivered a manager's check in the amount of P150,000.00 but the car was not released
because of his refusal to sign the Joint Motion to Dismiss.
Petitioner... insisted that the joint motion to dismiss is standard operating procedure in their
bank to effect a compromise and to preclude future filing of claims, counterclaims or suits for...
damages.
Gueco spouses initiated a civil action for damages before the Metropolitan Trial Court of
Quezon City,... Metropolitan Trial Court dismissed the complaint for lack of... merit
On appeal to the Regional Trial Court,... the decision of the Metropolitan Trial Court was
reversed.
RTC held that there was a meeting of the minds between the parties as to the reduction of the
amount of indebtedness and the release... of the car but said agreement did not include the
signing of the joint motion to dismiss
The case was elevated to the Court of Appeals
Court of Appeals essentially relied on the respect accorded to the finality of the findings of facts
by the lower court and on the latter's finding of the existence of fraud which constitutes the basis
for the award of damages.
Issues:
COURT OF APPEALS ERRED IN HOLDING THAT THE PETITIONER RETURN THE
SUBJECT CAR TO THE RESPONDENTS, WITHOUT MAKING ANY PROVISION FOR THE
ISSUANCE OF THE NEW MANAGER'S/CASHIER'S CHECK BY THE RESPONDENTS IN
FAVOR OF THE PETITIONER IN LIEU OF THE ORIGINAL CASHIER'S CHECK THAT
ALREADY BECAME STALE
Ruling:
petitioner may have been remiss in informing Dr. Gueco that the signing of a joint motion to
dismiss is a standard operating procedure of petitioner bank. However, this can not in anyway
have prejudiced Dr. Gueco. The motion to dismiss was in fact also for the... benefit of Dr.
Gueco, as the case filed by petitioner against it before the lower court would be dismissed with
prejudice.
. The joint motion to dismiss was but a natural consequence of the compromise agreement
The law presumes good faith
A stale check is one which has not been presented for payment within a reasonable time after
its issue. It is valueless and, therefore, should not be paid. Under the negotiable instruments
law, an instrument not payable on demand must be presented for payment on the day it falls...
due.
the check involved is not an ordinary bill of exchange but a manager's check.
The check becomes the primary obligation of the bank which issues it and constitutes its written
promise to pay upon demand.
The mere issuance of it is considered an acceptance thereof. If treated as promissory... note,
the drawer would be the maker and in which case the holder need not prove presentment for
payment or present the bill to the drawee for acceptance
Failure to present on time, thus, does not totally wipe out... all liability.
In this case, the Gueco spouses have not alleged, much less shown that they or the bank which
issued the manager's check has suffered damage or loss caused by... the delay or non-
presentment. Definitely, the original obligation to pay certainly has not been erased.
It has been held that, if the check had become stale, it becomes imperative that the
circumstances that caused its non-presentment be determined
The decision of the Court of Appeals affirming the decision of the Regional Trial Court is SET
ASIDE.
Principles:
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-12191 October 14, 1918

JOSE CANGCO, plaintiff-appellant,

vs.
MANILA RAILROAD CO., defendant-appellee.

Ramon Sotelo for appellant.

Kincaid & Hartigan for appellee.

FISHER, J.:

At the time of the occurrence which gave rise to this litigation the plaintiff, Jose Cangco, was in
the employment of Manila Railroad Company in the capacity of clerk, with a monthly wage of
P25. He lived in the pueblo of San Mateo, in the province of Rizal, which is located upon the line
of the defendant railroad company; and in coming daily by train to the company's office in the
city of Manila where he worked, he used a pass, supplied by the company, which entitled him to
ride upon the company's trains free of charge. Upon the occasion in question, January 20,
1915, the plaintiff arose from his seat in the second class-car where he was riding and, making,
his exit through the door, took his position upon the steps of the coach, seizing the upright
guardrail with his right hand for support.

On the side of the train where passengers alight at the San Mateo station there is a cement
platform which begins to rise with a moderate gradient some distance away from the company's
office and extends along in front of said office for a distance sufficient to cover the length of
several coaches. As the train slowed down another passenger, named Emilio Zuñiga, also an
employee of the railroad company, got off the same car, alighting safely at the point where the
platform begins to rise from the level of the ground. When the train had proceeded a little farther
the plaintiff Jose Cangco stepped off also, but one or both of his feet came in contact with a
sack of watermelons with the result that his feet slipped from under him and he fell violently on
the platform. His body at once rolled from the platform and was drawn under the moving car,
where his right arm was badly crushed and lacerated. It appears that after the plaintiff alighted
from the train the car moved forward possibly six meters before it came to a full stop.

The accident occurred between 7 and 8 o'clock on a dark night, and as the railroad station was
lighted dimly by a single light located some distance away, objects on the platform where the
accident occurred were difficult to discern especially to a person emerging from a lighted car.

The explanation of the presence of a sack of melons on the platform where the plaintiff alighted
is found in the fact that it was the customary season for harvesting these melons and a large lot
had been brought to the station for the shipment to the market. They were contained in
numerous sacks which has been piled on the platform in a row one upon another. The
testimony shows that this row of sacks was so placed of melons and the edge of platform; and it
is clear that the fall of the plaintiff was due to the fact that his foot alighted upon one of these
melons at the moment he stepped upon the platform. His statement that he failed to see these
objects in the darkness is readily to be credited.

The plaintiff was drawn from under the car in an unconscious condition, and it appeared that the
injuries which he had received were very serious. He was therefore brought at once to a certain
hospital in the city of Manila where an examination was made and his arm was amputated. The
result of this operation was unsatisfactory, and the plaintiff was then carried to another hospital
where a second operation was performed and the member was again amputated higher up near
the shoulder. It appears in evidence that the plaintiff expended the sum of P790.25 in the form
of medical and surgical fees and for other expenses in connection with the process of his
curation.
Upon August 31, 1915, he instituted this proceeding in the Court of First Instance of the city of
Manila to recover damages of the defendant company, founding his action upon the negligence
of the servants and employees of the defendant in placing the sacks of melons upon the
platform and leaving them so placed as to be a menace to the security of passenger alighting
from the company's trains. At the hearing in the Court of First Instance, his Honor, the trial
judge, found the facts substantially as above stated, and drew therefrom his conclusion to the
effect that, although negligence was attributable to the defendant by reason of the fact that the
sacks of melons were so placed as to obstruct passengers passing to and from the cars,
nevertheless, the plaintiff himself had failed to use due caution in alighting from the coach and
was therefore precluded form recovering. Judgment was accordingly entered in favor of the
defendant company, and the plaintiff appealed.

It can not be doubted that the employees of the railroad company were guilty of negligence in
piling these sacks on the platform in the manner above stated; that their presence caused the
plaintiff to fall as he alighted from the train; and that they therefore constituted an effective legal
cause of the injuries sustained by the plaintiff. It necessarily follows that the defendant company
is liable for the damage thereby occasioned unless recovery is barred by the plaintiff's own
contributory negligence. In resolving this problem it is necessary that each of these conceptions
of liability, to-wit, the primary responsibility of the defendant company and the contributory
negligence of the plaintiff should be separately examined.

It is important to note that the foundation of the legal liability of the defendant is the contract of
carriage, and that the obligation to respond for the damage which plaintiff has suffered arises, if
at all, from the breach of that contract by reason of the failure of defendant to exercise due care
in its performance. That is to say, its liability is direct and immediate, differing essentially, in
legal viewpoint from that presumptive responsibility for the negligence of its servants, imposed
by article 1903 of the Civil Code, which can be rebutted by proof of the exercise of due care in
their selection and supervision. Article 1903 of the Civil Code is not applicable to obligations
arising ex contractu, but only to extra-contractual obligations — or to use the technical form of
expression, that article relates only to culpa aquiliana and not to culpa contractual.

Manresa (vol. 8, p. 67) in his commentaries upon articles 1103 and 1104 of the Civil Code,
clearly points out this distinction, which was also recognized by this Court in its decision in the
case of Rakes vs. Atlantic, Gulf and Pacific Co. (7 Phil. rep., 359). In commenting upon article
1093 Manresa clearly points out the difference between "culpa, substantive and independent,
which of itself constitutes the source of an obligation between persons not formerly connected
by any legal tie" and culpa considered as an accident in the performance of an obligation
already existing . . . ."

In the Rakes case (supra) the decision of this court was made to rest squarely upon the
proposition that article 1903 of the Civil Code is not applicable to acts of negligence which
constitute the breach of a contract.

Upon this point the Court said:

The acts to which these articles [1902 and 1903 of the Civil Code] are applicable are
understood to be those not growing out of pre-existing duties of the parties to one
another. But where relations already formed give rise to duties, whether springing from
contract or quasi-contract, then breaches of those duties are subject to article 1101,
1103, and 1104 of the same code. (Rakes vs. Atlantic, Gulf and Pacific Co., 7 Phil. Rep.,
359 at 365.)

This distinction is of the utmost importance. The liability, which, under the Spanish law, is, in
certain cases imposed upon employers with respect to damages occasioned by the negligence
of their employees to persons to whom they are not bound by contract, is not based, as in the
English Common Law, upon the principle of respondeat superior — if it were, the master would
be liable in every case and unconditionally — but upon the principle announced in article 1902
of the Civil Code, which imposes upon all persons who by their fault or negligence, do injury to
another, the obligation of making good the damage caused. One who places a powerful
automobile in the hands of a servant whom he knows to be ignorant of the method of managing
such a vehicle, is himself guilty of an act of negligence which makes him liable for all the
consequences of his imprudence. The obligation to make good the damage arises at the very
instant that the unskillful servant, while acting within the scope of his employment causes the
injury. The liability of the master is personal and direct. But, if the master has not been guilty of
any negligence whatever in the selection and direction of the servant, he is not liable for the acts
of the latter, whatever done within the scope of his employment or not, if the damage done by
the servant does not amount to a breach of the contract between the master and the person
injured.

It is not accurate to say that proof of diligence and care in the selection and control of the
servant relieves the master from liability for the latter's acts — on the contrary, that proof shows
that the responsibility has never existed. As Manresa says (vol. 8, p. 68) the liability arising from
extra-contractual culpa is always based upon a voluntary act or omission which, without willful
intent, but by mere negligence or inattention, has caused damage to another. A master who
exercises all possible care in the selection of his servant, taking into consideration the
qualifications they should possess for the discharge of the duties which it is his purpose to
confide to them, and directs them with equal diligence, thereby performs his duty to third
persons to whom he is bound by no contractual ties, and he incurs no liability whatever if, by
reason of the negligence of his servants, even within the scope of their employment, such third
person suffer damage. True it is that under article 1903 of the Civil Code the law creates
a presumption that he has been negligent in the selection or direction of his servant, but the
presumption is rebuttable and yield to proof of due care and diligence in this respect.

The supreme court of Porto Rico, in interpreting identical provisions, as found in the Porto Rico
Code, has held that these articles are applicable to cases of extra-contractual culpa exclusively.
(Carmona vs. Cuesta, 20 Porto Rico Reports, 215.)

This distinction was again made patent by this Court in its decision in the case of
Bahia vs. Litonjua and Leynes, (30 Phil. rep., 624), which was an action brought upon the theory
of the extra-contractual liability of the defendant to respond for the damage caused by the
carelessness of his employee while acting within the scope of his employment. The Court, after
citing the last paragraph of article 1903 of the Civil Code, said:

From this article two things are apparent: (1) That when an injury is caused by the
negligence of a servant or employee there instantly arises a presumption of law that
there was negligence on the part of the master or employer either in selection of the
servant or employee, or in supervision over him after the selection, or both; and (2) that
that presumption is juris tantum and not juris et de jure, and consequently, may be
rebutted. It follows necessarily that if the employer shows to the satisfaction of the court
that in selection and supervision he has exercised the care and diligence of a good
father of a family, the presumption is overcome and he is relieved from liability.

