Case Compilation OBLICON Civil Law Review 2 (Atty. Uribe) - Part1 PDF

ARELLANO
UNIVERSITY SCHOOL OF LAW

Taft Avenue Corner Menlo St. Pasay City, Philippines
S/Y 2016-2017, 2ND Semester

CIVIL LAW REVIEW 2
Atty. Crisostomo A. Uribe

January 20, 2017

CASE COMPILATION
PART 1: OBLICON

Contributors:
Glenn Chua
Katrina Ongoco
Hannah Matti Espinosa
Dominick Botor

OBLIGATIONS contracted is the same debt of the defendant's mother to the
(Art. 1156-1304) parents of the plaintiff.

1. G.R. No. L-47362 December 19, 1940 Although the action to recover the original debt has
already been prescribed when the claim was filed in this case, the
JUAN F. VILLARROEL, recurrente-apelante, question that arises in this appeal is mainly whether,
vs. notwithstanding such a requirement, the action filed. However,
BERNARDINO ESTRADA, recurrido-apelado. the present action is not based on the original obligation
contracted by the defendant's mother, which has already been
prescribed, but in which the defendant contracted on August 9,
AVANCEA, Pres.: 1930 (Exhibit B) upon assuming the fulfillment of that obligation,
Already prescribed. Since the defendant is the sole inheritor of
On May 9, 1912, Alejandro F. Callao, the mother of the the primitive debtor, with the right to succeed in his inheritance,
defendant Juan F. Villarroel, obtained from the spouses Mariano that debt, brought by his mother legally, although it has lost its
Estrada and Severina a loan of P1,000 payable after seven years effectiveness by prescription, is now, however, for a moral
(Exhibit A). Alejandra died, leaving as sole heir to the defendant. obligation, which is consideration Sufficient to create and render
The spouses Mariano Estrada and Severina also died, leaving as effective and enforceable its obligation voluntarily contracted on
sole heir the plaintiff Bernardino Estrada. On August 9, 1930, the August 9, 1930 in Exhibit B.
defendant signed a document (Exhibit B) by which it declares the
applicant to owe the amount of P1,000, with an interest of 12 The rule that a new promise to pay a pre-paid debt must
percent per year. This action deals with the collection of this be made by the same obligated person or by another legally
amount. authorized by it, is not applicable to the present case in which it
is not required to fulfill the obligation of the obligee originally,
The Court of First Instance of Laguna, in which this action but Of which he voluntarily wanted to assume this obligation.
was filed, ordered the defendant to pay the claimant the claimed
amount of P1,000 with his legal interests of 12 percent a year The judgment appealed against is upheld, with costs being
from August 9, 1930 until its full payment. This sentence is paid to the appellant. That is how it is commanded.
appealed.

It will be noted that the parties to the present case are,
respectively, the sole heirs of the original creditors and debtor.
This action is exercised by virtue of the obligation that the 2. G.R. No. L-13667 April 29, 1960
defendant as the only child of the original debtor contracted in
favor of the plaintiff, sole heir of the primitive creditors. It is PRIMITIVO ANSAY, ETC., ET AL., plaintiffs-appellants,
admitted that the amount of P1,000 to which this obligation is vs.
1 | P a g e G l e n n C h u a . K a t r i n a O n g o c o . H a n n a h M a t t i E s p i n o s a . D o m i n i c k B o t o r C o l l a b o r a t i o n

THE BOARD OF DIRECTORS OF THE NATIONAL understands, it has no power to compel a party to comply
DEVELOPMENT COMPANY, ET AL., defendants- with a moral obligation (Art. 142, New Civil Code.).
appellees.
IN VIEW WHEREOF, dismissed. No pronouncement as to
PARAS, C. J.: costs.
On July 25, 1956, appellants filed against appellees in the A motion for reconsideration of the afore-quoted order was
Court of First Instance of Manila a complaint praying for a 20% denied. Hence this appeal.
Christmas bonus for the years 1954 and 1955. The court a quo on
appellees' motion to dismiss, issued the following order: Appellants contend that there exists a cause of action in their
complaint because their claim rests on moral grounds or what in
Considering the motion to dismiss filed on 15 August, brief is defined by law as a natural obligation.
1956, set for this morning; considering that at the hearing
thereof, only respondents appeared thru counsel and Since appellants admit that appellees are not under legal
there was no appearance for the plaintiffs although the obligation to give such claimed bonus; that the grant arises only
court waited for sometime for them; considering, from a moral obligation or the natural obligation that they
however, that petitioners have submitted an opposition discussed in their brief, this Court feels it urgent to reproduce at
which the court will consider together with the arguments this point, the definition and meaning of natural obligation.
presented by respondents and the Exhibits marked and
presented, namely, Exhibits 1 to 5, at the hearing of the Article 1423 of the New Civil Code classifies obligations into civil
motion to dismiss; considering that the action in brief is or natural. "Civil obligations are a right of action to compel their
one to compel respondents to declare a Christmas bonus performance. Natural obligations, not being based on positive
for petitioners workers in the National Development law but on equity and natural law, do not grant a right of action
Company; considering that the Court does not see how to enforce their performance, but after voluntary fulfillment by
petitioners may have a cause of action to secure such the obligor, they authorize the retention of what has been
bonus because: delivered or rendered by reason thereof".
(a) A bonus is an act of liberality and the court takes it It is thus readily seen that an element of natural obligation before
that it is not within its judicial powers to command it can be cognizable by the court is voluntary fulfillment by the
respondents to be liberal; obligor. Certainly retention can be ordered but only after there
has been voluntary performance. But here there has been no
(b) Petitioners admit that respondents are not under legal voluntary performance. In fact, the court cannot order the
duty to give such bonus but that they had only ask that performance.
such bonus be given to them because it is a moral
obligation of respondents to give that but as this Court At this point, we would like to reiterate what we said in the case
of Philippine Education Co. vs. CIR and the Union of Philippine

Education Co., Employees (NUL) (92 Phil., 381; 48 Off. Gaz., 5278) THE HONORABLE MIDPAINTAO L. ADIL, Judge of the
Second Branch of the Court of First Instance of Iloilo
and SPOUSES PATRICIO CONFESOR and JOVITA
x x x x x x x x x VILLAFUERTE, respondents.
From the legal point of view a bonus is not a demandable GANCAYCO, J.:
and enforceable obligation. It is so when it is made a part
of the wage or salary compensation.
And while it is true that the subsequent case of H. E. The issue posed in this petition for review on certiorari is the
Heacock vs. National Labor Union, et al., 95 Phil., 553; 50 Off. Gaz., validity of a promissory note which was executed in
4253, we stated that: consideration of a previous promissory note the enforcement of
which had been barred by prescription.
Even if a bonus is not demandable for not forming part of
the wage, salary or compensation of an employee, the On February 10, 1940 spouses Patricio Confesor and
same may nevertheless, be granted on equitable Jovita Villafuerte obtained an agricultural loan from the
consideration as when it was given in the past, though Agricultural and Industrial Bank (AIB), now the Development of
withheld in succeeding two years from low salaried the Philippines (DBP), in the sum of P2,000.00, Philippine
employees due to salary increases. Currency, as evidenced by a promissory note of said date
whereby they bound themselves jointly and severally to pay the
still the facts in said Heacock case are not the same as in the account in ten (10) equal yearly amortizations. As the obligation
instant one, and hence the ruling applied in said case cannot be remained outstanding and unpaid even after the lapse of the
considered in the present action. aforesaid ten-year period, Confesor, who was by then a member
of the Congress of the Philippines, executed a second promissory
Premises considered, the order appealed from is hereby affirmed, note on April 11, 1961 expressly acknowledging said loan and
without pronouncement as to costs. promising to pay the same on or before June 15, 1961. The new
promissory note reads as follows

I hereby promise to pay the amount covered by my
promissory note on or before June 15, 1961. Upon
my failure to do so, I hereby agree to the
foreclosure of my mortgage. It is understood that if
3. G.R. No. L-48889 May 11, 1989 I can secure a certificate of indebtedness from the
government of my back pay I will be allowed to pay
DEVELOPMENT BANK OF THE PHILIPPINES (DBP), the amount out of it.
petitioner, vs.

Said spouses not having paid the obligation on the specified date, with merit. The right to prescription may be waived or
the DBP filed a complaint dated September 11, 1970 in the City renounced. Article 1112 of Civil Code provides:
Court of Iloilo City against the spouses for the payment of the
loan. Art. 1112. Persons with capacity to alienate
property may renounce prescription already
After trial on the merits a decision was rendered by the inferior obtained, but not the right to prescribe in the
court on December 27, 1976, the dispositive part of which reads future.
as follows:
Prescription is deemed to have been tacitly
WHEREFORE, premises considered, this Court renounced when the renunciation results from acts
renders judgment, ordering the defendants Patricio which imply the abandonment of the right
Confesor and Jovita Villafuerte Confesor to pay the acquired.
plaintiff Development Bank of the Philippines,
jointly and severally, (a) the sum of P5,760.96 plus There is no doubt that prescription has set in as to the first
additional daily interest of P l.04 from September promissory note of February 10, 1940. However, when
17, 1970, the date Complaint was filed, until said respondent Confesor executed the second promissory note on
amount is paid; (b) the sum of P576.00 equivalent April 11, 1961 whereby he promised to pay the amount covered
to ten (10%) of the total claim by way of attorney's by the previous promissory note on or before June 15, 1961, and
fees and incidental expenses plus interest at the upon failure to do so, agreed to the foreclosure of the mortgage,
legal rate as of September 17,1970, until fully paid; said respondent thereby effectively and expressly renounced and
and (c) the costs of the suit. waived his right to the prescription of the action covering the
first promissory note.
Defendants-spouses appealed therefrom to the Court of First
Instance of Iloilo wherein in due course a decision was rendered This Court had ruled in a similar case that
on April 28, 1978 reversing the appealed decision and dismissing
the complaint and counter-claim with costs against the plaintiff. ... when a debt is already barred by prescription, it
cannot be enforced by the creditor. But a new
A motion for reconsideration of said decision filed by plaintiff contract recognizing and assuming the prescribed
was denied in an order of August 10, 1978. Hence this petition debt would be valid and enforceable ... . 1
wherein petitioner alleges that the decision of respondent judge
is contrary to law and runs counter to decisions of this Court Thus, it has been held
when respondent judge (a) refused to recognize the law that the
right to prescription may be renounced or waived; and (b) that in Where, therefore, a party acknowledges the
signing the second promissory note respondent Patricio Confesor correctness of a debt and promises to pay it after
can bind the conjugal partnership; or otherwise said respondent the same has prescribed and with full knowledge of
became liable in his personal capacity. The petition is impressed

the prescription he thereby waives the benefit of husband cannot alienate or encumber any real
prescription. 2 property of the conjugal partnership without, the
wife's consent. If she ay compel her to refuses
This is not a mere case of acknowledgment of a debt that has unreasonably to give her consent, the court m
prescribed but a new promise to pay the debt. The consideration grant the same.
of the new promissory note is the pre-existing obligation under
the first promissory note. The statutory limitation bars the We disagree. Under Article 165 of the Civil Code, the husband is
remedy but does not discharge the debt. the administrator of the conjugal partnership. As such
administrator, all debts and obligations contracted by the
A new express promise to pay a debt barred ... will husband for the benefit of the conjugal partnership, are
take the case from the operation of the statute of chargeable to the conjugal partnership. 5 No doubt, in this case,
limitations as this proceeds upon the ground that respondent Confesor signed the second promissory note for the
as a statutory limitation merely bars the remedy benefit of the conjugal partnership. Hence the conjugal
and does not discharge the debt, there is something partnership is liable for this obligation.
more than a mere moral obligation to support a
promise, to wit a pre-existing debt which is a WHEREFORE, the decision subject of the petition is reversed and
sufficient consideration for the new the new set aside and another decision is hereby rendered reinstating the
promise; upon this sufficient consideration decision of the City Court of Iloilo City of December 27, 1976,
constitutes, in fact, a new cause of action. 3 without pronouncement as to costs in this instance. This decision
is immediately executory and no motion for extension of time to
... It is this new promise, either made in express file motion for reconsideration shall be granted.
terms or deduced from an acknowledgement as a
legal implication, which is to be regarded as
reanimating the old promise, or as imparting
vitality to the remedy (which by lapse of time had
become extinct) and thus enabling the creditor to
recover upon his original contract. 4 4. G.R. No. L-3756 June 30, 1952

However, the court a quo held that in signing the promissory note SAGRADA ORDEN DE PREDICADORES DEL SANTISMO
alone, respondent Confesor cannot thereby bind his wife, ROSARIO DE FILIPINAS, plaintiff-appellee,
respondent Jovita Villafuerte, citing Article 166 of the New Civil vs.
Code which provides: NATIONAL COCONUT CORPORATION, defendant-
appellant.
Art. 166. Unless the wife has been declared a non
compos mentis or a spend thrift, or is under civil First Assistant Corporate Counsel Federico C. Alikpala
interdiction or is confined in a leprosarium, the and Assistant Attorney Augusto Kalaw for appellant.

Ramirez and Ortigas for appellee. del Santisimo Rosario de Filipinas," vs. Philippine Alien Property
Administrator, defendant, Republic of the Philippines,
LABRADOR, J.: intervenor) to annul the sale of property of Taiwan Tekkosho,
and recover its possession. The Republic of the Philippines was
This is an action to recover the possession of a piece of real allowed to intervene in the action. The case did not come for trial
property (land and warehouses) situated in Pandacan Manila, because the parties presented a joint petition in which it is
and the rentals for its occupation and use. The land belongs to the claimed by plaintiff that the sale in favor of the Taiwan Tekkosho
plaintiff, in whose name the title was registered before the war. was null and void because it was executed under threats, duress,
On January 4, 1943, during the Japanese military occupation, the and intimidation, and it was agreed that the title issued in the
land was acquired by a Japanese corporation by the name of name of the Taiwan Tekkosho be cancelled and the original title
Taiwan Tekkosho for the sum of P140,00, and thereupon title of plaintiff re-issued; that the claims, rights, title, and interest of
thereto issued in its name (transfer certificate of title No. 64330, the Alien Property Custodian be cancelled and held for naught;
Register of Deeds, Manila). After liberation, more specifically on that the occupant National Coconut Corporation has until
April 4, 1946, the Alien Property Custodian of the United States of February 28, 1949, to recover its equipment from the property
America took possession, control, and custody thereof under and vacate the premises; that plaintiff, upon entry of judgment,
section 12 of the Trading with the Enemy Act, 40 Stat., 411, for pay to the Philippine Alien Property Administration the sum of
the reason that it belonged to an enemy national. During the year P140,000; and that the Philippine Alien Property Administration
1946 the property was occupied by the Copra Export be free from responsibility or liability for any act of the National
Management Company under a custodianship agreement with Coconut Corporation, etc. Pursuant to the agreement the court
United States Alien Property Custodian (Exhibit G), and when it rendered judgment releasing the defendant and the intervenor
vacated the property it was occupied by the defendant herein. from liability, but reversing to the plaintiff the right to recover
The Philippine Government made representations with the Office from the National Coconut Corporation reasonable rentals for the
Alien Property Custodian for the use of property by the use and occupation of the premises. (Exhibit A-1.)
Government (see Exhibits 2, 2-A, 2-B, and 1). On March 31, 1947,
the defendant was authorized to repair the warehouse on the The present action is to recover the reasonable rentals from
land, and actually spent thereon the repairs the sum of August, 1946, the date when the defendant began to occupy the
P26,898.27. In 1948, defendant leased one-third of the premises, to the date it vacated it. The defendant does not contest
warehouse to one Dioscoro Sarile at a monthly rental of P500, its liability for the rentals at the rate of P3,000 per month from
which was later raised to P1,000 a month. Sarile did not pay the February 28, 1949 (the date specified in the judgment in civil
rents, so action was brought against him. It is not shown, case No. 5007), but resists the claim therefor prior to this date. It
however, if the judgment was ever executed. interposes the defense that it occupied the property in good faith,
under no obligation whatsoever to pay rentals for the use and
Plaintiff made claim to the property before the Alien Property occupation of the warehouse. Judgment was rendered for the
Custodian of the United States, but as this was denied, it brought plaintiff to recover from the defendant the sum of P3,000 a
an action in court (Court of First Instance of Manila, civil case No. month, as reasonable rentals, from August, 1946, to the date the
5007, entitled "La Sagrada Orden Predicadores de la Provinicia defendant vacates the premises. The judgment declares that

plaintiff has always been the owner, as the sale of Japanese 6. Defendant's possession in the nature of usufruct.
purchaser was void ab initio; that the Alien Property
Administration never acquired any right to the property, but that In reply, plaintiff-appellee's counsel contends that the Philippine
it held the same in trust until the determination as to whether or Allien Property Administration (PAPA) was a mere administrator
not the owner is an enemy citizen. The trial court further of the owner (who ultimately was decided to be plaintiff), and
declares that defendant can not claim any better rights than its that as defendant has used it for commercial purposes and has
predecessor, the Alien Property Administration, and that as leased portion of it, it should be responsible therefore to the
defendant has used the property and had subleased portion owner, who had been deprived of the possession for so many
thereof, it must pay reasonable rentals for its occupation. years. (Appellee's brief, pp. 20, 23.)

Against this judgment this appeal has been interposed, the We can not understand how the trial court, from the mere fact
following assignment of error having been made on defendant- that plaintiff-appellee was the owner of the property and the
appellant's behalf: defendant-appellant the occupant, which used for its own benefit
but by the express permission of the Alien Property Custodian of
The trial court erred in holding the defendant liable for rentals or the United States, so easily jumped to the conclusion that the
compensation for the use and occupation of the property from occupant is liable for the value of such use and occupation. If
the middle of August, 1946, to December 14, 1948. defendant-appellant is liable at all, its obligations, must arise
from any of the four sources of obligations, namley, law, contract
1. Want to "ownership rights" of the Philippine Alien Property or quasi-contract, crime, or negligence. (Article 1089, Spanish
Administration did not render illegal or invalidate its grant to the Civil Code.) Defendant-appellant is not guilty of any offense at all,
defendant of the free use of property. because it entered the premises and occupied it with the
permission of the entity which had the legal control and
2. the decision of the Court of First Instance of Manila declaring administration thereof, the Allien Property Administration.
the sale by the plaintiff to the Japanese purchaser null and void Neither was there any negligence on its part. There was also no
ab initio and that the plaintiff was and has remained as the legal privity (of contract or obligation) between the Alien Property
owner of the property, without legal interruption, is not Custodian and the Taiwan Tekkosho, which had secured the
conclusive. possession of the property from the plaintiff-appellee by the use
of duress, such that the Alien Property Custodian or its permittee
3. Reservation to the plaintiff of the right to recover from the (defendant-appellant) may be held responsible for the supposed
defendant corporation not binding on the later; illegality of the occupation of the property by the said Taiwan
Tekkosho. The Allien Property Administration had the control
4. Use of the property for commercial purposes in itself alone and administration of the property not as successor to the
does not justify payment of rentals. interests of the enemy holder of the title, the Taiwan Tekkosho,
but by express provision of law (Trading with the Enemy Act of
5. Defendant's possession was in good faith. the United States, 40 Stat., 411; 50 U.S.C.A., 189). Neither is it a
trustee of the former owner, the plaintiff-appellee herein, but a

trustee of then Government of the United States (32 Op. Atty. agreement that the defendant-appellant was to pay for the use
Gen. 249; 50 U.S.C.A. 283), in its own right, to the exclusion of, and occupation of the premises at all.
and against the claim or title of, the enemy owner. (Youghioheny
& Ohio Coal Co. vs. Lasevich [1920], 179 N.W., 355; 171 Wis., 347; The above considerations show that plaintiff-appellee's claim for
U.S.C.A., 282-283.) From August, 1946, when defendant-appellant rentals before it obtained the judgment annulling the sale of the
took possession, to the late of judgment on February 28, 1948, Taiwan Tekkosho may not be predicated on any negligence or
Allien Property Administration had the absolute control of the offense of the defendant-appellant, or any contract, express or
property as trustee of the Government of the United States, with implied, because the Allien Property Administration was neither
power to dispose of it by sale or otherwise, as though it were the a trustee of plaintiff-appellee, nor a privy to the obligations of the
absolute owner. (U.S vs. Chemical Foundation [C.C.A. Del. 1925], 5 Taiwan Tekkosho, its title being based by legal provision of the
F. [2d], 191; 50 U.S.C.A., 283.) Therefore, even if defendant- seizure of enemy property. We have also tried in vain to find a
appellant were liable to the Allien Property Administration for law or provision thereof, or any principle in quasi contracts or
rentals, these would not accrue to the benefit of the plaintiff- equity, upon which the claim can be supported. On the contrary,
appellee, the owner, but to the United States Government. as defendant-appellant entered into possession without any
expectation of liability for such use and occupation, it is only fair
But there is another ground why the claim or rentals can not be and just that it may not be held liable therefor. And as to the rents
made against defendant-appellant. There was no agreement it collected from its lessee, the same should accrue to it as a
between the Alien Property Custodian and the defendant- possessor in good faith, as this Court has already expressly held.
appellant for the latter to pay rentals on the property. The (Resolution, National Coconut Corporation vs. Geronimo, 83 Phil.
existence of an implied agreement to that effect is contrary to the 467.)
circumstances. The copra Export Management Company, which
preceded the defendant-appellant, in the possession and use of Lastly, the reservation of this action may not be considered as
the property, does not appear to have paid rentals therefor, as it vesting a new right; if no right to claim for rentals existed at the
occupied it by what the parties denominated a "custodianship time of the reservation, no rights can arise or accrue from such
agreement," and there is no provision therein for the payment of reservation alone.
rentals or of any compensation for its custody and or occupation
and the use. The Trading with the Enemy Act, as originally Wherefore, the part of the judgment appealed from, which
enacted, was purely a measure of conversation, hence, it is very sentences defendant-appellant to pay rentals from August, 1946,
unlikely that rentals were demanded for the use of the property. to February 28, 1949, is hereby reversed. In all other respects the
When the National coconut Corporation succeeded the Copra judgment is affirmed. Costs of this appeal shall be against the
Export Management Company in the possession and use of the plaintiff-appellee.
property, it must have been also free from payment of rentals,
especially as it was Government corporation, and steps where
then being taken by the Philippine Government to secure the
property for the National Coconut Corporation. So that the
circumstances do not justify the finding that there was an implied 5. G.R. No. 183204 January 13, 2014

required by the PLRA.13 Since Liu Chiu Fang could speak only in
THE METROPOLITAN BANK AND TRUST COMPANY, Mandarin, respondent Rosales acted as an interpreter for her.14
Petitioner,
vs. On March 3, 2003, respondents opened with petitioners Pritil-
ANA GRACE ROSALES AND YO YUK TO, Respondents. Tondo Branch a Joint Dollar Account15 with an initial deposit of
US$14,000.00.16
D E C I S I O N
On July 31, 2003, petitioner issued a "Hold Out" order against
DEL CASTILLO, J.: respondents accounts.17

Bank deposits, which are in the nature of a simple loan or On September 3, 2003, petitioner, through its Special Audit
mutuum,1 must be paid upon demand by the depositor.2 Department Head Antonio Ivan Aguirre, filed before the Office of
the Prosecutor of Manila a criminal case for Estafa through False
This Petition for Review on Certiorari3 under Rule 45 of the Pretences, Misrepresentation, Deceit, and Use of Falsified
Rules of Court assails the April 2, 2008 Decision4 and the May 30, Documents, docketed as I.S. No. 03I-25014,18 against respondent
2008 Resolution5 of he Court of Appeals CA) in CA-G.R. CV No. Rosales.19 Petitioner accused respondent Rosales and an
89086. unidentified woman as the ones responsible for the unauthorized
and fraudulent withdrawal of US$75,000.00 from Liu Chiu Fangs
Factual Antecedents dollar account with petitioners Escolta Branch.20 Petitioner
alleged that on February 5, 2003, its branch in Escolta received
Petitioner Metropolitan Bank and Trust Company is a domestic from the PLRA a Withdrawal Clearance for the dollar account of
banking corporation duly organized and existing under the laws Liu Chiu Fang;21 that in the afternoon of the same day,
of the Philippines.6 Respondent Ana Grace Rosales (Rosales) is respondent Rosales went to petitioners Escolta Branch to inform
the owner of China Golden Bridge Travel Services,7 a travel its Branch Head, Celia A. Gutierrez (Gutierrez), that Liu Chiu Fang
agency.8 Respondent Yo Yuk To is the mother of respondent was going to withdraw her dollar deposits in cash;22 that
Rosales.9 Gutierrez told respondent Rosales to come back the following
day because the bank did not have enough dollars;23 that on
In 2000, respondents opened a Joint Peso Account10 with February 6, 2003, respondent Rosales accompanied an
petitioners Pritil-Tondo Branch.11 As of August 4, 2004, unidentified impostor of Liu Chiu Fang to the bank;24 that the
respondents Joint Peso Account showed a balance of impostor was able to withdraw Liu Chiu Fangs dollar deposit in
P2,515,693.52.12 the amount of US$75,000.00;25 that on March 3, 2003,
respondents opened a dollar account with petitioner; and that
In May 2002, respondent Rosales accompanied her client Liu the bank later discovered that the serial numbers of the dollar
Chiu Fang, a Taiwanese National applying for a retirees visa from notes deposited by respondents in the amount of US$11,800.00
the Philippine Leisure and Retirement Authority (PLRA), to were the same as those withdrawn by the impostor.26
petitioners branch in Escolta to open a savings account, as

Respondent Rosales, however, denied taking part in the On December 15, 2003, the Office of the City Prosecutor of Manila
fraudulent and unauthorized withdrawal from the dollar account issued a Resolution dismissing the criminal case for lack of
of Liu Chiu Fang.27 Respondent Rosales claimed that she did not probable cause.43 Unfazed, petitioner moved for
go to the bank on February 5, 2003.28 Neither did she inform reconsideration.
Gutierrez that Liu Chiu Fang was going to close her account.29
Respondent Rosales further claimed that after Liu Chiu Fang On September 10, 2004, respondents filed before the Regional
opened an account with petitioner, she lost track of her.30 Trial Court (RTC) of Manila a Complaint44 for Breach of
Respondent Rosales version of the events that transpired Obligation and Contract with Damages, docketed as Civil Case No.
thereafter is as follows: 04110895 and raffled to Branch 21, against petitioner.
Respondents alleged that they attempted several times to
On February 6, 2003, she received a call from Gutierrez withdraw their deposits but were unable to because petitioner
informing her that Liu Chiu Fang was at the bank to close her had placed their accounts under "Hold Out" status.45 No
account.31 At noon of the same day, respondent Rosales went to explanation, however, was given by petitioner as to why it issued
the bank to make a transaction.32 While she was transacting the "Hold Out" order.46 Thus, they prayed that the "Hold Out"
with the teller, she caught a glimpse of a woman seated at the order be lifted and that they be allowed to withdraw their
desk of the Branch Operating Officer, Melinda Perez (Perez).33 deposits.47 They likewise prayed for actual, moral, and
After completing her transaction, respondent Rosales exemplary damages, as well as attorneys fees.48
approached Perez who informed her that Liu Chiu Fang had
closed her account and had already left.34 Perez then gave a copy Petitioner alleged that respondents have no cause of action
of the Withdrawal Clearance issued by the PLRA to respondent because it has a valid reason for issuing the "Hold Out" order.49
Rosales.35 On June 16, 2003, respondent Rosales received a call It averred that due to the fraudulent scheme of respondent
from Liu Chiu Fang inquiring about the extension of her PLRA Rosales, it was compelled to reimburse Liu Chiu Fang the amount
Visa and her dollar account.36 It was only then that Liu Chiu Fang of US$75,000.0050 and to file a criminal complaint for Estafa
found out that her account had been closed without her against respondent Rosales.51
knowledge.37 Respondent Rosales then went to the bank to
inform Gutierrez and Perez of the unauthorized withdrawal.38 While the case for breach of contract was being tried, the City
On June 23, 2003, respondent Rosales and Liu Chiu Fang went to Prosecutor of Manila issued a Resolution dated February 18,
the PLRA Office, where they were informed that the Withdrawal 2005, reversing the dismissal of the criminal complaint.52 An
Clearance was issued on the basis of a Special Power of Attorney Information, docketed as Criminal Case No. 05-236103,53 was
(SPA) executed by Liu Chiu Fang in favor of a certain Richard then filed charging respondent Rosales with Estafa before Branch
So.39 Liu Chiu Fang, however, denied executing the SPA.40 The 14 of the RTC of Manila.54
following day, respondent Rosales, Liu Chiu Fang, Gutierrez, and
Perez met at the PLRA Office to discuss the unauthorized Ruling of the Regional Trial Court
withdrawal.41 During the conference, the bank officers assured
Liu Chiu Fang that the money would be returned to her.42 On January 15, 2007, the RTC rendered a Decision55 finding
petitioner liable for damages for breach of contract.56 The RTC

ruled that it is the duty of petitioner to release the deposit to actual damages to [respondents] Rosales and Yo Yuk To is hereby
respondents as the act of withdrawal of a bank deposit is an act DELETED.
of demand by the creditor.57 The RTC also said that the recourse
of petitioner is against its negligent employees and not against SO ORDERED.61
respondents.58 The dispositive portion of the Decision reads:
Petitioner sought reconsideration but the same was denied by
WHEREFORE, premises considered, judgment is hereby rendered the CA in its May 30, 2008 Resolution.62
ordering [petitioner] METROPOLITAN BANK & TRUST COMPANY
to allow [respondents] ANA GRACE ROSALES and YO YUK TO to Issues
withdraw their Savings and Time Deposits with the agreed
interest, actual damages of P50,000.00, moral damages of Hence, this recourse by petitioner raising the following issues:
P50,000.00, exemplary damages of P30,000.00 and 10% of the
amount due [respondents] as and for attorneys fees plus the cost A. THE [CA] ERRED IN RULING THAT THE "HOLD-OUT"
of suit. PROVISION IN THE APPLICATION AND AGREEMENT FOR
DEPOSIT ACCOUNT DOES NOT APPLY IN THIS CASE.
The counterclaim of [petitioner] is hereby DISMISSED for lack of
merit. B. THE [CA] ERRED WHEN IT RULED THAT PETITIONERS
EMPLOYEES WERE NEGLIGENT IN RELEASING LIU CHIU FANGS
SO ORDERED.59 FUNDS.