This theory bases the responsibility of the master ultimately on his own negligence and
not on that of his servant. This is the notable peculiarity of the Spanish law of
negligence. It is, of course, in striking contrast to the American doctrine that, in relations
with strangers, the negligence of the servant in conclusively the negligence of the
master.

The opinion there expressed by this Court, to the effect that in case of extra-
contractual culpa based upon negligence, it is necessary that there shall have been some fault
attributable to the defendant personally, and that the last paragraph of article 1903 merely
establishes a rebuttable presumption, is in complete accord with the authoritative opinion of
Manresa, who says (vol. 12, p. 611) that the liability created by article 1903 is imposed by
reason of the breach of the duties inherent in the special relations of authority or superiority
existing between the person called upon to repair the damage and the one who, by his act or
omission, was the cause of it.

On the other hand, the liability of masters and employers for the negligent acts or omissions of
their servants or agents, when such acts or omissions cause damages which amount to the
breach of a contact, is not based upon a mere presumption of the master's negligence in their
selection or control, and proof of exercise of the utmost diligence and care in this regard does
not relieve the master of his liability for the breach of his contract.

Every legal obligation must of necessity be extra-contractual or contractual. Extra-contractual

obligation has its source in the breach or omission of those mutual duties which civilized society
imposes upon it members, or which arise from these relations, other than contractual, of certain
members of society to others, generally embraced in the concept of status. The legal rights of
each member of society constitute the measure of the corresponding legal duties, mainly
negative in character, which the existence of those rights imposes upon all other members of
society. The breach of these general duties whether due to willful intent or to mere inattention, if
productive of injury, give rise to an obligation to indemnify the injured party. The fundamental
distinction between obligations of this character and those which arise from contract, rests upon
the fact that in cases of non-contractual obligation it is the wrongful or negligent act or omission
itself which creates the vinculum juris, whereas in contractual relations the vinculum exists
independently of the breach of the voluntary duty assumed by the parties when entering into the
contractual relation.

With respect to extra-contractual obligation arising from negligence, whether of act or omission,
it is competent for the legislature to elect — and our Legislature has so elected — whom such
an obligation is imposed is morally culpable, or, on the contrary, for reasons of public policy, to
extend that liability, without regard to the lack of moral culpability, so as to include responsibility
for the negligence of those person who acts or mission are imputable, by a legal fiction, to
others who are in a position to exercise an absolute or limited control over them. The legislature
which adopted our Civil Code has elected to limit extra-contractual liability — with certain well-
defined exceptions — to cases in which moral culpability can be directly imputed to the persons
to be charged. This moral responsibility may consist in having failed to exercise due care in the
selection and control of one's agents or servants, or in the control of persons who, by reason of
their status, occupy a position of dependency with respect to the person made liable for their
conduct.

The position of a natural or juridical person who has undertaken by contract to render service to
another, is wholly different from that to which article 1903 relates. When the sources of the
obligation upon which plaintiff's cause of action depends is a negligent act or omission, the
burden of proof rests upon plaintiff to prove the negligence — if he does not his action fails. But
when the facts averred show a contractual undertaking by defendant for the benefit of plaintiff,
and it is alleged that plaintiff has failed or refused to perform the contract, it is not necessary for
plaintiff to specify in his pleadings whether the breach of the contract is due to willful fault or to
negligence on the part of the defendant, or of his servants or agents. Proof of the contract and
of its nonperformance is sufficient prima facie to warrant a recovery.

As a general rule . . . it is logical that in case of extra-contractual culpa, a suing creditor

should assume the burden of proof of its existence, as the only fact upon which his
action is based; while on the contrary, in a case of negligence which presupposes the
existence of a contractual obligation, if the creditor shows that it exists and that it has
been broken, it is not necessary for him to prove negligence. (Manresa, vol. 8, p. 71
[1907 ed., p. 76]).

As it is not necessary for the plaintiff in an action for the breach of a contract to show that the
breach was due to the negligent conduct of defendant or of his servants, even though such be
in fact the actual cause of the breach, it is obvious that proof on the part of defendant that the
negligence or omission of his servants or agents caused the breach of the contract would not
constitute a defense to the action. If the negligence of servants or agents could be invoked as a
means of discharging the liability arising from contract, the anomalous result would be that
person acting through the medium of agents or servants in the performance of their contracts,
would be in a better position than those acting in person. If one delivers a valuable watch to
watchmaker who contract to repair it, and the bailee, by a personal negligent act causes its
destruction, he is unquestionably liable. Would it be logical to free him from his liability for the
breach of his contract, which involves the duty to exercise due care in the preservation of the
watch, if he shows that it was his servant whose negligence caused the injury? If such a theory
could be accepted, juridical persons would enjoy practically complete immunity from damages
arising from the breach of their contracts if caused by negligent acts as such juridical persons
can of necessity only act through agents or servants, and it would no doubt be true in most
instances that reasonable care had been taken in selection and direction of such servants. If
one delivers securities to a banking corporation as collateral, and they are lost by reason of the
negligence of some clerk employed by the bank, would it be just and reasonable to permit the
bank to relieve itself of liability for the breach of its contract to return the collateral upon the
payment of the debt by proving that due care had been exercised in the selection and direction
of the clerk?

This distinction between culpa aquiliana, as the source of an obligation, and culpa
contractual as a mere incident to the performance of a contract has frequently been recognized
by the supreme court of Spain. (Sentencias of June 27, 1894; November 20, 1896; and
December 13, 1896.) In the decisions of November 20, 1896, it appeared that plaintiff's action
arose ex contractu, but that defendant sought to avail himself of the provisions of article 1902 of
the Civil Code as a defense. The Spanish Supreme Court rejected defendant's contention,
saying:

These are not cases of injury caused, without any pre-existing obligation, by fault or
negligence, such as those to which article 1902 of the Civil Code relates, but of
 damages caused by the defendant's failure to carry out the undertakings imposed by the
contracts . . . .

A brief review of the earlier decision of this court involving the liability of employers for damage
done by the negligent acts of their servants will show that in no case has the court ever decided
that the negligence of the defendant's servants has been held to constitute a defense to an
action for damages for breach of contract.

In the case of Johnson vs. David (5 Phil. Rep., 663), the court held that the owner of a carriage
was not liable for the damages caused by the negligence of his driver. In that case the court
commented on the fact that no evidence had been adduced in the trial court that the defendant
had been negligent in the employment of the driver, or that he had any knowledge of his lack of
skill or carefulness.

In the case of Baer Senior & Co's Successors vs. Compania Maritima (6 Phil. Rep., 215), the
plaintiff sued the defendant for damages caused by the loss of a barge belonging to plaintiff
which was allowed to get adrift by the negligence of defendant's servants in the course of the
performance of a contract of towage. The court held, citing Manresa (vol. 8, pp. 29, 69) that if
the "obligation of the defendant grew out of a contract made between it and the plaintiff . . . we
do not think that the provisions of articles 1902 and 1903 are applicable to the case."

In the case of Chapman vs. Underwood (27 Phil. Rep., 374), plaintiff sued the defendant to
recover damages for the personal injuries caused by the negligence of defendant's chauffeur
while driving defendant's automobile in which defendant was riding at the time. The court found
that the damages were caused by the negligence of the driver of the automobile, but held that
the master was not liable, although he was present at the time, saying:

. . . unless the negligent acts of the driver are continued for a length of time as to give
the owner a reasonable opportunity to observe them and to direct the driver to desist
therefrom. . . . The act complained of must be continued in the presence of the owner for
such length of time that the owner by his acquiescence, makes the driver's acts his own.

In the case of Yamada vs. Manila Railroad Co. and Bachrach Garage & Taxicab Co. (33 Phil.
Rep., 8), it is true that the court rested its conclusion as to the liability of the defendant upon
article 1903, although the facts disclosed that the injury complaint of by plaintiff constituted a
breach of the duty to him arising out of the contract of transportation. The express ground of the
decision in this case was that article 1903, in dealing with the liability of a master for the
negligent acts of his servants "makes the distinction between private individuals and public
enterprise;" that as to the latter the law creates a rebuttable presumption of negligence in the
selection or direction of servants; and that in the particular case the presumption of negligence
had not been overcome.

It is evident, therefore that in its decision Yamada case, the court treated plaintiff's action as
though founded in tort rather than as based upon the breach of the contract of carriage, and an
examination of the pleadings and of the briefs shows that the questions of law were in fact
discussed upon this theory. Viewed from the standpoint of the defendant the practical result
must have been the same in any event. The proof disclosed beyond doubt that the defendant's
servant was grossly negligent and that his negligence was the proximate cause of plaintiff's
injury. It also affirmatively appeared that defendant had been guilty of negligence in its failure to
exercise proper discretion in the direction of the servant. Defendant was, therefore, liable for the
injury suffered by plaintiff, whether the breach of the duty were to be regarded as
constituting culpa aquiliana or culpa contractual. As Manresa points out (vol. 8, pp. 29 and 69)
whether negligence occurs an incident in the course of the performance of a contractual
undertaking or its itself the source of an extra-contractual undertaking obligation, its essential
characteristics are identical. There is always an act or omission productive of damage due to
carelessness or inattention on the part of the defendant. Consequently, when the court holds
that a defendant is liable in damages for having failed to exercise due care, either directly, or in
failing to exercise proper care in the selection and direction of his servants, the practical result is
identical in either case. Therefore, it follows that it is not to be inferred, because the court held in
the Yamada case that defendant was liable for the damages negligently caused by its servants
to a person to whom it was bound by contract, and made reference to the fact that the
defendant was negligent in the selection and control of its servants, that in such a case the court
would have held that it would have been a good defense to the action, if presented squarely
upon the theory of the breach of the contract, for defendant to have proved that it did in fact
exercise care in the selection and control of the servant.
The true explanation of such cases is to be found by directing the attention to the relative
spheres of contractual and extra-contractual obligations. The field of non- contractual obligation
is much more broader than that of contractual obligations, comprising, as it does, the whole
extent of juridical human relations. These two fields, figuratively speaking, concentric; that is to
say, the mere fact that a person is bound to another by contract does not relieve him from extra-
contractual liability to such person. When such a contractual relation exists the obligor may
break the contract under such conditions that the same act which constitutes the source of an
extra-contractual obligation had no contract existed between the parties.

The contract of defendant to transport plaintiff carried with it, by implication, the duty to carry
him in safety and to provide safe means of entering and leaving its trains (civil code, article
1258). That duty, being contractual, was direct and immediate, and its non-performance could
not be excused by proof that the fault was morally imputable to defendant's servants.

The railroad company's defense involves the assumption that even granting that the negligent
conduct of its servants in placing an obstruction upon the platform was a breach of its
contractual obligation to maintain safe means of approaching and leaving its trains, the direct
and proximate cause of the injury suffered by plaintiff was his own contributory negligence in
failing to wait until the train had come to a complete stop before alighting. Under the doctrine of
comparative negligence announced in the Rakes case (supra), if the accident was caused by
plaintiff's own negligence, no liability is imposed upon defendant's negligence and plaintiff's
negligence merely contributed to his injury, the damages should be apportioned. It is, therefore,
important to ascertain if defendant was in fact guilty of negligence.

It may be admitted that had plaintiff waited until the train had come to a full stop before alighting,
the particular injury suffered by him could not have occurred. Defendant contends, and cites
many authorities in support of the contention, that it is negligence per se for a passenger to
alight from a moving train. We are not disposed to subscribe to this doctrine in its absolute form.
We are of the opinion that this proposition is too badly stated and is at variance with the
experience of every-day life. In this particular instance, that the train was barely moving when
plaintiff alighted is shown conclusively by the fact that it came to stop within six meters from the
place where he stepped from it. Thousands of person alight from trains under these conditions
every day of the year, and sustain no injury where the company has kept its platform free from
dangerous obstructions. There is no reason to believe that plaintiff would have suffered any
injury whatever in alighting as he did had it not been for defendant's negligent failure to perform
its duty to provide a safe alighting place.

We are of the opinion that the correct doctrine relating to this subject is that expressed in
Thompson's work on Negligence (vol. 3, sec. 3010) as follows:

The test by which to determine whether the passenger has been guilty of negligence in
attempting to alight from a moving railway train, is that of ordinary or reasonable care. It
is to be considered whether an ordinarily prudent person, of the age, sex and condition
of the passenger, would have acted as the passenger acted under the circumstances
disclosed by the evidence. This care has been defined to be, not the care which may or
should be used by the prudent man generally, but the care which a man of ordinary
prudence would use under similar circumstances, to avoid injury." (Thompson,
Commentaries on Negligence, vol. 3, sec. 3010.)

Or, it we prefer to adopt the mode of exposition used by this court in Picart vs. Smith (37 Phil.
rep., 809), we may say that the test is this; Was there anything in the circumstances
surrounding the plaintiff at the time he alighted from the train which would have admonished a
person of average prudence that to get off the train under the conditions then existing was
dangerous? If so, the plaintiff should have desisted from alighting; and his failure so to desist
was contributory negligence.1awph!l.net

As the case now before us presents itself, the only fact from which a conclusion can be drawn to
the effect that plaintiff was guilty of contributory negligence is that he stepped off the car without
being able to discern clearly the condition of the platform and while the train was yet slowly
moving. In considering the situation thus presented, it should not be overlooked that the plaintiff
was, as we find, ignorant of the fact that the obstruction which was caused by the sacks of
melons piled on the platform existed; and as the defendant was bound by reason of its duty as a
public carrier to afford to its passengers facilities for safe egress from its trains, the plaintiff had
a right to assume, in the absence of some circumstance to warn him to the contrary, that the
platform was clear. The place, as we have already stated, was dark, or dimly lighted, and this
also is proof of a failure upon the part of the defendant in the performance of a duty owing by it
to the plaintiff; for if it were by any possibility concede that it had right to pile these sacks in the
path of alighting passengers, the placing of them adequately so that their presence would be
revealed.

As pertinent to the question of contributory negligence on the part of the plaintiff in this case the
following circumstances are to be noted: The company's platform was constructed upon a level
higher than that of the roadbed and the surrounding ground. The distance from the steps of the
car to the spot where the alighting passenger would place his feet on the platform was thus
reduced, thereby decreasing the risk incident to stepping off. The nature of the platform,
constructed as it was of cement material, also assured to the passenger a stable and even
surface on which to alight. Furthermore, the plaintiff was possessed of the vigor and agility of
young manhood, and it was by no means so risky for him to get off while the train was yet
moving as the same act would have been in an aged or feeble person. In determining the
question of contributory negligence in performing such act — that is to say, whether the
passenger acted prudently or recklessly — the age, sex, and physical condition of the
passenger are circumstances necessarily affecting the safety of the passenger, and should be
considered. Women, it has been observed, as a general rule are less capable than men of
alighting with safety under such conditions, as the nature of their wearing apparel obstructs the
free movement of the limbs. Again, it may be noted that the place was perfectly familiar to the
plaintiff as it was his daily custom to get on and of the train at this station. There could,
therefore, be no uncertainty in his mind with regard either to the length of the step which he was
required to take or the character of the platform where he was alighting. Our conclusion is that
the conduct of the plaintiff in undertaking to alight while the train was yet slightly under way was
not characterized by imprudence and that therefore he was not guilty of contributory negligence.

The evidence shows that the plaintiff, at the time of the accident, was earning P25 a month as a
copyist clerk, and that the injuries he has suffered have permanently disabled him from
continuing that employment. Defendant has not shown that any other gainful occupation is open
to plaintiff. His expectancy of life, according to the standard mortality tables, is approximately
thirty-three years. We are of the opinion that a fair compensation for the damage suffered by
him for his permanent disability is the sum of P2,500, and that he is also entitled to recover of
defendant the additional sum of P790.25 for medical attention, hospital services, and other
incidental expenditures connected with the treatment of his injuries.

The decision of lower court is reversed, and judgment is hereby rendered plaintiff for the sum of
P3,290.25, and for the costs of both instances. So ordered.

Arellano, C.J., Torres, Street and Avanceña, JJ., concur.

Separate Opinions

MALCOLM, J., dissenting:

With one sentence in the majority decision, we are of full accord, namely, "It may be admitted
that had plaintiff waited until the train had come to a full stop before alighting, the particular
injury suffered by him could not have occurred." With the general rule relative to a passenger's
contributory negligence, we are likewise in full accord, namely, "An attempt to alight from a
moving train is negligence per se." Adding these two points together, should be absolved from
the complaint, and judgment affirmed.

Johnson, J., concur.

Facts:
Cangco, was in the employment of the Manila Railroad Company in the capacity of clerk, with a
monthly wage of P25.
He lived in the pueblo of San Mateo, in the province of
Rizal, which is located upon the line of the defendant railroad company; and in coming daily by
train to the company's office in the city of Manila where he worked, he used a pass, supplied by
the company, which entitled him to ride upon the company's trains free of charge.
plaintiff was returning home by rail from his daily labors; and as the train drew up to the station
in San Mateo the plaintiff arose from his seat in the second class-car where he was riding and,
making his exit through the door,... took his position upon the steps of the coach, seizing the
upright guardrail with his right hand for support... at the San Mateo station there is a cement
platform which begins to rise with a moderate gradient some distance away from the company's
office and extends along in front of said office for a distance sufficient to cover the... length of
several coaches. As the train slowed down another passenger, named Emilio Zuñiga, also an
employee of the railroad company, got off the same car, alighting safely at the point where the
platform begins to rise from the level of the ground. When the train had proceeded... a little
farther the plaintiff Jose Cangco stepped off also, but one or both of his feet came in conta'ct
with a sack of watermelons with the result that his feet slipped from under him and he fell
violently
His body at once rolled from the platform and was... drawn under the moving car, where his
right arm was badly crushed and lacerated.
explanation of the presence of a sack of melons on the platform where the plaintiff alighted is
found in the fact that it was the customary season for harvesting these melons and a large lot
had been brought to the station for shipment to the market.
sacks was so placed that there was a space of only about two feet between the sacks of melons
and the edge of the platform; and it is clear that the fall of... the plaintiff was due to the fact that
his foot alighted upon one of these melons at the moment he stepped upon the platform.
he instituted this proceeding in the Court of First Instance of the city of Manila to recover
damages of the defendant company, founding his action upon the negligence vof the servants
and employees of the defendant in placing the sacks of melons upon... the platform... trial judge,
found the facts substantially as above stated, and drew therefrom his... conclusion to the effect
that, although negligence was attributable to the defendant by reason of the fact that the sacks
of melons were so placed as to obstruct passengers passing to and from the cars, nevertheless,
the plaintiff himself had failed to use due caution in... alighting from the coach and was therefore
precluded from recovering.
employees of the railroad company were guilty of negligence in piling these sacks on the
platform in the manner above stated
Issues:
each of these conceptions of liability, to-wit, the primary responsibility of the defendant company
and the contributory negligence of the plaintiff should be separately examined.
Ruling:
legal liability of the defendant is the contract of carriage, and that the obligation to respond for
the damage which plaintiff has suffered arises, if at all, from the breach of that contract by
reason of the failure of... defendant to exercise due care in its performance... liability is direct
and immediate, differing essentially, in the legal viewpoint from that presumptive responsibility
for the negligence of its servants, imposed by article 1903 of the Civil Code, which can... be
rebutted by proof of the exercise of due care in their selection and supervision
Article 1903 of the Civil Code is not applicable to obligations arising ex contractu, but only to
extra-contractual obligations or to use the technical form of expression, that article... relates only
to culpa aquiliana and not to culpa contractual.
acts to which these articles [1902 and 1903 of the Civil Code] are applicable are understood to
be those not growing out of pre-existing duties of the parties to one another. But where relations
already formed give rise to duties, whether springing from contract or... quasi-contract, then
breaches of those duties are subject to articles 1101, 1103 and 1104
It is not accurate to say that proof of diligence and care in the selection and control of the
servant relieves the master from liability for the latter's acts on the contrary, that proof shows
that the responsibility has never existed.
liability arising from extra-contractual culpa is always based upon a voluntary act or omission
which, without willful intent, but by mere negligence or inattention, has caused damage to
another.
master who exercises all possible care in the selection of his... servant, taking into consideration
the qualifications they should possess for the discharge of the duties which it is his purpose to
confide to them, and directs them with equal diligence, thereby performs his duty to third
persons to whom he is bound by no contractual ties, and... he incurs no liability whatever if, by
reason of the negligence of his servants, even within the scope of their employment, such third
persons suffer damage.
under article 1903 of the Civil Code the law creates a presumption that he has been negligent
in... the selection or direction of his servant, but the presumption is rebuttable and yields to proof
of due care and diligence... last paragraph of article 1903 of the Civil Code, said:
"From this article two things are apparent: (1) That when an injury is caused by the negligence
of a servant or employee there instantly arises a presumption of law that there was negligence
on the part of the master or employer either in the selection of the servant or... employee, or in
supervision over him after the selection, or both; and (2) that that presumption is juris tantum
and not juris et de jure, and consequently, may be rebutted.
liability of masters and employers for the negligent acts or omissions of their servants or agents,
when such acts or omissions cause damages which amount to the breach of a contract, is not
based upon a mere presumption of the master's negligence in... their selection or control, and
proof of exercise of the utmost diligence and care in this regard does not relieve the master of
his liability for the breach of his contract.
Every legal obligation must of necessity be extra-contractual or contractual.
it is the wrongful or negligent act or omission itself which creates the vinculum juris, whereas in
contractual relations the vinculum exists... independently of the breach of the voluntary duty
assumed by the parties when entering into the contractual relation.
legislature which adopted our Civil Code has elected to limit extra-contractual liability with
certain well-defined exceptions to cases in which moral culpability can be directly imputed to
the... persons to be charged. This moral responsibility may consist in having failed to exercise
due care in one's own acts, or in having failed to exercise due care in the selection and control
of one's agents or servants, or in the control of persons who, by reason of their status,... occupy
a position of dependency with respect to the person made liable for their conduct... when the
facts averred show a contractual undertaking by defendant for the benefit of plaintiff, and it is
alleged that plaintiff has failed or refused to perform the... contract, it is not necessary for
plaintiff to specify in his pleadings whether the breach of the contract is due to wilful fault or to
negligence on the part of the defendant, or of his servants or agents. Proof of the contract and
of its nonperformance is sufficient prima... facie to warrant a recovery.
in case of extra-contractual culpa, a suing creditor should assume the burden of proof of its
existence, as the only fact upon which his action is based; while on the contrary, in a case of
negligence which presupposes the... existence of a contractual obligation, if the creditor shows
that it exists and that it has been broken, it is not necessary for him to prove the negligence.
If the negligence of servants or agents could be invoked as a means of discharging the liability
arising from contract, the... anomalous result would be that persons acting through the medium
of agents or servants in the performance of their contracts, would be in a better position than
those acting in person.
contract of defendant to transport plaintiff carried with it, by implication, the duty to carry him in
safety and to provide safe means of entering and leaving its trains
That duty, being contractual, was direct and immediate, and its... non-performance could not be
excused by proof that the fault was morally imputable to defendant's servants... doctrine of
comparative negligence announced in the Rakes case (supra), if the... accident was caused by
plaintiff's own negligence, no liability is imposed upon defendant, whereas if the accident was
caused by defendant's negligence and plaintiff's negligence merely contributed to his injury, the
damages should be apportioned. It is, therefore,... important to ascertain if defendant was in fact
guilty of negligence... test by which to determine whether the passenger has been guilty of
negligence in attempting to alight from a moving railway train, is that of ordinary or reasonable
care. It is to be considered whether an ordinarily prudent person, of the age, sex and condition
of the... passenger, would have acted as the passenger acted under the circumstances
disclosed by the evidence. This care has been defined to be, not the care which may or should
be used by the prudent man generally, but the care which a man of ordinary prudence would
use under similar... circumstances, to avoid injury."... only fact from which a conclusion can be
drawn to the effect that the plaintiff was guilty of contributory negligence is that he stepped off
the car without being able to discern clearly the condition of the platform and while... the train
was yet slowly moving. In considering the situation thus presented, it should not be overlooked
that the plaintiff was, as we find, ignorant of the fact that the obstruction which was caused by
the sacks of melons piled on the platform existed
There could, therefore, be no uncertainty in his mind with regard either to the length of the step
which he was required to take or the character of the platform where he was alighting. Our...
conclusion is that the conduct of the plaintiff in undertaking to alight while the train was yet
slightly under way was not characterized by imprudence and that therefore he was not guilty of
contributory negligence.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 131622 November 27, 1998