Ruling of the Court of Appeals C. THE [CA] ERRED IN AFFIRMING THE AWARD OF MORAL
DAMAGES, EXEMPLARY DAMAGES, AND ATTORNEYS FEES.63
Aggrieved, petitioner appealed to the CA.
Petitioners Arguments
On April 2, 2008, the CA affirmed the ruling of the RTC but
deleted the award of actual damages because "the basis for Petitioner contends that the CA erred in not applying the "Hold
[respondents] claim for such damages is the professional fee that Out" clause stipulated in the Application and Agreement for
they paid to their legal counsel for [respondent] Rosales defense Deposit Account.64 It posits that the said clause applies to any
against the criminal complaint of [petitioner] for estafa before and all kinds of obligation as it does not distinguish between
the Office of the City Prosecutor of Manila and not this case."60 obligations arising ex contractu or ex delictu.65 Petitioner also
Thus, the CA disposed of the case in this wise: contends that the fraud committed by respondent Rosales was
clearly established by evidence;66 thus, it was justified in issuing
WHEREFORE, premises considered, the Decision dated January the "Hold-Out" order.67 Petitioner likewise denies that its
15, 2007 of the RTC, Branch 21, Manila in Civil Case No. 04- employees were negligent in releasing the dollars.68 It claims
110895 is AFFIRMED with MODIFICATION that the award of that it was the deception employed by respondent Rosales that

caused petitioners employees to release Liu Chiu Fangs funds to employees were negligent in allowing the withdrawal of Liu Chiu
the impostor.69 Fangs dollar deposits has no bearing in the resolution of this
case. Thus, we find no need to discuss the same.
Lastly, petitioner puts in issue the award of moral and exemplary
damages and attorneys fees. It insists that respondents failed to The "Hold Out" clause does not apply
prove that it acted in bad faith or in a wanton, fraudulent,
oppressive or malevolent manner.70 to the instant case.

Respondents Arguments Petitioner claims that it did not breach its contract with
respondents because it has a valid reason for issuing the "Hold
Respondents, on the other hand, argue that there is no legal basis Out" order. Petitioner anchors its right to withhold respondents
for petitioner to withhold their deposits because they have no deposits on the Application and Agreement for Deposit Account,
monetary obligation to petitioner.71 They insist that petitioner which reads:
miserably failed to prove its accusations against respondent
Rosales.72 In fact, no documentary evidence was presented to Authority to Withhold, Sell and/or Set Off:
show that respondent Rosales participated in the unauthorized
withdrawal.73 They also question the fact that the list of the The Bank is hereby authorized to withhold as security for any
serial numbers of the dollar notes fraudulently withdrawn on and all obligations with the Bank, all monies, properties or
February 6, 2003, was not signed or acknowledged by the alleged securities of the Depositor now in or which may hereafter come
impostor.74 Respondents likewise maintain that what was into the possession or under the control of the Bank, whether left
established during the trial was the negligence of petitioners with the Bank for safekeeping or otherwise, or coming into the
employees as they allowed the withdrawal of the funds without hands of the Bank in any way, for so much thereof as will be
properly verifying the identity of the depositor.75 Furthermore, sufficient to pay any or all obligations incurred by Depositor
respondents contend that their deposits are in the nature of a under the Account or by reason of any other transactions
loan; thus, petitioner had the obligation to return the deposits to between the same parties now existing or hereafter contracted,
them upon demand.76 Failing to do so makes petitioner liable to to sell in any public or private sale any of such properties or
pay respondents moral and exemplary damages, as well as securities of Depositor, and to apply the proceeds to the payment
attorneys fees.77 of any Depositors obligations heretofore mentioned.

Our Ruling x x x x

The Petition is bereft of merit. JOINT ACCOUNT

At the outset, the relevant issues in this case are (1) whether x x x x
petitioner breached its contract with respondents, and (2) if so,
whether it is liable for damages. The issue of whether petitioners

The Bank may, at any time in its discretion and with or without
notice to all of the Depositors, assert a lien on any balance of the Respondents are entitled to moral and
Account and apply all or any part thereof against any exemplary damages and attorneys fees.1wphi1
indebtedness, matured or unmatured, that may then be owing to
the Bank by any or all of the Depositors. It is understood that if In cases of breach of contract, moral damages may be recovered
said indebtedness is only owing from any of the Depositors, then only if the defendant acted fraudulently or in bad faith,80 or is
this provision constitutes the consent by all of the depositors to "guilty of gross negligence amounting to bad faith, or in wanton
have the Account answer for the said indebtedness to the extent disregard of his contractual obligations."81
of the equal share of the debtor in the amount credited to the
Account.78 In this case, a review of the circumstances surrounding the
issuance of the "Hold Out" order reveals that petitioner issued
Petitioners reliance on the "Hold Out" clause in the Application the "Hold Out" order in bad faith. First of all, the order was issued
and Agreement for Deposit Account is misplaced. without any legal basis. Second, petitioner did not inform
respondents of the reason for the "Hold Out."82 Third, the order
The "Hold Out" clause applies only if there is a valid and existing was issued prior to the filing of the criminal complaint. Records
obligation arising from any of the sources of obligation show that the "Hold Out" order was issued on July 31, 2003,83
enumerated in Article 115779 of the Civil Code, to wit: law, while the criminal complaint was filed only on September 3,
contracts, quasi-contracts, delict, and quasi-delict. In this case, 2003.84 All these taken together lead us to conclude that
petitioner failed to show that respondents have an obligation to it petitioner acted in bad faith when it breached its contract with
under any law, contract, quasi-contract, delict, or quasi-delict. respondents. As we see it then, respondents are entitled to moral
And although a criminal case was filed by petitioner against damages.
respondent Rosales, this is not enough reason for petitioner to
issue a "Hold Out" order as the case is still pending and no final As to the award of exemplary damages, Article 222985 of the
judgment of conviction has been rendered against respondent Civil Code provides that exemplary damages may be imposed "by
Rosales. In fact, it is significant to note that at the time petitioner way of example or correction for the public good, in addition to
issued the "Hold Out" order, the criminal complaint had not yet the moral, temperate, liquidated or compensatory damages."
been filed. Thus, considering that respondent Rosales is not liable They are awarded only if the guilty party acted in a wanton,
under any of the five sources of obligation, there was no legal fraudulent, reckless, oppressive or malevolent manner.86
basis for petitioner to issue the "Hold Out" order. Accordingly, we
agree with the findings of the RTC and the CA that the "Hold Out" In this case, we find that petitioner indeed acted in a wanton,
clause does not apply in the instant case. fraudulent, reckless, oppressive or malevolent manner when it
refused to release the deposits of respondents without any legal
In view of the foregoing, we find that petitioner is guilty of breach basis. We need not belabor the fact that the banking industry is
of contract when it unjustifiably refused to release respondents impressed with public interest.87 As such, "the highest degree of
deposit despite demand. Having breached its contract with diligence is expected, and high standards of integrity and
respondents, petitioner is liable for damages. performance are even required of it."88 It must therefore "treat

the accounts of its depositors with meticulous care and always to Appeals in CA-G.R. CV No. 87050, nullifying and setting aside the
have in mind the fiduciary nature of its relationship with November 10, 2004 Decision3 of the Regional Trial Court of
them."89 For failing to do this, an award of exemplary damages is Manila, Branch 2, in Civil Case No. 98-89483 and dismissing the
justified to set an example. complaint filed by petitioner; as well as its August 23, 2007
Resolution4 denying the Motion for Reconsideration.5
The award of attorney's fees is likewise proper pursuant to
paragraph 1, Article 220890 of the Civil Code. The antecedent facts are as follows:

In closing, it must be stressed that while we recognize that Petitioner Joseph Saludaga was a sophomore law student of
petitioner has the right to protect itself from fraud or suspicions respondent Far Eastern University (FEU) when he was shot by
of fraud, the exercise of his right should be done within the Alejandro Rosete (Rosete), one of the security guards on duty at
bounds of the law and in accordance with due process, and not in the school premises on August 18, 1996. Petitioner was rushed to
bad faith or in a wanton disregard of its contractual obligation to FEU-Dr. Nicanor Reyes Medical Foundation (FEU-NRMF) due to
respondents. the wound he sustained.6 Meanwhile, Rosete was brought to the
police station where he explained that the shooting was
WHEREFORE, the Petition is hereby DENIED. The assailed April accidental. He was eventually released considering that no formal
2, 2008 Decision and the May 30, 2008 Resolution of the Court of complaint was filed against him.
Appeals in CA-G.R. CV No. 89086 are hereby AFFIRMED. SO
ORDERED. Petitioner thereafter filed a complaint for damages against
respondents on the ground that they breached their obligation to
provide students with a safe and secure environment and an
atmosphere conducive to learning. Respondents, in turn, filed a
Third-Party Complaint7 against Galaxy Development and
6. G.R. No. 179337 April 30, 2008 Management Corporation (Galaxy), the agency contracted by
respondent FEU to provide security services within its premises
JOSEPH SALUDAGA, petitioner, and Mariano D. Imperial (Imperial), Galaxy's President, to
vs. indemnify them for whatever would be adjudged in favor of
FAR EASTERN UNIVERSITY and EDILBERTO C. DE petitioner, if any; and to pay attorney's fees and cost of the suit.
JESUS in his capacity as President of FEU, respondents. On the other hand, Galaxy and Imperial filed a Fourth-Party
Complaint against AFP General Insurance.8
D E C I S I O N
On November 10, 2004, the trial court rendered a decision in
YNARES-SANTIAGO, J.: favor of petitioner, the dispositive portion of which reads:

This Petition for Review on Certiorari1 under Rule 45 of the WHEREFORE, from the foregoing, judgment is hereby rendered
Rules of Court assails the June 29, 2007 Decision2 of the Court of ordering:

1. FEU and Edilberto de Jesus, in his capacity as president of FEU 5.2. RESPONDENTS ARE NOT LIABLE FOR DAMAGES FOR THE
to pay jointly and severally Joseph Saludaga the amount of INJURY RESULTING FROM A GUNSHOT WOUND SUFFERED BY
P35,298.25 for actual damages with 12% interest per annum THE PETITIONER FROM THE HANDS OF NO LESS THAN THEIR
from the filing of the complaint until fully paid; moral damages of OWN SECURITY GUARD IN VIOLATION OF THEIR BUILT-IN
P300,000.00, exemplary damages of P500,000.00, attorney's fees CONTRACTUAL OBLIGATION TO PETITIONER, BEING THEIR
of P100,000.00 and cost of the suit; LAW STUDENT AT THAT TIME, TO PROVIDE HIM WITH A SAFE
AND SECURE EDUCATIONAL ENVIRONMENT;
2. Galaxy Management and Development Corp. and its president,
Col. Mariano Imperial to indemnify jointly and severally 3rd 5.3. SECURITY GAURD, ALEJANDRO ROSETE, WHO SHOT
party plaintiffs (FEU and Edilberto de Jesus in his capacity as PETITIONER WHILE HE WAS WALKING ON HIS WAY TO THE
President of FEU) for the above-mentioned amounts; LAW LIBRARY OF RESPONDENT FEU IS NOT THEIR EMPLOYEE
BY VIRTUE OF THE CONTRACT FOR SECURITY SERVICES
3. And the 4th party complaint is dismissed for lack of cause of BETWEEN GALAXY AND FEU NOTWITHSTANDING THE FACT
action. No pronouncement as to costs. THAT PETITIONER, NOT BEING A PARTY TO IT, IS NOT BOUND
BY THE SAME UNDER THE PRINCIPLE OF RELATIVITY OF
SO ORDERED.9 CONTRACTS; and

Respondents appealed to the Court of Appeals which rendered 5.4. RESPONDENT EXERCISED DUE DILIGENCE IN SELECTING
the assailed Decision, the decretal portion of which provides, viz: GALAXY AS THE AGENCY WHICH WOULD PROVIDE SECURITY
SERVICES WITHIN THE PREMISES OF RESPONDENT FEU.11
WHEREFORE, the appeal is hereby GRANTED. The Decision dated
November 10, 2004 is hereby REVERSED and SET ASIDE. The Petitioner is suing respondents for damages based on the alleged
complaint filed by Joseph Saludaga against appellant Far Eastern breach of student-school contract for a safe learning
University and its President in Civil Case No. 98-89483 is environment. The pertinent portions of petitioner's Complaint
DISMISSED. read:

SO ORDERED.10 6.0. At the time of plaintiff's confinement, the defendants or any
of their representative did not bother to visit and inquire about
Petitioner filed a Motion for Reconsideration which was denied; his condition. This abject indifference on the part of the
hence, the instant petition based on the following grounds: defendants continued even after plaintiff was discharged from
the hospital when not even a word of consolation was heard from
THE COURT OF APPEALS SERIOUSLY ERRED IN MANNER them. Plaintiff waited for more than one (1) year for the
CONTRARY TO LAW AND JURISPRUDENCE IN RULING THAT: defendants to perform their moral obligation but the wait was
fruitless. This indifference and total lack of concern of defendants
5.1. THE SHOOTING INCIDENT IS A FORTUITOUS EVENT; served to exacerbate plaintiff's miserable condition.

Institutions of learning must also meet the implicit or "built-in"
x x x x obligation of providing their students with an atmosphere that
promotes or assists in attaining its primary undertaking of
11.0. Defendants are responsible for ensuring the safety of its imparting knowledge. Certainly, no student can absorb the
students while the latter are within the University premises. And intricacies of physics or higher mathematics or explore the realm
that should anything untoward happens to any of its students of the arts and other sciences when bullets are flying or grenades
while they are within the University's premises shall be the exploding in the air or where there looms around the school
responsibility of the defendants. In this case, defendants, despite premises a constant threat to life and limb. Necessarily, the
being legally and morally bound, miserably failed to protect school must ensure that adequate steps are taken to maintain
plaintiff from injury and thereafter, to mitigate and compensate peace and order within the campus premises and to prevent the
plaintiff for said injury; breakdown thereof.14

12.0. When plaintiff enrolled with defendant FEU, a contract was It is undisputed that petitioner was enrolled as a sophomore law
entered into between them. Under this contract, defendants are student in respondent FEU. As such, there was created a
supposed to ensure that adequate steps are taken to provide an contractual obligation between the two parties. On petitioner's
atmosphere conducive to study and ensure the safety of the part, he was obliged to comply with the rules and regulations of
plaintiff while inside defendant FEU's premises. In the instant the school. On the other hand, respondent FEU, as a learning
case, the latter breached this contract when defendant allowed institution is mandated to impart knowledge and equip its
harm to befall upon the plaintiff when he was shot at by, of all students with the necessary skills to pursue higher education or a
people, their security guard who was tasked to maintain peace profession. At the same time, it is obliged to ensure and take
inside the campus.12 adequate steps to maintain peace and order within the campus.

In Philippine School of Business Administration v. Court of It is settled that in culpa contractual, the mere proof of the
Appeals,13 we held that: existence of the contract and the failure of its compliance justify,
prima facie, a corresponding right of relief.15 In the instant case,
When an academic institution accepts students for enrollment, we find that, when petitioner was shot inside the campus by no
there is established a contract between them, resulting in less the security guard who was hired to maintain peace and
bilateral obligations which both parties are bound to comply secure the premises, there is a prima facie showing that
with. For its part, the school undertakes to provide the student respondents failed to comply with its obligation to provide a safe
with an education that would presumably suffice to equip him and secure environment to its students.
with the necessary tools and skills to pursue higher education or
a profession. On the other hand, the student covenants to abide In order to avoid liability, however, respondents aver that the
by the school's academic requirements and observe its rules and shooting incident was a fortuitous event because they could not
regulations. have reasonably foreseen nor avoided the accident caused by
Rosete as he was not their employee;16 and that they complied
with their obligation to ensure a safe learning environment for

their students by having exercised due diligence in selecting the exempt one from liability. When the effect is found to be partly
security services of Galaxy. the result of a person's participation - whether by active
intervention, neglect or failure to act - the whole occurrence is
After a thorough review of the records, we find that respondents humanized and removed from the rules applicable to acts of
failed to discharge the burden of proving that they exercised due God.17
diligence in providing a safe learning environment for their
students. They failed to prove that they ensured that the guards Article 1170 of the Civil Code provides that those who are
assigned in the campus met the requirements stipulated in the negligent in the performance of their obligations are liable for
Security Service Agreement. Indeed, certain documents about damages. Accordingly, for breach of contract due to negligence in
Galaxy were presented during trial; however, no evidence as to providing a safe learning environment, respondent FEU is liable
the qualifications of Rosete as a security guard for the university to petitioner for damages. It is essential in the award of damages
was offered. that the claimant must have satisfactorily proven during the trial
the existence of the factual basis of the damages and its causal
Respondents also failed to show that they undertook steps to connection to defendant's acts.18
ascertain and confirm that the security guards assigned to them
actually possess the qualifications required in the Security In the instant case, it was established that petitioner spent
Service Agreement. It was not proven that they examined the P35,298.25 for his hospitalization and other medical expenses.19
clearances, psychiatric test results, 201 files, and other vital While the trial court correctly imposed interest on said amount,
documents enumerated in its contract with Galaxy. Total reliance however, the case at bar involves an obligation arising from a
on the security agency about these matters or failure to check the contract and not a loan or forbearance of money. As such, the
papers stating the qualifications of the guards is negligence on proper rate of legal interest is six percent (6%) per annum of the
the part of respondents. A learning institution should not be amount demanded. Such interest shall continue to run from the
allowed to completely relinquish or abdicate security matters in filing of the complaint until the finality of this Decision.20 After
its premises to the security agency it hired. To do so would result this Decision becomes final and executory, the applicable rate
to contracting away its inherent obligation to ensure a safe shall be twelve percent (12%) per annum until its satisfaction.
learning environment for its students.
The other expenses being claimed by petitioner, such as
Consequently, respondents' defense of force majeure must fail. In transportation expenses and those incurred in hiring a personal
order for force majeure to be considered, respondents must show assistant while recuperating were however not duly supported
that no negligence or misconduct was committed that may have by receipts.21 In the absence thereof, no actual damages may be
occasioned the loss. An act of God cannot be invoked to protect a awarded. Nonetheless, temperate damages under Art. 2224 of the
person who has failed to take steps to forestall the possible Civil Code may be recovered where it has been shown that the
adverse consequences of such a loss. One's negligence may have claimant suffered some pecuniary loss but the amount thereof
concurred with an act of God in producing damage and injury to cannot be proved with certainty. Hence, the amount of
another; nonetheless, showing that the immediate or proximate P20,000.00 as temperate damages is awarded to petitioner.
cause of the damage or injury was a fortuitous event would not

As regards the award of moral damages, there is no hard and fast contracts in behalf of the corporation cannot be held personally
rule in the determination of what would be a fair amount of liable for the liabilities of the latter. Personal liability of a
moral damages since each case must be governed by its own corporate director, trustee or officer along (although not
peculiar circumstances.22 The testimony of petitioner about his necessarily) with the corporation may so validly attach, as a rule,
physical suffering, mental anguish, fright, serious anxiety, and only when - (1) he assents to a patently unlawful act of the
moral shock resulting from the shooting incident23 justify the corporation, or when he is guilty of bad faith or gross negligence
award of moral damages. However, moral damages are in the in directing its affairs, or when there is a conflict of interest
category of an award designed to compensate the claimant for resulting in damages to the corporation, its stockholders or other
actual injury suffered and not to impose a penalty on the persons; (2) he consents to the issuance of watered down stocks
wrongdoer. The award is not meant to enrich the complainant at or who, having knowledge thereof, does not forthwith file with
the expense of the defendant, but to enable the injured party to the corporate secretary his written objection thereto; (3) he
obtain means, diversion, or amusements that will serve to agrees to hold himself personally and solidarily liable with the
obviate the moral suffering he has undergone. It is aimed at the corporation; or (4) he is made by a specific provision of law
restoration, within the limits of the possible, of the spiritual personally answerable for his corporate action.27
status quo ante, and should be proportionate to the suffering
inflicted. Trial courts must then guard against the award of None of the foregoing exceptions was established in the instant
exorbitant damages; they should exercise balanced restrained case; hence, respondent De Jesus should not be held solidarily
and measured objectivity to avoid suspicion that it was due to liable with respondent FEU.
passion, prejudice, or corruption on the part of the trial court.24
We deem it just and reasonable under the circumstances to Incidentally, although the main cause of action in the instant case
award petitioner moral damages in the amount of P100,000.00. is the breach of the school-student contract, petitioner, in the
alternative, also holds respondents vicariously liable under
Likewise, attorney's fees and litigation expenses in the amount of Article 2180 of the Civil Code, which provides:
P50,000.00 as part of damages is reasonable in view of Article
2208 of the Civil Code.25 However, the award of exemplary Art. 2180. The obligation imposed by Article 2176 is demandable
damages is deleted considering the absence of proof that not only for one's own acts or omissions, but also for those of
respondents acted in a wanton, fraudulent, reckless, oppressive, persons for whom one is responsible.
or malevolent manner.
x x x x
We note that the trial court held respondent De Jesus solidarily
liable with respondent FEU. In Powton Conglomerate, Inc. v. Employers shall be liable for the damages caused by their
Agcolicol,26 we held that: employees and household helpers acting within the scope of their
assigned tasks, even though the former are not engaged in any
[A] corporation is invested by law with a personality separate business or industry.
and distinct from those of the persons composing it, such that,
save for certain exceptions, corporate officers who entered into x x x x

the ordinary course of events, be demanded from the client
The responsibility treated of in this article shall cease when the whose premises or property are protected by the security guards.
persons herein mentioned prove that they observed all the
diligence of a good father of a family to prevent damage. x x x x

We agree with the findings of the Court of Appeals that The fact that a client company may give instructions or directions
respondents cannot be held liable for damages under Art. 2180 of to the security guards assigned to it, does not, by itself, render the
the Civil Code because respondents are not the employers of client responsible as an employer of the security guards
Rosete. The latter was employed by Galaxy. The instructions concerned and liable for their wrongful acts or omissions.31
issued by respondents' Security Consultant to Galaxy and its
security guards are ordinarily no more than requests commonly We now come to respondents' Third Party Claim against Galaxy.
envisaged in the contract for services entered into by a principal In Firestone Tire and Rubber Company of the Philippines v.
and a security agency. They cannot be construed as the element Tempengko,32 we held that:
of control as to treat respondents as the employers of Rosete.28
The third-party complaint is, therefore, a procedural device
As held in Mercury Drug Corporation v. Libunao:29 whereby a 'third party' who is neither a party nor privy to the act
or deed complained of by the plaintiff, may be brought into the
In Soliman, Jr. v. Tuazon,30 we held that where the security case with leave of court, by the defendant, who acts as third-party
agency recruits, hires and assigns the works of its watchmen or plaintiff to enforce against such third-party defendant a right for
security guards to a client, the employer of such guards or contribution, indemnity, subrogation or any other relief, in
watchmen is such agency, and not the client, since the latter has respect of the plaintiff's claim. The third-party complaint is
no hand in selecting the security guards. Thus, the duty to actually independent of and separate and distinct from the
observe the diligence of a good father of a family cannot be plaintiff's complaint. Were it not for this provision of the Rules of
demanded from the said client: Court, it would have to be filed independently and separately
from the original complaint by the defendant against the third-
[I]t is settled in our jurisdiction that where the security agency, party. But the Rules permit defendant to bring in a third-party
as here, recruits, hires and assigns the work of its watchmen or defendant or so to speak, to litigate his separate cause of action in
security guards, the agency is the employer of such guards or respect of plaintiff's claim against a third-party in the original
watchmen. Liability for illegal or harmful acts committed by the and principal case with the object of avoiding circuitry of action
security guards attaches to the employer agency, and not to the and unnecessary proliferation of law suits and of disposing
clients or customers of such agency. As a general rule, a client or expeditiously in one litigation the entire subject matter arising
customer of a security agency has no hand in selecting who from one particular set of facts.33
among the pool of security guards or watchmen employed by the
agency shall be assigned to it; the duty to observe the diligence of Respondents and Galaxy were able to litigate their respective
a good father of a family in the selection of the guards cannot, in claims and defenses in the course of the trial of petitioner's
complaint. Evidence duly supports the findings of the trial court

that Galaxy is negligent not only in the selection of its employees a. respondent Far Eastern University (FEU) is ORDERED to pay
but also in their supervision. Indeed, no administrative sanction petitioner actual damages in the amount of P35,298.25, plus 6%
was imposed against Rosete despite the shooting incident; interest per annum from the filing of the complaint until the
moreover, he was even allowed to go on leave of absence which finality of this Decision. After this decision becomes final and
led eventually to his disappearance.34 Galaxy also failed to executory, the applicable rate shall be twelve percent (12%) per
monitor petitioner's condition or extend the necessary annum until its satisfaction;
assistance, other than the P5,000.00 initially given to petitioner.
Galaxy and Imperial failed to make good their pledge to b. respondent FEU is also ORDERED to pay petitioner temperate
reimburse petitioner's medical expenses. damages in the amount of P20,000.00; moral damages in the
amount of P100,000.00; and attorney's fees and litigation
For these acts of negligence and for having supplied respondent expenses in the amount of P50,000.00;
FEU with an unqualified security guard, which resulted to the
latter's breach of obligation to petitioner, it is proper to hold c. the award of exemplary damages is DELETED.
Galaxy liable to respondent FEU for such damages equivalent to
the above-mentioned amounts awarded to petitioner. The Complaint against respondent Edilberto C. De Jesus is
DISMISSED. The counterclaims of respondents are likewise
Unlike respondent De Jesus, we deem Imperial to be solidarily DISMISSED.
liable with Galaxy for being grossly negligent in directing the
affairs of the security agency. It was Imperial who assured Galaxy Development and Management Corporation (Galaxy) and
petitioner that his medical expenses will be shouldered by Galaxy its president, Mariano D. Imperial are ORDERED to jointly and
but said representations were not fulfilled because they severally pay respondent FEU damages equivalent to the above-
presumed that petitioner and his family were no longer mentioned amounts awarded to petitioner.
interested in filing a formal complaint against them.35

WHEREFORE, the petition is GRANTED. The June 29, 2007
Decision of the Court of Appeals in CA-G.R. CV No. 87050
nullifying the Decision of the trial court and dismissing the 7. G.R. No. L-36840 May 22, 1973
complaint as well as the August 23, 2007 Resolution denying the
Motion for Reconsideration are REVERSED and SET ASIDE. The PEOPLE'S CAR INC., plaintiff-appellant,
Decision of the Regional Trial Court of Manila, Branch 2, in Civil vs.
Case No. 98-89483 finding respondent FEU liable for damages for COMMANDO SECURITY SERVICE AGENCY, defendant-
breach of its obligation to provide students with a safe and appellee.
secure learning atmosphere, is AFFIRMED with the following
MODIFICATIONS:
TEEHANKEE, J.:


In this appeal from the adverse judgment of the Davao court of (plaintiff) from theft, pilferage, robbery, vandalism and all other
first instance limiting plaintiff-appellant's recovery under its unlawful acts of any person or person prejudicial to the interest
complaint to the sum of P1,000.00 instead of the actual damages of (plaintiff)." 4
of P8,489.10 claimed and suffered by it as a direct result of the
wrongful acts of defendant security agency's guard assigned at On April 5, 1970 at around 1:00 A.M., however, defendant's
plaintiff's premises in pursuance of their "Guard Service security guard on duty at plaintiff's premises, "without any
Contract", the Court finds merit in the appeal and accordingly authority, consent, approval, knowledge or orders of the plaintiff
reverses the trial court's judgment. and/or defendant brought out of the compound of the plaintiff a
car belonging to its customer, and drove said car for a place or
The appeal was certified to this Court by a special division of the places unknown, abandoning his post as such security guard on
Court of Appeals on a four-to-one vote as per its resolution of duty inside the plaintiff's compound, and while so driving said
April 14, 1973 that "Since the case was submitted to the court a car in one of the City streets lost control of said car, causing the
quo for decision on the strength of the stipulation of facts, only same to fall into a ditch along J.P. Laurel St., Davao City by reason
questions of law can be involved in the present appeal." of which the plaintiff's complaint for qualified theft against said
driver, was blottered in the office of the Davao City Police
The Court has accepted such certification and docketed this Department." 5
appeal on the strength of its own finding from the records that
plaintiff's notice of appeal was expressly to this Court (not to the As a result of these wrongful acts of defendant's security guard,
appellate court)" on pure questions of law" 1 and its record on the car of plaintiff's customer, Joseph Luy, which had been left
appeal accordingly prayed that" the corresponding records be with plaintiff for servicing and maintenance, "suffered extensive
certified and forwarded to the Honorable Supreme Court." 2 The damage in the total amount of P7,079." 6 besides the car rental
trial court so approved the same 3 on July 3, 1971 instead of value "chargeable to defendant" in the sum of P1,410.00 for a car
having required the filing of a petition for review of the judgment that plaintiff had to rent and make available to its said customer
sought to be appealed from directly with this Court, in to enable him to pursue his business and occupation for the
accordance with the provisions of Republic Act 5440. By some period of forty-seven (47) days (from April 25 to June 10, 1970)
unexplained and hitherto undiscovered error of the clerk of that it took plaintiff to repair the damaged car, 7 or total actual
court, furthermore, the record on appeal was erroneously damages incurred by plaintiff in the sum of P8,489.10.
forwarded to the appellate court rather than to this Court.
Plaintiff claimed that defendant was liable for the entire amount
The parties submitted the case for judgment on a stipulation of under paragraph 5 of their contract whereunder defendant
facts. There is thus no dispute as to the factual bases of plaintiff's assumed "sole responsibility for the acts done during their watch
complaint for recovery of actual damages against defendant, to hours" by its guards, whereas defendant contended, without
wit, that under the subsisting "Guard Service Contract" between questioning the amount of the actual damages incurred by
the parties, defendant-appellee as a duly licensed security service plaintiff, that its liability "shall not exceed one thousand
agency undertook in consideration of the payments made by (P1,000.00) pesos per guard post" under paragraph 4 of their
plaintiff to safeguard and protect the business premises of contract.