LETICIA Y. MEDEL, DR. RAFAEL MEDEL and SERVANDO FRANCO, petitioners,

vs.
COURT OF APPEALS, SPOUSES VERONICA R. GONZALES and DANILO G. GONZALES,
JR. doing lending business under the trade name and style "GONZALES CREDIT
ENTERPRISES", respondents.

PARDO, J.:

The case before the Court is a petition for review on certiorari, under Rule 45 of the Revised
Rules of Court, seeking to set aside the decision of the Court of Appeals,1 and its resolution
denying reconsideration, 2 the dispositive portion of which decision reads as follows:

WHEREFORE, the appealed judgment is hereby MODIFIED such that

defendants are hereby-ordered to pay the plaintiff: the sum of P500,000.00,
plus 5.5% per month interest and 2% service charge per annum effective
July 23, 1986, plus 1% per month of the total amount due and demandable
as penalty charges effective August 23, 1986, until the entire amount is
fully paid.

The award to the plaintiff of P50,000.00 as attorney's fees is affirmed. And

so is the imposition of costs against the defendants.

SO ORDERED. 3

The Court required the respondents to comment on the petition, 4 which was filed on April
3, 1998,5 and the petitioners to reply thereto, which was filed on May 29, 1998. 6 We now
resolve to give due course to the petition and decide the case.

The facts of the case, as found by the Court of Appeals in its decision, which are
considered binding and conclusive on the parties herein, as the appeal is limited to
questions of law, are as follows:

On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando and
Leticia) obtained a loan from Veronica R. Gonzales (hereafter Veronica), who was
engaged in the money lending business under the name "Gonzales Credit Enterprises",
in the amount of P50,000.00, payable in two months. Veronica gave only the amount of
P47,000.00, to the borrowers, as she retained P3,000.00, as advance interest for one
month at 6% per month. Servando and Leticia executed a promissory note for
P50,000.00, to evidence the loan, payable on January 7, 1986.

On November 19, 1985, Servando and Liticia obtained from Veronica another loan in the
amount of P90,000.00, payable in two months, at 6% interest per month. They executed a
promissory note to evidence the loan, maturing on Janaury 19, 1986. They received only
P84,000.00, out of the proceeds of the loan.

On maturity of the two promissory notes, the borrowers failed to pay the indebtedness.
On June 11, 1986, Servando and Leticia secured from Veronica still another loan in the
amout of P300,000.00, maturing in one month, secured by a real estate mortgage over a
property belonging to Leticia Makalintal Yaptinchay, who issued a special power of
attorney in favor of Leticia Medel, authorizing her to execute the mortgage. Servando and
Leticia executed a promissory note in favor of Veronica to pay the sum of P300,000.00,
after a month, or on July 11, 1986. However, only the sum of P275.000.00, was given to
them out of the proceeds of the loan.

Like the previous loans, Servando and Medel failed to pay the third loan on maturity.

On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel,
consolidated all their previous unpaid loans totaling P440,000.00, and sought from
Veronica another loan in the amount of P60,000.00, bringing their indebtedness to a total
of P500,000.00, payable on August 23, 1986. They executed a promissory note, reading
as follows:

Baliwag, Bulacan July 23, 1986

Maturity Date Augsut 23, 1986

P500,000.00

FOR VALUE RECEIVED, I/WE jointly and severally promise to pay to the
order of VERONICA R. GONZALES doing business in the business style of
GONZALES CREDIT ENTERPRISES, Filipino, of legal age, married to Danilo
G. Gonzales, Jr., of Baliwag, Bulacan, the sum of PESOS . . . FIVE
HUNDRED THOUSAND . . . (P500,000.00) Philippine Currency with interest
thereon at the rate of 5.5 PER CENT per month plus 2% service charge per
annum from date hereof until fully paid according to the amortization
schedule contained herein. (Emphasis supplied)

Payment will be made in full at the maturity date.

Should I/WE fail to pay any amortization or portion hereof when due, all the
other installments together with all interest accrued shall immediately be
due and payable and I/WE hereby agree to pay an additional amount
equivalent to one per cent (1%) per month of the amount due and
demandable as penalty charges in the form of liquidated damages until
fully paid; and the further sum of TWENTY FIVE PER CENT (25%) thereof in
full, without deductions as Attorney's Fee whether actually incurred or not,
of the total amount due and demandable, exclusive of costs and judicial or
extra judicial expenses. (Emphasis supplied).

I, WE further agree that in the event the present rate of interest on loan is
increased by law or the Central Bank of the Philippines, the holder shall
have the option to apply and collect the increased interest charges without
notice although the original interest have already been collected wholly or
partially unless the contrary is required by law.

It is also a special condition of this contract that the parties herein agree
that the amount of peso-obligation under this agreement is based on the
present value of the peso, and if there be any change in the value thereof,
due to extraordinary inflation or deflation, or any other cause or reason,
then the peso-obligation herein contracted shall be adjusted in accordance
with the value of the peso then prevailing at the time of the complete
fulfillment of the obligation.

Demand and notice of dishonor waived. Holder may accept partial

payments and grant renewals of this note or extension of payments,
reserving rights against each and all indorsers and all parties to this note.

IN CASE OF JUDICIAL Execution of this obligation, or any part of it, the

debtors waive all his/their rights under the provisions of Section 12, Rule
39, of the Revised Rules of Court.
On maturity of the loan, the borrowers failed to pay the indebtedness of P500,000.00,
plus interests and penalties, evidenced by the above-quoted promissory note.

On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G. Gonzales,
filed with the Regional Trial Court of Bulacan, Branch 16, at Malolos, Bulacan, a
complaint for collection of the full amount of the loan including interests and other
charges.

In his answer to the complaint filed with the trial court on April 5, 1990, defendant
Servando alleged that he did not obtain any loan from the plaintiffs; that it was
defendants Leticia and Dr. Rafael Medel who borrowed from the plaintiffs the sum of
P500,000.00, and actually received the amount and benefited therefrom; that the loan was
secured by a real estate mortgage executed in favor of the plaintiffs, and that he
(Servando Franco) signed the promissory note only as a witness.

In their separate answer filed on April 10, 1990, defendants Leticia and Rafael Medel
alleged that the loan was the transaction of Leticia Yaptinchay, who executed a mortgage
in favor of the plaintiffs over a parcel of real estate situated in San Juan, Batangas; that
the interest rate is excessive at 5.5% per month with additional service charge of 2% per
annum, and penalty charge of 1% per month; that the stipulation for attorney's fees of
25% of the amount due is unconscionable, illegal and excessive, and that substantial
payments made were applied to interest, penalties and other charges.

After due trial, the lower court declared that the due execution and genuineness of the
four promissory notes had been duly proved, and ruled that although the Usury Law had
been repealed, the interest charged by the plaintiffs on the loans was unconscionable
and "revolting to the conscience". Hence, the trial court applied "the provision of the
New [Civil] Code" that the "legal rate of interest for loan or forbearance of money, goods
or credit is 12% per annum."7

Accordingly, on December 9, 1991, the trial court rendered judgment, the dispositive
portion of which reads as follows:

WHEREFORE, premises considered, judgment is hereby rendered, as

follows:

1. Ordering the defendants Servando Franco and Leticia Medel, jointly and
severally, to pay plaintiffs the amount of P47,000.00 plus 12% interest per
annum from November 7, 1985 and 1% per month as penalty, until the
entire amount is paid in full.

2. Ordering the defendants Servando Franco and Leticia Y. Medel to

plaintiffs, jointly and severally the amount of P84,000.00 with 12% interest
per annum and 1% per cent per month as penalty from November 19, 1985
until the whole amount is fully paid;

3. Ordering the defendants to pay the plaintiffs, jointly and severally, the
amount of P285,000.00 plus 12% interest per annum and 1% per month as
penalty from July 11, 1986, until the whole amount is fully paid;

4. Ordering the defendants to pay plaintiffs, jointly and severally, the

amount of P50,000.00 as attorney's fees;

5. All counterclaims are hereby dismissed.

With costs against the defendants.8

In due time, both plaintiffs and defendants appealed to the Court of Appeals.

In their appeal, plaintiffs-appellants argued that the promissory note, which consolidated
all the unpaid loans of the defendants, is the law that governs the parties. They further
argued that Circular No. 416 of the Central Bank prescribing the rate of interest for loans
or forbearance of money, goods or credit at 12% per annum, applies only in the absence
of a stipulation on interest rate, but not when the parties agreed thereon.
The Court of Appeals sustained the plaintiffs-appellants' contention. It ruled that "the
Usury Law having become 'legally inexistent' with the promulgation by the Central Bank
in 1982 of Circular No. 905, the lender and borrower could agree on any interest that may
be charged on the loan".9 The Court of Appeals further held that "the imposition of 'an
additional amount equivalent to 1% per month of the amount due and demandable as
penalty charges in the form of liquidated damages until fully paid' was allowed by
law". 10

Accordingly, on March 21, 1997, the Court of Appeals promulgated its decision reversing
that of the Regional Trial Court, disposing as follows:

WHEREFORE, the appealed judgment is hereby MODIFIED such that

defendants are hereby ordered to pay the plaintiffs the sum of P500,000.00,
plus 5.5% per month interest and 2% service charge per annum effective
July 23, 1986, plus 1% per month of the total amount due and demandable
as penalty charges effective August 24, 1986, until the entire amount is
fully paid.

The award to the plaintiffs of P50,000.00 as attorney's fees is affirmed. And

so is the imposition of costs against the defendants.

SO ORDERED. 11

On April 15, 1997, defendants-appellants filed a motion for reconsideration of the said
decision. By resolution dated November 25, 1997, the Court of Appeals denied the
motion. 12

Hence, defendants interposed the present recourse via petition for review
on certiorari. 13

We find the petition meritorious.

Basically, the issue revolves on the validity of the interest rate stipulated upon. Thus, the
question presented is whether or not the stipulated rate of interest at 5.5% per month on
the loan in the sum of P500,000.00, that plaintiffs extended to the defendants is usurious.
In other words, is the Usury Law still effective, or has it been repealed by Central Bank
Circular No. 905, adopted on December 22, 1982, pursuant to its powers under P.D. No.
116, as amended by P.D. No. 1684?