The trial court, misreading the above-quoted contractual
The parties thus likewise stipulated on this sole issue submitted provisions, held that "the liability of the defendant in favor of the
by them for adjudication, as follows: plaintiff falls under paragraph 4 of the Guard Service Contract"
and rendered judgment "finding the defendant liable to the
Interpretation of the contract, as to the extent of the liability of plaintiff in the amount of P1,000.00 with costs."
the defendant to the plaintiff by reason of the acts of the
employees of the defendant is the only issue to be resolved. Hence, this appeal, which, as already indicated, is meritorious
and must be granted.
The defendant relies on Par. 4 of the contract to support its
contention while the plaintiff relies on Par. 5 of the same contract Paragraph 4 of the contract, which limits defendant's liability for
in support of its claims against the defendant. For ready the amount of loss or damage to any property of plaintiff to
reference they are quoted hereunder: "P1,000.00 per guard post," is by its own terms applicable only
for loss or damage 'through the negligence of its guards ... during
'Par. 4. Party of the Second Part (defendant) through the the watch hours" provided that the same is duly reported by
negligence of its guards, after an investigation has been plaintiff within 24 hours of the occurrence and the guard's
conducted by the Party of the First Part (plaintiff) wherein the negligence is verified after proper investigation with the
Party of the Second Part has been duly represented shall assume attendance of both contracting parties. Said paragraph is
full responsibilities for any loss or damages that may occur to any manifestly inapplicable to the stipulated facts of record, which
property of the Party of the First Part for which it is accountable, involve neither property of plaintiff that has been lost or
during the watch hours of the Party of the Second Part, provided damaged at its premises nor mere negligence of defendant's
the same is reported to the Party of the Second Part within security guard on duty.
twenty-four (24) hours of the occurrence, except where such loss
or damage is due to force majeure, provided however that after Here, instead of defendant, through its assigned security guards,
the proper investigation to be made thereof that the guard on complying with its contractual undertaking 'to safeguard and
post is found negligent and that the amount of the loss shall not protect the business premises of (plaintiff) from theft, robbery,
exceed ONE THOUSAND (P1,000.00) PESOS per guard post.' vandalism and all other unlawful acts of any person or persons,"
defendant's own guard on duty unlawfully and wrongfully drove
'Par. 5 The party of the Second Part assumes the responsibility out of plaintiffs premises a customer's car, lost control of it on the
for the proper performance by the guards employed, of their highway causing it to fall into a ditch, thereby directly causing
duties and (shall) be solely responsible for the acts done during plaintiff to incur actual damages in the total amount of P8,489.10.
their watch hours, the Party of the First Part being specifically
released from any and all liabilities to the former's employee or Defendant is therefore undoubtedly liable to indemnify plaintiff
to the third parties arising from the acts or omissions done by the for the entire damages thus incurred, since under paragraph 5 of
guard during their tour of their contract it "assumed the responsibility for the proper
duty.' ... 8 performance by the guards employed of their duties and
(contracted to) be solely responsible for the acts done during

their watch hours" and "specifically released (plaintiff) from any the damage but the defendant" since the customer could not
and all liabilities ... to the third parties arising from the acts or hold defendant to account for the damages as he had no privity of
omissions done by the guards during their tour of duty." As contract with defendant. Such an approach of telling the adverse
plaintiff had duly discharged its liability to the third party, its party to go to court, notwithstanding his plainly valid claim, aside
customer, Joseph Luy, for the undisputed damages of P8,489.10 from its ethical deficiency among others, could hardly create any
caused said customer, due to the wanton and unlawful act of goodwill for plaintiff's business, in the same way that defendant's
defendant's guard, defendant in turn was clearly liable under the baseless attempt to evade fully discharging its contractual
terms of paragraph 5 of their contract to indemnify plaintiff in liability to plaintiff cannot be expected to have brought it more
the same amount. business. Worse, the administration of justice is prejudiced, since
the court dockets are unduly burdened with unnecessary
The trial court's approach that "had plaintiff understood the litigation.
liability of the defendant to fall under paragraph 5, it should have
told Joseph Luy, owner of the car, that under the Guard Service ACCORDINGLY, the judgment appealed from is hereby reversed
Contract, it was not liable for the damage but the defendant and and judgment is hereby rendered sentencing defendant-appellee
had Luy insisted on the liability of the plaintiff, the latter should to pay plaintiff-appellant the sum of P8,489.10 as and by way of
have challenged him to bring the matter to court. If Luy accepted reimbursement of the stipulated actual damages and expenses, as
the challenge and instituted an action against the plaintiff, it well as the costs of suit in both instances. It is so ordered.
should have filed a third-party complaint against the Commando
Security Service Agency. But if Luy instituted the action against
the plaintiff and the defendant, the plaintiff should have filed a
crossclaim against the latter," 9 was unduly technical and
unrealistic and untenable.
8. G.R. No. L-23749 April 29, 1977
Plaintiff was in law liable to its customer for the damages caused
the customer's car, which had been entrusted into its custody. FAUSTINO CRUZ, plaintiff-appellant,
Plaintiff therefore was in law justified in making good such vs.
damages and relying in turn on defendant to honor its contract J. M. TUASON & COMPANY, INC., and GREGORIO
and indemnify it for such undisputed damages, which had been ARANETA, INC., defendants-appellees.
caused directly by the unlawful and wrongful acts of defendant's
security guard in breach of their contract. As ordained in Article
1159, Civil Code, "obligations arising from contracts have the BARREDO, J.:
force of law between the contracting parties and should be
complied with in good faith." Appeal from the order dated August 13, 1964 of the Court of First
Instance of Quezon City in Civil Case No. Q-7751, Faustino Cruz
Plaintiff in law could not tell its customer, as per the trial court's vs. J.M. Tuason & Co., Inc., and Gregorio Araneta, Inc., dismissing
view, that "under the Guard Service Contract it was not liable for the complaint of appellant Cruz for the recovery of improvements

he has made on appellees' land and to compel appellees to 2142 of the Code on unjust enrichment is untenable; and (2)
convey to him 3,000 square meters of land on three grounds: (1) anent the alleged agreement about plaintiffs services as
failure of the complaint to state a cause of action; (2) the cause of intermediary in consideration of which, defendants promised to
action of plaintiff is unenforceable under the Statute of Frauds; convey to him 3,000 square meters of land, that the same is
and (3) the action of the plaintiff has already prescribed. unenforceable under the Statute of Frauds, there being nothing in
writing about it, and, in any event, (3) that the action of plaintiff
Actually, a perusal of plaintiff-appellant's complaint below shows to compel such conveyance has already prescribed.
that he alleged two separate causes of action, namely: (1) that
upon request of the Deudors (the family of Telesforo Deudor who Plaintiff opposed the motion, insisting that Article 2142 of the
laid claim on the land in question on the strength of an applicable to his case; that the Statute of Frauds cannot be
"informacion posesoria" ) plaintiff made permanent invoked by defendants, not only because Article 1403 of the Civil
improvements valued at P30,400.00 on said land having an area Code refers only to "sale of real property or of an interest
of more or less 20 quinones and for which he also incurred therein" and not to promises to convey real property like the one
expenses in the amount of P7,781.74, and since defendants- supposedly promised by defendants to him, but also because, he,
appellees are being benefited by said improvements, he is the plaintiff has already performed his part of the agreement,
entitled to reimbursement from them of said amounts and (2) hence the agreement has already been partly executed and not
that in 1952, defendants availed of plaintiff's services as an merely executory within the contemplation of the Statute; and
intermediary with the Deudors to work for the amicable that his action has not prescribed for the reason that defendants
settlement of Civil Case No. Q-135, then pending also in the Court had ten years to comply and only after the said ten years did his
of First Instance of Quezon City, and involving 50 quinones of cause of action accrue, that is, ten years after March 16, 1963, the
land, of Which the 20 quinones aforementioned form part, and date of the approval of the compromise agreement, and his
notwithstanding his having performed his services, as in fact, a complaint was filed on January 24, 1964.
compromise agreement entered into on March 16, 1963 between
the Deudors and the defendants was approved by the court, the Ruling on the motion to dismiss, the trial court issued the herein
latter have refused to convey to him the 3,000 square meters of impugned order of August 13, 1964:
land occupied by him, (a part of the 20 quinones above) which
said defendants had promised to do "within ten years from and In the motion, dated January 31, 1964, defendant Gregorio
after date of signing of the compromise agreement", as Araneta, Inc. prayed that the complaint against it be dismissed on
consideration for his services. the ground that (1) the claim on which the action is founded is
unenforceable under the provision of the Statute of Frauds; and
Within the Period allowed by the rules, the defendants filed (2) the plaintiff's action, if any has already prescribed. In the
separate motions to dismiss alleging three Identical grounds: (1) other motion of February 11, 1964, defendant J. M. Tuason & Co.,
As regards that improvements made by plaintiff, that the Inc. sought the dismissal of the plaintiffs complaint on the ground
complaint states no cause of action, the agreement regarding the that it states no cause of action and on the Identical grounds
same having been made by plaintiff with the Deudors and not stated in the motion to dismiss of defendant Gregorio Araneta,
with the defendants, hence the theory of plaintiff based on Article Inc. The said motions are duly opposed by the plaintiff.

Tuason & Co., Inc. This fact is confirmed in the decision rendered
From the allegations of the complaint, it appears that, by virtue of by the Supreme Court on July 31, 1956 in Case G. R. No. L-5079
an agreement arrived at in 1948 by the plaintiff and the Deudors, entitled J.M. Tuason & Co. Inc. vs. Geronimo Santiago, et al., Such
the former assisted the latter in clearing, improving, subdividing being the case, the plaintiff cannot claim good faith and mistake
and selling the large tract of land consisting of 50 quinones as to the title of the land.
covered by the informacion posesoria in the name of the late
Telesforo Deudor and incurred expenses, which are valued On the issue of statute of fraud, the Court believes that same is
approximately at P38,400.00 and P7,781.74, respectively; and, applicable to the instant case. The allegation in par. 12 of the
for the reasons that said improvements are being used and complaint states that the defendants promised and agreed to
enjoyed by the defendants, the plaintiff is seeking the cede, transfer and convey unto the plaintiff the 3,000 square
reimbursement for the services and expenses stated above from meters of land in consideration of certain services to be rendered
the defendants. then. it is clear that the alleged agreement involves an interest in
real property. Under the provisions of See. 2(e) of Article 1403 of
Defendant J. M. Tuason & Co., Inc. claimed that, insofar as the the Civil Code, such agreement is not enforceable as it is not in
plaintiffs claim for the reimbursement of the amounts of writing and subscribed by the party charged.
P38,400.00 and P7,781.74 is concerned, it is not a privy to the
plaintiff's agreement to assist the Deudors n improving the 50 On the issue of statute of limitations, the Court holds that the
quinones. On the other hand, the plaintiff countered that, by plaintiff's action has prescribed. It is alleged in par. 11 of the
holding and utilizing the improvements introduced by him, the complaint that, sometime in 1952, the defendants approached
defendants are unjustly enriching and benefiting at the expense the plaintiff to prevail upon the Deudors to enter to a
of the plaintiff; and that said improvements constitute a lien or compromise agreement in Civil Case No. Q-135 and allied cases.
charge of the property itself Furthermore, par. 13 and 14 of the complaint alleged that the
plaintiff acted as emissary of both parties in conveying their
On the issue that the complaint insofar as it claims the respective proposals and couter-proposals until the final
reimbursement for the services rendered and expenses incurred settlement was effected on March 16, 1953 and approved by
by the plaintiff, states no cause of action, the Court is of the Court on April 11, 1953. In the present action, which was
opinion that the same is well-founded. It is found that the instituted on January 24, 1964, the plaintiff is seeking to enforce
defendants are not parties to the supposed express contract the supposed agreement entered into between him and the
entered into by and between the plaintiff and the Deudors for the defendants in 1952, which was already prescribed.
clearing and improvement of the 50 quinones. Furthermore in
order that the alleged improvement may be considered a lien or WHEREFORE, the plaintiffs complaint is hereby ordered
charge on the property, the same should have been made in good DISMISSED without pronouncement as to costs.
faith and under the mistake as to the title. The Court can take
judicial notice of the fact that the tract of land supposedly SO ORDERED. (Pp. 65-69, Rec. on Appeal,)
improved by the plaintiff had been registered way back in 1914
in the name of the predecessors-in-interest of defendant J. M.

On August 22, 1964, plaintiff's counsel filed a motion for
reconsideration dated August 20, 1964 as follows: Said this Honorable Court (at p. 2, Order):

Plaintiff through undersigned counsel and to this Honorable O R D E R
Court, respectfully moves to reconsider its Order bearing date of
13 August 1964, on the following grounds: xxx xxx xxx

1. THAT THE COMPLAINT STATES A SUFFICIENT CAUSE OF On the issue that the complaint, in so far as it claims the
ACTION AGAINST DEFENDANTS IN SO FAR AS PLAINTIFF'S reimbursement for the services rendered and expenses incurred
CLAIM PAYMENT OF SERVICES AND REIMBURSEMENT OF HIS by the plaintiff, states no cause of action, the Court is of the
EXPENSES, IS CONCERNED; opinion that the same is well-founded. It is found that the
defendants are not parties to the supposed express contract
II. THAT REGARDING PLAINTIFF'S CLAIM OVER THE 3,000 SQ. entered into by and between the plaintiff and the Deudors for the
MS., THE SAME HAS NOT PRESCRIBED AND THE STATUTE OF clearing and improvement of the 50 quinones. Furthermore, in
FRAUDS IS NOT APPLICABLE THERETO; order that the alleged improvement may he considered a lien or
charge on the property, the same should have been made in good
A R G U M E N T faith and under the mistake as to title. The Court can take judicial
notice of the fact that the tract of land supposedly improved by
Plaintiff's complaint contains two (2) causes of action the first the plaintiff had been registered way back in 1914 in the name of
being an action for sum of money in the amount of P7,781.74 the predecessors-in-interest of defendant J. M. Tuason & Co., Inc.
representing actual expenses and P38,400.00 as reasonable This fact is confirmed in the decision rendered by the Supreme
compensation for services in improving the 50 quinones now in Court on July 31, 1956 in case G. R. No. L-5079 entitled 'J M.
the possession of defendants. The second cause of action deals Tuason & Co., Inc. vs, Geronimo Santiago, et al.' Such being the
with the 3,000 sq. ms. which defendants have agreed to transfer case, the plaintiff cannot claim good faith and mistake as to the
into Plaintiff for services rendered in effecting the compromise title of the land.
between the Deudors and defendants;
The position of this Honorable Court (supra) is that the complaint
Under its order of August 3, 1964, this Honorable Court does not state a cause of action in so far as the claim for services
dismissed the claim for sum of money on the ground that the and expenses is concerned because the contract for the
complaint does not state a cause of action against defendants. We improvement of the properties was solely between the Deudors
respectfully submit: and plaintiff, and defendants are not privies to it. Now, plaintiff's
theory is that defendants are nonetheless liable since they are
1. THAT THE COMPLAINT STATES A SUFFICIENT CAUSE OF utilizing and enjoying the benefit's of said improvements. Thus
ACTION AGAINST DEFENDANTS IN SO FAR AS PLAINTIFF'S under paragraph 16 of "he complaint, it is alleged:
CLAIM FOR PAYMENT OF SERVICES AND REIMBURSEMENT OF
HIS EXPENSES IS CONCERNED.

(16) That the services and personal expenses of plaintiff II. THAT REGARDING PLAINTIFF'S CLAIM OVER THE 3,000 SQ.
mentioned in paragraph 7 hereof were rendered and in fact paid MS. THE SAME HAS NOT PRESCRIBED AND THE STATUTE OF
by him to improve, as they in fact resulted in considerable FRAUDS IS NOT APPLICABLE THERETO.
improvement of the 50 quinones, and defendants being now in
possession of and utilizing said improvements should reimburse The Statute of Frauds is CLEARLY inapplicable to this case:
and pay plaintiff for such services and expenses.
At page 2 of this Honorable Court's order dated 13 August 1964,
Plaintiff's cause of action is premised inter alia, on the theory of the Court ruled as follows:
unjust enrichment under Article 2142 of the civil Code:
O R D E R
ART. 2142. Certain lawful voluntary and unilateral acts give rise
to the juridical relation of quasi-contract to the end that no one xxx xxx xxx
shill be unjustly enriched or benefited at the expense of another.
On the issue of statute of fraud, the Court believes that same is
In like vein, Article 19 of the same Code enjoins that: applicable to the instant Case, The allegation in par. 12 of the
complaint states that the defendants promised and agree to cede,
ART. 19. Every person must, in the exercise of his rights and in transfer and convey unto the plaintiff, 3,000 square meters of
the performance of his duties, act with justice, give every-one his land in consideration of certain services to be rendered then. It is
due and observe honesty and good faith. clear that the alleged agreement involves an interest in real
property. Under the provisions of Sec. 2(e) of Article 1403 of the
We respectfully draw the attention of this Honorable Court to the Civil Code, such agreement is not enforceable as it is not in
fact that ARTICLE 2142 (SUPRA) DEALS WITH QUASI- writing and subscribed by the party charged.
CONTRACTS or situations WHERE THERE IS NO CONTRACT
BETWEEN THE PARTIES TO THE ACTION. Further, as we can To bring this issue in sharper focus, shall reproduce not only
readily see from the title thereof (Title XVII), that the Same bears paragraph 12 of the complaint but also the other pertinent
the designation 'EXTRA CONTRACTUAL OBLIGATIONS' or paragraphs therein contained. Paragraph 12 states thus:
obligations which do not arise from contracts. While it is true
that there was no agreement between plaintiff and defendants C O M P L A I N T
herein for the improvement of the 50 quinones since the latter
are presently enjoying and utilizing the benefits brought about xxx xxx xxx
through plaintiff's labor and expenses, defendants should pay
and reimburse him therefor under the principle that 'no one may 12). That plaintiff conferred with the aforesaid representatives of
enrich himself at the expense of another.' In this posture, the defendants several times and on these occasions, the latter
complaint states a cause of action against the defendants. promised and agreed to cede, transfer and convey unto plaintiff
the 3,000 sq. ms. (now known as Lots 16-B, 17 and 18) which

plaintiff was then occupying and continues to occupy as of this area was totally cleared and the houses transferred to another
writing, for and in consideration of the following conditions: area designated by the defendants as 'Capt. Cruz Block' in
Masambong, Quezon City. (Pars. 12, 13 and 14, Complaint;
(a) That plaintiff succeed in convincing the DEUDORS to enter Emphasis supplied)
into a compromise agreement and that such agreement be
actually entered into by and between the DEUDORS and From the foregoing, it is clear then the agreement between the
defendant companies; parties mentioned in paragraph 12 (supra) of the complaint has
already been fully EXECUTED ON ONE PART, namely by the
(b) That as of date of signing the compromise agreement, plaintiff plaintiff. Regarding the applicability of the statute of frauds (Art.
shall be the owner of the 3,000 sq. ms. but the documents 1403, Civil Code), it has been uniformly held that the statute of
evidencing his title over this property shall be executed and frauds IS APPLICABLE ONLY TO EXECUTORY CONTRACTS BUT
delivered by defendants to plaintiff within ten (10) years from NOT WHERE THE CONTRACT HAS BEEN PARTLY EXECUTED:
and after date of signing of the compromise agreement;
SAME ACTION TO ENFORCE. The statute of frauds has been
(c) That plaintiff shall, without any monetary expense of his uniformly interpreted to be applicable to executory and not to
part, assist in clearing the 20 quinones of its occupants; completed or contracts. Performance of the contracts takes it out
of the operation of the statute. ...
13). That in order to effect a compromise between the parties.
plaintiff not only as well acted as emissary of both parties in The statute of the frauds is not applicable to contracts which are
conveying their respective proposals and counter- proposals either totally or partially performed, on the theory that there is a
until succeeded in convinzing the DEUDORS to settle with wide field for the commission of frauds in executory contracts
defendants amicably. Thus, on March 16, 1953, a Compromise which can only be prevented by requiring them to be in writing, a
Agreement was entered into by and between the DEUDORS and facts which is reduced to a minimum in executed contracts
the defendant companies; and on April 11, 1953, this agreement because the intention of the parties becomes apparent buy their
was approved by this Honorable Court; execution and execution, in mots cases, concluded the right the
parties. ... The partial performance may be proved by either
14). That in order to comply with his other obligations under his documentary or oral evidence. (At pp. 564-565, Tolentino's Civil
agreement with defendant companies, plaintiff had to confer with Code of the Philippines, Vol. IV, 1962 Ed.; Emphasis supplied).
the occupants of the property, exposing himself to physical harm,
convincing said occupants to leave the premises and to refrain Authorities in support of the foregoing rule are legion. Thus Mr.
from resorting to physical violence in resisting defendants' Justice Moran in his 'Comments on the Rules of Court', Vol. III,
demands to vacate; 1974 Ed., at p. 167, states:

That plaintiff further assisted defendants' employees in the 2 THE STATUTE OF FRAUDS IS APPLICABLE ONLY TO
actual demolition and transfer of all the houses within the EXECUTORY CONTRACTS: CONTRACTS WHICH ARE EITHER
perimeter of the 20 quinones until the end of 1955, when said TOTALLY OR PARTIALLY PERFORMED ARE WITHOUT THE

STATUE. The statute of frauds is applicable only to executory With all due respect to this Honorable court, we also submit that
contracts. It is neither applicable to executed contracts nor to the Court committed error in holding that this action has
contracts partially performed. The reason is simple. In executory prescribed:
contracts there is a wide field for fraud because unless they be in
writing there is no palpable evidence of the intention of the O R D E R
contracting parties. The statute has been enacted to prevent
fraud. On the other hand the commission of fraud in executed xxx xxx xxx
contracts is reduced to minimum in executed contracts because
(1) the intention of the parties is made apparent by the execution On the issue of the statute of limitations, the Court holds that the
and (2) execution concludes, in most cases, the rights of the plaintiff's action has prescribed. It is alleged in par. III of the
parties. (Emphasis supplied) complaint that, sometime in 1952, the defendants approached
the plaintiff to prevail upon the Deudors to enter into a
Under paragraphs 13 and 14 of the complaint (supra) one can compromise agreement in Civil Case No. Q-135 and allied cases.
readily see that the plaintiff has fulfilled ALL his obligation under Furthermore, pars. 13 and 14 of the complaint alleged that
the agreement between him defendants concerning the 3,000 sq. plaintiff acted as emissary of both parties in conveying their
ms. over which the latter had agreed to execute the proper respective proposals and counter-proposals until the final
documents of transfer. This fact is further projected in paragraph settlement was affected on March 16, 1953 and approved by the
15 of the complaint where plaintiff states; Court on April 11, 1953. In the present actin, which was
instituted on January 24, 1964, the plaintiff is seeking to enforce
15). That in or about the middle of 1963, after all the conditions the supposed agreement entered into between him and the
stated in paragraph 12 hereof had been fulfilled and fully defendants in 1952, which has already proscribed. (at p. 3,
complied with, plaintiff demanded of said defendants that they Order).
execute the Deed of Conveyance in his favor and deliver the title
certificate in his name, over the 3,000 sq. ms. but defendants The present action has not prescribed, especially when we
failed and refused and continue to fail and refuse to heed his consider carefully the terms of the agreement between plaintiff
demands. (par. 15, complaint; Emphasis supplied). and the defendants. First, we must draw the attention of this
Honorable Court to the fact that this is an action to compel
In view of the foregoing, we respectfully submit that this defendants to execute a Deed of Conveyance over the 3,000 sq.
Honorable court erred in holding that the statute of frauds is ms. subject of their agreement. In paragraph 12 of the complaint,
applicable to plaintiff's claim over the 3,000 sq. ms. There having the terms and conditions of the contract between the parties are
been full performance of the contract on plaintiff's part, the same spelled out. Paragraph 12 (b) of the complaint states:
takes this case out of the context of said statute.
(b) That as of date of signing the compromise agreement, plaintiff
Plaintiff's Cause of Action had NOT Prescribed: shall be the owner of the 3,000 sq. ms. but the documents
evidencing his title over this property shall be executed and
delivered by defendants to plaintiff within ten (10) years from

and after date of signing of the compromise agreement. which have not only been refuted in herein defendant's Motion to
(Emphasis supplied). Dismiss and Reply but already passed upon by this Honorable
Court."
The compromise agreement between defendants and the
Deudors which was conclude through the efforts of plaintiff, was On September 7, 1964, the trial court denied the motion for
signed on 16 March 1953. Therefore, the defendants had ten (10) reconsiderations thus:
years signed on 16 March 1953. Therefore, the defendants had
ten (10) years from said date within which to execute the deed of After considering the plaintiff's Motion for Reconsideration of
conveyance in favor of plaintiff over the 3,000 sq. ms. As long as August 20, 1964 and it appearing that the grounds relied upon in
the 10 years period has not expired, plaintiff had no right to said motion are mere repetition of those already resolved and
compel defendants to execute the document and the latter were discussed by this Court in the order of August 13, 1964, the
under no obligation to do so. Now, this 10-year period elapsed on instant motion is hereby denied and the findings and conclusions
March 16, 1963. THEN and ONLY THEN does plaintiff's cause of arrived at by the Court in its order of August 13, 1964 are hereby
action plaintiff on March 17, 1963. Thus, under paragraph 15, of reiterated and affirmed.
the complaint (supra) plaintiff made demands upon defendants
for the execution of the deed 'in or about the middle of 1963. SO ORDERED. (Page 90, Rec. on Appeal.)

Since the contract now sought to be enforced was not reduced to Under date of September 24, 1964, plaintiff filed his record on
writing, plaintiff's cause of action expires on March 16, 1969 or appeal.
six years from March 16, 1963 WHEN THE CAUSE OF ACTION
ACCRUED (Art. 1145, Civil Code). In his brief, appellant poses and discusses the following
assignments of error:
In this posture, we gain respectfully submit that this Honorable
Court erred in holding that plaintiff's action has prescribed. I. THAT THE LOWER COURT ERRED IN DISMISSING THE
COMPLAINT ON THE GROUND THAT APPELLANT'S CLAIM OVER
P R A Y E R THE 3,000 SQ. MS. IS ALLEGEDLY UNENFORCEABLE UNDER THE
STATUTE OF FRAUDS;
WHEREFORE, it is respectfully prayed that " Honorable Court
reconsider its Order dated August 13, 1964; and issue another II. THAT THE COURT A QUO FURTHER COMMITTED ERROR
order denying the motions to dismiss of defendants G. Araneta, IN DISMISSING APPELLANT'S COMPLAINT ON THE GROUND
Inc. and J. M. Tuason Co. Inc. for lack of merit. (Pp. 70-85, Record THAT HIS CLAIM OVER THE 3,000 SQ. MS. IS ALLEGEDLY
on Appeal.) BARRED BY THE STATUTE OF LIMITATIONS; and

Defendants filed an opposition on the main ground that "the III. THAT THE LOWER COURT ERRED IN DISMISSING THE
arguments adduced by the plaintiff are merely reiterations of his COMPLAINT FOR FAILURE TO STATE A CAUSE OF ACTION IN SO
arguments contained in his Rejoinder to Reply and Opposition, FAR AS APPELLANT'S CLAIM FOR REIMBURSEMENT OF

EXPENSES AND FOR SERVICES RENDERED IN THE at the time of the sale, of the amount and kind of property sold,
IMPROVEMENT OF THE FIFTY (50) QUINONES IS CONCERNED. terms of sale, price, names of the purchasers and person on
whose account the sale is made, it is a sufficient memorandum:
We agree with appellant that the Statute of Frauds was
erroneously applied by the trial court. It is elementary that the (e) An agreement for the leasing for a longer period than one
Statute refers to specific kinds of transactions and that it cannot year, or for the sale of real property or of an interest therein:
apply to any that is not enumerated therein. And the only
agreements or contracts covered thereby are the following: (f) a representation as to the credit of a third person.

(1) Those entered into in the name of another person by one who (3) Those where both parties are incapable of giving consent to a
has been given no authority or legal representation, or who has contract. (Art. 1403, civil Code.)
acted beyond his powers;
In the instant case, what appellant is trying to enforce is the
(2) Those do not comply with the Statute of Frauds as set forth in delivery to him of 3,000 square meters of land which he claims
this number, In the following cases an agreement hereafter made defendants promised to do in consideration of his services as
shall be unenforceable by action, unless the same, or some note mediator or intermediary in effecting a compromise of the civil
or memorandum thereof, be in writing, and subscribed by the action, Civil Case No. 135, between the defendants and the
party charged, or by his agent; evidence, therefore, of the Deudors. In no sense may such alleged contract be considered as
agreement cannot be received without the writing, or a being a "sale of real property or of any interest therein." Indeed,
secondary evidence of its contents: not all dealings involving interest in real property come under
the Statute.
(a) An agreement that by its terms is not to be performed within
a year from the making thereof; Moreover, appellant's complaint clearly alleges that he has
already fulfilled his part of the bargains to induce the Deudors to
(b) A special promise to answer for the debt, default, or amicably settle their differences with defendants as, in fact, on
miscarriage of another; March 16, 1963, through his efforts, a compromise agreement
between these parties was approved by the court. In other words,
(c) An agreement made in consideration of marriage, other than a the agreement in question has already been partially
mutual promise to marry; consummated, and is no longer merely executory. And it is
likewise a fundamental principle governing the application of the
(d) An agreement for the sale of goods, chattels or things in Statute that the contract in dispute should be purely executory on
action, at a price not less than five hundred pesos, unless the the part of both parties thereto.
buyer accept and receive part of such goods and chattels, or the
evidences, or some of them of such things in action, or pay at the We cannot, however, escape taking judicial notice, in relation to
time some part of the purchase money; but when a sale is made the compromise agreement relied upon by appellant, that in
by auction and entry is made by the auctioneer in his sales book, several cases We have decided, We have declared the same

rescinded and of no effect. In J. M. Tuason & Co., Inc. vs. one should be allowed to unjustly enrich himself at the expense
Bienvenido Sanvictores, 4 SCRA 123, the Court held: of another, Article 2124 creates the legal fiction of a quasi-
contract precisely because of the absence of any actual
It is also worthy of note that the compromise between Deudors agreement between the parties concerned. Corollarily, if the one
and Tuason, upon which Sanvictores predicates his right to buy who claims having enriched somebody has done so pursuant to a
the lot he occupies, has been validly rescinded and set aside, as contract with a third party, his cause of action should be against
recognized by this Court in its decision in G.R. No. L-13768, the latter, who in turn may, if there is any ground therefor, seek
Deudor vs. Tuason, promulgated on May 30, 1961. relief against the party benefited. It is essential that the act by
which the defendant is benefited must have been voluntary and
We repeated this observation in J.M. Tuason & Co., Inc. vs. unilateral on the part of the plaintiff. As one distinguished civilian
Teodosio Macalindong, 6 SCRA 938. Thus, viewed from what puts it, "The act is voluntary. because the actor in quasi-contracts
would be the ultimate conclusion of appellant's case, We is not bound by any pre-existing obligation to act. It is unilateral,
entertain grave doubts as to whether or not he can successfully because it arises from the sole will of the actor who is not
maintain his alleged cause of action against defendants, previously bound by any reciprocal or bilateral agreement. The
considering that the compromise agreement that he invokes did reason why the law creates a juridical relations and imposes
not actually materialize and defendants have not benefited certain obligation is to prevent a situation where a person is able
therefrom, not to mention the undisputed fact that, as pointed to benefit or take advantage of such lawful, voluntary and
out by appellees, appellant's other attempt to secure the same unilateral acts at the expense of said actor." (Ambrosio Padilla,
3,000 square meters via the judicial enforcement of the Civil Law, Vol. VI, p. 748, 1969 ed.) In the case at bar, since
compromise agreement in which they were supposed to be appellant has a clearer and more direct recourse against the
reserved for him has already been repudiated by the courts. (pp. Deudors with whom he had entered into an agreement regarding
5-7. Brief of Appellee Gregorio Araneta, Inc.) the improvements and expenditures made by him on the land of
appellees. it Cannot be said, in the sense contemplated in Article
As regards appellant's third assignment of error, We hold that the 2142, that appellees have been enriched at the expense of
allegations in his complaint do not sufficiently Appellants' appellant.
reliance. on Article 2142 of Civil Code is misplaced. Said article
provides: In the ultimate. therefore, Our holding above that appellant's first
two assignments of error are well taken cannot save the day for
Certain lawful, voluntary and unilateral acts give rise to the him. Aside from his having no cause of action against appellees,
juridical relation of quasi-contract to the end that no one shall be there is one plain error of omission. We have found in the order
unjustly enriched or benefited at the expense of another. of the trial court which is as good a ground as any other for Us to
terminate this case favorably to appellees. In said order Which
From the very language of this provision, it is obvious that a We have quoted in full earlier in this opinion, the trial court ruled
presumed qauasi-contract cannot emerge as against one party that "the grounds relied upon in said motion are mere repetitions
when the subject mater thereof is already covered by an existing of those already resolved and discussed by this Court in the order
contract with another party. Predicated on the principle that no of August 13, 1964", an observation which We fully share.