We agree with petitioners that the stipulated rate of interest at 5.5% per month on the
P500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant. 13 However, we
can not consider the rate "usurious" because this Court has consistently held that
Circular No. 905 of the Central Bank, adopted on December 22, 1982, has expressly
removed the interest ceilings prescribed by the Usury Law 14 and that the Usury Law is
now "legally inexistent". 15

In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61 16 the
Court held that CB Circular No. 905 "did not repeal nor in anyway amend the Usury Law
but simply suspended the latter's effectivity." Indeed, we have held that "a Central Bank
Circular can not repeal a law. Only a law can repeal another law." 17 In the recent case
of Florendo vs. Court of Appeals 18, the Court reiterated the ruling that "by virtue of CB
Circular 905, the Usury Law has been rendered ineffective". "Usury has been legally non-
existent in our jurisdiction. Interest can now be charged as lender and borrower may
agree upon." 19

Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon
by the parties in the promissory note iniquitous or unconscionable, and, hence, contrary
to morals ("contra bonos mores"), if not against the law. 20 The stipulation is void. 21 The
courts shall reduce equitably liquidated damages, whether intended as an indemnity or a
penalty if they are iniquitous or unconscionable. 22

Consequently, the Court of Appeals erred in upholding the stipulation of the parties.
Rather, we agree with the trial court that, under the circumstances, interest at 12% per
annum, and an additional 1% a month penalty charge as liquidated damages may be
more reasonable.
WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision of the Court of
Appeals promulgated on March 21, 1997, and its resolution dated November 25, 1997.
Instead, we render judgment REVIVING and AFFIRMING the decision dated December 9,
1991, of the Regional Trial Court of Bulacan, Branch 16, Malolos, Bulacan, in Civil Case
No. 134-M-90, involving the same parties.

No pronouncement as to costs in this instance.

SO ORDERED.

Narvasa, C.J., Romero, Kapunan and Purisima, JJ., concur.

Footnotes

1 CA-G.R. CV No. 36096, promulgated on March 21, 1997.

2 Issued on November 25, 1995.

3 Rollo, pp. 22-78.

4 Resolution dated February 23, 1998, p. 44, Rollo.

5 Rollo, pp. 45-48.

6 Rollo, pp. 53-56.

7 Petition, Rollo, pp. 8-21, 17.

8 Rollo, pp. 36-A-43.

9 Citing Verdejo v. Court of Appeals, 157 SCRA 743 ( 1988); Liam Law v.
Olympic Sawmill Co., 129 SCRA 439 (1984).

10 Citing Article 2209, Civil Code, and State Investment House, Inc. v. Court
of Appeals, 198 SCRA 390.

11 Rollo, p. 27.

12 Rollo, p. 36.

13 Rollo, pp. 8-21.

13 Petition, pp. 15-17, Rollo.

14 People v. Dizon, 379 Phil. 687 [1996].

15 Liam Law v. Olympic Sawmill Co., 129 SCRA 439, 442.

16 331 Phil. 787 [1996].

17 Palanca v. Court of Appeals, 238 SCRA 593, 601 [1994].

18 333 Phil. 535 [1996].

19 People v. Dizon, supra, citing other cases.

20 Art. 1306, Civil Code.

21 Cf. Ibarra v. Aveyro, 37 Phil. 274; Almeda v. Court of Appeals, 256 SCRA
292 [1996].

22 Art. 2227, Civil Code; Joe's Radio and Electrical Supply v. Alto
Electronics Corp., 104 Phil. 33 [1958]; Social Security Commission v.
Almeda, 168 SCRA 474 [1988]; Palmares v. Court of Appeals, G.R. No.
 126490, March 31, 1998, reported in The Court Systems Journal, Special
Edition I, October, 1998, pp. 79-93.

Facts:
On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando and Leticia)
obtained a loan from Veronica R. Gonzales (hereafter Veronica), who was engaged in the
money lending business under the name "Gonzales Credit Enterprises", in the amount of
P50,000.00,... payable in two months. Veronica gave only the amount of P47,000.00, to the
borrowers, as she retained P3,000.00, as advance interest for one month at 6% per month.
Servado and Leticia executed a promissory note for P50,000.00, to evidence the loan, payable
on January 7,... 1986.
On November 19, 1985, Servando and Leticia obtained from Veronica another loan in the
amount of P90,000.00, payable in two months, at 6% interest per month. They executed a
promissory note to evidence the loan, maturing on January 19, 1986. They received only
P84,000.00, out of... the proceeds of the loan.
On maturity of the two promissory notes, the borrowers failed to pay the indebtedness.
On June 11, 1986, Servando and Leticia secured from Veronica still another loan in the amount
of P300,000.00, maturing in one month, secured by a real estate mortgage over a property
belonging to Leticia Makalintal Yaptinchay, who issued a special power of attorney in favor of
Leticia Medel, authorizing her to execute the mortgage. Servando and Leticia executed a
promissory note in favor of Veronica to pay the sum of P300,000.00, after a month, or on July
11, 1986. However, only the sum of P275,000.00, was given to them out of the proceeds of
the... loan.
Like the previous loans, Servando and Medel failed to pay the third loan on maturity.
On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel,
consolidated all their previous unpaid loans totaling P440,000.00, and sought from Veronica
another loan in the amount of P60,000.00, bringing their indebtedness to a total of
P500,000.00,... payable on August 23, 1986. The executed a promissory note
On maturity of the loan, the borrowers failed to pay the indebtedness of P500,000.00, plus
interests and penalties, evidenced by the above-quoted promissory note.
On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G. Gonzales, filed
with the Regional Trial Court of Bulacan, Branch 16, at Malolos, Bulacan, a complaint for
collection of the full amount of the loan including interests and other charges.
In his answer to the complaint filed with the trial court on April 5, 1990, defendant Servando
alleged that he did not obtain any loan from the plaintiffs; that it was defendants Leticia and Dr.
Rafael Medel who borrowed from the plaintiffs the sum of P500,000.00, and actually... received
the amount and benefited therefrom; that the loan was secured by a real estate mortgage
executed in favor of the plaintiffs, and that he (Servando Franco) signed the promissory note
only as a witness.
In their separate answer filed on April 10,1990, defendants Leticia and Rafael Medel alleged
that the loan was the transaction of Leticia Yaptinchay, who executed a mortgage in favor of the
plaintiffs over a parcel of real estate situated in San Juan, Batangas; that the interest... rate is
excessive at 5.5% per month with additional service charge of 2% per annum, and penalty
charge of 1% per month; that the stipulation for attorney's fees of 25% ofthe amount due is
unconscionable, illegal and excessive, and that substantial payments made were applied to...
interest, penalties and other charges.
After due trial, the lower court declared that the due execution and genuineness of the four
promissory notes had been duly proved, and ruled that although the Usury Law had been
repealed, the interest charged by the plaintiffs on the loans was unconscionable and "revolting
to... the conscience". Hence, the trial court applied "the provision of the New [Civil] Code" that
the "legal rate of interest for loan or forbearance of money, goods or credit is 12% per annum."
Issues:
whether or not the stipulated rate of interest at 5.5% per month on the loan in the sum of
P500,000.00, that plaintiffs extended to the defendants is usurious.
Ruling:
We agree with petitioners that the stipulated rate of interest at 5.5% per month on the
P500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant.
However, we can not consider the rate "usurious" because this Court has consistently held that
Circulr No. 905 of... the Central Bank, adopted on December 22, 1982, has expressly removed
the interest ceilings prescribed by the Usury Law[14] and that the Usury Law is now "legally
inexistent".
Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon by the
parties in the promissory note iniquitous or unconscionable, and, hence, contrary to morals
("contra bonos mores"), if not against the law.
The stipulation is... void.
The courts shall reduce equitably liquidated damages, whether intended as an indemnity or a
penalty if they are iniquitous or unconscionable.
[G.R. No. 80645. August 3, 1993.]

MARCELINO GALANG, GUADALUPE GALANG, Petitioners, v. COURT OF APPEALS,

RAMON R. BUENAVENTURA, ANGELES BUENAVENTURA, CORAZON BUENAVENTURA,
and MA. LUISA BUENAVENTURA, Respondents.

Mariano V. Ampil, Jr., for Petitioners.

Ramon R. Buenaventura for private-respondent.

SYLLABUS

1. CIVIL LAW; SALES; CONTRACT TO SELL, EXPLAINED; CASE AT BAR. — Reviewing the
terms of the Deed of Sale quoted earlier, it is clear that the parties had reached the stage of
perfection of the contract of sale, there being already "a meeting of the minds upon the thing
which is the object of the contract and upon the price," (Art. 1475, Civil Code) and on the basis
of which both parties had the personal right to reciprocally demand from the other the fulfillment
of their respective obligations. But contracts of sale may either be absolute or conditional. (Art.
1458, Civil Code) One form of conditional sales, is what is now popularly termed as a "Contract
to Sell," where ownership or title is retained until the fulfillment of a positive condition, normally
the payment of the purchase price in the manner agreed upon. The breach of that condition can
prevent the obligation to convey title from acquiring a binding force. (Roque v. Lapuz, 96 SCRA
741) Where the condition is imposed, instead, upon the perfection of the contract, the failure of
such condition would prevent such perfection. (People’s Homesite and Housing Corporation v.
Court of Appeals, 133 SCRA 777) What we have here is a contract to sell for it is the transfer of
ownership, not the perfection of the contract that was subjected to a condition. Ownership was
not to vest in the buyers until full payment of the purchase price and the transfer of the title to
the buyers. Apart from full payment of the purchase price, we find no other condition which
would affect the obligations of the parties, i.e., to pay, on the part of the buyer and to convey
ownership, on the part of the seller.

DECISION

ROMERO, J.:

This is a petition for review on certiorari of the decision 1 of the Court of Appeals affirming in
toto the judgment rendered by the then Court of First Instance in Civil Case No. R-82-7186
(107585). The dispositive portion of the assailed decision reads as
follows:jgc:chanrobles.com.ph

"WHEREFORE, finding no reversible error in the judgment appealed from, the same is hereby
AFFIRMED IN TOTO without any pronouncement as to costs at this instance. 2"

From the records, we find the following facts.

On July 16, 1976, Ramon Buenaventura on his own behalf and as attorney-in-fact of Angeles,
Corazon, Amparo, and Maria Luisa, all surnamed Buenaventura, sold to Guadalupe Galang and
Marcelino Galang two (2) parcels of land situated in Tagaytay City. The agreement was
embodied in a Deed of Sale which stated the following:jgc:chanrobles.com.ph
"I, RAMON R. BUENAVENTURA, Filipino, of legal age, married, and residing at 2111 M.
Adriatico, Malate, Manila, in his own behalf and as attorney in fact of Angeles, Corazon, Amparo
and Maria Luisa, all surnamed Buenaventura as per the special powers of attorney already
registered and annotated at the back of the certificate of title, for and in consideration of the sum
of One Hundred Ninety Two Thousand Seven Hundred Ninety Five (P192,795.00) Pesos,
Philippine Currency, hereby SELL, TRANSFER AND CONVEY UNTO MARCELINO GALANG
and GUADALUPE GALANG, Filipino, of legal age, spouses and residents of 72 4th St., New
Manila, Quezon City, those parcels of land situated at Tagaytay City, inherited by us from our
parents and our exclusive paraphernal property, of which we are the absolute owners, our little
thereto being evidenced by TCT No. T-3603 of Tagaytay City Register of Deeds, more
particularly described as follows:chanrob1es virtual 1aw library

x x x

Under the following terms:chanrob1es virtual 1aw library

(a) 25% of the purchase price upon signing of this instrument;

(b) 25% within three months or upon removal of the ‘encargado’ from the premises, with the
delivery of the owner’s duplicate certificate of title;

(c) 50% balance within one (1) year from date hereof upon which the title will be transferred to
the buyers but 12% interest per annum will be charged after said one year in the event full
payment is not made." 3

Marcelino and Guadalupe Galang, herein petitioners paid to the sellers the first 25% of the
purchase price as stated in the deed. Thereafter, they allegedly demanded from private
respondents the removal of the "encargado" from the premises and the delivery of the owners’
duplicate certificate of title. Private respondents failed to do so despite the willingness of
petitioners to pay the second 25% of the purchase price. Consequently, Marcelino and
Guadalupe Galang filed on March 18, 1977 a complaint for specific performance with damages
where they alleged among others, that:jgc:chanrobles.com.ph

"5. The period fixed within which the defendants should remove the ‘encargado’ from the
premises and to deliver the owner’s duplicate certificate of title had lapsed without the
defendants complying with their obligations thus preventing the plaintiffs from taking possession
of the property sold and from developing and improving the same.cralawnad

6. On several occasions, the plaintiffs demanded from the defendants, both orally and in writing,
the removal of the latter’s ‘encargado’ from the premises sold an for them to deliver the owner’s
duplicate certificate of title to the plaintiffs but said defendants failed and refused and still fail
and refuse to do so, the demands notwithstanding." 4

Defendants, herein private respondents, denied the allegations and stated that the contract did
not state the true intention of the parties and that it was not their fault that the "encargado"
refused to leave. Furthermore, they filed on July 21, 1978, a third-party complaint against the
"encargado" for subrogation and reimbursement in case of an adverse judgment against third-
party plaintiff. Upon the "encargado’s" motion, the complaint was dismissed on the ground that it
did not state a cause of action for the ejectment of the tenant — the "encargado."cralaw
virtua1aw library

After trial, the lower court rendered a decision, the dispositive portion of which is hereby quoted,
to wit:jgc:chanrobles.com.ph

"PREMISES CONSIDERED, the Court hereby orders the defendants to pay jointly and
severally, the plaintiffs P50,000.00 with interest at 12% per annum from July 16, 1976;
P5,000.00 by way of nominal damages; and P3,000.00 as attorney’s fees and the costs." 5

In rendering the decision, the trial court reasoned that:jgc:chanrobles.com.ph

"There is no question that, because the defendants had not complied with their obligation to
remove the ‘encargado,’ the plaintiffs, as injured parties, may choose between the fulfillment of
the contract of sale and its rescission, in accordance and (sic) Article 1191 of the Civil Code.
They chose enforcement of the contract which, however is legally impossible. The lands sold to
the plaintiff are agricultural, planted to coffee, among other plants, not only by he ‘encargado’
but also by his deceased parents. The law prohibits, under pain of damages, fine and
imprisonment, a landlord from dispossessing his agricultural tenant without the court’s approval
and on grounds fixed by the law, not one of which is shown to exist in respect defendants’
‘encargado.’ (Section 31 and 36, The Agricultural Land Reform Code, RA 3844 as
amended).chanrobles virtual lawlibrary

Impossible conditions, those contrary to good customs or public policy and those prohibited by
law shall annul the obligation which depends upon them. (Article 1183, Civil Code). Since the
consummation of the sale between the parties is dependent upon the ouster of an agricultural
lessee, which cannot be done because it is against good custom, public policy and the law, the
sale is a nullity . . ." 6

Agreeing that the "encargado" was an agricultural tenant who could not be ejected without case,
the Court of Appeals affirmed the decision.

Hence, this petition.

In their petition, Marcelino and Guadalupe Galang argued that respondent Court erred in
ordering the rescission instead of specific performance of the contract of sale on the ground that
the ejectment of the "encargado" -tenant was a legally impossible condition that prevented the
fulfillment of the contract. Contrary to the reason advanced by the Court of Appeals and the trial
court, petitioners averred that the removal of the "encargado" was not a condition precedent to
the fulfillment of the contract as paragraph two (2) thereof provides for an alternative period
within which petitioners would have to pay the second 25% of the purchase price and
concomitantly, private respondents would deliver the owner’s duplicate certificate of title. Thus,
whether or not the "encargado" was removed, the amount would still be due and private
respondents would still have to deliver the duplicate title.

We are now confronted with the question: Was the removal of the "encargado" a condition
precedent to the fulfillment of the contract of sale such that the finding that it was a legally
impossible condition would entitle the buyers to the rescission of the contract?

We answer in the negative.

The trial court and the Court of Appeals based their decision on Art. 1183 of the Civil Code
which provides, thus:jgc:chanrobles.com.ph

"Art. 1183. Impossible conditions, those contrary to good customs or public policy and those
prohibited by law shall annul the obligation which depends upon them . . ."cralaw virtua1aw
library

Both courts declared the "encargado" a tenant. This being the case, it follows that he may not
be removed from the subject land without just cause, as provided by Presidential Decree No.
1038. Since the Galangs, then plaintiffs demanded the removal of the "encargado" which, being
legally impossible, could not be met, the contract of sale was rescinded by the courts.

We disagree with the conclusion arrived at by the respondent court. Reviewing the terms of the
Deed of Sale quoted earlier, it is clear that the parties had reached the stage of perfection of the
contract of sale, there being already "a meeting of the minds upon the thing which is the object
of the contract and upon the parties," 7 and on the basis of which both parties had the personal
right to reciprocally demand from the other the fulfillment of their respective obligations. But
contracts of sale may either be absolute or conditional. 8 One form of conditional sales, is what
is now popularly termed as a "Contract to Sell," where ownership or title is retained until the
fulfillment of a positive condition, normally the payment of the purchase price in the manner
agreed upon. The breach of that condition can prevent the obligation to convey title from
acquiring a binding force. 9 Where the condition is imposed, instead, upon the perfection of the
contract, the failure of such condition would prevent such perfection. 10 What we have here is a
contract to sell for it is the transfer of ownership, not the perfection of the contract that was
subjected to a condition. Ownership was not to vest in the buyers until full payment of the
purchase price and the transfer of the title to the buyers. Apart from full payment of the
purchase price, we find no other condition which would affect the obligations of the parties, i.e.,
to pay, on the part of the buyer and to convey ownership, on the part of the
seller.chanrobles.com.ph : virtual law library

The alleged condition precedent, the removal of the "encargado," was simply an alternative
period for payment of the second 25% of the purchase price given by the seller to the buyer.
Assuming that the removal of the "encargado" could not be brought about, the buyers,
petitioners herein, could have nonetheless demanded the delivery of the owner’s duplicate
certificate of title by paying the second 25% of the sale price within three months. In this case,
the filing of the complaint for specific performance of the seller’s obligation was the root of the
errors committed first, by the trial court and later, by the Court of Appeals. Both courts
overlooked the obvious fact that only the time for paying the second 25% of the purchase price
was qualified and that the entire paragraph reads: "25% within three months or upon removal of
the "encargado" from the premises . . ." and not simply 25% upon removal of the
"encargado."cralaw virtua1aw library

The case before us could have been resolved by the lower courts without ruling on whether the
"encargado" was a tenant or not. Granting that it was necessary to rule on the legal status of the
"encargado," we find that the courts had been quite precipitate in holding that the "encargado"
was a tenant. There was no sufficient evidence to support that conclusion apart from the
affidavits of the "encargado" and his neighbor. The conclusion of the Court of Appeals regarding
this matter rested on surmises. It held:jgc:chanrobles.com.ph

"We discern no reversible error in the finding and conclusion of the trial court that the unnamed
‘encargado’ on the lands in question is actually a tenant or agricultural lessee. The bases of this
ineluctable conclusion are not hard to see. As succinctly pointed out by the court a quo, the
‘encargado’ is staying in his own existing house thereon, and subject agricultural land is planted
to coffee and other plants not only by the ‘encargado’ but also his deceased parents. Indeed, if
the ‘encargado’s’ parents were not tenants or agricultural lessees, the present `encargado’
could not have continued occupying and working thereon, without facing ejectment proceedings;
considering that one of the landowners, defendants-appellees here, is a lawyer himself. In fact,
as can be gleaned from the decision under scrutiny, defendants-appellees filed a third-party
complaint against the ‘encargado’ but they did not pursue such a course of action because they
did not have a clearance from the then Ministry, now the Department of Agrarian Reform, to
proceed against such ‘encargado.’ Then, too, if the said ‘encargado’ did not have the status of a
tenant or agricultural lessee entitled to protection under the agrarian reform laws, he would not
have been given the attention and importance as to be brought before the court a quo twice, just
for a possible amicable settlement, and he would not have had the firmness to reject an offer for
him to continue working half the area under controversy.

Equally supportive of the foregoing opinion are the following ratiocinations in Cruz v. Court of
Appeals, L-50350, May 15, 1984, 129 SCRA 222:jgc:chanrobles.com.ph

". . .it is also undisputed that respondent lives on a hut erected on the landholding. This fully
supports the appellate court’s conclusion, since only tenants are entitled to a homelot where he
can build his house thereon as an incident to this right as a tenant."cralaw virtua1aw library

x x x

"Also, the Court is aware of the practice of landowners, by way of evading the provisions of
tenancy laws, to have their tenants sign contracts or agreements intended to camouflage the
real import of their relationship."cralaw virtua1aw library

All things duly considered, let alone the better rule that all doubts vis-a-vis the status of a tiller of
the soil should be resolved in favor of tenancy relationship. We cannot help but conclude here
that the `encargado’ on the landholding deeded out in the deed of sale (Exhibit "A") is a tenant
or agricultural lessees within the purview and under the mantle of protection of the Code of
Agrarian Reforms." 11

To summarize, we hold that there was no basis for rescinding the contract because the removal
of the "encargado" was not a condition precedent to the contract of sale. Rather, it was one of
the alternative periods for the payment of the second installment given by the seller himself to
the buyers. Secondly, even granting that it was indeed a condition precedent rendering
necessary the determination of the legal status of the "encargado," the lower courts were rash in
holding that the "encargado" was a tenant of the land in question.chanrobles law library

In view of the foregoing circumstances, we are convinced that specific performance by the
parties of their respective obligations is proper. Accordingly, petitioners Marcelino and
Guadalupe Galang are ordered to pay private respondents the second 25% of the purchase
price. Considering, however, the time that has lapsed since the parties entered into the contract,
payment of the full balance, that is, 75% of the purchase price, P192,795.00 is in order.
However, the 12% interest per annum that was stipulated in paragraph 3 of the contract of sale
should not be assessed against petitioners. On the other hand, private respondents Ramon
Buenaventura, Angeles Buenaventura, Corazon Buenaventura, and Maria Luisa Buenaventura
are obliged to deliver the owner’s duplicate certificate of title and to transfer the title to the land
in question upon payment of the purchase price by petitioners.
Under the Civil Code, private respondents are liable for damages to the injured party, the
petitioners in this case. However, in lieu of actual payment of damages, and considering the fact
that private respondents were in possession of the land during the entire period that this case
was pending, private respondents are no longer entitled to the interest payments which would
have been due from petitioners. 12

WHEREFORE, in view of the foregoing, the petition is hereby GRANTED and the decision of
the Court of Appeals is REVERSED and SET ASIDE. Petitioners Marcelino and Guadalupe
Galang are hereby ordered to pay the full 75% balance of the purchase price P144,596.25)
within thirty (30) days from notice, with interest upon default. Private respondents Ramon
Buenaventura, Corazon Buenaventura and Maria Luisa Buenaventura are hereby ordered to
transfer the title to petitioners upon full payment of the purchase price.

SO ORDERED.

Feliciano , Bidin, Romero, Melo and Vitug, JJ., concur.

Endnotes:

1. CA-GR. CR No. 00093, March 27, 1987, penned by Justice Fidel P. Purisima, and concurred
in by Justices Emerito C. Cui and Nicolas P. Lapena, Jr.