Virtually, therefore. appellant's motion for reconsideration was
ruled to be pro-forma. Indeed, a cursory reading of the record on 9. G.R. No. L-9188 December 4, 1914
appeal reveals that appellant's motion for reconsideration above-
quoted contained exactly the same arguments and manner of GUTIERREZ HERMANOS, plaintiff-appellee,
discussion as his February 6, 1964 "Opposition to Motion to vs.
Dismiss" of defendant Gregorio Araneta, Inc. ((pp. 17-25, Rec. on ENGRACIO ORENSE, defendant-appellant.
Appeal) as well as his February 17, 1964 "Opposition to Motion
to Dismiss of Defendant J. M. Tuason & Co." (pp. 33-45, Rec. on William A. Kincaid, Thos. L. Hartigan, and Ceferino M.
Appeal and his February 29, 1964 "Rejoinder to Reply Oil Villareal for appellant.
Defendant J. M. Tuason & Co." (pp. 52-64, Rec. on Appeal) We Rafael de la Sierra for appellee.
cannot see anything in said motion for reconsideration that is
substantially different from the above oppositions and rejoinder TORRES, J.:
he had previously submitted and which the trial court had
already considered when it rendered its main order of dismissal. Appeal through bill of exceptions filed by counsel for the
Consequently, appellant's motion for reconsideration did not appellant from the judgment on April 14, 1913, by the Honorable
suspend his period for appeal. (Estrada vs. Sto. Domingo, 28 P. M. Moir, judge, wherein he sentenced the defendant to make
SCRA 890, 905-6.) And as this point was covered by appellees' immediate delivery of the property in question, through a public
"Opposition to Motion for Reconsideration" (pp. 8689), hence, instrument, by transferring and conveying to the plaintiff all his
within the frame of the issues below, it is within the ambit of Our rights in the property described in the complaint and to pay it the
authority as the Supreme Court to consider the same here even if sum of P780, as damages, and the costs of the suit.
it is not discussed in the briefs of the parties. (Insular Life
Assurance Co., Ltd. Employees Association-NATU vs. Insular Life On March 5, 1913, counsel for Gutierrez Hermanos filed a
Assurance Co., Ltd. [Resolution en banc of March 10, 1977 in G. R. complaint, afterwards amended, in the Court of First Instance of
No. L-25291). Albay against Engacio Orense, in which he set forth that on and
before February 14, 1907, the defendant Orense had been the
Now, the impugned main order was issued on August 13, 1964, owner of a parcel of land, with the buildings and improvements
while the appeal was made on September 24, 1964 or 42 days thereon, situated in the pueblo of Guinobatan, Albay, the location,
later. Clearly, this is beyond the 30-day reglementary period for area and boundaries of which were specified in the complaint;
appeal. Hence, the subject order of dismissal was already final that the said property has up to date been recorded in the new
and executory when appellant filed his appeal. property registry in the name of the said Orense, according to
certificate No. 5, with the boundaries therein given; that, on
WHEREFORE, the appeal of Faustino Cruz in this case is February 14, 1907, Jose Duran, a nephew of the defendant, with
dismissed. No costs. the latter's knowledge and consent, executed before a notary a
public instrument whereby he sold and conveyed to the plaintiff
company, for P1,500, the aforementioned property, the vendor
Duran reserving to himself the right to repurchase it for the same

price within a period of four years from the date of the said for damages and rental of the property from February 14, 1911,
instrument; that the plaintiff company had not entered into and that, in case these remedies were not granted to the plaintiff,
possession of the purchased property, owing to its continued the defendant be sentenced to pay to it the sum of P3,000 as
occupancy by the defendant and his nephew, Jose Duran, by damages, together with interest thereon since the date of the
virtue of a contract of lease executed by the plaintiff to Duran, institution of this suit, and to pay the costs and other legal
which contract was in force up to February 14, 1911; that the expenses.
said instrument of sale of the property, executed by Jose Duran,
was publicly and freely confirmed and ratified by the defendant The demurrer filed to the amended complaint was overruled,
Orense; that, in order to perfect the title to the said property, but with exception on the part of the defendant, whose counsel made
that the defendant Orense refused to do so, without any a general denial of the allegations contained in the complaint,
justifiable cause or reason, wherefore he should be compelled to excepting those that were admitted, and specifically denied
execute the said deed by an express order of the court, for Jose paragraph 4 thereof to the effect that on February 14, 1907, Jose
Duran is notoriously insolvent and cannot reimburse the plaintiff Duran executed the deed of sale of the property in favor of the
company for the price of the sale which he received, nor pay any plaintiff with the defendant's knowledge and consent.1awphil.net
sum whatever for the losses and damages occasioned by the said
sale, aside from the fact that the plaintiff had suffered damage by As the first special defense, counsel for the defendant alleged that
losing the present value of the property, which was worth the facts set forth in the complaint with respect to the execution
P3,000; that, unless such deed of final conveyance were executed of the deed did not constitute a cause of action, nor did those
in behalf of the plaintiff company, it would be injured by the alleged in the other form of action for the collection of P3,000, the
fraud perpetrated by the vendor, Duran, in connivance with the value of the realty.
defendant; that the latter had been occupying the said property
since February 14, 1911, and refused to pay the rental thereof, As the second special defense, he alleged that the defendant was
notwithstanding the demand made upon him for its payment at the lawful owner of the property claimed in the complaint, as his
the rate of P30 per month, the just and reasonable value for the ownership was recorded in the property registry, and that, since
occupancy of the said property, the possession of which the his title had been registered under the proceedings in rem
defendant likewise refused to deliver to the plaintiff company, in prescribed by Act No. 496, it was conclusive against the plaintiff
spite of the continuous demands made upon him, the defendant, and the pretended rights alleged to have been acquired by Jose
with bad faith and to the prejudice of the firm of Gutierrez Duran prior to such registration could not now prevail; that the
Hermanos, claiming to have rights of ownership and possession defendant had not executed any written power of attorney nor
in the said property. Therefore it was prayed that judgment be given any verbal authority to Jose Duran in order that the latter
rendered by holding that the land and improvements in question might, in his name and representation, sell the said property to
belong legitimately and exclusively to the plaintiff, and ordering the plaintiff company; that the defendant's knowledge of the said
the defendant to execute in the plaintiff's behalf the said sale was acquired long after the execution of the contract of sale
instrument of transfer and conveyance of the property and of all between Duran and Gutierrez Hermanos, and that prior thereto
the right, interest, title and share which the defendant has the defendant did not intentionally and deliberately perform any
therein; that the defendant be sentenced to pay P30 per month act such as might have induced the plaintiff to believe that Duran

was empowered and authorized by the defendant and which
would warrant him in acting to his own detriment, under the The plaintiff firm, therefore, charged Jose Duran, in the Court of
influence of that belief. Counsel therefore prayed that the First Instance of the said province, with estafa, for having
defendant be absolved from the complaint and that the plaintiff represented himself in the said deed of sale to be the absolute
be sentenced to pay the costs and to hold his peace forever. owner of the aforesaid land and improvements, whereas in
reality they did not belong to him, but to the defendant Orense.
After the hearing of the case and an examination of the evidence However, at the trial of the case Engracio Orense, called as a
introduced by both parties, the court rendered the judgment witness, being interrogated by the fiscal as to whether he and
aforementioned, to which counsel for the defendant excepted and consented to Duran's selling the said property under right of
moved for a new trial. This motion was denied, an exception was redemption to the firm of Gutierrez Hermanos, replied that he
taken by the defendant and, upon presentation of the proper bill had. In view of this statement by the defendant, the court
of exceptions, the same was approved, certified and forwarded to acquitted Jose Duran of the charge of estafa.
the clerk of his court.
As a result of the acquittal of Jose Duran, based on the explicit
This suit involves the validity and efficacy of the sale under right testimony of his uncle, Engacio Orense, the owner of the
of redemption of a parcel of land and a masonry house with the property, to the effect that he had consented to his nephew
nipa roof erected thereon, effected by Jose Duran, a nephew of Duran's selling the property under right of repurchase to
the owner of the property, Engracio Orense, for the sum of Gutierrez Hermanos, counsel for this firm filed a complainant
P1,500 by means of a notarial instrument executed and ratified praying, among other remedies, that the defendant Orense be
on February 14, 1907. compelled to execute a deed for the transfer and conveyance to
the plaintiff company of all the right, title and interest with
After the lapse of the four years stipulated for the redemption, Orense had in the property sold, and to pay to the same the rental
the defendant refused to deliver the property to the purchaser, of the property due from February 14, 1911.itc-alf
the firm of Gutierrez Hermanos, and to pay the rental thereof at
the rate of P30 per month for its use and occupation since Notwithstanding the allegations of the defendant, the record in
February 14, 1911, when the period for its repurchase this case shows that he did give his consent in order that his
terminated. His refusal was based on the allegations that he had nephew, Jose Duran, might sell the property in question to
been and was then the owner of the said property, which was Gutierrez Hermanos, and that he did thereafter confirm and
registered in his name in the property registry; that he had not ratify the sale by means of a public instrument executed before a
executed any written power of attorney to Jose Duran, nor had he notary.
given the latter any verbal authorization to sell the said property
to the plaintiff firm in his name; and that, prior to the execution It having been proven at the trial that he gave his consent to the
of the deed of sale, the defendant performed no act such as might said sale, it follows that the defendant conferred verbal, or at
have induced the plaintiff to believe that Jose Duran was least implied, power of agency upon his nephew Duran, who
empowered and authorized by the defendant to effect the said accepted it in the same way by selling the said property. The
sale. principal must therefore fulfill all the obligations contracted by

the agent, who acted within the scope of his authority. (Civil confirmed and ratified, and, in the present case, it is
Code, arts. 1709, 1710 and 1727.) unquestionable that the defendant did confirm the said contract
of sale and consent to its execution.
Even should it be held that the said consent was granted
subsequently to the sale, it is unquestionable that the defendant, On the testimony given by Engacio Orense at the trial of Duran
the owner of the property, approved the action of his nephew, for estafa, the latter was acquitted, and it would not be just that
who in this case acted as the manager of his uncle's business, and the said testimony, expressive of his consent to the sale of his
Orense'r ratification produced the effect of an express property, which determined the acquittal of his nephew, Jose
authorization to make the said sale. (Civil Code, arts. 1888 and Duran, who then acted as his business manager, and which
1892.) testimony wiped out the deception that in the beginning
appeared to have been practiced by the said Duran, should not
Article 1259 of the Civil Code prescribes: "No one can contract in now serve in passing upon the conduct of Engracio Orense in
the name of another without being authorized by him or without relation to the firm of Gutierrez Hermanos in order to prove his
his legal representation according to law. consent to the sale of his property, for, had it not been for the
consent admitted by the defendant Orense, the plaintiff would
A contract executed in the name of another by one who has have been the victim of estafa.
neither his authorization nor legal representation shall be void,
unless it should be ratified by the person in whose name it was If the defendant Orense acknowledged and admitted under oath
executed before being revoked by the other contracting party. that he had consented to Jose Duran's selling the property in
litigation to Gutierrez Hermanos, it is not just nor is it
The sworn statement made by the defendant, Orense, while permissible for him afterward to deny that admission, to the
testifying as a witness at the trial of Duran for estafa, virtually prejudice of the purchaser, who gave P1,500 for the said
confirms and ratifies the sale of his property effected by his property.
nephew, Duran, and, pursuant to article 1313 of the Civil Code,
remedies all defects which the contract may have contained from The contract of sale of the said property contained in the notarial
the moment of its execution. instrument of February 14, 1907, is alleged to be invalid, null and
void under the provisions of paragraph 5 of section 335 of the
The sale of the said property made by Duran to Gutierrez Code of Civil Procedure, because the authority which Orense may
Hermanos was indeed null and void in the beginning, but have given to Duran to make the said contract of sale is not
afterwards became perfectly valid and cured of the defect of shown to have been in writing and signed by Orense, but the
nullity it bore at its execution by the confirmation solemnly made record discloses satisfactory and conclusive proof that the
by the said owner upon his stating under oath to the judge that defendant Orense gave his consent to the contract of sale
he himself consented to his nephew Jose Duran's making the said executed in a public instrument by his nephew Jose Duran. Such
sale. Moreover, pursuant to article 1309 of the Code, the right of consent was proven in a criminal action by the sworn testimony
action for nullification that could have been brought became of the principal and presented in this civil suit by other sworn
legally extinguished from the moment the contract was validly testimony of the same principal and by other evidence to which

the defendant made no objection. Therefore the principal is has led not only to protracted legal entanglements but to even
bound to abide by the consequences of his agency as though it more bitter consequences, like strained relationships and even
had actually been given in writing (Conlu vs. Araneta and the forfeiture of lives. It is a question that likewise reflects a
Guanko, 15 Phil. Rep., 387; Gallemit vs. Tabiliran, 20 Phil. Rep., tragic commentary on prevailing social and cultural values and
241; Kuenzle & Streiff vs. Jiongco, 22 Phil. Rep., 110.) institutions, where, as one observer notes, wealth and its
accumulation are the basis of self-fulfillment and where property
The repeated and successive statements made by the defendant is held as sacred as life itself. "It is in the defense of his property,"
Orense in two actions, wherein he affirmed that he had given his says this modern thinker, that one "will mobilize his deepest
consent to the sale of his property, meet the requirements of the protective devices, and anybody that threatens his possessions
law and legally excuse the lack of written authority, and, as they will arouse his most passionate enmity." 1
are a full ratification of the acts executed by his nephew Jose
Duran, they produce the effects of an express power of agency. The task of this Court, however, is not to judge the wisdom of
values; the burden of reconstructing the social order is
The judgment appealed from in harmony with the law and the shouldered by the political leadership-and the people
merits of the case, and the errors assigned thereto have been themselves.
duly refuted by the foregoing considerations, so it should be
affirmed. The parties have come to this Court for relief and accordingly,
our responsibility is to give them that relief pursuant to the
The judgment appealed from is hereby affirmed, with the costs decree of law.
against the appellant.
The antecedent facts are quoted from the decision 2 appealed
from:

xxx xxx xxx
10. G.R. No. L-44546 January 29, 1988
... [T]he land in question Lot 14694 of Cadastral Survey of Albay
RUSTICO ADILLE, petitioner, located in Legaspi City with an area of some 11,325 sq. m.
vs. originally belonged to one Felisa Alzul as her own private
THE HONORABLE COURT OF APPEALS, EMETERIA property; she married twice in her lifetime; the first, with one
ASEJO, TEODORICA ASEJO, DOMINGO ASEJO, JOSEFA Bernabe Adille, with whom she had as an only child, herein
ASEJO and SANTIAGO ASEJO, respondents. defendant Rustico Adille; in her second marriage with one
Procopio Asejo, her children were herein plaintiffs, now,
SARMIENTO, J.: sometime in 1939, said Felisa sold the property in pacto de retro
to certain 3rd persons, period of repurchase being 3 years, but
In issue herein are property and property rights, a familiar she died in 1942 without being able to redeem and after her
subject of controversy and a wellspring of enormous conflict that death, but during the period of redemption, herein defendant

repurchased, by himself alone, and after that, he executed a deed herein. The petitioner now appeals, by way of certiorari, from the
of extra-judicial partition representing himself to be the only heir Court's decision.
and child of his mother Felisa with the consequence that he was
able to secure title in his name alone also, so that OCT. No. 21137 We required the private respondents to file a comment and
in the name of his mother was transferred to his name, that was thereafter, having given due course to the petition, directed the
in 1955; that was why after some efforts of compromise had parties to file their briefs. Only the petitioner, however, filed a
failed, his half-brothers and sisters, herein plaintiffs, filed present brief, and the private respondents having failed to file one, we
case for partition with accounting on the position that he was declared the case submitted for decision.
only a trustee on an implied trust when he redeemed,-and this is
the evidence, but as it also turned out that one of plaintiffs, The petition raises a purely legal issue: May a co-owner acquire
Emeteria Asejo was occupying a portion, defendant exclusive ownership over the property held in common?
counterclaimed for her to vacate that,
Essentially, it is the petitioner's contention that the property
Well then, after hearing the evidence, trial Judge sustained subject of dispute devolved upon him upon the failure of his co-
defendant in his position that he was and became absolute heirs to join him in its redemption within the period required by
owner, he was not a trustee, and therefore, dismissed case and law. He relies on the provisions of Article 1515 of the old Civil
also condemned plaintiff occupant, Emeteria to vacate; it is Article 1613 of the present Code, giving the vendee a retro the
because of this that plaintiffs have come here and contend that right to demand redemption of the entire property.
trial court erred in:
There is no merit in this petition.
I. ... declaring the defendant absolute owner of the property;
The right of repurchase may be exercised by a co-owner with
II. ... not ordering the partition of the property; and aspect to his share alone. 5 While the records show that the
petitioner redeemed the property in its entirety, shouldering the
III. ... ordering one of the plaintiffs who is in possession of the expenses therefor, that did not make him the owner of all of it. In
portion of the property to vacate the land, p. 1 Appellant's brief. other words, it did not put to end the existing state of co-
ownership.
which can be reduced to simple question of whether or not on the
basis of evidence and law, judgment appealed from should be Necessary expenses may be incurred by one co-owner, subject to
maintained. 3 his right to collect reimbursement from the remaining co-owners.
6 There is no doubt that redemption of property entails a
xxx xxx xxx necessary expense. Under the Civil Code:

The respondent Court of appeals reversed the trial Court, 4 and ART. 488. Each co-owner shall have a right to compel the other
ruled for the plaintiffs-appellants, the private respondents co-owners to contribute to the expenses of preservation of the
thing or right owned in common and to the taxes. Any one of the

latter may exempt himself from this obligation by renouncing so extrajudicial settlement he executed preliminary to the
much of his undivided interest as may be equivalent to his share registration thereof betrays a clear effort on his part to defraud
of the expenses and taxes. No such waiver shall be made if it is his brothers and sisters and to exercise sole dominion over the
prejudicial to the co-ownership. property. The aforequoted provision therefore applies.

The result is that the property remains to be in a condition of co- It is the view of the respondent Court that the petitioner, in
ownership. While a vendee a retro, under Article 1613 of the taking over the property, did so either on behalf of his co-heirs, in
Code, "may not be compelled to consent to a partial redemption," which event, he had constituted himself a negotiorum gestor
the redemption by one co-heir or co-owner of the property in its under Article 2144 of the Civil Code, or for his exclusive benefit,
totality does not vest in him ownership over it. Failure on the in which case, he is guilty of fraud, and must act as trustee, the
part of all the co-owners to redeem it entitles the vendee a retro private respondents being the beneficiaries, under the Article
to retain the property and consolidate title thereto in his name. 7 1456. The evidence, of course, points to the second alternative
But the provision does not give to the redeeming co-owner the the petitioner having asserted claims of exclusive ownership over
right to the entire property. It does not provide for a mode of the property and having acted in fraud of his co-heirs. He cannot
terminating a co-ownership. therefore be said to have assume the mere management of the
property abandoned by his co-heirs, the situation Article 2144 of
Neither does the fact that the petitioner had succeeded in the Code contemplates. In any case, as the respondent Court itself
securing title over the parcel in his name terminate the existing affirms, the result would be the same whether it is one or the
co-ownership. While his half-brothers and sisters are, as we said, other. The petitioner would remain liable to the Private
liable to him for reimbursement as and for their shares in respondents, his co-heirs.
redemption expenses, he cannot claim exclusive right to the
property owned in common. Registration of property is not a This Court is not unaware of the well-established principle that
means of acquiring ownership. It operates as a mere notice of prescription bars any demand on property (owned in common)
existing title, that is, if there is one. held by another (co-owner) following the required number of
years. In that event, the party in possession acquires title to the
The petitioner must then be said to be a trustee of the property property and the state of co-ownership is ended . 8 In the case at
on behalf of the private respondents. The Civil Code states: bar, the property was registered in 1955 by the petitioner, solely
in his name, while the claim of the private respondents was
ART. 1456. If property is acquired through mistake or fraud, the presented in 1974. Has prescription then, set in?
person obtaining it is, by force of law, considered a trustee of an
implied trust for the benefit of the person from whom the We hold in the negative. Prescription, as a mode of terminating a
property comes. relation of co-ownership, must have been preceded by
repudiation (of the co-ownership). The act of repudiation, in turn
We agree with the respondent Court of Appeals that fraud is subject to certain conditions: (1) a co-owner repudiates the co-
attended the registration of the property. The petitioner's ownership; (2) such an act of repudiation is clearly made known
pretension that he was the sole heir to the land in the affidavit of to the other co-owners; (3) the evidence thereon is clear and

conclusive, and (4) he has been in possession through open, right of the private respondents commenced from the time they
continuous, exclusive, and notorious possession of the property actually discovered the petitioner's act of defraudation. 15
for the period required by law. 9 According to the respondent Court of Appeals, they "came to
know [of it] apparently only during the progress of the litigation."
The instant case shows that the petitioner had not complied with 16 Hence, prescription is not a bar.
these requisites. We are not convinced that he had repudiated the
co-ownership; on the contrary, he had deliberately kept the Moreover, and as a rule, prescription is an affirmative defense
private respondents in the dark by feigning sole heirship over the that must be pleaded either in a motion to dismiss or in the
estate under dispute. He cannot therefore be said to have "made answer otherwise it is deemed waived, 17 and here, the
known" his efforts to deny the co-ownership. Moreover, one of petitioner never raised that defense. 18 There are recognized
the private respondents, Emeteria Asejo, is occupying a portion exceptions to this rule, but the petitioner has not shown why they
of the land up to the present, yet, the petitioner has not taken apply.
pains to eject her therefrom. As a matter of fact, he sought to
recover possession of that portion Emeteria is occupying only as WHEREFORE, there being no reversible error committed by the
a counterclaim, and only after the private respondents had first respondent Court of Appeals, the petition is DENIED. The
sought judicial relief. Decision sought to be reviewed is hereby AFFIRMED in toto. No
pronouncement as to costs.
It is true that registration under the Torrens system is
constructive notice of title, 10 but it has likewise been our
holding that the Torrens title does not furnish a shield for fraud.
11 It is therefore no argument to say that the act of registration is
equivalent to notice of repudiation, assuming there was one, 11. G.R. No. 82670 September 15, 1989
notwithstanding the long-standing rule that registration operates
as a universal notice of title. DOMETILA M. ANDRES, doing business under the
name and style "IRENE'S WEARING APPAREL,"
For the same reason, we cannot dismiss the private respondents' petitioner,
claims commenced in 1974 over the estate registered in 1955. vs.
While actions to enforce a constructive trust prescribes in ten MANUFACTURERS HANOVER & TRUST CORPORATION
years, 12 reckoned from the date of the registration of the and COURT OF APPEALS, respondents.
property, 13 we, as we said, are not prepared to count the period
from such a date in this case. We note the petitioner's sub rosa Roque A. Tamayo for petitioner.
efforts to get hold of the property exclusively for himself
beginning with his fraudulent misrepresentation in his unilateral Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for
affidavit of extrajudicial settlement that he is "the only heir and private respondent.
child of his mother Feliza with the consequence that he was able
to secure title in his name also." 14 Accordingly, we hold that the

CORTES, J.: Meanwhile, on August 25, 1980, after learning about the delay in
the remittance of the money to petitioner, FACETS informed
Assailed in this petition for review on certiorari is the judgment FNSB about the situation. On September 8, 1980, unaware that
of the Court of Appeals, which, applying the doctrine of solutio petitioner had already received the remittance, FACETS informed
indebiti, reversed the decision of the Regional Trial Court, Branch private respondent about the delay and at the same time
CV, Quezon City by deciding in favor of private respondent. amended its instruction by asking it to effect the payment
through the Philippine Commercial and Industrial Bank
Petitioner, using the business name "Irene's Wearing Apparel," (hereinafter referred to as PCIB) instead of PNB.
was engaged in the manufacture of ladies garments, children's
wear, men's apparel and linens for local and foreign buyers. Accordingly, private respondent, which was also unaware that
Among its foreign buyers was Facets Funwear, Inc. (hereinafter petitioner had already received the remittance of $10,000.00
referred to as FACETS) of the United States. from PNB instructed the PCIB to pay $10,000.00 to petitioner.
Hence, on September 11, 1980, petitioner received a second
In the course of the business transaction between the two, $10,000.00 remittance.
FACETS from time to time remitted certain amounts of money to
petitioner in payment for the items it had purchased. Sometime Private respondent debited the account of FNSB for the second
in August 1980, FACETS instructed the First National State Bank $10,000.00 remittance effected through PCIB. However, when
of New Jersey, Newark, New Jersey, U.S.A. (hereinafter referred to FNSB discovered that private respondent had made a duplication
as FNSB) to transfer $10,000.00 to petitioner via Philippine of the remittance, it asked for a recredit of its account in the
National Bank, Sta. Cruz Branch, Manila (hereinafter referred to amount of $10,000.00. Private respondent complied with the
as PNB). request.

Acting on said instruction, FNSB instructed private respondent Private respondent asked petitioner for the return of the second
Manufacturers Hanover and Trust Corporation to effect the remittance of $10,000.00 but the latter refused to pay. On May
above- mentioned transfer through its facilities and to charge the 12, 1982 a complaint was filed with the Regional Trial Court,
amount to the account of FNSB with private respondent. Branch CV, Quezon City which was decided in favor of petitioner
Although private respondent was able to send a telex to PNB to as defendant. The trial court ruled that Art. 2154 of the New Civil
pay petitioner $10,000.00 through the Pilipinas Bank, where Code is not applicable to the case because the second remittance
petitioner had an account, the payment was not effected was made not by mistake but by negligence and petitioner was
immediately because the payee designated in the telex was only not unjustly enriched by virtue thereof [Record, p. 234]. On
"Wearing Apparel." Upon query by PNB, private respondent sent appeal, the Court of Appeals held that Art. 2154 is applicable and
PNB another telex dated August 27, 1980 stating that the reversed the RTC decision. The dispositive portion of the Court of
payment was to be made to "Irene's Wearing Apparel." On August Appeals' decision reads as follows:
28, 1980, petitioner received the remittance of $10,000.00
through Demand Draft No. 225654 of the PNB. WHEREFORE, the appealed decision is hereby REVERSED and
SET ASIDE and another one entered in favor of plaintiff-appellant

and against defendant-appellee Domelita (sic) M. Andres, doing manifestations of the ancient principle that no one shall enrich
business under the name and style "Irene's Wearing Apparel" to himself unjustly at the expense of another. In the Roman Law
reimburse and/or return to plaintiff-appellant the amount of Digest the maxim was formulated thus: "Jure naturae acquum est,
$10,000.00, its equivalent in Philippine currency, with interests neminem cum alterius detrimento et injuria fieri locupletiorem."
at the legal rate from the filing of the complaint on May 12, 1982 And the Partidas declared: "Ninguno non deue enriquecerse
until the whole amount is fully paid, plus twenty percent (20%) tortizeramente con dano de otro." Such axiom has grown through
of the amount due as attomey's fees; and to pay the costs. the centuries in legislation, in the science of law and in court
decisions. The lawmaker has found it one of the helpful guides in
With costs against defendant-appellee. framing statutes and codes. Thus, it is unfolded in many articles
scattered in the Spanish Civil Code. (See for example, articles,
SO ORDERED. [Rollo, pp. 29-30.] 360, 361, 464, 647, 648, 797, 1158, 1163, 1295, 1303, 1304, 1893
and 1895, Civil Code.) This time-honored aphorism has also been
Thereafter, this petition was filed. The sole issue in this case is adopted by jurists in their study of the conflict of rights. It has
whether or not the private respondent has the right to recover been accepted by the courts, which have not hesitated to apply it
the second $10,000.00 remittance it had delivered to petitioner. when the exigencies of right and equity demanded its assertion.
The resolution of this issue would hinge on the applicability of It is a part of that affluent reservoir of justice upon which judicial
Art. 2154 of the New Civil Code which provides that: discretion draws whenever the statutory laws are inadequate
because they do not speak or do so with a confused voice. [at p.
Art. 2154. If something received when there is no right to 632.]
demand it, and it was unduly delivered through mistake, the
obligation to return it arises. For this article to apply the following requisites must concur: "(1)
that he who paid was not under obligation to do so; and, (2) that
This provision is taken from Art. 1895 of the Spanish Civil Code payment was made by reason of an essential mistake of fact"
which provided that: [City of Cebu v. Piccio, 110 Phil. 558, 563 (1960)].