2. Rollo, p. 83.

3. Rollo, p. 21.

4. Ibid., p. 17.

5. Rollo, p. 45.

6. Rollo, pp. 43-45.

7. Art. 1475, Civil Code.

8. Art. 1458, Civil Code.

9. Roque v. Lapuz, 96 SCRA 741.

10. People’s Homesite and Housing Corporation v. Court of Appeals, 133 SCRA 777.

11. Rollo, pp. 81-82.

12. Art. 1191 . . .

The injured party may choose between the fulfillment and the rescission of the obligation, with
the payment of damages in either case . . .
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-29298 December 15, 1928

REYNALDO LABAYEN, ET AL., plaintiffs.

REYNALDO LABAYEN, appellant,
vs.
TALISAY-SILAY MILLING CO., INC., defendant-appellee.

Angel S. Gamboa for appellant.

R. Nolan for appellee.

MALCOLM, J.:

This is an action for damage in the amount of P28,620 for the alleged breach of a contract to
grind sugar cane in 1920-1921. After a rehearing, the defendant was absolved from the
complaint, andthe plaintiff was condemned, on the cross-complaint, to pay the defendant the
sum of P12,114, without special pronouncement as to costs.

An examination of the record on appeal discloses that the exhibits are missing. Still this is not in
this instance of great importance. The facts as found by the trial judge are not seriously disputed
from the facts which worry the parties.

The plaintiff, along with another, possesses the hacienda known as Dos Hermanos of Talisay,
Occidental Negros. The defendant is a corporation dedicated to the milling of sugar cane. On
August 27, 1919, the plaintiff and the defendant entered into a contract similar to contracts
entered into by the defendant and other planters. It is this contract which is the basis of plaintiff's
cause of action. Among the clauses in the contract are the following:

COVENANTS OF 'LA CENTRAL'

xxx xxx xxx

Third: That it shall build and after building it shall do or cause to be done all that is
necessary for its preservation in good condition, and shall, during the period of this
agreement, without charge to the Procedure or Procedures, operate a permanent
railroad run by steam or motor, or both, for the use of the plantation or plantations in the
transportation of sugar cane, sugar, fertilizer, and all such articles as the procedure may
need for his estate, his use and that of his family and employees, and shall cause the
main line or a branch thereof, as the case may be, to reach the point of the plantation to
be hereafter described not farther than one mile from ay of the boundaries of said
plantation, whenever the contour of the land, the curves, and elevations permit the
same; it shall provide said railroad with locomotives or motors and wagons in a number
sufficient to make the transportation of sugar cane, sugar, fertilizer, and the above
mentioned articles, and shall likewise build a branch of said railroad in such a way that
from the main line, mill and warehouses, it shall reach the wharf above mentioned, and it
shall also cause the yard of the factory near the sugar mill to be available for use with
switches or otherwise. All the steam locomotives shall be provided with safety spark
devices. The railroad shall consist of a road or path conveniently and duly designated so
that, so far as possible, all the producers may derive equal benefit from said railroad.
The right-of way for the main line of the railroad shall be three and a half (3-½) meters
wide measured from the center of the road to each side, and the branches, switches, or
curves shall have more if necessary.

OBLIGATIONS OF THE PRODUCER

xxx xxx xxx

 Fifth: That he shall accept the provisions of clauses 7, 8, and 9 of the covenants of "La
Central" and shall deliver the cane as therein provided; hereby binding himself to plant
each year according to the usage and custom of a good agriculturist not less than one-
half of his own lands devoted to sugar cane subject to the approval of the Committee of
Producers leaving the remainder uncultivated.1awphi1.net

MUTUAL OBLIGATIONS

xxx xxx xxx

10. In case of . . . inability to secure, under reasonable conditions such rights-of-way as

"La Central" may require, . . . "La Central" shall notify the Committee of Producers and
without incurring any liability for the non-fulfillment of the terms of this contract, its effects
shall be suspended in part or in whole during such period of incapacity. . . . (Emphasis
inserted.)

With particular reference to the third paragraph of the clauses obligating the central, it is
admitted that the central has not continued its railroad through to the Hacienda Dos Hermanos.
The railroad comes to the Hacienda Esmeralda No. 2 and there stops. For the railroad to extend
to the Hacienda Dos Hermanos, a distance of four kilometers would require a gradual elevation
of 4.84 per cent to 7 per cent, would make necessary the providing of twenty-six curves, and
would cost about P80,000. The witness H. W. Corp, a civil engeneer employed in the
construction work of the Manila Railroad Company, the Pampanga Sugar Milling Co., and the
Binalbagan Central, testified that it was possible to construct a railroad to the Hacienda Dos
Hermanos but that to do so would be very dangerous.

Recalling that the contract provided for the construction of a railroad "whenever the contour of
the land, the curves, and elevations permit the same," and that such construction is possible but
very dangerous, the question then arises if the defendant can excuse itself on this ground, or if
the plaintiff can recover from the defendant for damages for breach of contract, through inability
to mill cane.

It is elemental that the law requires parties to do what they have agreed to do. If a party charges
himself with an obligation possible to be performed, he must abide by it unless performance is
rendered impossible by the act of God, the law, or the other party. A showing of mere
inconvenience, unexpected impediments, or increased expenses is not enough. Equity cannot
relieve from bad bargains simply because they are such. So one must answer in damages
where the impossibility is only so in fact. (Thornborow vs. Whitacre, 2 Ld. Raym. [1164], 92 E.
R., 270; Reid vs. Alaska Packing Co. [1903], 43 Or., 429; Columbus Ry. & Power Co. vs.
Columbus [1919], 249 U. S., 399.)

The foregoing are familiar principles to be found in the American and English law of contracts.
The civil law on the subject of obligations is not essentially different. Article 1272 of the Civil
Code provides: "Impossible things of services cannot be the subject-matter of contracts." And
article 1184 of the same Code provides: "The debtor shall also be relieved from obligations
which consist in the performance of a act if fulfillment of the undertaking becomes legally or
physically impossible."

May one obligate himself to do something which, when accomplished, will prove to be
dangerous to life and property? We doubt it. Take the contract in question as an example. It was
a general contract of the form used by the central and various proprietors of sugar-cane fields. It
was intended to be limited in particular application to haciendas where not impeded by physical
impossibility. The contract was qualified by an implied condition which, if given practical effect,
results in absolving the central from its promise. Not to sanction an exception to the general rule
would run counter to public policy and the law by forcing the performance of a contract
undesirable and harmful. (8 Manresa's Codigo Civil Espanol, p. 355.)

There is another aspect to the case which has to do with the tenth paragraph of the mutual
obligations of the contract and which concerned the securing of the right- of-way for the
proposed railroad. To get from the Hacienda Esmeralda No. 2 to the Hacienda Dos Hermanos,
the railroad would have to pass through the haciendas of Esteban de la Rama. But he would not
grant permission to use his land for this purpose in 1920, and only consented to do so in 1924.
Here then was a clear case of such a condition of affairs as was contemplated by the contract.

The foregoing points being admitted, it logically follows that the defendant can recover on its
cross-complaint. The defense to the cross-complaint is identical with the theory of the complaint.
For the same reasons that the plaintiff cannot recover must be make good for his debt to the
defendant.

Accepting, therefore, the facts as found by the trial judge, and nothing no reversible error on any
legal question, the judgment appealed from must be as it is hereby affirmed, with the costs of
this instance against the appellant.

Avanceña, C. J., Johnson, Street, Villamor, Ostrand, Johns and Romualdez, JJ., concur.

Facts:
The plaintiff, along with another, possesses the hacienda known as Dos Hermanos of Talisay,
Occidental Negros. The defendant is a corporation dedicated to the milling of sugar cane. On
August 27, 1919, the plaintiff and the defendant entered into... a contract similar to contracts
entered into by the defendant and other planters. It is this contract which is the basis of plaintiff's
cause of action.
without incurring any lability for the... non-fulfillment... of the terms of this contra... ct... it is
admitted that the central has not continued its railroad through to the Hacienda Dos Hermanos.
The railroad comes to the Hacienda Esmeralda
No, 2 and there stops. For the railroad to extend to the Hacienda Dos Hermanos, a distance of
four kilometers would require a gradual elevation of 4.84 per cent to 7 per cent, would make
necessary the providing of twenty-six curves, and would cost about P80,000. The... witness H.
W. Corp, a civil engineer employed in the construction work of the Manila Railroad Company,
the Pampanga Sugar Milling Co., and the Binalbagan Central, testified that it was possible to
construct a railroad to the Hacienda Dos Hermanos but that to do so... would be very
dangerous.
the contract provided for the construction of a railroad "whenever the contour of the land, the
curves, and elevations permit the same,"
If a party charges himself with an obligation possible to be performed, he must abide by it
unless performance is rendered impossible by the act of God, the law, or the other... party
A showing of mere inconvenience, unexpected impediments, or increased expenses is not
enough.
So one must answer in damages where the impossibility is only so in fact.
It was a general contract of the form used by the central and various proprietors of... sugar-cane
fields. It was intended to be limited in particular application to haciendas where not impeded by
physical impossibility.
Issues:
alleged breach of a contract to grind sugar cane in 1920-1921... if the defendant can... excuse
itself on this ground, or if the plaintiff can recover froin the defendant for damages for breach of
contract, through inability to mill cane.
Ruling:
"The debtor shall also be relieved from obligations which consist in the performance of an act if
fulfillment of the undertaking becomes legally or physically impossible."
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-16797 February 27, 1963

RODRIGO ENRIQUEZ, ET AL., plaintiffs-appellees,

vs.
SOCORRO A. RAMOS, ET AL., defendants-appellants.

Gelasio L. Dimaano for plaintiffs-appellees.

Vicente K. Aranda for defendants-appellants.

REYES, J.B.L., J.:

Direct appeal on points of law from a decision of the Court of First Instance of Rizal in its Civil Case
No. Q-4232.

The record is to the effect that on 24 November 1958, Rodrigo Enriquez and the spouses Urbano
Dizon and Aurea Soriano de Dizon sold to Socorro A. Ramos, by a notarial deed of even date,
eleven (11) parcels of land situated in Bago Bantay, Quezon City, and covered by their
corresponding certificates of title, for the stipulated price of P101,000.00. The vendee paid
P5,000.00 down, P2,500.00 in cash, and P2,500.00 by a check drawn against the Philippine
National Bank, and agreed to satisfy the balance of P96,000.00 within ninety (90) days. To secure
the said balance, the vendee Socorro A. Ramos, in the same deed of sale, mortgaged the eleven
parcels in favor of the vendors. By way of additional security, Socorro A. Ramos, as attorney-in-fact
of her children, Enrique, Antonio, Milagros, and Lourdes, and as judicial guardian of her minor child
Angelita Ramos, executed another mortgage on Lot No. 409 of the Malinta Estate.

Because of the vendee-mortgagor's failure to comply with some conditions of the mortgage, this
action for foreclosure of the mortgage was filed by the vendors-mortgagees in the court below, on 29
April 1959. Defendant Socorro Ramos moved to dismiss, alleging that the plaintiffs previously had
filed action against her in the Court of First Instance of Manila on 24 February 1959 for the recovery
of P2,500.00 paid by check as part of the down payment on the price of the mortgaged lands; that at
the time this first suit was filed, the mortgage debt was already accrued and demandable; that
plaintiffs were, therefore, guilty of splitting a single cause of action, and under section 4 of Rule 2 of
the Rules of Court, the filing of the first action for P2,500.00 was a defense that could be pleaded in
abatement of the second suit. Upon opposition by the plaintiffs, the Court of First Instance of Quezon
City denied the motion to dismiss; but defendant Ramos repleaded the averments as a special
defense in her answer. After trial, on 16 December 1959, the Court of First Instance of Quezon City
rendered judgment against defendant Ramos; ordered her to pay P96,000.00, with 12% interest
from 24 February 1959 until payment, 10% of the amount due as attorney's fees, and the costs of
the suit; and further decreed the foreclosure sale of the mortgaged properties in case of non-
payment within ninety (90) days.