Art. 1895. If a thing is received when there was no right to claim It is undisputed that private respondent delivered the second
it and which, through an error, has been unduly delivered, an $10,000.00 remittance. However, petitioner contends that the
obligation to restore it arises. doctrine of solutio indebiti, does not apply because its requisites
are absent.
In Velez v. Balzarza, 73 Phil. 630 (1942), the Court, speaking
through Mr. Justice Bocobo explained the nature of this article First, it is argued that petitioner had the right to demand and
thus: therefore to retain the second $10,000.00 remittance. It is alleged
that even after the two $10,000.00 remittances are credited to
Article 1895 [now Article 2154] of the Civil Code abovequoted, is petitioner's receivables from FACETS, the latter allegedly still had
therefore applicable. This legal provision, which determines the a balance of $49,324.00. Hence, it is argued that the last
quasi-contract of solution indebiti, is one of the concrete

$10,000.00 remittance being in payment of a pre-existing debt, That there was a mistake in the second remittance of US
petitioner was not thereby unjustly enriched. $10,000.00 is borne out by the fact that both remittances have
the same reference invoice number which is 263 80. (Exhibits "A-
The contention is without merit. 1- Deposition of Mr. Stanley Panasow" and "A-2-Deposition of Mr.
Stanley Panasow").
The contract of petitioner, as regards the sale of garments and
other textile products, was with FACETS. It was the latter and not Plaintiff-appellant made the second remittance on the wrong
private respondent which was indebted to petitioner. On the assumption that defendant-appellee did not receive the first
other hand, the contract for the transmittal of dollars from the remittance of US $10,000.00. [Rollo, pp. 26-27.]
United States to petitioner was entered into by private
respondent with FNSB. Petitioner, although named as the payee It is evident that the claim of petitioner is anchored on the
was not privy to the contract of remittance of dollars. Neither appreciation of the attendant facts which petitioner would have
was private respondent a party to the contract of sale between this Court review. The Court holds that the finding by the Court of
petitioner and FACETS. There being no contractual relation Appeals that the second $10,000.00 remittance was made by
between them, petitioner has no right to apply the second mistake, being based on substantial evidence, is final and
$10,000.00 remittance delivered by mistake by private conclusive. The rule regarding questions of fact being raised with
respondent to the outstanding account of FACETS. this Court in a petition for certiorari under Rule 45 of the Revised
Rules of Court has been stated in Remalante v. Tibe, G.R. No.
Petitioner next contends that the payment by respondent bank of 59514, February 25, 1988, 158 SCRA 138, thus:
the second $10,000.00 remittance was not made by mistake but
was the result of negligence of its employees. In connection with The rule in this jurisdiction is that only questions of law may be
this the Court of Appeals made the following finding of facts: raised in a petition for certiorari under Rule 45 of the Revised
Rules of Court. "The jurisdiction of the Supreme Court in cases
The fact that Facets sent only one remittance of $10,000.00 is not brought to it from the Court of Appeals is limited to reviewing
disputed. In the written interrogatories sent to the First National and revising the errors of law imputed to it, its findings of fact
State Bank of New Jersey through the Consulate General of the being conclusive" [Chan v. Court of Appeals, G.R. No. L-27488,
Philippines in New York, Adelaide C. Schachel, the investigation June 30, 1970, 33 SCRA 737, reiterating a long line of decisions].
and reconciliation clerk in the said bank testified that a request to This Court has emphatically declared that "it is not the function
remit a payment for Facet Funwear Inc. was made in August, of the Supreme Court to analyze or weigh such evidence all over
1980. The total amount which the First National State Bank of again, its jurisdiction being limited to reviewing errors of law
New Jersey actually requested the plaintiff-appellant that might have been committed by the lower court" [Tiongco v.
Manufacturers Hanover & Trust Corporation to remit to Irene's De la Merced, G.R. No. L-24426, July 25, 1974, 58 SCRA 89;
Wearing Apparel was US $10,000.00. Only one remittance was Corona v. Court of Appeals, G.R. No. L-62482, April 28, 1983, 121
requested by First National State Bank of New Jersey as per SCRA 865; Baniqued v. Court of Appeals, G. R. No. L-47531,
instruction of Facets Funwear (Exhibit "J", pp. 4-5). February 20, 1984, 127 SCRA 596]. "Barring, therefore, a
showing that the findings complained of are totally devoid of

support in the record, or that they are so glaringly erroneous as
to constitute serious abuse of discretion, such findings must Finally, in her attempt to defeat private respondent's claim,
stand, for this Court is not expected or required to examine or petitioner makes much of the fact that from the time the second
contrast the oral and documentary evidence submitted by the $10,000.00 remittance was made, five hundred and ten days had
parties" [Santa Ana, Jr. v. Hernandez, G.R. No. L-16394, December elapsed before private respondent demanded the return thereof.
17, 1966, 18 SCRA 9731. [at pp. 144-145.] Needless to say, private respondent instituted the complaint for
recovery of the second $10,000.00 remittance well within the six
Petitioner invokes the equitable principle that when one of two years prescriptive period for actions based upon a quasi-contract
innocent persons must suffer by the wrongful act of a third [Art. 1145 of the New Civil Code].
person, the loss must be borne by the one whose negligence was
the proximate cause of the loss. WHEREFORE, the petition is DENIED and the decision of the
Court of Appeals is hereby AFFIRMED.
The rule is that principles of equity cannot be applied if there is a
provision of law specifically applicable to a case [Phil. Rabbit Bus
Lines, Inc. v. Arciaga, G.R. No. L-29701, March 16, 1987,148 SCRA
433; Zabat, Jr. v. Court of Appeals, G.R. No. L36958, July 10, 1986,
142 SCRA 587; Rural Bank of Paranaque, Inc. v. Remolado, G.R. 12. G.R. No. L-17447 April 30, 1963
No. 62051, March 18, 1985, 135 SCRA 409; Cruz v. Pahati, 98 Phil.
788 (1956)]. Hence, the Court in the case of De Garcia v. Court of GONZALO PUYAT & SONS, INC., plaintiff-appelle,
Appeals, G.R. No. L-20264, January 30, 1971, 37 SCRA 129, citing vs.
Aznar v. Yapdiangco, G.R. No. L-18536, March 31, 1965, 13 SCRA CITY OF MANILA AND MARCELO SARMIENTO, as City
486, held: Treasurer of Manila, defendants-appellants

... The common law principle that where one of two innocent Feria, Manglapus & Associates for plainttiff-
persons must suffer by a fraud perpetrated by another, the law appelle.Asst. City Fiscal Manuel T. Reyes for defendants-
imposes the loss upon the party who, by his misplaced appellants.
confidence, has enabled the fraud to be committed, cannot be
applied in a case which is covered by an express provision of the PAREDES, J.:
new Civil Code, specifically Article 559. Between a common law
principle and a statutory provision, the latter must prevail in this This is an appeal from the judgment of the CFI of Manila, the
jurisdiction. [at p. 135.] dispostive portion of which reads:

Having shown that Art. 2154 of the Civil Code, which embodies "xxx Of the payments made by the plaintiff, only that made on
the doctrine of solutio indebiti, applies in the case at bar, the October 25, 1950 in the amount of P1,250.00 has prescribed
Court must reject the common law principle invoked by Payments made in 1951 and thereafter are still recoverable since
petitioner.

the extra-judicial demand made on October 30, 1956 was well without protest in the erroneous belief that it was liable therefor,
within the six-year prescriptive period of the New CivilCode. on the dates and in the amount enumerated herein below:
In view of the foregoing considerations, judgment is hereby
Amount
rendered in favor of the plaintiff, ordering the defendants to Date
Period O.R. No. Assessed
refund the amount of P29,824.00, without interest. No costs. Paid
and Paid.
Wherefore, the parties respectfully pray that the foregoing
stipulation of facts be admitted and approved by this Honorable Jan.
Court, without prejudice to the parties adducing other evidence First Quarter 1950 25, 436271X P1,255.00
to prove their case not covered by this stipulation of 1950
facts. 1wph1.t
Defendants' counterclaim is hereby dismissed for not having Apr.
been substantiated." Second Quarter 1950 25, 215895X 1,250.00
On August 11, 1958, the plaintiff Gonzalo Puyat & Sons, Inc., filed 1950
an action for refund of Retail Dealerls Taxes paid by it,
corresponding to the first Quarter of 1950 up to the third Quarter Jul.
of 1956, amounting to P33,785.00, against the City of Manila and Third Quarter 1950 25, 243321X 1,250.00
its City Treasurer. The case was submitted on the following 1950
stipulation of facts, to wit--
"1. That the plaintiff is a corporation duly organized and existing Oct.
according to the laws of the Philippines, with offices at Manila; Fourth Quarter 1950 25, 271165X 1,250.00
while defendant City Manila is a Municipal Corporation duly 1950
organized in accordance with the laws of the Philippines, and
(Follows the assessment for different quarters in 1951, 1952,
defendant Marcelino Sarmiento is the dulyqualified incumbent
1953, 1954 and 1955, fixing the same amount quarterly.) x x x..
City Treasurer of Manila;
"2. That plaintiff is engaged in the business of manufacturing and Jan.
selling all kinds of furniture at its factory at 190 Rodriguez-Arias, First Quarter 1956 25, 823047X 1,250.00
San Miguel, Manila, and has a display room located at 604-606 1956
Rizal Avenue, Manila, wherein it displays the various kind of
furniture manufactured by it and sells some goods imported by it, Apr.
such as billiard balls, bowling balls and other accessories; Second Quarter 1956 25, 855949X 1,250.00
"3. That acting pursuant to the provisions of Sec. 1. group II, of 1956
Ordinance No. 3364, defendant City Treasurer of Manila assessed
from plaintiff retail dealer's tax corresponding to the quarters Jul.
hereunder stated on the sales of furniture manufactured and sold Third Quarter 1956 25, 880789X 1,250.00
by it at its factory site, all of which assessments plaintiff paid 1956

protest, are refundable;(2) Assuming arguendo, that plaintiff-
appellee is entitled to the refund of the retail taxes in question,
T O T A L . . . . . . . . . . . . . P33,785.00
=========== whether or not the claim for refund filed in October 1956, in so
far as said claim refers to taxes paid from 1950 to 1952 has
"4. That plaintiff, being a manufacturer of various kinds of already prescribed. .
furniture, is exempt from the payment of taxes imposed under Under the first issue, defendants-appellants contend tht the taxes
the provisions of Sec. 1, Group II, of Ordinance No. 3364,which in question were voluntarily paid by appellee company and since,
took effect on September 24, 1956, on the sale of the various in this jurisdiction, in order that a legal basis arise for claim of
kinds of furniture manufactured by it pursuant to the provisions refund of taxes erroneously assessed, payment thereof must be
of Sec. 18(n) of Republic Act No. 409 (Revised Charter of Manila), made under protest, and this being a condition sine qua non, and
as restated in Section 1 of Ordinance No.3816. no protest having been made, -- verbally or in writing, thereby
"5. That, however, plaintiff, is liable for the payment of taxes indicating that the payment was voluntary, the action must fail.
prescribed in Section 1, Group II or Ordinance No. 3364mas Cited in support of the above contention, are the cases of
amended by Sec. 1, Group II of Ordinance No. 3816, which took Zaragoza vs. Alfonso, 46 Phil. 160-161, and Gavino v. Municipality
effect on September 24, 1956, on the sales of imported billiard of Calapan, 71 Phil. 438..
balls, bowling balls and other accessories at its display room. The In refutation of the above stand of appellants, appellee avers tht
taxes paid by the plaintiff on the sales of said article are as the payments could not have been voluntary. At most, they were
follows: paid "mistakenly and in good faith" and "without protest in the
x x x x x x x x x erroneous belief that it was liable thereof." Voluntariness is
"6. That on October 30, 1956, the plaintiff filed with defendant incompatible with protest and mistake. It submits that this is a
City Treasurer of Manila, a formal request for refund of the retail simple case of "solutio indebiti"..
dealer's taxes unduly paid by it as aforestated in paragraph 3, Appellants do not dispute the fact that appellee-company is
hereof. exempted from the payment of the tax in question. This is
"7. That on July 24, 1958, the defendant City Treasurer of Manila manifest from the reply of appellant City Treasurer stating that
definitely denied said request for refund. sales of manufactured products at the factory site are not taxable
"8. Hence on August 21, 1958, plaintiff filed the present either under the Wholesalers Ordinance or under the Retailers'
complaint. Ordinance. With this admission, it would seem clear that the
"9. Based on the above stipulation of facts, the legal issues to be taxes collected from appellee were paid, thru an error or mistake,
resolved by this Honorable Court are: (1) the period of which places said act of payment within the pale of the new Civil
prescription applicable in matters of refund of municipal taxes Code provision on solutio indebiti. The appellant City of Manila,
erroneously paid by a taxpayer and (2) refund of taxes not paid at the very start, notwithstanding the Ordinance imposing the
under protest. x x x." Retailer's Tax, had no right to demand payment thereof..
Said judgment was directly appealed to this Court on two "If something is received when there is no right to demand it, and
dominant issues to wit: (1) Whether or not the amounts paid by it was unduly delivered through mistake, the obligation to return
plaintiff-appelle, as retail dealer's taxes under Ordinance 1925, as it arises" (Art. 2154, NCC)..
amended by Ordinance No. 3364of the City of Manila, without

Appelle categorically stated that the payment was not voluntarily taxation. The taxpayer has no voice in the imposition of the
made, (a fact found also by the lower court),but on the erroneous burden. He has the right to presume that the taxing power has
belief, that they were due. Under this circumstance, the amount been lawfully exercised. He should not be required to know more
paid, even without protest is recoverable. "If the payer was in than those in authority over him, nor should he suffer loss by
doubt whether the debt was due, he may recover if he proves that complying with what he bona fide believe to be his duty as a good
it was not due" (Art. 2156, NCC). Appellee had duly proved that citizen. Upon the contrary, he should be promoted to its ready
taxes were not lawfully due. There is, therefore, no doubt that the performance by refunding to him any legal exaction paid by him
provisions of solutio indebtiti, the new Civil Code, apply to the in ignorance of its illegality; and, certainly, in such a case, if be
admitted facts of the case.. subject to a penalty for nonpayment, his compliance under belief
of its legality, and without awaiting a resort to judicial
With all, appellant quoted Manresa as saying: "x x x Of the same proceedings should not be regarded in law as so far voluntary as
opinion are Mr. Sanchez Roman and Mr. Galcon, and which states to affect his right of recovery.".
that if the payment was made by mistake of law, nor does the
quasi-contract exist nor is it bound to the refund that I collect, "Every person who through an act or performance by another, or
although it should not be What was paid" (Manresa, Tomo 12, any other means, acquires or comes into possession of something
paginas 611-612). This opinion, however, has already lost its at the expense of the latter without just or legal grounds, shall
persuasiveness, in view of the provisions of the Civil Code, return the same to him"(Art. 22, Civil Code). It would seems
recognizing "error de derecho" as a basis for the quasi-contract, unedifying for the government, (here the City of Manila), that
of solutio indebiti. . knowing it has no right at all to collect or to receive money for
alleged taxes paid by mistake, it would be reluctant to return the
"Payment by reason of a mistake in the contruction or application same. No one should enrich itself unjustly at the expense of
of a doubtful or difficult question of law may come within the another (Art. 2125, Civil Code)..
scope of the preceding article" (Art. 21555)..
Admittedly, plaintiff-appellee paid the tax without
There is no gainsaying the fact that the payments made by protest.Equally admitted is the fact that section 76 of the Charter
appellee was due to a mistake in the construction of a doubtful of Manila provides that "No court shall entertain any suit
question of law. The reason underlying similar provisions, as assailing the validity of tax assessed under this article until the
applied to illegal taxation, in the United States, is expressed in the taxpayer shall have paid, under protest the taxes assessed against
case of Newport v. Ringo, 37 Ky. 635, 636; 10 S.W. 2, in the him, xx". It should be noted, however, that the article referred to
following manner:. in said section is Article XXI, entitled Department of Assessment
"It is too well settled in this state to need the citation of authority and the sections thereunder manifestly show that said article and
that if money be paid through a clear mistake of law or fact, its sections relate to asseessment, collection and recovery of real
essentially affecting the rights of the parties, and which in law or estate taxes only. Said section 76, therefor, is not applicable to
conscience was not payable, and should not be retained by the the case at bar, which relates to the recover of retail dealer taxes..
party receiving it, it may be recovered. Both law and sound In the opinion of the Secretary of Justice (Op. 90,Series of 1957, in
morality so dictate. Especially should this be the rule as to illegal a question similar to the case at bar, it was held that the

requiredment of protest refers only to the payment of taxes for a period of six (6) years (upon quasi-contracts like solutio
which are directly imposed by the charter itself, that is, real indebiti). Even if the provisionsof Act No. 190 should apply to
estate taxes, which view was sustained by judicial and those payments made before the effectivity of the new Civil Code,
administrative precedents, one of which is the case of Medina, et because "prescription already runnig before the effectivity of this
al., v. City of Baguio, G.R. No. L-4269, Aug. 29, 1952. In other Code shall be governed by laws previously in force x x x" (art.
words, protest is not necessary for the recovery of retail dealer's 1116, NCC), for payments made after said effectivity,providing
taxes, like the present, because they are not directly imposed by for a period of six (6) years (upon quasi-contracts like solutio
the charter. In the Medina case, the Charter of Baguio (Chap. 61, indebiti). Even if the provisions of Act No. 190should apply to
Revised Adm. Code), provides that "no court shall entertain any those payments made before the effectivity of the new Civil Code,
suit assailing the validity of a tax assessed unde this charter until because "prescription already running before the effectivity of of
the tax-payer shall have paid, under protest, the taxes assessed this Code shall be govern by laws previously in force xxx " (Art.
against him (sec.25474[b], Rev. Adm. Code), a proviso similar to 1116, NCC), Still payments made before August 30, 1950 are no
section 76 of the Manila Charter. The refund of specific taxes paid longer recoverable in view of the second paragraph of said article
under a void ordinance was ordered, although it did not appear (1116), which provides:"but if since the time this Code took effect
that payment thereof was made under protest.. the entire period herein required for prescription should elapse
the present Code shall be applicable even though by the former
In a recent case, We said: "The appellants argue that the sum the laws a longer period might be required". Anent the payments
refund of which is sought by the appellee, was not paid under made after August 30, 1950, it is abvious that the action has
protest and hence is not refundable. Again, the trial court prescribed with respect to those made before October 30, 1950
correctly held that being unauthorized, it is not a tax assessed only, considering the fact that the prescription of action is
under the Charter of the Appellant City of Davao and for that interrupted xxx when is a writteen extra-judicial demand x x x"
reason, no protest is necessary for a claim or demand for its (Art. 1155, NCC), and the written demand in the case at bar was
refund" (Citing the Medina case, supra; East Asiatic Co., Ltd. v. made on October 30, 1956 (Stipulation of Facts).MODIFIED in the
City of Davao, G.R. No. L-16253, Aug. 21, 1962). Lastly, being a sense that only payments made on or after October 30, 1950
case of solutio indebiti, protest is not required as a condition sine should be refunded, the decision appealed from is affirmed, in all
qua non for its application.. other respects. No costs. .

The next issue in discussion is that of prescription. Appellants
maintain that article 1146 (NCC), which provides for a period of
four (4) years (upon injury to the rights of the plaintiff), apply to
the case. On the other hand, appellee contends that provisions of
Act 190 (Code of Civ. Procedure) should apply, insofar as 13. G.R. Nos. 198729-30 January 15, 2014
payments made before the effectivity of the New Civil Code on
August 30, 1950, the period of which is ten (10) years, (Sec. CBK POWER COMPANY LIMITED, Petitioner,
40,Act No. 190; Osorio v. Tan Jongko, 51 O.G. 6211) and article vs.
1145 (NCC), for payments made after said effectivity, providing COMMISSIONER OF INTERNAL REVENUE, Respondent.

D E C I S I O N Petitioner filed its administrative claims for the issuance of tax
credit certificates for its alleged unutilized input taxes on its
SERENO, CJ: purchase of capital goods and alleged unutilized input taxes on
its local purchases and/or importation of goods and services,
This is a Petition for Review on Certiorari1 under Rule 45 of the other than capital goods, pursuant to Sections 112(A) and (B) of
1997 Rules of Civil Procedure filed by CBK Power Company the NIRC of 1997, as amended, with BIR Revenue District Office
Limited (petitioner). The Petition assails the Decision2 dated 27 (RDO) No. 55 of Laguna, as follows:8
June 2011 and Resolution3 dated 16 September 2011 of the Court
of Tax Appeals En Banc (CTA En Banc in C.T.A. EB Nos. 658 and
Period Covered Date Of Filing
659. The assailed Decision and Resolution reversed and set aside
the Decision4 dated 3 March 2010 and Resolution5 dated 6 July 1st quarter of 2005 30-Jun-05
2010 rendered by the CTA Special Second Division in C.T.A. Case
No. 7621, which partly granted the claim of petitioner for the 2nd quarter of 2005 15-Sep-05
issuance of a tax credit certificate representing the latter's
alleged unutilized input taxes on local purchases of goods and 3rd quarter of 2005 28-Oct-05
services attributable to effectively zero-rated sales to National
Power Corporation (NPC) for the second and third quarters of Alleging inaction of the Commissioner of Internal Revenue (CIR),
2005. petitioner filed a Petition for Review with the CTA on 18 April
2007.
The Facts
THE CTA SPECIAL SECOND DIVISION RULING
Petitioner is engaged, among others, in the operation,
maintenance, and management of the Kalayaan II pumped- After trial on the merits, the CTA Special Second Division
storage hydroelectric power plant, the new Caliraya Spillway, rendered a Decision on 3 March 2010. Applying Commissioner of
Caliraya, Botocan; and the Kalayaan I hydroelectric power plants Internal Revenue v. Mirant Pagbilao Corporation (Mirant),9 the
and their related facilities located in the Province of Laguna.6 court
On 29 December 2004, petitioner filed an Application for VAT a quo ruled that petitioner had until the following dates within
Zero-Rate with the Bureau of Internal Revenue (BIR) in which to file both administrative and judicial claims:
accordance with Section 108(B)(3) of the National Internal
Revenue Code (NIRC) of 1997, as amended. The application was
duly approved by the BIR. Thus, petitioner s sale of electr icity to Taxable Quarter Last Day to
the NPC from 1 January 2005 to 31 October 2005 was declared to File Claim for
be entitled to the benefit of effectively zero-rated value added tax 2005 Close of the quarter Refund
(VAT).7
1st quarter 31-Mar-05 31-Mar-07

THE COURTS RULING
2nd quarter 30-Jun-05 30-Jun-07
3rd quarter 30-Sep-05 30-Sep-07 The pertinent provision of the NIRC at the time when petitioner
filed its claim for refund provides:
Accordingly, petitioner timely filed its administrative claims for SEC. 112. Refunds or Tax Credits of Input Tax.
the three quarters of 2005. However, considering that the judicial
claim was filed on 18 April 2007, the CTA Division denied the (A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-
claim for the first quarter of 2005 for having been filed out of registered person, whose sales are zero-rated or
time. effectively zero-rated may, within two (2) years after the
close of the taxable quarter when the sales were made,
After an evaluation of petitioners claim for the second and third apply for the issuance of a tax credit certificate or refund
quarters of 2005, the court a quo partly granted the claim and of creditable input tax due or paid attributable to such
ordered the issuance of a tax credit certificate in favor of sales, except transitional input tax, to the extent that such
petitioner in the reduced amount of P27,170,123.36. input tax has not been applied against output tax:
Provided, however, That in the case of zero-rated sales
The parties filed their respective Motions for Partial under Section 106(A)(2)(a)(1),(2) and (B) and Section
Reconsideration, which were both denied by the CTA Division. 108 (B)(1) and (2), the acceptable foreign currency
exchange proceeds thereof had been duly accounted for in
THE CTA EN BANC RULING accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP): Provided, further, That where
On appeal, relying on Commissioner of Internal Revenue v. Aichi the taxpayer is engaged in zero-rated or effectively zero-
Forging Company of Asia, Inc. (Aichi),10 the CTA En Banc ruled rated sale and also in taxable or exempt sale of goods or
that petitioners judicial claim for the first, second, and third properties or services, and the amount of creditable input
quarters of 2005 were belatedly filed. tax due or paid cannot be directly and entirely attributed
to any one of the transactions, it shall be allocated
The CTA Special Second Division Decision and Resolution were proportionately on the basis of the volume of sales.
reversed and set aside, and the Petition for Review filed in CTA
Case No. 7621 was dismissed. Petitioners Motion for x x x x
Reconsideration was likewise denied for lack of merit.
(D) Period within which Refund or Tax Credit of Input
Hence, this Petition.ISSUE Taxes shall be Made. - In proper cases, the Commissioner
shall grant a refund or issue the tax credit certificate for
Petitioners assigned errors boil down to the principal issue of creditable input taxes within one hundred twenty (120)
the applicable prescriptive period on its claim for refund of days from the date of submission of complete documents
unutilized input VAT for the first to third quarters of 2005.11

in support of the application filed in accordance with or effectively zero-rated transactions or from the acquisition of
Subsections (A) and (B) hereof. capital goods, any excess over the output taxes shall instead be
refunded to the taxpayer.
In case of full or partial denial of the claim for tax refund or tax
credit, or the failure on the part of the Commissioner to act on the The crux of the controversy arose from the proper application of
application within the period prescribed above, the taxpayer the prescriptive periods set forth in Section 112 of the NIRC of
affected may, within thirty (30) days from the receipt of the 1997, as amended, and the interpretation of the applicable
decision denying the claim or after the expiration of the one jurisprudence.
hundred twenty day-period, appeal the decision or the unacted
claim with the Court of Tax Appeals. Although the ponente in this case expressed a different view on
the mandatory application of the 120+30 day period as
Petitioners sales to NPC are effectively zero-rated prescribed in Section 112, with the finality of the Courts
pronouncement on the consolidated tax cases Commissioner of
As aptly ruled by the CTA Special Second Division, petitioners Internal Revenue v. San Roque Power Corporation, Taganito
sales to NPC are effectively subject to zero percent (0%) VAT. The Mining Corporation v. Commissioner of Internal Revenue, and
NPC is an entity with a special charter, which categorically Philex Mining Corporation v. Commissioner of Internal
exempts it from the payment of any tax, whether direct or Revenue14 (hereby collectively referred as San Roque), we are
indirect, including VAT. Thus, services rendered to NPC by a VAT- constrained to apply the dispositions therein to the facts herein
registered entity are effectively zero-rated. In fact, the BIR itself which are similar.
approved the application for zero-rating on 29 December 2004,
filed by petitioner for its sales to NPC covering January to Administrative Claim
October 2005.12 As a consequence, petitioner claims for the
refund of the alleged excess input tax attributable to its Section 112(A) provides that after the close of the taxable quarter
effectively zero-rated sales to NPC. when the sales were made, there is a two-year prescriptive
period within which a VAT-registered person whose sales are
In Panasonic Communications Imaging Corporation of the zero-rated or effectively zero-rated may apply for the issuance of
Philippines v. Commissioner of Internal Revenue,13 this Court a tax credit certificate or refund of creditable input tax.
ruled:
Our VAT Law provides for a mechanism that would allow VAT-
Under the 1997 NIRC, if at the end of a taxable quarter the seller registered persons to recover the excess input taxes over the
charges output taxes equal to the input taxes that his suppliers output taxes they had paid in relation to their sales. For the
passed on to him, no payment is required of him. It is when his refund or credit of excess or unutilized input tax, Section 112 is
output taxes exceed his input taxes that he has to pay the excess the governing law. Given the distinctive nature of creditable
to the BIR. If the input taxes exceed the output taxes, however, input tax, the law under Section 112 (A) provides for a different
the excess payment shall be carried over to the succeeding reckoning point for the two-year prescriptive period, specifically
quarter or quarters. Should the input taxes result from zero-rated for the refund or credit of that tax only.

We agree with petitioner that Mirant was not yet in existence
2nd quarter 30-Jun- 30-Jun-07 15-Sep-05
when their administrative claim was filed in 2005; thus, it should
2005 05
not retroactively be applied to the instant case.
3rd quarter 30-Sep- 30-Sep-07 28-Oct-05
However, the fact remains that Section 112 is the controlling 2005 05
provision for the refund or credit of input tax during the time
that petitioner filed its claim with which they ought to comply. It
must be emphasized that the Court merely clarified in Mirant that Judicial Claim
Sections 204 and 229, which prescribed a different starting point
for the two-year prescriptive limit for filing a claim for a refund Section 112(D) further provides that the CIR has to decide on an
or credit of excess input tax, were not applicable. Input tax is administrative claim within one hundred twenty (120) days from
neither an erroneously paid nor an illegally collected internal the date of submission of complete documents in support thereof.
revenue tax.15
Bearing in mind that the burden to prove entitlement to a tax
Section 112(A) is clear that for VAT-registered persons whose refund is on the taxpayer, it is presumed that in order to
sales are zero-rated or effectively zero-rated, a claim for the discharge its burden, petitioner had attached complete
refund or credit of creditable input tax that is due or paid, and supporting documents necessary to prove its entitlement to a
that is attributable to zero-rated or effectively zero-rated sales, refund in its application, absent any evidence to the contrary.
must be filed within two years after the close of the taxable
quarter when such sales were made. The reckoning frame would Thereafter, the taxpayer affected by the CIRs decision or inaction
always be the end of the quarter when the pertinent sale or may appeal to the CTA within 30 days from the receipt of the
transactions were made, regardless of when the input VAT was decision or from the expiration of the 120-day period within
paid.16 which the claim has not been acted upon.
Pursuant to Section 112(A), petitioners administrative claims Considering further that the 30-day period to appeal to the CTA
were filed well within the two-year period from the close of the is dependent on the 120-day period, compliance with both
taxable quarter when the effectively zero-rated sales were made, periods is jurisdictional. The period of 120 days is a prerequisite
to wit: for the commencement of the 30-day period to appeal to the CTA.
Prescinding from San Roque in the consolidated case Mindanao II

Period Close of Last day to File Date of Geothermal Partnership v. Commissioner of Internal Revenue
Covered the Administrative Filing and Mindanao I Geothermal Partnership v. Commissioner of
Taxable Claim Internal Revenue,17 this Court has ruled thus:
Quarter
Notwithstanding a strict construction of any claim for tax
1st quarter 31-Mar- 31-Mar-07 30-Jun-05
exemption or refund, the Court in San Roque recognized that BIR
2005 05
Ruling No. DA-489-03 constitutes equitable estoppel in favor of

taxpayers. BIR Ruling No. DA-489-03 expressly states that the claim of Lazi Bay Resources Development, Inc., where the
"taxpayer-claimant need not wait for the lapse of the 120-day taxpayer did not wait for the lapse of the 120-day period.
period before it could seek judicial relief with the CTA by way of
Petition for Review." This Court discussed BIR Ruling No. DA- Clearly, BIR Ruling No. DA-489-03 is a general interpretative
489-03 and its effect on taxpayers, thus: rule.1wphi1 Thus, all taxpayers can rely on BIR Ruling No. DA-
489-03 from the time of its issuance on 10 December 2003 up to
Taxpayers should not be prejudiced by an erroneous its reversal by this Court in Aichi on 6 October 2010, where this
interpretation by the Commissioner, particularly on a difficult Court held that the 120+30 day periods are mandatory and
question of law. The abandonment of the Atlas doctrine by Mirant jurisdictional. (Emphasis supplied)
and Aichi is proof that the reckoning of the prescriptive periods
for input VAT tax refund or credit is a difficult question of law. In applying the foregoing to the instant case, we consider the
The abandonment of the Atlas doctrine did not result in Atlas, or following pertinent dates:
other taxpayers similarly situated, being made to return the tax
refund or credit they received or could have received under Atlas 1wphi1
prior to its abandonment. This Court is applying Mirant and Aichi
Period Administrative Expiration Last day Judicial
prospectively. Absent fraud, bad faith or misrepresentation, the
Covered Claim Filed of 120- to file Claim
reversal by this Court of a general interpretative rule issued by
days Judicial Filed
the Commissioner, like the reversal of a specific BIR ruling under
Claim
Section 246, should also apply prospectively. x x x.
1st 30-Jun-05 28-Oct-05 27-Nov- 18-Apr-
x x x x quarter 05 07
2005
Thus, the only issue is whether BIR Ruling No. DA-489-03 is a
general interpretative rule applicable to all taxpayers or a 2nd 15-Sep-05 13-Jan-06 13-Feb-
specific ruling applicable only to a particular taxpayer. BIR Ruling quarter 06
No. DA-489-03 is a general interpretative rule because it was a 2005
response to a query made, not by a particular taxpayer, but by a
government agency asked with processing tax refunds and 3rd 28-Oct-05 26-Feb-06 28-Mar-
credits, that is, the One Stop Shop Inter-Agency Tax Credit and quarter 06
Drawback Center of the Department of Finance. This government 2005
agency is also the addressee, or the entity responded to, in BIR
Ruling No. DA-489-03. Thus, while this government agency It must be emphasized that this is not a case of premature filing
mentions in its query to the Commissioner the administrative of a judicial claim. Although petitioner did not file its judicial
claim of Lazi Bay Resources Development, Inc., the agency was in claim with the CTA prior to the expiration of the 120-day waiting
fact asking the Commissioner what to do in cases like the tax period, it failed to observe the 30-day prescriptive period to
appeal to the CTA counted from the lapse of the 120-day period.

Petitioner is similarly situated as Philex in the same case, San 489-03, it cannot claim the benefit of the exception period as it
Roque,18 in which this Court ruled: did not file its judicial claim prematurely, but did so long after the
lapse of the 30-day period following the expiration of the 120-
Unlike San Roque and Taganito, Philexs case is not one of day period. Again, BIR Ruling No. DA-489-03 allowed premature
premature filing but of late filing. Philex did not file any petition filing of a judicial claim, which means non-exhaustion of the 120-
with the CTA within the 120-day period. Philex did not also file day period for the Commissioner to act on an administrative
any petition with the CTA within 30 days after the expiration of claim,19 but not its late filing.
the 120-day period. Philex filed its judicial claim long after the
expiration of the 120-day period, in fact 426 days after the lapse As this Court enunciated in San Roque , petitioner cannot rely on
of the 120-day period. In any event, whether governed by Atlas either, since the latter case was promulgated only on 8 June
jurisprudence before, during, or after the Atlas case, Philexs 2007. Moreover, the doctrine in Atlas which reckons the two-
judicial claim will have to be rejected because of late filing. year period from the date of filing of the return and payment of
Whether the two-year prescriptive period is counted from the the tax, does not interpret expressly or impliedly the 120+30
date of payment of the output VAT following the Atlas doctrine, day periods.20 Simply stated, Atlas referred only to the reckoning
or from the close of the taxable quarter when the sales of the prescriptive period for filing an administrative claim.
attributable to the input VAT were made following the Mirant
and Aichi doctrines, Philexs judicial claim was indisputably filed For failure of petitioner to comply with the 120+30 day
late. mandatory and jurisdictional period, petitioner lost its right to
claim a refund or credit of its alleged excess input VAT.
The Atlas doctrine cannot save Philex from the late filing of its
judicial claim. The inaction of the Commissioner on Philexs claim With regard to petitioners argument that Aichi should not be
during the 120-day period is, by express provision of law, applied retroactively, we reiterate that even without that ruling,
"deemed a denial" of Philexs claim. Philex had 30 days from the the law is explicit on the mandatory and jurisdictional nature of
expiration of the 120-day period to file its judicial claim with the the 120+30 day period.
CTA. Philexs failure to do so rendered the "deemed a denial"
decision of the Commissioner final and inappealable. The right to Also devoid of merit is the applicability of the principle of solutio
appeal to the CTA from a decision or "deemed a denial" decision indebiti to the present case. According to this principle, if
of the Commissioner is merely a statutory privilege, not a something is received when there is no right to demand it, and it
constitutional right. The exercise of such statutory privilege was unduly delivered through mistake, the obligation to return it
requires strict compliance with the conditions attached by the arises. In that situation, a creditor-debtor relationship is created
statute for its exercise. Philex failed to comply with the statutory under a quasi-contract, whereby the payor becomes the creditor
conditions and must thus bear the consequences. (Emphases in who then has the right to demand the return of payment made by
the original) mistake, and the person who has no right to receive the payment
becomes obligated to return it.21 The quasi-contract of solutio
Likewise, while petitioner filed its administrative and judicial indebiti is based on the ancient principle that no one shall enrich
claims during the period of applicability of BIR Ruling No. DA- oneself unjustly at the expense of another.22

There is solutio indebiti when:

(1) Payment is made when there exists no binding relation
between the payor, who has no duty to pay, and the
person who received the payment; and 14. G.R. No. L-12191 October 14, 1918

(2) Payment is made through mistake, and not through JOSE CANGCO, plaintiff-appellant,
liberality or some other cause.23 vs.
MANILA RAILROAD CO., defendant-appellee.
Though the principle of solutio indebiti may be applicable to
some instances of claims for a refund, the elements thereof are Ramon Sotelo for appellant.
wanting in this case. Kincaid & Hartigan for appellee.

First, there exists a binding relation between petitioner and the
CIR, the former being a taxpayer obligated to pay VAT. FISHER, J.:

Second, the payment of input tax was not made through mistake, At the time of the occurrence which gave rise to this litigation the
since petitioner was legally obligated to pay for that liability. The plaintiff, Jose Cangco, was in the employment of Manila Railroad
entitlement to a refund or credit of excess input tax is solely Company in the capacity of clerk, with a monthly wage of P25. He
based on the distinctive nature of the VAT system. At the time of lived in the pueblo of San Mateo, in the province of Rizal, which is
payment of the input VAT, the amount paid was correct and located upon the line of the defendant railroad company; and in
proper.24 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,
Finally, equity, which has been aptly described as "a justice which entitled him to ride upon the company's trains free of
outside legality," is applied only in the absence of, and never charge. Upon the occasion in question, January 20, 1915, the
against, statutory law or judicial rules of procedure.25 Section 112 plaintiff arose from his seat in the second class-car where he was
is a positive rule that should preempt and prevail over all riding and, making, his exit through the door, took his position
abstract arguments based only on equity. Well-settled is the rule upon the steps of the coach, seizing the upright guardrail with his
that tax refunds or credits, just like tax exemptions, are strictly right hand for support.
construed against the taxpayer.26 The burden is on the taxpayer
to show strict compliance with the conditions for the grant of the On the side of the train where passengers alight at the San Mateo
tax refund or credit.27 station there is a cement platform which begins to rise with a
moderate gradient some distance away from the company's
WHEREFORE, premises considered, the instant Petition is office and extends along in front of said office for a distance
DENIED. sufficient to cover the length of several coaches. As the train
slowed down another passenger, named Emilio Zuiga, also an

employee of the railroad company, got off the same car, alighting unsatisfactory, and the plaintiff was then carried to another
safely at the point where the platform begins to rise from the hospital where a second operation was performed and the
level of the ground. When the train had proceeded a little farther member was again amputated higher up near the shoulder. It
the plaintiff Jose Cangco stepped off also, but one or both of his appears in evidence that the plaintiff expended the sum of
feet came in contact with a sack of watermelons with the result P790.25 in the form of medical and surgical fees and for other
that his feet slipped from under him and he fell violently on the expenses in connection with the process of his curation.
platform. His body at once rolled from the platform and was
drawn under the moving car, where his right arm was badly Upon August 31, 1915, he instituted this proceeding in the Court
crushed and lacerated. It appears that after the plaintiff alighted of First Instance of the city of Manila to recover damages of the
from the train the car moved forward possibly six meters before defendant company, founding his action upon the negligence of
it came to a full stop. the servants and employees of the defendant in placing the sacks
of melons upon the platform and leaving them so placed as to be
The accident occurred between 7 and 8 o'clock on a dark night, a menace to the security of passenger alighting from the
and as the railroad station was lighted dimly by a single light company's trains. At the hearing in the Court of First Instance, his
located some distance away, objects on the platform where the Honor, the trial judge, found the facts substantially as above
accident occurred were difficult to discern especially to a person stated, and drew therefrom his conclusion to the effect that,
emerging from a lighted car. although negligence was attributable to the defendant by reason
of the fact that the sacks of melons were so placed as to obstruct
The explanation of the presence of a sack of melons on the passengers passing to and from the cars, nevertheless, the
platform where the plaintiff alighted is found in the fact that it plaintiff himself had failed to use due caution in alighting from
was the customary season for harvesting these melons and a the coach and was therefore precluded form recovering.
large lot had been brought to the station for the shipment to the Judgment was accordingly entered in favor of the defendant
market. They were contained in numerous sacks which has been company, and the plaintiff appealed.
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 It can not be doubted that the employees of the railroad company
edge of platform; and it is clear that the fall of the plaintiff was were guilty of negligence in piling these sacks on the platform in
due to the fact that his foot alighted upon one of these melons at the manner above stated; that their presence caused the plaintiff
the moment he stepped upon the platform. His statement that he to fall as he alighted from the train; and that they therefore
failed to see these objects in the darkness is readily to be constituted an effective legal cause of the injuries sustained by
credited. the plaintiff. It necessarily follows that the defendant company is
liable for the damage thereby occasioned unless recovery is
The plaintiff was drawn from under the car in an unconscious barred by the plaintiff's own contributory negligence. In
condition, and it appeared that the injuries which he had received resolving this problem it is necessary that each of these
were very serious. He was therefore brought at once to a certain conceptions of liability, to-wit, the primary responsibility of the
hospital in the city of Manila where an examination was made defendant company and the contributory negligence of the
and his arm was amputated. The result of this operation was plaintiff should be separately examined.

existing duties of the parties to one another. But where relations
It is important to note that the foundation of the legal liability of already formed give rise to duties, whether springing from
the defendant is the contract of carriage, and that the obligation contract or quasi-contract, then breaches of those duties are
to respond for the damage which plaintiff has suffered arises, if at subject to article 1101, 1103, and 1104 of the same code. (Rakes
all, from the breach of that contract by reason of the failure of vs. Atlantic, Gulf and Pacific Co., 7 Phil. Rep., 359 at 365.)
defendant to exercise due care in its performance. That is to say,
its liability is direct and immediate, differing essentially, in legal This distinction is of the utmost importance. The liability, which,
viewpoint from that presumptive responsibility for the under the Spanish law, is, in certain cases imposed upon
negligence of its servants, imposed by article 1903 of the Civil employers with respect to damages occasioned by the negligence
Code, which can be rebutted by proof of the exercise of due care of their employees to persons to whom they are not bound by
in their selection and supervision. Article 1903 of the Civil Code contract, is not based, as in the English Common Law, upon the
is not applicable to obligations arising ex contractu, but only to principle of respondeat superior if it were, the master would
extra-contractual obligations or to use the technical form of be liable in every case and unconditionally but upon the
expression, that article relates only to culpa aquiliana and not to principle announced in article 1902 of the Civil Code, which
culpa contractual. imposes upon all persons who by their fault or negligence, do
injury to another, the obligation of making good the damage
Manresa (vol. 8, p. 67) in his commentaries upon articles 1103 caused. One who places a powerful automobile in the hands of a
and 1104 of the Civil Code, clearly points out this distinction, servant whom he knows to be ignorant of the method of
which was also recognized by this Court in its decision in the case managing such a vehicle, is himself guilty of an act of negligence
of Rakes vs. Atlantic, Gulf and Pacific Co. (7 Phil. rep., 359). In which makes him liable for all the consequences of his
commenting upon article 1093 Manresa clearly points out the imprudence. The obligation to make good the damage arises at
difference between "culpa, substantive and independent, which the very instant that the unskillful servant, while acting within
of itself constitutes the source of an obligation between persons the scope of his employment causes the injury. The liability of the
not formerly connected by any legal tie" and culpa considered as master is personal and direct. But, if the master has not been
an accident in the performance of an obligation already existing . . 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
In the Rakes case (supra) the decision of this court was made to done by the servant does not amount to a breach of the contract
rest squarely upon the proposition that article 1903 of the Civil between the master and the person injured.
Code is not applicable to acts of negligence which constitute the
breach of a contract. It is not accurate to say that proof of diligence and care in the
selection and control of the servant relieves the master from
Upon this point the Court said: liability for the latter's acts on the contrary, that proof shows
that the responsibility has never existed. As Manresa says (vol. 8,
The acts to which these articles [1902 and 1903 of the Civil Code] p. 68) the liability arising from extra-contractual culpa is always
are applicable are understood to be those not growing out of pre- based upon a voluntary act or omission which, without willful

intent, but by mere negligence or inattention, has caused damage of the court that in selection and supervision he has exercised the
to another. A master who exercises all possible care in the care and diligence of a good father of a family, the presumption is
selection of his servant, taking into consideration the overcome and he is relieved from liability.
qualifications they should possess for the discharge of the duties
which it is his purpose to confide to them, and directs them with This theory bases the responsibility of the master ultimately on
equal diligence, thereby performs his duty to third persons to his own negligence and not on that of his servant. This is the
whom he is bound by no contractual ties, and he incurs no notable peculiarity of the Spanish law of negligence. It is, of
liability whatever if, by reason of the negligence of his servants, course, in striking contrast to the American doctrine that, in
even within the scope of their employment, such third person relations with strangers, the negligence of the servant in
suffer damage. True it is that under article 1903 of the Civil Code conclusively the negligence of the master.
the law creates a presumption that he has been negligent in the
selection or direction of his servant, but the presumption is The opinion there expressed by this Court, to the effect that in
rebuttable and yield to proof of due care and diligence in this case of extra-contractual culpa based upon negligence, it is
respect. necessary that there shall have been some fault attributable to
the defendant personally, and that the last paragraph of article
The supreme court of Porto Rico, in interpreting identical 1903 merely establishes a rebuttable presumption, is in complete
provisions, as found in the Porto Rico Code, has held that these accord with the authoritative opinion of Manresa, who says (vol.
articles are applicable to cases of extra-contractual culpa 12, p. 611) that the liability created by article 1903 is imposed by
exclusively. (Carmona vs. Cuesta, 20 Porto Rico Reports, 215.) reason of the breach of the duties inherent in the special relations
of authority or superiority existing between the person called
This distinction was again made patent by this Court in its upon to repair the damage and the one who, by his act or
decision in the case of Bahia vs. Litonjua and Leynes, (30 Phil. omission, was the cause of it.
rep., 624), which was an action brought upon the theory of the
extra-contractual liability of the defendant to respond for the On the other hand, the liability of masters and employers for the
damage caused by the carelessness of his employee while acting negligent acts or omissions of their servants or agents, when such
within the scope of his employment. The Court, after citing the acts or omissions cause damages which amount to the breach of a
last paragraph of article 1903 of the Civil Code, said: contact, is not based upon a mere presumption of the master's
negligence in their selection or control, and proof of exercise of
From this article two things are apparent: (1) That when an the utmost diligence and care in this regard does not relieve the
injury is caused by the negligence of a servant or employee there master of his liability for the breach of his contract.
instantly arises a presumption of law that there was negligence
on the part of the master or employer either in selection of the Every legal obligation must of necessity be extra-contractual or
servant or employee, or in supervision over him after the contractual. Extra-contractual obligation has its source in the
selection, or both; and (2) that that presumption is juris tantum breach or omission of those mutual duties which civilized society
and not juris et de jure, and consequently, may be rebutted. It imposes upon it members, or which arise from these relations,
follows necessarily that if the employer shows to the satisfaction other than contractual, of certain members of society to others,

generally embraced in the concept of status. The legal rights of obligation upon which plaintiff's cause of action depends is a
each member of society constitute the measure of the negligent act or omission, the burden of proof rests upon plaintiff
corresponding legal duties, mainly negative in character, which to prove the negligence if he does not his action fails. But when
the existence of those rights imposes upon all other members of the facts averred show a contractual undertaking by defendant
society. The breach of these general duties whether due to willful for the benefit of plaintiff, and it is alleged that plaintiff has failed
intent or to mere inattention, if productive of injury, give rise to or refused to perform the contract, it is not necessary for plaintiff
an obligation to indemnify the injured party. The fundamental to specify in his pleadings whether the breach of the contract is
distinction between obligations of this character and those which due to willful fault or to negligence on the part of the defendant,
arise from contract, rests upon the fact that in cases of non- or of his servants or agents. Proof of the contract and of its
contractual obligation it is the wrongful or negligent act or nonperformance is sufficient prima facie to warrant a recovery.
omission itself which creates the vinculum juris, whereas in
contractual relations the vinculum exists independently of the As a general rule . . . it is logical that in case of extra-contractual
breach of the voluntary duty assumed by the parties when culpa, a suing creditor should assume the burden of proof of its
entering into the contractual relation. existence, as the only fact upon which his action is based; while
on the contrary, in a case of negligence which presupposes the
With respect to extra-contractual obligation arising from existence of a contractual obligation, if the creditor shows that it
negligence, whether of act or omission, it is competent for the exists and that it has been broken, it is not necessary for him to
legislature to elect and our Legislature has so elected whom prove negligence. (Manresa, vol. 8, p. 71 [1907 ed., p. 76]).
such an obligation is imposed is morally culpable, or, on the
contrary, for reasons of public policy, to extend that liability, As it is not necessary for the plaintiff in an action for the breach
without regard to the lack of moral culpability, so as to include of a contract to show that the breach was due to the negligent
responsibility for the negligence of those person who acts or conduct of defendant or of his servants, even though such be in
mission are imputable, by a legal fiction, to others who are in a fact the actual cause of the breach, it is obvious that proof on the
position to exercise an absolute or limited control over them. The part of defendant that the negligence or omission of his servants
legislature which adopted our Civil Code has elected to limit or agents caused the breach of the contract would not constitute
extra-contractual liability with certain well-defined exceptions a defense to the action. If the negligence of servants or agents
to cases in which moral culpability can be directly imputed to could be invoked as a means of discharging the liability arising
the persons to be charged. This moral responsibility may consist from contract, the anomalous result would be that person acting
in having failed to exercise due care in the selection and control through the medium of agents or servants in the performance of
of one's agents or servants, or in the control of persons who, by their contracts, would be in a better position than those acting in
reason of their status, occupy a position of dependency with person. If one delivers a valuable watch to watchmaker who
respect to the person made liable for their conduct. contract to repair it, and the bailee, by a personal negligent act
causes its destruction, he is unquestionably liable. Would it be
The position of a natural or juridical person who has undertaken logical to free him from his liability for the breach of his contract,
by contract to render service to another, is wholly different from which involves the duty to exercise due care in the preservation
that to which article 1903 relates. When the sources of the 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 In the case of Johnson vs. David (5 Phil. Rep., 663), the court held
damages arising from the breach of their contracts if caused by that the owner of a carriage was not liable for the damages
negligent acts as such juridical persons can of necessity only act caused by the negligence of his driver. In that case the court
through agents or servants, and it would no doubt be true in most commented on the fact that no evidence had been adduced in the
instances that reasonable care had been taken in selection and trial court that the defendant had been negligent in the
direction of such servants. If one delivers securities to a banking employment of the driver, or that he had any knowledge of his
corporation as collateral, and they are lost by reason of the lack of skill or carefulness.
negligence of some clerk employed by the bank, would it be just
and reasonable to permit the bank to relieve itself of liability for In the case of Baer Senior & Co's Successors vs. Compania
the breach of its contract to return the collateral upon the Maritima (6 Phil. Rep., 215), the plaintiff sued the defendant for
payment of the debt by proving that due care had been exercised damages caused by the loss of a barge belonging to plaintiff
in the selection and direction of the clerk? which was allowed to get adrift by the negligence of defendant's
servants in the course of the performance of a contract of towage.
This distinction between culpa aquiliana, as the source of an The court held, citing Manresa (vol. 8, pp. 29, 69) that if the
obligation, and culpa contractual as a mere incident to the "obligation of the defendant grew out of a contract made between
performance of a contract has frequently been recognized by the it and the plaintiff . . . we do not think that the provisions of
supreme court of Spain. (Sentencias of June 27, 1894; November articles 1902 and 1903 are applicable to the case."
20, 1896; and December 13, 1896.) In the decisions of November
20, 1896, it appeared that plaintiff's action arose ex contractu, In the case of Chapman vs. Underwood (27 Phil. Rep., 374),
but that defendant sought to avail himself of the provisions of plaintiff sued the defendant to recover damages for the personal
article 1902 of the Civil Code as a defense. The Spanish Supreme injuries caused by the negligence of defendant's chauffeur while
Court rejected defendant's contention, saying: driving defendant's automobile in which defendant was riding at
the time. The court found that the damages were caused by the
These are not cases of injury caused, without any pre-existing negligence of the driver of the automobile, but held that the
obligation, by fault or negligence, such as those to which article master was not liable, although he was present at the time,
1902 of the Civil Code relates, but of damages caused by the saying:
defendant's failure to carry out the undertakings imposed by the
contracts . . . . . . . unless the negligent acts of the driver are continued for a
length of time as to give the owner a reasonable opportunity to
A brief review of the earlier decision of this court involving the observe them and to direct the driver to desist therefrom. . . . The
liability of employers for damage done by the negligent acts of act complained of must be continued in the presence of the
their servants will show that in no case has the court ever owner for such length of time that the owner by his acquiescence,
decided that the negligence of the defendant's servants has been makes the driver's acts his own.
held to constitute a defense to an action for damages for breach
of contract.

In the case of Yamada vs. Manila Railroad Co. and Bachrach care, either directly, or in failing to exercise proper care in the
Garage & Taxicab Co. (33 Phil. Rep., 8), it is true that the court selection and direction of his servants, the practical result is
rested its conclusion as to the liability of the defendant upon identical in either case. Therefore, it follows that it is not to be
article 1903, although the facts disclosed that the injury inferred, because the court held in the Yamada case that
complaint of by plaintiff constituted a breach of the duty to him defendant was liable for the damages negligently caused by its
arising out of the contract of transportation. The express ground servants to a person to whom it was bound by contract, and
of the decision in this case was that article 1903, in dealing with made reference to the fact that the defendant was negligent in
the liability of a master for the negligent acts of his servants the selection and control of its servants, that in such a case the
"makes the distinction between private individuals and public court would have held that it would have been a good defense to
enterprise;" that as to the latter the law creates a rebuttable the action, if presented squarely upon the theory of the breach of
presumption of negligence in the selection or direction of the contract, for defendant to have proved that it did in fact
servants; and that in the particular case the presumption of exercise care in the selection and control of the servant.
negligence had not been overcome.
The true explanation of such cases is to be found by directing the
It is evident, therefore that in its decision Yamada case, the court attention to the relative spheres of contractual and extra-
treated plaintiff's action as though founded in tort rather than as contractual obligations. The field of non- contractual obligation is
based upon the breach of the contract of carriage, and an much more broader than that of contractual obligations,
examination of the pleadings and of the briefs shows that the comprising, as it does, the whole extent of juridical human
questions of law were in fact discussed upon this theory. Viewed relations. These two fields, figuratively speaking, concentric; that
from the standpoint of the defendant the practical result must is to say, the mere fact that a person is bound to another by
have been the same in any event. The proof disclosed beyond contract does not relieve him from extra-contractual liability to
doubt that the defendant's servant was grossly negligent and that such person. When such a contractual relation exists the obligor
his negligence was the proximate cause of plaintiff's injury. It also may break the contract under such conditions that the same act
affirmatively appeared that defendant had been guilty of which constitutes the source of an extra-contractual obligation
negligence in its failure to exercise proper discretion in the had no contract existed between the parties.
direction of the servant. Defendant was, therefore, liable for the
injury suffered by plaintiff, whether the breach of the duty were The contract of defendant to transport plaintiff carried with it, by
to be regarded as constituting culpa aquiliana or culpa implication, the duty to carry him in safety and to provide safe
contractual. As Manresa points out (vol. 8, pp. 29 and 69) means of entering and leaving its trains (civil code, article 1258).
whether negligence occurs an incident in the course of the That duty, being contractual, was direct and immediate, and its
performance of a contractual undertaking or its itself the source non-performance could not be excused by proof that the fault
of an extra-contractual undertaking obligation, its essential was morally imputable to defendant's servants.
characteristics are identical. There is always an act or omission
productive of damage due to carelessness or inattention on the The railroad company's defense involves the assumption that
part of the defendant. Consequently, when the court holds that a even granting that the negligent conduct of its servants in placing
defendant is liable in damages for having failed to exercise due an obstruction upon the platform was a breach of its contractual

obligation to maintain safe means of approaching and leaving its train, is that of ordinary or reasonable care. It is to be considered
trains, the direct and proximate cause of the injury suffered by whether an ordinarily prudent person, of the age, sex and
plaintiff was his own contributory negligence in failing to wait condition of the passenger, would have acted as the passenger
until the train had come to a complete stop before alighting. acted under the circumstances disclosed by the evidence. This
Under the doctrine of comparative negligence announced in the care has been defined to be, not the care which may or should be
Rakes case (supra), if the accident was caused by plaintiff's own used by the prudent man generally, but the care which a man of
negligence, no liability is imposed upon defendant's negligence ordinary prudence would use under similar circumstances, to
and plaintiff's negligence merely contributed to his injury, the avoid injury." (Thompson, Commentaries on Negligence, vol. 3,
damages should be apportioned. It is, therefore, important to sec. 3010.)
ascertain if defendant was in fact guilty of negligence.
Or, it we prefer to adopt the mode of exposition used by this
It may be admitted that had plaintiff waited until the train had court in Picart vs. Smith (37 Phil. rep., 809), we may say that the
come to a full stop before alighting, the particular injury suffered test is this; Was there anything in the circumstances surrounding
by him could not have occurred. Defendant contends, and cites the plaintiff at the time he alighted from the train which would
many authorities in support of the contention, that it is have admonished a person of average prudence that to get off the
negligence per se for a passenger to alight from a moving train. train under the conditions then existing was dangerous? If so, the
We are not disposed to subscribe to this doctrine in its absolute plaintiff should have desisted from alighting; and his failure so to
form. We are of the opinion that this proposition is too badly desist was contributory negligence.1awph!l.net
stated and is at variance with the experience of every-day life. In
this particular instance, that the train was barely moving when As the case now before us presents itself, the only fact from
plaintiff alighted is shown conclusively by the fact that it came to which a conclusion can be drawn to the effect that plaintiff was
stop within six meters from the place where he stepped from it. guilty of contributory negligence is that he stepped off the car
Thousands of person alight from trains under these conditions without being able to discern clearly the condition of the
every day of the year, and sustain no injury where the company platform and while the train was yet slowly moving. In
has kept its platform free from dangerous obstructions. There is considering the situation thus presented, it should not be
no reason to believe that plaintiff would have suffered any injury overlooked that the plaintiff was, as we find, ignorant of the fact
whatever in alighting as he did had it not been for defendant's that the obstruction which was caused by the sacks of melons
negligent failure to perform its duty to provide a safe alighting piled on the platform existed; and as the defendant was bound by
place. 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
We are of the opinion that the correct doctrine relating to this assume, in the absence of some circumstance to warn him to the
subject is that expressed in Thompson's work on Negligence (vol. contrary, that the platform was clear. The place, as we have
3, sec. 3010) as follows: 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
The test by which to determine whether the passenger has been duty owing by it to the plaintiff; for if it were by any possibility
guilty of negligence in attempting to alight from a moving railway concede that it had right to pile these sacks in the path of

alighting passengers, the placing of them adequately so that their he has suffered have permanently disabled him from continuing
presence would be revealed. that employment. Defendant has not shown that any other
gainful occupation is open to plaintiff. His expectancy of life,
As pertinent to the question of contributory negligence on the according to the standard mortality tables, is approximately
part of the plaintiff in this case the following circumstances are to thirty-three years. We are of the opinion that a fair compensation
be noted: The company's platform was constructed upon a level for the damage suffered by him for his permanent disability is the
higher than that of the roadbed and the surrounding ground. The sum of P2,500, and that he is also entitled to recover of defendant
distance from the steps of the car to the spot where the alighting the additional sum of P790.25 for medical attention, hospital
passenger would place his feet on the platform was thus reduced, services, and other incidental expenditures connected with the
thereby decreasing the risk incident to stepping off. The nature of treatment of his injuries.
the platform, constructed as it was of cement material, also
assured to the passenger a stable and even surface on which to The decision of lower court is reversed, and judgment is hereby
alight. Furthermore, the plaintiff was possessed of the vigor and rendered plaintiff for the sum of P3,290.25, and for the costs of
agility of young manhood, and it was by no means so risky for both instances. So ordered.
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 15. G.R. No. 34840 September 23, 1931
are circumstances necessarily affecting the safety of the
passenger, and should be considered. Women, it has been NARCISO GUTIERREZ, plaintiff-appellee,
observed, as a general rule are less capable than men of alighting vs.
with safety under such conditions, as the nature of their wearing BONIFACIO GUTIERREZ, MARIA V. DE GUTIERREZ,
apparel obstructs the free movement of the limbs. Again, it may MANUEL GUTIERREZ, ABELARDO VELASCO, and
be noted that the place was perfectly familiar to the plaintiff as it SATURNINO CORTEZ, defendants-appellants.
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 L.D. Lockwood for appellants Velasco and Cortez.
either to the length of the step which he was required to take or San Agustin and Roxas for other appellants.
the character of the platform where he was alighting. Our Ramon Diokno for appellee.
conclusion is that the conduct of the plaintiff in undertaking to
alight while the train was yet slightly under way was not MALCOLM, J.:
characterized by imprudence and that therefore he was not guilty
of contributory negligence. This is an action brought by the plaintiff in the Court of First
Instance of Manila against the five defendants, to recover
The evidence shows that the plaintiff, at the time of the accident, damages in the amount of P10,000, for physical injuries suffered
was earning P25 a month as a copyist clerk, and that the injuries as a result of an automobile accident. On judgment being

rendered as prayed for by the plaintiff, both sets of defendants excessive rate of speed, and that, on approaching the bridge and
appealed. 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
On February 2, 1930, a passenger truck and an automobile of was granted a license to operate motor vehicles made the father
private ownership collided while attempting to pass each other responsible for the acts of his son. Based on these facts, pursuant
on the Talon bridge on the Manila South Road in the municipality to the provisions of article 1903 of the Civil Code, the father alone
of Las Pias, Province of Rizal. The truck was driven by the and not the minor or the mother, would be liable for the damages
chauffeur Abelardo Velasco, and was owned by Saturnino Cortez. caused by the minor.
The automobile was being operated by Bonifacio Gutierrez, a lad
18 years of age, and was owned by Bonifacio's father and mother, We are dealing with the civil law liability of parties for
Mr. and Mrs. Manuel Gutierrez. At the time of the collision, the obligations which arise from fault or negligence. At the same
father was not in the car, but the mother, together will several time, we believe that, as has been done in other cases, we can
other members of the Gutierrez family, seven in all, were take cognizance of the common law rule on the same subject. In
accommodated therein. A passenger in the autobus, by the name the United States, it is uniformly held that the head of a house, the
of Narciso Gutierrez, was en route from San Pablo, Laguna, to owner of an automobile, who maintains it for the general use of
Manila. The collision between the bus and the automobile his family is liable for its negligent operation by one of his
resulted in Narciso Gutierrez suffering a fracture right leg which children, whom he designates or permits to run it, where the car
required medical attendance for a considerable period of time, is occupied and being used at the time of the injury for the
and which even at the date of the trial appears not to have healed pleasure of other members of the owner's family than the child
properly. 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
It is conceded that the collision was caused by negligence pure the scope of the owner's business, so that he is liable for the
and simple. The difference between the parties is that, while the negligence of the child because of the relationship of master and
plaintiff blames both sets of defendants, the owner of the servant. (Huddy On Automobiles, 6th ed., sec. 660; Missell vs.
passenger truck blames the automobile, and the owner of the Hayes [1914], 91 Atl., 322.) The liability of Saturnino Cortez, the
automobile, in turn, blames the truck. We have given close owner of the truck, and of his chauffeur Abelardo Velasco rests
attention to these highly debatable points, and having done so, a on a different basis, namely, that of contract which, we think, has
majority of the court are of the opinion that the findings of the been sufficiently demonstrated by the allegations of the
trial judge on all controversial questions of fact find sufficient complaint, not controverted, and the evidence. The reason for
support in the record, and so should be maintained. With this this conclusion reaches to the findings of the trial court
general statement set down, we turn to consider the respective concerning the position of the truck on the bridge, the speed in
legal obligations of the defendants. operating the machine, and the lack of care employed by the
chauffeur. While these facts are not as clearly evidenced as are
In amplification of so much of the above pronouncement as those which convict the other defendant, we nevertheless
concerns the Gutierrez family, it may be explained that the youth hesitate to disregard the points emphasized by the trial judge. In
Bonifacio was in incompetent chauffeur, that he was driving at an 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. 16. G.R. No. 178610 November 17, 2010