Socorro Ramos appealed directly to this Court, and here insists that the action should be dismissed
on account of the alleged splitting of appellee's cause of action, and that the obligation not having
fixed a period, although one was intended, the court below should have set first a date of maturity
before ordering payment or foreclosure.

We find no merit in the appeal.

Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and
approved by this Honorable Court, without prejudice to the parties adducing other evidence to prove
their case not covered by this stipulation of facts.1äwphï1.ñët

An examination of the first complaint filed against appellant in the Court of First Instance of Manila
shows that it was based on appellants' having unlawfully stopped payment of the check for
P2,500.00 she had issued in favor of appellees; while the complaint in the present action was for
non-payment of the balance of P96,000.00 guaranteed by the mortgage. The claim for P2,500.00
was, therefore, a distinct debt not covered by the security; and since the mortgage was constituted
on lands situated in Quezon City, the appellees could not ask for its foreclosure in the Manila courts.
The two causes of action being different, section 4 of Rule 2 does not apply.

On the second assignment of error: the stipulation in the mortgage contract that the obligation for
P96,000.00 was to be —
 without interest, payable within ninety (90) days from this date, provided that in case of
default it shall bear interest at the rate of 12% per annum,

clearly fixes a date of maturity, the stipulated twelve per cent in case of default being nothing more
than a penalty, designed to induce the debtor to pay on or before the expiration of the ninety (90)
days. Hence, there was no call upon the court to set another due date.

Finding no error in the judgment appealed from, the same is affirmed, with costs against appellants.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Barrera, Paredes, Dizon, Regala
and Makalintal, JJ., concur.

[ GR No. L-18077, Sep 29, 1962 ]

RODRIGO ENRIQUEZ v. SOCORRO A. RAMOS +

DECISION

116 Phil. 525

BAUTISTA ANGELO, J.:

This is an action for foreclosure of a real estate mortgage.
It is alleged that on November 24, 1958 defendant purchased from plaintiffs 20 parcels of land
located in Quezon City and covered by transfer certificates of title for the amount of
P235,056.00 of which only the amount of P35,056.00 was paid on the date of sale, the balance
of P200,000.00 being payable within two years from the date of sale, with 6% interest per
annum during the first year, of the remainder to draw 12% interest per annum if paid thereafter,
provided that at least P100,000.00 should be paid during the first year, otherwise the whole
unpaid balance would become immediately demandable; that to secure the payment of the
balance of P200,000.00 defendant executed a mortgage in favor of plaintiff upon the 20 parcels
of land sold and on a half interest over a parcel of land in Bulacan which was embodied in the
same deed of sale; that said deed of sale with mortgage was registered in the Office of the
Registers of Deeds of Quezon City and Pampanga; and that as defendant broke certain
stipulations contained in said deed of sale with mortgage, plaintiffs instituted the present
foreclosure proceedings.
Defendant set up as affirmative defense that the contract mentioned in the complaint does not
express the true agreement of the parties because certain important conditions agreed upon
were not included therein by the counsel who prepared the contract; that the stipulation that was
omitted from the contract was the promise assumed by plaintiffs that they would construct roads
in the lands which were to be subdivided for sale on or before January, 1959; that said condition
was not placed in the contract because, according to plaintiffs' counsel, it was a superfluity,
inasmuch as there is an ordinance in Quezon City which requires the construction of roads in a
subdivision before lots therein could be sold; and that, upon the suggestion of plaintiffs' counsel,
their promise to construct the roads was not included in the contract because the ordinance was
deemed part of the contract. Defendant further claims that the true purchase price of the sale
was not P235,056.00 but only P185,000.00, the difference of P50,000.00 being the voluntary
contribution of defendant to the cost of the construction of the roads which plaintiffs assumed to
do as abovementioned.
After the reception of the evidence, the trial court sustained the contention of defendant and
dismissed the complaint on the ground that the action of plaintiffs was premature. It found that
plaintiffs really assumed the construction of the roads as a condition precedent to the fulfillment
of the obligation stipulated in the contract on the part of defendant, and since the same has not
been undertaken, plaintiffs have no cause of action. In due time, plaintiffs have appealed.
The evidence of record discloses the following facts: On November 6, 1956, plaintiffs entered
into a contract of conditional sale with one Pedro del Rosario covering a parcel of land in
Quezon City described in Transfer Certificate of Title No. 11483 which has a total area of
77,772 square meters in consideration of a purchase price of P10.00 per square meter. To
guarantee the performance of the conditions stipulated therein a performance bond in the
amount of P100,000.00 was executed by Pedro del Rosario. Del Rosario was given possession
of the land for development as a subdivision at his expense. He undertook to pay for the
subdivision survey, the construction of roads, the installation of light and water, and the income
tax plaintiffs may be required to pay arising from the transaction, in consideration of which Del
Rosario was allowed to buy the property for P600,000.00 within a period of two years from
November 6, 1956 with the condition that, upon his failure to pay said price when due, all the
improvements introduced by him would automatically become part of the property without any
right on his part to reimbursement and the conditional sale would be rescinded.
Unable to pay the consideration of P600,000.00 as agreed upon, and in order to avoid court
litigation, plaintiffs and Del Rosario, together with defendant Socorro A. Ramos, who turned out
to be a partner of the latter, entered into a contract of rescission on November 24, 1958. To
release the performance bond and to enable defendant to pay some of the lots for her own
purposes, plaintiffs allowed defendant to buy 20 of the lots herein involved at the rate of P16.00
per square meter on condition that she will assume the payment of P50,000.00 as her share in
the construction of roads and other improvements required in the subdivision. This situation led
to the execution of the contract of sale Exhibit A subject of the present foreclosure proceedings.
The main issues posed in this appeal are: (1) Is the purchase price of the 20 lots bought by
defendant from plaintiffs the sum of P185,000.00, as claimed by defendant, or P235,056.00, as
claimed by plaintiffs; and (2) Was an oral agreement, coetaneous to the execution of the
contract of sale, entered into between the parties to the effect that plaintiffs would undertake the
construction of the roads on the lots sold before defendant could be required to comply with her
financial obligation?
Defendant contends that the contract of sale Exhibit A does not express the true agreement of
the parties because certain important conditions agreed upon were not included therein by
plaintiffs' counsel among which is the promise assumed by plaintiffs that they would undertake
to construct the roads that may be required in the subdivision subject of the sale on or before
January, 1959; that said condition was not placed in the contract because plaintiffs' counsel said
that it was a superfluity inasmuch as there was then in Quezon City an ordinance which requires
the construction of roads in a subdivision before the lots therein could be sold; and that, upon
the suggestion of plaintiffs' counsel, such commitment was not included in the contract because
the ordinance aforesaid was already deemed to be part of the contract.
Plaintiffs, on the other hand, dispute the above contention arguing that there was no such oral
agreement or understanding because all that was agreed upon between the parties was already
expressed and included in the contract of sale Exhibit A executed between the parties and since
defendant failed to pay the balance of her obligation within the period stipulated, the whole
obligation became due and demandable thus giving plaintiffs the right to foreclose the mortgage
in accordance with law.
After considering and evaluating the evidence submitted by both parties, the court a quo found
defendant's contention well-taken, thereby concluding that the action of plaintiffs was
premature. In reaching this conclusion the court a quo made the following comment:
"* * * The Court is of the opinion that the construction of the roads was a condition precedent to
the enforcement of the terms of Exhibit A, particularly the foreclosure of mortgage, for the
reason that the subdivision regulations of Quezon City requires, as a matter of law, that the
sellers of lands therein to be converted into subdivision lots must construct the roads in said
subdivision before the lots could be sold. The requirement must have beeen uppermost in the
mind of the parties in this case which led to the execution of the so-called 'Explanation' (Exhibit
3) wherein it is stated that the sum of P50,000.00 was a contribution of the herein defendant for
the construction of the roads which the plaintiffs would undertake 'in accordance with the
provisions of the City Ordinance of Quezon City' (Exhibit 3). It is to be noted that Exhibit 3 was
executed on November 24, 1958, the very day when Exhibit A was also executed. Exhibit 3 also
proves that the purchase price is not, as appearing in the deed of sale with mortgage, Exhibit A,
actually P235,000.00 but only P185,000.00 which would approximately be the price of the entire
area of the land sold at the rate of P16.00 per square meter."
We find no error in the conclusion reached by the court a quo for indeed that is the condition to
be expected by a person who desires to purchase a big parcel of land for purposes of
subdivision. In a subdivision the main improvement to be undertaken before it could be sold to
the public is feeder roads as otherwise it would be inaccessible and valueless and would offer
no attraction to the buying public. And so it is correct to presume, as the court a quo did, that
when the sale in question was being negotiated the construction of roads in the prospective
subdivision must have been uppermost in the mind of defendant for her purpose in purchasing
the property was to develop it into a subdivision. That such requirement was uppermost in the
mind of defendant is proven by the execution by the plaintiffs of the so-called "Explanation"
(Exhibit 3) on the very day the deed of sale was executed wherein it was stated that the sum of
P50,000.00 was advanced by defendant as her contribution to the construction of the roads
which plaintiffs assumed to undertake "in accordance with the provisions of the City Ordinance
of Quezon City." It is to be noted that said document specifically states that the amount of
P50,000.00 should be deducted from the purchase price of P235,056.00 appearing in the deed
of sale, and this is a clear indication that the real purchase price is only P185,000.00, as
claimed by defendant, which would approximately be the price of the entire area of the land at
the rate of P16.00 per square meter.
A circumstance which lends cogency to defendant's claim that the commitment of plaintiffs to
construct the roads was not inserted in the contract because of the assurance made by their
counsel that it would be a superfluity is the fact that in Quezon City there was really an
ordinance which requires the construction of roads in a subdivision before lots therein could be
sold, and considering that this assurance came from the very counsel who prepared the
document who even intimated that the ordinance was deemed part of the contract, defendant
must have agreed to the omission relying on the good faith of plaintiffs and their counsel. At any
rate, the execution of the document Exhibit 3 clarifies whatever doubt may have existed with
regard to the true terms of the agreement on the matter.
It is argued that the court a quo erred in allowing the presentation of parole evidence to prove
that a contemporaneous oral agreement was also reached between the parties relative to the
construction of the roads for the same is in violation of our rule which provides that when the
terms of an agreement had been reduced to writing it is to be considered as containing all that
has been agreed upon and that no evidence other than the terms thereof can be admitted
between the parties (Section 22, Rule 123). This rule, however, only holds true if there is no
allegation that the agreement does not express the true intent of the parties. If there is and this
claim is put in issue in the pleadings, the same may be the subject of parole evidence (Idem.).
The fact that such failure has been put in issue in this case is patent in the answer wherein
defendant has specifically pleaded that the contract of sale in question does not express the
true intent of the parties with regard to the construction of the roads.
It appearing that plaintiffs have failed to comply with the condition precedent relative to the
construction of the roads in the subdivision in question, it follows that their action is premature
as found by the court a quo. The failure of defendant to pay the realty and income taxes as
agreed upon, as well as to register the mortgage with respect to the Bulacan property, aside
from being minor matters, appear sufficiently explained in the brief of defendant-appellee.
Wherefore, the decision appealed from is affirmed, with costs against appellants.
Bengzon, C. J., Padilla, Labrador, Reyes, J. B. L., Paredes, Dizon, and Makalintal, JJ., concur.