The defendants Velasco and Cortez further contend that there HONGKONG AND SHANGHAI BANKING CORP., LTD.
existed contributory negligence on the part of the plaintiff, STAFF RETIREMENT PLAN, Retirement Trust Fund,
consisting principally of his keeping his foot outside the truck, Inc.) Petitioner,
which occasioned his injury. In this connection, it is sufficient to vs.
state that, aside from the fact that the defense of contributory SPOUSES BIENVENIDO AND EDITHA BROQUEZA,
negligence was not pleaded, the evidence bearing out this theory Respondents.
of the case is contradictory in the extreme and leads us far afield
into speculative matters. D E C I S I O N

The last subject for consideration relates to the amount of the CARPIO, J.:
award. The appellee suggests that the amount could justly be
raised to P16,517, but naturally is not serious in asking for this G.R. No. 178610 is a petition for review1 assailing the Decision2
sum, since no appeal was taken by him from the judgment. The promulgated on 30 March 2006 by the Court of Appeals (CA) in
other parties unite in challenging the award of P10,000, as CA-G.R. SP No. 62685. The appellate court granted the petition
excessive. All facts considered, including actual expenditures and filed by Fe Gerong (Gerong) and Spouses Bienvenido and Editha
damages for the injury to the leg of the plaintiff, which may cause Broqueza (spouses Broqueza) and dismissed the consolidated
him permanent lameness, in connection with other adjudications complaints filed by Hongkong and Shanghai Banking
of this court, lead us to conclude that a total sum for the plaintiff Corporation, Ltd. - Staff Retirement Plan (HSBCL-SRP) for
of P5,000 would be fair and reasonable. The difficulty in recovery of sum of money. The appellate court reversed and set
approximating the damages by monetary compensation is well aside the Decision3 of Branch 139 of the Regional Trial Court of
elucidated by the divergence of opinion among the members of Makati City (RTC) in Civil Case No. 00-787 dated 11 December
the court, three of whom have inclined to the view that P3,000 2000, as well as its Order4 dated 5 September 2000. The RTCs
would be amply sufficient, while a fourth member has argued decision affirmed the Decision5 dated 28 December 1999 of
that P7,500 would be none too much. Branch 61 of the Metropolitan Trial Court (MeTC) of Makati City
in Civil Case No. 52400 for Recovery of a Sum of Money.
In consonance with the foregoing rulings, the judgment appealed
from will be modified, and the plaintiff will have judgment in his The Facts
favor against the defendants Manuel Gutierrez, Abelardo Velasco,
and Saturnino Cortez, jointly and severally, for the sum of P5,000, The appellate court narrated the facts as follows:
and the costs of both instances.
Petitioners Gerong and [Editha] Broqueza (defendants below)
are employees of Hongkong and Shanghai Banking Corporation

(HSBC). They are also members of respondent Hongkong The Metropolitan Trial Courts Ruling
Shanghai Banking Corporation, Ltd. Staff Retirement Plan
(HSBCL-SRP, plaintiff below). The HSBCL-SRP is a retirement On 28 December 1999, the MeTC promulgated its Decision7 in
plan established by HSBC through its Board of Trustees for the favor of HSBCL-SRP. The MeTC ruled that the nature of HSBCL-
benefit of the employees. SRPs demands for payment is civil and has no connection to the
ongoing labor dispute. Gerong and Editha Broquezas termination
On October 1, 1990, petitioner [Editha] Broqueza obtained a car from employment resulted in the loss of continued benefits
loan in the amount of Php175,000.00. On December 12, 1991, she under their retirement plans. Thus, the loans secured by their
again applied and was granted an appliance loan in the amount of future retirement benefits to which they are no longer entitled
Php24,000.00. On the other hand, petitioner Gerong applied and are reduced to unsecured and pure civil obligations. As
was granted an emergency loan in the amount of Php35,780.00 unsecured and pure obligations, the loans are immediately
on June 2, 1993. These loans are paid through automatic salary demandable.
deduction.
The dispositive portion of the MeTCs decision reads:
Meanwhile [in 1993], a labor dispute arose between HSBC and its
employees. Majority of HSBCs employees were terminated, WHEREFORE, premises considered and in view of the foregoing,
among whom are petitioners Editha Broqueza and Fe Gerong. the Court finds that the plaintiff was able to prove by a
The employees then filed an illegal dismissal case before the preponderance of evidence the existence and immediate
National Labor Relations Commission (NLRC) against HSBC. The demandability of the defendants loan obligations as judgment is
legality or illegality of such termination is now pending before hereby rendered in favor of the plaintiff and against the
this appellate Court in CA G.R. CV No. 56797, entitled Hongkong defendants in both cases, ordering the latter:
Shanghai Banking Corp. Employees Union, et al. vs. National
Labor Relations Commission, et al. 1. In Civil Case No. 52400, to pay the amount of Php116,740.00 at
six percent interest per annum from the time of demand and in
Because of their dismissal, petitioners were not able to pay the Civil Case No. 52911, to pay the amount of Php25,344.12 at six
monthly amortizations of their respective loans. Thus, percent per annum from the time of the filing of these cases, until
respondent HSBCL-SRP considered the accounts of petitioners the amount is fully paid;
delinquent. Demands to pay the respective obligations were
made upon petitioners, but they failed to pay.6 2. To pay the amount of Php20,000.00 each as reasonable
attorneys fees;
HSBCL-SRP, acting through its Board of Trustees and represented
by Alejandro L. Custodio, filed Civil Case No. 52400 against the 3. Cost of suit.
spouses Broqueza on 31 July 1996. On 19 September 1996,
HSBCL-SRP filed Civil Case No. 52911 against Gerong. Both suits SO ORDERED.8
were civil actions for recovery and collection of sums of money.


Gerong and the spouses Broqueza filed a joint appeal of the as the loan obligations have not yet matured. Thus, no cause of
MeTCs decision before the RTC. Gerongs case was docketed Civil action accrued in favor of HSBCL-SRP. The dispositive portion of
Case No. 00-786, while the spouses Broquezas case was the appellate courts Decision reads as follows:
docketed as Civil Case No. 00-787.
WHEREFORE, the assailed Decision of the RTC is REVERSED and
The Regional Trial Courts Ruling SET ASIDE. A new one is hereby rendered DISMISSING the
consolidated complaints for recovery of sum of money.
The RTC initially denied the joint appeal because of the belated
filing of Gerong and the spouses Broquezas memorandum. The SO ORDERED.11
RTC later reconsidered the order of denial and resolved the
issues in the interest of justice. HSBCL-SRP filed a motion for reconsideration which the CA
denied for lack of merit in its Resolution12 promulgated on 19
On 11 December 2000, the RTC affirmed the MeTCs decision in June 2007.
toto.9
On 6 August 2007, HSBCL-SRP filed a manifestation withdrawing
The RTC ruled that Gerong and Editha Broquezas termination the petition against Gerong because she already settled her
from employment disqualified them from availing of benefits obligations. In a Resolution13 of this Court dated 10 September
under their retirement plans. As a consequence, there is no 2007, this Court treated the manifestation as a motion to
longer any security for the loans. HSBCL-SRP has a legal right to withdraw the petition against Gerong, granted the motion, and
demand immediate settlement of the unpaid balance because of considered the case against Gerong closed and terminated.
Gerong and Editha Broquezas continued default in payment and
their failure to provide new security for their loans. Moreover, Issues
the absence of a period within which to pay the loan allows
HSBCL-SRP to demand immediate payment. The loan obligations HSBCL-SRP enumerated the following grounds to support its
are considered pure obligations, the fulfillment of which are Petition:
demandable at once.
I. The Court of Appeals has decided a question of substance in a
Gerong and the spouses Broqueza then filed a Petition for Review way not in accord with law and applicable decisions of this
under Rule 42 before the CA. Honorable Court; and

The Ruling of the Court of Appeals II. The Court of Appeals has departed from the accepted and
usual course of judicial proceedings in reversing the decision of
On 30 March 2006, the CA rendered its Decision10 which the Regional Trial Court and the Metropolitan Trial Court.14
reversed the 11 December 2000 Decision of the RTC. The CA
ruled that the HSBCL-SRPs complaints for recovery of sum of The Courts Ruling
money against Gerong and the spouses Broqueza are premature

The petition is meritorious. We agree with the rulings of the
MeTC and the RTC. Art. 1179. Every obligation whose performance does not depend
upon a future or uncertain event, or upon a past event unknown
The Promissory Notes uniformly provide: to the parties, is demandable at once.

PROMISSORY NOTE x x x. (Emphasis supplied.)

P_____ Makati, M.M. ____ 19__ We affirm the findings of the MeTC and the RTC that there is no
date of payment indicated in the Promissory Notes. The RTC is
FOR VALUE RECEIVED, I/WE _____ jointly and severally promise correct in ruling that since the Promissory Notes do not contain a
to pay to THE HSBC RETIREMENT PLAN (hereinafter called the period, HSBCL-SRP has the right to demand immediate payment.
"PLAN") at its office in the Municipality of Makati, Metro Manila, Article 1179 of the Civil Code applies. The spouses Broquezas
on or before until fully paid the sum of PESOS ___ (P___) Philippine obligation to pay HSBCL-SRP is a pure obligation. The fact that
Currency without discount, with interest from date hereof at the HSBCL-SRP was content with the prior monthly check-off from
rate of Six per cent (6%) per annum, payable monthly. Editha Broquezas salary is of no moment. Once Editha Broqueza
defaulted in her monthly payment, HSBCL-SRP made a demand to
I/WE agree that the PLAN may, upon written notice, increase the enforce a pure obligation.
interest rate stipulated in this note at any time depending on
prevailing conditions. In their Answer, the spouses Broqueza admitted that prior to
Editha Broquezas dismissal from HSBC in December 1993, she
I/WE hereby expressly consent to any extensions or renewals "religiously paid the loan amortizations, which HSBC collected
hereof for a portion or whole of the principal without notice to through payroll check-off."16 A definite amount is paid to HSBCL-
the other(s), and in such a case our liability shall remain joint and SRP on a specific date. Editha Broqueza authorized HSBCL-SRP to
several.1avvphi1 make deductions from her payroll until her loans are fully paid.
Editha Broqueza, however, defaulted in her monthly loan
In case collection is made by or through an attorney, I/WE jointly payment due to her dismissal. Despite the spouses Broquezas
and severally agree to pay ten percent (10%) of the amount due protestations, the payroll deduction is merely a convenient mode
on this note (but in no case less than P200.00) as and for of payment and not the sole source of payment for the loans.
attorneys fees in addition to expenses and costs of suit. HSBCL-SRP never agreed that the loans will be paid only through
salary deductions. Neither did HSBCL-SRP agree that if Editha
In case of judicial execution, I/WE hereby jointly and severally Broqueza ceases to be an employee of HSBC, her obligation to pay
waive our rights under the provisions of Rule 39, Section 12 of the loans will be suspended. HSBCL-SRP can immediately
the Rules of Court.15 demand payment of the loans at anytime because the obligation
to pay has no period. Moreover, the spouses Broqueza have
In ruling for HSBCL-SRP, we apply the first paragraph of Article already incurred in default in paying the monthly installments.
1179 of the Civil Code:

Finally, the enforcement of a loan agreement involves "debtor- the decisive issue is whether a creditor is barred by prescription
creditor relations founded on contract and does not in any way in his attempt to collect on a promissory note executed more
concern employee relations. As such it should be enforced than fifteen years earlier with the debtor sued promising to pay
through a separate civil action in the regular courts and not either upon receipt by him of his share from a certain estate or
before the Labor Arbiter."17 upon demand, the basis for the action being the latter alternative.
The lower court held that the ten-year period of limitation of
WHEREFORE, we GRANT the petition. The Decision of the Court actions did apply, the note being immediately due and
of Appeals in CA-G.R. SP No. 62685 promulgated on 30 March demandable, the creditor admitting expressly that he was relying
2006 is REVERSED and SET ASIDE. The decision of Branch 139 of on the wording "upon demand." On the above facts as found, and
the Regional Trial Court of Makati City in Civil Case No. 00-787, as with the law being as it is, it cannot be said that its decision is
well as the decision of Branch 61 of the Metropolitan Trial Court infected with error. We affirm.
of Makati City in Civil Case No. 52400 against the spouses
Bienvenido and Editha Broqueza, are AFFIRMED. Costs against From the appealed decision, the following appears: "The parties
respondents. in this case agreed to submit the matter for resolution on the
basis of their pleadings and annexes and their respective
memoranda submitted. Petitioner George Pay is a creditor of the
Late Justo Palanca who died in Manila on July 3, 1963. The claim
of the petitioner is based on a promissory note dated January 30,
17. G.R. No. L-29900 June 28, 1974 1952, whereby the late Justo Palanca and Rosa Gonzales Vda. de
Carlos Palanca promised to pay George Pay the amount of
IN THE MATTER OF THE INTESTATE ESTATE OF JUSTO P26,900.00, with interest thereon at the rate of 12% per annum.
PALANCA, Deceased, GEORGE PAY, petitioner- George Pay is now before this Court, asking that Segundina Chua
appellant, vda. de Palanca, surviving spouse of the late Justo Palanca, he
vs. appointed as administratrix of a certain piece of property which
SEGUNDINA CHUA VDA. DE PALANCA, oppositor- is a residential dwelling located at 2656 Taft Avenue, Manila,
appellee. covered by Tax Declaration No. 3114 in the name of Justo
Palanca, assessed at P41,800.00. The idea is that once said
Florentino B. del Rosario for petitioner-appellant. property is brought under administration, George Pay, as
creditor, can file his claim against the administratrix." 1 It then
Manuel V. San Jose for oppositor-appellee. stated that the petition could not prosper as there was a refusal
on the part of Segundina Chua Vda. de Palanca to be appointed as
administratrix; that the property sought to be administered no
FERNANDO, J.:p longer belonged to the debtor, the late Justo Palanca; and that the
rights of petitioner-creditor had already prescribed. The
There is no difficulty attending the disposition of this appeal by promissory note, dated January 30, 1962, is worded thus: " `For
petitioner on questions of law. While several points were raised, value received from time to time since 1947, we [jointly and

severally promise to] pay to Mr. [George Pay] at his office at the presumptively as one of the heirs, or, as expressed therein, "upon
China Banking Corporation the sum of [Twenty Six Thousand demand." There is nothing in the record that would indicate
Nine Hundred Pesos] (P26,900.00), with interest thereon at the whether or not the first alternative was fulfilled. What is
rate of 12% per annum upon receipt by either of the undersigned undeniable is that on August 26, 1967, more than fifteen years
of cash payment from the Estate of the late Don Carlos Palanca or after the execution of the promissory note on January 30, 1952,
upon demand'. . . . As stated, this promissory note is signed by this petition was filed. The defense interposed was prescription.
Rosa Gonzales Vda. de Carlos Palanca and Justo Palanca." 2 Then Its merit is rather obvious. Article 1179 of the Civil Code
came this paragraph: "The Court has inquired whether any cash provides: "Every obligation whose performance does not depend
payment has been received by either of the signers of this upon a future or uncertain event, or upon a past event unknown
promissory note from the Estate of the late Carlos Palanca. to the parties, is demandable at once." This used to be Article
Petitioner informed that he does not insist on this provision but 1113 of the Spanish Civil Code of 1889. As far back as Floriano v.
that petitioner is only claiming on his right under the promissory Delgado, 5 a 1908 decision, it has been applied according to its
note ." 3 After which, came the ruling that the wording of the express language. The well-known Spanish commentator,
promissory note being "upon demand," the obligation was Manresa, on this point, states: "Dejando con acierto, el caracter
immediately due. Since it was dated January 30, 1952, it was mas teorico y grafico del acto, o sea la perfeccion de este, se fija,
clear that more "than ten (10) years has already transpired from para determinar el concepto de la obligacion pura, en el
that time until to date. The action, therefore, of the creditor has distinctive de esta, y que es consecuencia de aquel: la exigibilidad
definitely prescribed." 4 The result, as above noted, was the immediata." 6
dismissal of the petition.
The obligation being due and demandable, it would appear that
In an exhaustive brief prepared by Attorney Florentino B. del the filing of the suit after fifteen years was much too late. For
Rosario, petitioner did assail the correctness of the rulings of the again, according to the Civil Code, which is based on Section 43 of
lower court as to the effect of the refusal of the surviving spouse Act No. 190, the prescriptive period for a written contract is that
of the late Justo Palanca to be appointed as administratrix, as to of ten years. 7 This is another instance where this Court has
the property sought to be administered no longer belonging to consistently adhered to the express language of the applicable
the debtor, the late Justo Palanca, and as to the rights of norm. 8 There is no necessity therefore of passing upon the other
petitioner-creditor having already prescribed. As noted at the legal questions as to whether or not it did suffice for the petition
outset, only the question of prescription need detain us in the to fail just because the surviving spouse refuses to be made
disposition of this appeal. Likewise, as intimated, the decision administratrix, or just because the estate was left with no other
must be affirmed, considering the clear tenor of the promissory property. The decision of the lower court cannot be overturned.
note.
WHEREFORE, the lower court decision of July 24, 1968 is
From the manner in which the promissory note was executed, it affirmed. Costs against George Pay.
would appear that petitioner was hopeful that the satisfaction of
his credit could he realized either through the debtor sued
receiving cash payment from the estate of the late Carlos Palanca

immediately notified the defendant of the arrival of the goods,
18. G.R. No. L-16570 March 9, 1922 and asked instructions from him as to the delivery thereof, and
that the defendant refused to receive any of them and to pay their
SMITH, BELL & CO., LTD., plaintiff-appellant, price. The plaintiff, further, alleged that the expellers and the
vs. motors were in good condition. (Amended complaint, pages 16-
VICENTE SOTELO MATTI, defendant-appellant. 30, Bill of Exceptions.)

Ross and Lawrence and Ewald E. Selph for plaintiff- In their answer, the defendant, Mr. Sotelo, and the intervenor, the
appellant. Manila Oil Refining and By-Products Co., Inc., denied the
Ramon Sotelo for defendant-appellant. plaintiff's allegations as to the shipment of these goods and their
arrival at Manila, the notification to the defendant, Mr. Sotelo, the
ROMUALDEZ, J.: latter's refusal to receive them and pay their price, and the good
condition of the expellers and the motors, alleging as special
In August, 1918, the plaintiff corporation and the defendant, Mr. defense that Mr. Sotelo had made the contracts in question as
Vicente Sotelo, entered into contracts whereby the former manager of the intervenor, the Manila Oil Refining and By-
obligated itself to sell, and the latter to purchase from it, two steel Products Co., Inc which fact was known to the plaintiff, and that
tanks, for the total price of twenty-one thousand pesos "it was only in May, 1919, that it notified the intervenor that said
(P21,000), the same to be shipped from New York and delivered tanks had arrived, the motors and the expellers having arrived
at Manila "within three or four months;" two expellers at the incomplete and long after the date stipulated." As a counterclaim
price of twenty five thousand pesos (P25,000) each, which were or set-off, they also allege that, as a consequence of the plaintiff's
to be shipped from San Francisco in the month of September, delay in making delivery of the goods, which the intervenor
1918, or as soon as possible; and two electric motors at the price intended to use in the manufacture of cocoanut oil, the intervenor
of two thousand pesos (P2,000) each, as to the delivery of which suffered damages in the sums of one hundred sixteen thousand
stipulation was made, couched in these words: "Approximate seven hundred eighty-three pesos and ninety-one centavos
delivery within ninety days. This is not guaranteed." (P116,783.91) for the nondelivery of the tanks, and twenty-one
thousand two hundred and fifty pesos (P21,250) on account of
The tanks arrived at Manila on the 27th of April, 1919: the the expellers and the motors not having arrived in due time.
expellers on the 26th of October, 1918; and the motors on the
27th of February, 1919. The case having been tried, the court below absolved the
defendants from the complaint insofar as the tanks and the
The plaintiff corporation notified the defendant, Mr. Sotelo, of the electric motors were concerned, but rendered judgment against
arrival of these goods, but Mr. Sotelo refused to receive them and them, ordering them to "receive the aforesaid expellers and pay
to pay the prices stipulated. the plaintiff the sum of fifty thousand pesos (P50,00), the price of
the said goods, with legal interest thereon from July 26, 1919,
The plaintiff brought suit against the defendant, based on four and costs."
separate causes of action, alleging, among other facts, that it

Both parties appeal from this judgment, each assigning several Approximate delivery within ninety days. This is not
errors in the findings of the lower court. guaranteed. This sale is subject to our being able to obtain
Priority Certificate, subject to the United States Government
The principal point at issue in this case is whether or not, under requirements and also subject to confirmation of manufactures.
the contracts entered into and the circumstances established in
the record, the plaintiff has fulfilled, in due time, its obligation to In all these contracts, there is a final clause as follows:
bring the goods in question to Manila. If it has, then it is entitled
to the relief prayed for; otherwise, it must be held guilty of delay The sellers are not responsible for delays caused by fires, riots on
and liable for the consequences thereof. land or on the sea, strikes or other causes known as "Force
Majeure" entirely beyond the control of the sellers or their
To solve this question, it is necessary to determine what period representatives.
was fixed for the delivery of the goods.
Under these stipulations, it cannot be said that any definite date
As regards the tanks, the contracts A and B (pages 61 and 62 of was fixed for the delivery of the goods. As to the tanks, the
the record) are similar, and in both of them we find this clause: agreement was that the delivery was to be made "within 3 or 4
months," but that period was subject to the contingencies
To be delivered within 3 or 4 months The promise or referred to in a subsequent clause. With regard to the expellers,
indication of shipment carries with it absolutely no obligation on the contract says "within the month of September, 1918," but to
our part Government regulations, railroad embargoes, lack of this is added "or as soon as possible." And with reference to the
vessel space, the exigencies of the requirement of the United motors, the contract contains this expression, "Approximate
States Government, or a number of causes may act to entirely delivery within ninety days," but right after this, it is noted that
vitiate the indication of shipment as stated. In other words, the "this is not guaranteed."
order is accepted on the basis of shipment at Mill's convenience,
time of shipment being merely an indication of what we hope to The oral evidence falls short of fixing such period.
accomplish.
From the record it appears that these contracts were executed at
In the contract Exhibit C (page 63 of the record), with reference the time of the world war when there existed rigid restrictions on
to the expellers, the following stipulation appears: the export from the United States of articles like the machinery in
question, and maritime, as well as railroad, transportation was
The following articles, hereinbelow more particularly described, difficult, which fact was known to the parties; hence clauses were
to be shipped at San Francisco within the month of September inserted in the contracts, regarding "Government regulations,
/18, or as soon as possible. Two Anderson oil expellers . . . . railroad embargoes, lack of vessel space, the exigencies of the
requirements of the United States Government," in connection
And in the contract relative to the motors (Exhibit D, page 64, with the tanks and "Priority Certificate, subject to the United
rec.) the following appears: State Government requirements," with respect to the motors. At
the time of the execution of the contracts, the parties were not

unmindful of the contingency of the United States Government In such cases, the decisions prior to the Civil Code have held that
not allowing the export of the goods, nor of the fact that the other the obligee having done all that was in his power, was entitled to
foreseen circumstances therein stated might prevent it. enforce performance of the obligation. This performance, which
is fictitious not real is not expressly authorized by the Code,
Considering these contracts in the light of the civil law, we cannot which limits itself only to declare valid those conditions and the
but conclude that the term which the parties attempted to fix is obligation thereby affected; but it is neither disallowed, and the
so uncertain that one cannot tell just whether, as a matter of fact, Code being thus silent, the old view can be maintained as a
those articles could be brought to Manila or not. If that is the doctrine. (Manresa's commentaries on the Civil Code [1907], vol.
case, as we think it is, the obligations must be regarded as 8, page 132.)
conditional.
The decisions referred to by Mr. Manresa are those rendered by
Obligations for the performance of which a day certain has been the supreme court of Spain on November 19, 1896, and February
fixed shall be demandable only when the day arrives. 23, 1871.

A day certain is understood to be one which must necessarily In the former it is held:
arrive, even though its date be unknown.
First. That when the fulfillment of the conditions does not depend
If the uncertainty should consist in the arrival or non-arrival of on the will of the obligor, but on that of a third person who can in
the day, the obligation is conditional and shall be governed by the no way be compelled to carry it out, and it is found by the lower
rules of the next preceding section. (referring to pure and court that the obligor has done all in his power to comply with
conditional obligations). (Art. 1125, Civ. Code.) the obligation, the judgment of the said court, ordering the other
party to comply with his part of the contract, is not contrary to
And as the export of the machinery in question was, as stated in the law of contracts, or to Law 1, Tit. I, Book 10, of the "Novsima
the contract, contingent upon the sellers obtaining certificate of Recopilacin," or Law 12, Tit. 11, of Partida 5, when in the said
priority and permission of the United States Government, subject finding of the lower court, no law or precedent is alleged to have
to the rules and regulations, as well as to railroad embargoes, been violated. (Jurisprudencia Civil published by the directors of
then the delivery was subject to a condition the fulfillment of the Revista General de Legislacion y Jurisprudencia [1866], vol.
which depended not only upon the effort of the herein plaintiff, 14, page 656.)
but upon the will of third persons who could in no way be
compelled to fulfill the condition. In cases like this, which are not In the second decision, the following doctrine is laid down:
expressly provided for, but impliedly covered, by the Civil Code,
the obligor will be deemed to have sufficiently performed his part Second. That when the fulfillment of the condition does not
of the obligation, if he has done all that was in his power, even if depend on the will of the obligor, but on that of a third person,
the condition has not been fulfilled in reality. who can in no way be compelled to carry it out, the obligor's part
of the contract is complied withalf Belisario not having exercised
his right of repurchase reserved in the sale of Basilio Borja

mentioned in paragraph (13) hereof, the affidavit of Basilio Borja municipality or city where the sale is to take place, for such time
for the consolidacion de dominio was presented for record in the as may be reasonable, considering the character and condition of
registry of deeds and recorded in the registry on the same date. the property;

(32) The Maximo Belisario left a widow, the opponent Adelina 2. * * * * * * *
Ferrer and three minor children, Vitaliana, Eugenio, and Aureno
Belisario as his only heirs. 3. In cases of real property, by posting a similar notice
particularly describing the property, for twenty days in three
(33) That in the execution and sales thereunder, in which C. H. public places of the municipality or city where the property is
McClure appears as the judgment creditor, he was represented situated, and also where the property is to be sold, and
by the opponent Peter W. Addison, who prepared and had charge publishing a copy thereof once a week, for the same period, in
of publication of the notices of the various sales and that in none some newspaper published or having general circulation in the
of the sales was the notice published more than twice in a province, if there be one. If there are newspaper published in the
newspaper. province in both the Spanish and English languages, then a like
publication for a like period shall be made in one newspaper
The claims of the opponent-appellant Addison have been very published in the Spanish language, and in one published in the
fully and ably argued by his counsel but may, we think, be English language: Provided, however, That such publication in a
disposed of in comparatively few words. As will be seen from the newspaper will not be required when the assessed valuation of
foregoing statement of facts, he rest his title (1) on the sales the property does not exceed four hundred pesos;
under the executions issued in cases Nos. 435, 450, 454, and 499
of the court of the justice of the peace of Dagupan with the 4. * * * * * * *
priority of inscription of the last two sales in the registry of
deeds, and (2) on a purchase from the Director of Lands after the Examining the record, we find that in cases Nos. 435 and 450 the
land in question had been forfeited to the Government for non- sales took place on October 14, 1916; the notice first published
payment of taxes under Act No. 1791. gave the date of the sale as October 15th, but upon discovering
that October 15th was a Sunday, the date was changed to October
The sheriff's sales under the execution mentioned are fatally 14th. The correct notice was published twice in a local
defective for what of sufficient publication of the notice of sale. newspaper, the first publication was made on October 7th and
Section 454 of the Code of civil Procedure reads in part as the second and last on October 14th, the date of the sale itself.
follows: The newspaper is a weekly periodical published every Saturday
afternoon.
SEC. 454. Before the sale of property on execution, notice thereof
must be given, as follows: In case No. 454 there were only two publications of the notice in
a newspaper, the first publication being made only fourteen days
1. In case of perishable property, by posing written notice of the before the date of the sale. In case No. 499, there were also only
time and place of the sale in three public places of the two publications, the first of which was made thirteen days

before the sale. In the last case the sale was advertised for the expiration of the said ninety days, if redemption be not made, the
hours of from 8:30 in the morning until 4:30 in the afternoon, in provincial treasurer shall immediately notify the Director of
violation of section 457 of the Code of Civil Procedure. In cases Lands of the forfeiture and furnish him with a description of the
Nos. 435 and 450 the hours advertised were from 9:00 in the property, and said Director of Lands shall have full control and
morning until 4.30 in the afternoon. In all of the cases the notices custody thereof to lease or sell the same or any portion thereof in
of the sale were prepared by the judgment creditor or his agent, the same manner as other public lands are leased or sold:
who also took charged of the publication of such notices. Provided, That the original owner, or his legal representative,
shall have the right to repurchase the entire amount of his said
In the case of Campomanes vs. Bartolome and Germann & Co. (38 real property, at any time before a sale or contract of sale has
Phil., 808), this court held that if a sheriff sells without the notice been made by the director of Lands to a third party, by paying
prescribe by the Code of Civil Procedure induced thereto by the therefore the whole sum due thereon at the time of ejectment
judgment creditor and the purchaser at the sale is the judgment together with a penalty of ten per centum . . . .
creditor, the sale is absolutely void and not title passes. This must
now be regarded as the settled doctrine in this jurisdiction The appellant Addison repurchased under the final proviso of the
whatever the rule may be elsewhere. section quoted and was allowed to do so as the successor in
interest of the original owner under the execution sale above
It appears affirmatively from the evidence in the present case discussed. As we have seen, he acquired no rights under these
that there is a newspaper published in the province where the sales, was therefore not the successor of the original owner and
sale in question took place and that the assessed valuation of the could only have obtained a valid conveyance of such titles as the
property disposed of at each sale exceeded P400. Comparing the Government might have by following the procedure prescribed
requirements of section 454, supra, with what was actually done, by the Public Land Act for the sale of public lands. he is entitled to
it is self-evident that notices of the sales mentioned were not reimbursement for the money paid for the redemption of the
given as prescribed by the statute and taking into consideration land, with interest, but has acquired no title through the
that in connection with these sales the appellant Addison was redemption.
either the judgment creditor or else occupied a position
analogous to that of a judgment creditor, the sales must be held The question of the priority of the record of the sheriff's sales
invalid. over that of the sale from Belisario to Borja is extensively argued
in the briefs, but from our point of view is of no importance; void
The conveyance or reconveyance of the land from the Director of sheriff's or execution sales cannot be validated through
Lands is equally invalid. The provisions of Act No. 1791 pertinent inscription in the Mortgage Law registry.
to the purchase or repurchase of land confiscated for non-
payment of taxes are found in section 19 of the Act and read: The opposition of Adelina Ferrer must also be overruled. She
maintained that the land in question was community property of
. . . In case such redemption be not made within the time above the marriage of Eulalio Belisario and Paula Ira: that upon the
specified the Government of the Philippine Islands shall have an death of Paula Ira inealed from is modified, and the defendant Mr.
absolute, indefeasible title to said real property. Upon the Vicente Sotelo Matti, sentenced to accept and receive from the

plaintiff the tanks, the expellers and the motors in question, and from the plaintiff the sum of P6.00 for the purchase of spare
to pay the plaintiff the sum of ninety-six thousand pesos parts, which amount the plaintiff gave to the defendant. On
(P96,000), with legal interest thereon from July 17, 1919, the October 26, 1963, after getting exasperated with the delay of the
date of the filing of the complaint, until fully paid, and the costs of repair of the typewriter, the plaintiff went to the house of the
both instances. So ordered. defendant and asked for the return of the typewriter. The
defendant delivered the typewriter in a wrapped package. On
reaching home, the plaintiff examined the typewriter returned to
him by the defendant and found out that the same was in
shambles, with the interior cover and some parts and screws
19. [G.R. No. L-27454. April 30, 1970.] missing. On October 29, 1963. the plaintiff sent a letter to the
defendant formally demanding the return of the missing parts,
ROSENDO O. CHAVES, Plaintiff-Appellant, v. the interior cover and the sum of P6.00 (Exhibit D). The following
FRUCTUOSO GONZALES, Defendant-Appellee. day, the defendant returned to the plaintiff some of the missing
parts, the interior cover and the P6.00.
Chaves, Elio, Chaves & Associates, for Plaintiff-
Appellant. "On August 29, 1964, the plaintiff had his typewriter repaired by
Freixas Business Machines, and the repair job cost him a total of
Sulpicio E. Platon, for Defendant-Appellee. P89.85, including labor and materials (Exhibit C).

"On August 23, 1965, the plaintiff commenced this action before
This is a direct appeal by the party who prevailed in a suit for the City Court of Manila, demanding from the defendant the
breach of oral contract and recovery of damages but was payment of P90.00 as actual and compensatory damages,
unsatisfied with the decision rendered by the Court of First P100.00 for temperate damages, P500.00 for moral damages, and
Instance of Manila, in its Civil Case No. 65138, because it awarded P500.00 as attorneys fees.
him only P31.10 out of his total claim of P690 00 for actual,
temperate and moral damages and attorneys fees. "In his answer as well as in his testimony given before this court,
the defendant made no denials of the facts narrated above, except
The appealed judgment, which is brief, is hereunder quoted in the claim of the plaintiff that the typewriter was delivered to the
full:jgc:chanrobles.com.ph defendant through a certain Julio Bocalin, which the defendant
denied allegedly because the typewriter was delivered to him
"In the early part of July, 1963, the plaintiff delivered to the personally by the plaintiff.
defendant, who is a typewriter repairer, a portable typewriter for
routine cleaning and servicing. The defendant was not able to "The repair done on the typewriter by Freixas Business Machines
finish the job after some time despite repeated reminders made with the total cost of P89.85 should not, however, be fully
by the plaintiff. The defendant merely gave assurances, but failed chargeable against the defendant. The repair invoice, Exhibit C,
to comply with the same. In October, 1963, the defendant asked shows that the missing parts had a total value of only P31.10.

servicing" ; that the defendant was not able to finish the job after
"WHEREFORE, judgment is hereby rendered ordering the some time despite repeated reminders made by the plaintiff" ;
defendant to pay the plaintiff the sum of P31.10, and the costs of that the "defendant merely gave assurances, but failed to comply
suit. with the same" ; and that "after getting exasperated with the
delay of the repair of the typewriter", the plaintiff went to the
"SO ORDERED."cralaw virtua1aw library house of the defendant and asked for its return, which was done.
The inferences derivable from these findings of fact are that the
The error of the court a quo, according to the plaintiff-appellant, appellant and the appellee had a perfected contract for cleaning
Rosendo O. Chaves, is that it awarded only the value of the and servicing a typewriter; that they intended that the defendant
missing parts of the typewriter, instead of the whole cost of labor was to finish it at some future time although such time was not
and materials that went into the repair of the machine, as specified; and that such time had passed without the work having
provided for in Article 1167 of the Civil Code, reading as been accomplished, far the defendant returned the typewriter
follows:jgc:chanrobles.com.ph cannibalized and unrepaired, which in itself is a breach of his
obligation, without demanding that he should be given more time
"ART. 1167. If a person obliged to do something fails to do it, the to finish the job, or compensation for the work he had already
same shall be executed at his cost. done. The time for compliance having evidently expired, and
there being a breach of contract by non-performance, it was
This same rule shall be observed if he does it in contravention of academic for the plaintiff to have first petitioned the court to fix a
the tenor of the obligation. Furthermore it may be decreed that period for the performance of the contract before filing his
what has been poorly done he undone."cralaw virtua1aw library complaint in this case. Defendant cannot invoke Article 1197 of
the Civil Code for he virtually admitted non-performance by
On the other hand, the position of the defendant-appellee, returning the typewriter that he was obliged to repair in a non-
Fructuoso Gonzales, is that he is not liable at all, not even for the working condition, with essential parts missing. The fixing of a
sum of P31.10, because his contract with plaintiff-appellant did period would thus be a mere formality and would serve no
not contain a period, so that plaintiff-appellant should have first purpose than to delay (cf. Tiglao. Et. Al. V. Manila Railroad Co. 98
filed a petition for the court to fix the period, under Article 1197 Phil. 18l).
of the Civil Code, within which the defendant appellee was to
comply with the contract before said defendant-appellee could be It is clear that the defendant-appellee contravened the tenor of
held liable for breach of contract. his obligation because he not only did not repair the typewriter
but returned it "in shambles", according to the appealed decision.
Because the plaintiff appealed directly to the Supreme Court and For such contravention, as appellant contends, he is liable under
the appellee did not interpose any appeal, the facts, as found by Article 1167 of the Civil Code. jam quot, for the cost of executing
the trial court, are now conclusive and non-reviewable. 1 the obligation in a proper manner. The cost of the execution of
the obligation in this case should be the cost of the labor or
The appealed judgment states that the "plaintiff delivered to the service expended in the repair of the typewriter, which is in the
defendant . . . a portable typewriter for routine cleaning and

amount of P58.75. because the obligation or contract was to JACINTA BALDOMAR, ET AL., defendants-appellants.
repair it.
Bausa and Ampil for appellants.
In addition, the defendant-appellee is likewise liable, under Tolentino and Aguas for appellee.
Article 1170 of the Code, for the cost of the missing parts, in the
amount of P31.10, for in his obligation to repair the typewriter he
was bound, but failed or neglected, to return it in the same HILADO, J.:
condition it was when he received it.
Vicente Singson Encarnacion, owner of the house numbered 589
Appellants claims for moral and temperate damages and Legarda Street, Manila, some six years ago leased said house to
attorneys fees were, however, correctly rejected by the trial Jacinto Baldomar and her son, Lefrado Fernando, upon a month-
court, for these were not alleged in his complaint (Record on to-month basis for the monthly rental of P35. After Manila was
Appeal, pages 1-5). Claims for damages and attorneys fees must liberated in the last war, specifically on March 16, 1945, and on
be pleaded, and the existence of the actual basis thereof must be April 7, of the same year, plaintiff Singson Encarnacion notified
proved. 2 The appealed judgment thus made no findings on these defendants, the said mother and son, to vacate the house above-
claims, nor on the fraud or malice charged to the appellee. As no mentioned on or before April 15, 1945, because plaintiff needed
findings of fact were made on the claims for damages and it for his offices as a result of the destruction of the building
attorneys fees, there is no factual basis upon which to make an where said plaintiff had said offices before. Despite this demand,
award therefor. Appellant is bound by such judgment of the defendants insisted on continuing their occupancy. When the
court, a quo, by reason of his having resorted directly to the original action was lodged with the Municipal Court of Manila on
Supreme Court on questions of law. April 20, 1945, defendants were in arrears in the payment of the
rental corresponding to said month, the agrees rental being
IN VIEW OF THE FOREGOING REASONS, the appealed judgment payable within the first five days of each month. That rental was
is hereby modified, by ordering the defendant-appellee to pay, as paid prior to the hearing of the case in the municipal court, as a
he is hereby ordered to pay, the plaintiff-appellant the sum of consequence of which said court entered judgment for restitution
P89.85, with interest at the legal rate from the filing of the and payment of rentals at the rate of P35 a month from May 1,
complaint. Costs in all instances against appellee Fructuoso 1945, until defendants completely vacate the premises. Although
Gonzales. plaintiff included in said original complaint a claim for P500
damages per month, that claim was waived by him before the
hearing in the municipal court, on account of which nothing was
said regarding said damages in the municipal court's decision.

20. G.R. No. L-264 October 4, 1946 When the case reached the Court of First Instance of Manila upon
appeal, defendants filed therein a motion to dismiss (which was
VICENTE SINGSON ENCARNACION, plaintiff-appellee, similar to a motion to dismiss filed by them in the municipal
vs. court) based upon the ground that the municipal court had no

jurisdiction over the subject matter due to the aforesaid claim for owner would never be able to discontinue it; conversely,
damages and that, therefore, the Court of First Instance had no although the owner should desire the lease to continue, the
appellate jurisdiction over the subject matter of the action. That lessees could effectively thwart his purpose if they should prefer
motion to dismiss was denied by His Honor, Judge Mamerto to terminate the contract by the simple expedient of stopping
Roxas, by order dated July 21, 1945, on the ground that in the payment of the rentals. This, of course, is prohibited by the
municipal court plaintiff had waived said claim for damages and aforesaid article of the Civil Code. (8 Manresa, 3d ed., pp. 626,
that, therefore, the same waiver was understood also to have 627; Cuyugan vs. Santos, 34 Phil., 100.)
been made in the Court of First Instance.lawphil.net
During the pendency of the appeal in the Court of First Instance
In the Court of First Instance the graveman of the defense and before the judgment appealed from was rendered on October
interposed by defendants, as it was expressed defendant Lefrado 31, 1945, the rentals in areas were those pertaining to the month
Fernando during the trial, was that the contract which they had of August, 1945, to the date of said judgment at the rate of P35 a
celebrated with plaintiff since the beginning authorized them to month. During the pendency of the appeal in that court, certain
continue occupying the house indefinetly and while they should deposits were made by defendants on account of rentals with the
faithfully fulfill their obligations as respects the payment of the clerk of said court, and in said judgment it is disposed that the
rentals, and that this agreement had been ratified when another amounts thus deposited should be delivered to plaintiff.
ejectment case between the parties filed during the Japanese
regime concerning the same house was allegedly compounded in Upon the whole, we are clearly of opinion that the judgment
the municipal court. The Court of First Instance gave more credit appealed from should be, as it is hereby, affirmed, with the costs
to plaintiff's witness, Vicente Singson Encarnacion, jr., who of the three instances to appellants. So ordered.
testified that the lease had always and since the beginning been
upon a month-to-month basis. The court added in its decision
that this defense which was put up by defendant's answer, for
which reason the Court considered it as indicative of an eleventh-
hour theory. We think that the Court of First Instance was right in 21. G.R. No. 967 May 19, 1903
so declaring. Furthermore, carried to its logical conclusion, the
defense thus set up by defendant Lefrado Fernando would leave DARIO AND GAUDENCIO ELEIZEGUI, plaintiffs-
to the sole and exclusive will of one of the contracting parties appellees,
(defendants in this case) the validity and fulfillment of the vs.
contract of lease, within the meaning of article 1256 of the Civil THE MANILA LAWN TENNIS CLUB, defendant-
Code, since the continuance and fulfillment of the contract would appellant.
then depend solely and exclusively upon their free and
uncontrolled choice between continuing paying the rentals or Pillsburry and Sutro for appellant.
not, completely depriving the owner of all say in the matter. If Manuel Torres Vergara for appellee.
this defense were to be allowed, so long as defendants elected to
continue the lease by continuing the payment of the rentals, the ARELLANO, C. J.:

In accordance with such a theory, the plaintiffs might have
This suit concerns the lease of a piece of land for a fixed terminated the lease the month following the making of the
consideration and to endure at the will of the lessee. By the contract at any time after the first month, which, strictly
contract of lease the lessee is expressly authorized to make speaking, would be the only month with respect to which they
improvements upon the land, by erecting buildings of both were expressly bound, they not being bound for each successive
permanent and temporary character, by making fills, laying month except by a tacit renewal (art. 1566) an effect which
pipes, and making such other improvements as might be they might prevent by giving the required notice.
considered desirable for the comfort and amusement of the
members. Although the relief asked for in the complaint, drawn in
accordance with the new form of procedure established by the
With respect to the term of the lease the present question has prevailing Code, is the restitution of the land to the plaintiffs (a
arisen. In its decision three theories have been presented: One formula common to various actions), nevertheless the action
which makes the duration depend upon the will of the lessor, which is maintained can be no other than that of desahucio, in
who, upon one month's notice given to the lessee, may terminate accordance with the substantive law governing the contract. The
the lease so stipulated; another which, on the contrary, makes it lessor says article 1569 of the Civil Code may judicially
dependent upon the will of the lessee, as stipulated; and the dispossess the lessee upon the expiration of the conventional
third, in accordance with which the right is reversed to the courts term or of the legal term; the conventional term that is, the
to fix the duration of the term. one agreed upon by the parties; the legal term, in defect of the
conventional, fixed for leases by articles 1577 and 1581. We have
The first theory is that which has prevailed in the judgment already seen what this legal term is with respect to urban
below, as appears from the language in which the basis of the properties, in accordance with article 1581.
decision is expressed: "The court is of the opinion that the
contract of lease was terminated by the notice given by the Hence, it follows that the judge has only to determine whether
plaintiff on August 28 of last year . . . ." And such is the theory there is or is not conventional term. If there be a conventional
maintained by the plaintiffs, which expressly rests upon article term, he can not apply the legal term fixed in subsidium to cover
1581 of the Civil Code, the law which was in force at the time the a case in which the parties have made no agreement whatsoever
contract was entered into (January 25, 1890). The judge, in giving with respect to the duration of the lease. In this case the law
to this notice the effect of terminating the lease, undoubtedly interprets the presumptive intention of the parties, they having
considers that it is governed by the article relied upon by the said nothing in the contract with respect to its duration.
plaintiffs, which is of the following tenor: "When the term has not "Obligations arising from contracts have the force of law between
been fixed for the lease, it is understood to be for years when an the contracting parties and must be complied with according to
annual rental has been fixed, for months when the rent is the tenor of the contracts." (Art. 1091 of the Civil Code.)
monthly. . . ." The second clause of the contract provides as
follows: "The rent of the said land is fixed at 25 pesos per month." The obligations which, with the force of law, the lessors assumed
(P. 11, Bill of Exceptions.) by the contract entered into, so far as pertaining to the issues, are
the following: "First. . . . They lease the above-described land to

Mr. Williamson, who takes it on lease, . . . for all the time the secretary of said club, may terminate this lease whenever desired
members of the said club may desire to use it . . . Third. . . . the without other formality than that of giving a month's notice. The
owners of the land undertake to maintain the club as tenant as owners of the land undertake to maintain the club as tenant as
long as the latter shall see fit, without altering in the slightest long as the latter shall see fit." The right of the one and the
degree the conditions of this contract, even though the estate be obligation of the others being thus placed in antithesis, there is
sold." something more, much more, than the inclusio unius, exclusio
alterius. It is evident that the lessors did not intend to reserve to
It is necessary, therefore, to answer the first question: Was there, themselves the right to rescind that which they expressly
or was there not, a conventional term, a duration, agreed upon in conferred upon the lessee by establishing it exclusively in favor
the contract in question? If there was an agreed duration, a of the latter.
conventional term, then the legal term the term fixed in article
1581 has no application; the contract is the supreme law of It would be the greatest absurdity to conclude that in a contract
the contracting parties. Over and above the general law is the by which the lessor has left the termination of the lease to the
special law, expressly imposed upon themselves by the will of the lessee, such a lease can or should be terminated at the
contracting parties. Without these clauses 1 and 3, the contract will of the lessor.
would contain no stipulation with respect to the duration of the
lease, and then article 1581, in connection with article 1569, It would appear to follow, from the foregoing, that, if such is the
would necessarily be applicable. In view of these clauses, force of the agreement, there can be no other mode of
however, it can not be said that there is no stipulation with terminating the lease than by the will of the lessee, as stipulated
respect to the duration of the lease, or that, notwithstanding in this case. Such is the conclusion maintained by the defendant
these clauses, article 1581, in connection with article 1569, can in the demonstration of the first error of law in the judgment, as
be applied. If this were so, it would be necessary to hold that the alleged by him. He goes so far, under this theory, as to maintain
lessors spoke in vain that their words are to be disregarded the possibility of a perpetual lease, either as such lease, if the
a claim which can not be advanced by the plaintiffs nor upheld by name can be applied, or else as an innominate contract, or under
any court without citing the law which detracts all legal force any other denomination, in accordance with the agreement of the
from such words or despoils them of their literal sense. parties, which is, in fine, the law of the contract, superior to all
other law, provided that there be no agreement against any
It having been demonstrated that the legal term can not be prohibitive statute, morals, or public policy.
applied, there being a conventional term, this destroys the
assumption that the contract of lease was wholly terminated by It is unnecessary here to enter into a discussion of a perpetual
the notice given by the plaintiffs, this notice being necessary only lease in accordance with the law and doctrine prior to the Civil
when it becomes necessary to have recourse to the legal term. Code now in force, and which has been operative since 1889.
Nor had the plaintiffs, under the contract, any right to give such Hence the judgment of the supreme court of Spain of January 2,
notice. It is evident that they had no intention of stipulating that 1891, with respect to a lease made in 1887, cited by the
they reserved the right to give such notice. Clause 3 begins as defendant, and a decision stated by him to have been rendered by
follows: "Mr. Williamson, or whoever may succeed him as the Audiencia of Pamplona in 1885 (it appears to be rather a

decision by the head office of land registration of July 1, 1885), "Being in the full enjoyment of the necessary legal capacity to
and any other decision which might be cited based upon the enter into this contract of lease . . . they have agreed upon the
constitutions of Cataluna, according to which a lease of more than lease of said estate . . . They lease to Mr. Williamson, who receives
ten years is understood to create a life tenancy, or even a it as such. . . . The rental is fixed at 25 pesos a month. . . . The
perpetual tenancy, are entirely out of point in this case, in which owners bind themselves to maintain the club as tenant. . . . Upon
the subject-matter is a lease entered into under the provisions of the foregoing conditions they make the present contract of lease.
the present Civil Code, in accordance with the principles of which . . ." (Pp. 9, 11, and 12, bill of exceptions.) If it is a lease, then it
alone can this doctrine be examined. must be for a determinate period. (Art. 1543.) By its very nature
it must be temporary, just as by reason of its nature an
It is not to be understood that we admit that the lease entered emphyteusis must be perpetual, or for an unlimited period. (Art.
into was stipulated as a life tenancy, and still less as a perpetual 1608.)
lease. The terms of the contract express nothing to this effect.
They do, whatever, imply this idea. If the lease could last during On the other hand, it can not be concluded that the termination of
such time as the lessee might see fit, because it has been so the contract is to be left completely at the will of the lessee,
stipulated by the lessor, it would last, first, as long as the will of because it has been stipulated that its duration is to be left to his
the lessee that is, all his life; second, during all the time that he will.
may have succession, inasmuch as he who contracts does so for
himself and his heirs. (Art. 1257 of the Civil Code.) The lease in The Civil Code has made provision for such a case in all kinds of
question does not fall within any of the cases in which the rights obligations. In speaking in general of obligations with a term it
and obligations arising from a contract can not be transmitted to has supplied the deficiency of the former law with respect to the
heirs, either by its nature, by agreement, or by provision of law. "duration of the term when it has been left to the will of the
Furthermore, the lessee is an English association. debtor," and provides that in this case the term shall be fixed by
the courts. (Art. 1128, sec. 2.) In every contract, as laid down by
Usufruct is a right of superior degree to that which arises from a the authorities, there is always a creditor who is entitled to
lease. It is a real right and includes all the jus utendi and jus demand the performance, and a debtor upon whom rests the
fruendi. Nevertheless, the utmost period for which a usufruct can obligation to perform the undertaking. In bilateral contracts the
endure, if constituted in favor a natural person, is the lifetime of contracting parties are mutually creditors and debtors. Thus, in
the usufructuary (art. 513, sec. 1); and if in favor of juridical this contract of lease, the lessee is the creditor with respect to the
person, it can not be created for more than thirty years. (Art. rights enumerated in article 1554, and is the debtor with respect
515.) If the lease might be perpetual, in what would it be to the obligations imposed by articles 1555 and 1561. The term
distinguished from an emphyteusis? Why should the lessee have within which performance of the latter obligation is due is what
a greater right than the usufructuary, as great as that of an has been left to the will of the debtor. This term it is which must
emphyteuta, with respect to the duration of the enjoyment of the be fixed by the courts.
property of another? Why did they not contract for a usufruct or
an emphyteusis? It was repeatedly stated in the document that it The only action which can be maintained under the terms of the
was a lease, and nothing but a lease, which was agreed upon: contract is that by which it is sought to obtain from the judge the

determination of this period, and not the unlawful detainer general, such general provisions would be wholly without
action which has been brought an action which presupposes application. The system of the Code is that of establishing general
the expiration of the term and makes it the duty of the judge to rules applicable to all obligations and contracts, and then special
simply decree an eviction. To maintain the latter action it is provisions peculiar to each species of contract. In no part of Title
sufficient to show the expiration of the term of the contract, VI of Book IV, which treats of the contract of lease, are there any
whether conventional or legal; in order to decree the relief to be special rules concerning pure of conditional obligations which
granted in the former action it is necessary for the judge to look may be stipulated in a lease, because, with respect to these
into the character and conditions of the mutual undertakings matters, the provisions of section 1, chapter 3, Title I, on the
with a view to supplying the lacking element of a time at which subject of obligations are wholly sufficient. With equal reason
the lease is to expire. In the case of a loan of money or a should we refer to section 2, which deals with obligations with a
commodatum of furniture, the payment or return to be made term, in the same chapter and title, if a question concerning the
when the borrower "can conveniently do so" does not mean that term arises out of a contract of lease, as in the present case, and
he is to be allowed to enjoy the money or to make use of the thing within this section we find article 1128, which decides the
indefinitely or perpetually. The courts will fix in each case, question.
according to the circumstances, the time for the payment or
return. This is the theory also maintained by the defendant in his The judgment was entered below upon the theory of the
demonstration of the fifth assignment of error. "Under article expiration of a legal term which does not exist, as the case
1128 of the Civil Code," thus his proposition concludes, requires that a term be fixed by the courts under the provisions
"contracts whose term is left to the will of one of the contracting of article 1128 with respect to obligations which, as is the
parties must be fixed by the courts, . . . the conditions as to the present, are terminable at the will of the obligee. It follows,
term of this lease has a direct legislative sanction," and he cites therefore, that the judgment below is erroneous.
articles 1128. "In place of the ruthless method of annihilating a
solemn obligation, which the plaintiffs in this case have sought to The judgment is reversed and the case will be remanded to the
pursue, the Code has provided a legitimate and easily available court below with directions to enter a judgment of dismissal of
remedy. . . . The Code has provided for the proper disposition of the action in favor of the defendant, the Manila Lawn Tennis Club,
those covenants, and a case can hardly arise more clearly without special allowance as to the recovery of costs. So ordered.
demonstrating the usefulness of that provision than the case at
bar." (Pp. 52 and 53 of appellant's brief.)

The plaintiffs, with respect to this conclusion on the part of their
opponents, only say that article 1128 "expressly refers to 22. G.R. No. L-17587 September 12, 1967
obligations in contracts in general, and that it is well known that
a lease is included among special contracts." But they do not PHILIPPINE BANKING CORPORATION, representing
observe that if contracts, simply because special rules are the estate of JUSTINA SANTOS Y CANON FAUSTINO,
provided for them, could be excepted from the provisions of the deceased, plaintiff-appellant,
articles of the Code relative to obligations and contracts in vs.

LUI SHE in her own behalf and as administratrix of the
intestate estate of Wong Heng, deceased, defendant- "In grateful acknowledgment of the personal services of the
appellant. lessee to her," Justina Santos executed on November 15, 1957 a
contract of lease (Plff Exh. 3) in favor of Wong, covering the
Nicanor S. Sison for plaintiff-appellant. portion then already leased to him and another portion fronting
Ozaeta, Gibbs & Ozaeta for defendant-appellant. Florentino Torres street. The lease was for 50 years, although the
lessee was given the right to withdraw at any time from the
agreement; the monthly rental was P3,120. The contract covered
CASTRO, J.: an area of 1,124 square meters. Ten days later (November 25),
the contract was amended (Plff Exh. 4) so as to make it cover the
Justina Santos y Canon Faustino and her sister Lorenzo were the entire property, including the portion on which the house of
owners in common of a piece of land in Manila. This parcel, with Justina Santos stood, at an additional monthly rental of P360. For
an area of 2,582.30 square meters, is located on Rizal Avenue and his part Wong undertook to pay, out of the rental due from him,
opens into Florentino Torres street at the back and Katubusan an amount not exceeding P1,000 a month for the food of her dogs
street on one side. In it are two residential houses with entrance and the salaries of her maids.
on Florentino Torres street and the Hen Wah Restaurant with
entrance on Rizal Avenue. The sisters lived in one of the houses, On December 21 she executed another contract (Plff Exh. 7)
while Wong Heng, a Chinese, lived with his family in the giving Wong the option to buy the leased premises for P120,000,
restaurant. Wong had been a long-time lessee of a portion of the payable within ten years at a monthly installment of P1,000. The
property, paying a monthly rental of P2,620. option, written in Tagalog, imposed on him the obligation to pay
for the food of the dogs and the salaries of the maids in her
On September 22, 1957 Justina Santos became the owner of the household, the charge not to exceed P1,800 a month. The option
entire property as her sister died with no other heir. Then was conditioned on his obtaining Philippine citizenship, a
already well advanced in years, being at the time 90 years old, petition for which was then pending in the Court of First Instance
blind, crippled and an invalid, she was left with no other relative of Rizal. It appears, however, that this application for
to live with. Her only companions in the house were her 17 dogs naturalization was withdrawn when it was discovered that he
and 8 maids. Her otherwise dreary existence was brightened now was not a resident of Rizal. On October 28, 1958 she filed a
and then by the visits of Wong's four children who had become petition to adopt him and his children on the erroneous belief
the joy of her life. Wong himself was the trusted man to whom that adoption would confer on them Philippine citizenship. The
she delivered various amounts for safekeeping, including rentals error was discovered and the proceedings were abandoned.
from her property at the corner of Ongpin and Salazar streets and
the rentals which Wong himself paid as lessee of a part of the On November 18, 1958 she executed two other contracts, one
Rizal Avenue property. Wong also took care of the payment; in (Plff Exh. 5) extending the term of the lease to 99 years, and
her behalf, of taxes, lawyers' fees, funeral expenses, masses, another (Plff Exh. 6) fixing the term of the option of 50 years.
salaries of maids and security guard, and her household Both contracts are written in Tagalog.
expenses.

In two wills executed on August 24 and 29, 1959 (Def Exhs. 285 These amounts and the dates of their delivery are P33,724.27
& 279), she bade her legatees to respect the contracts she had (Nov. 4, 1957); P7,344.42 (Dec. 1, 1957); P10,000 (Dec. 6, 1957);
entered into with Wong, but in a codicil (Plff Exh. 17) of a later P22,000 and P3,000 (as admitted in his answer). An accounting
date (November 4, 1959) she appears to have a change of heart. of the rentals from the Ongpin and Rizal Avenue properties was
Claiming that the various contracts were made by her because of also demanded.
machinations and inducements practiced by him, she now
directed her executor to secure the annulment of the contracts. In the meantime as a result of a petition for guardianship filed in
the Juvenile and Domestic Relations Court, the Security Bank &
On November 18 the present action was filed in the Court of First Trust Co. was appointed guardian of the properties of Justina
Instance of Manila. The complaint alleged that the contracts were Santos, while Ephraim G. Gochangco was appointed guardian of
obtained by Wong "through fraud, misrepresentation, inequitable her person.
conduct, undue influence and abuse of confidence and trust of
and (by) taking advantage of the helplessness of the plaintiff and In his answer, Wong insisted that the various contracts were
were made to circumvent the constitutional provision freely and voluntarily entered into by the parties. He likewise
prohibiting aliens from acquiring lands in the Philippines and disclaimed knowledge of the sum of P33,724.27, admitted receipt
also of the Philippine Naturalization Laws." The court was asked of P7,344.42 and P10,000, but contended that these amounts had
to direct the Register of Deeds of Manila to cancel the registration been spent in accordance with the instructions of Justina Santos;
of the contracts and to order Wong to pay Justina Santos the he expressed readiness to comply with any order that the court
additional rent of P3,120 a month from November 15, 1957 on might make with respect to the sums of P22,000 in the bank and
the allegation that the reasonable rental of the leased premises P3,000 in his possession.
was P6,240 a month.
The case was heard, after which the lower court rendered
In his answer, Wong admitted that he enjoyed her trust and judgment as follows:
confidence as proof of which he volunteered the information that,
in addition to the sum of P3,000 which he said she had delivered [A]ll the documents mentioned in the first cause of action, with
to him for safekeeping, another sum of P22,000 had been the exception of the first which is the lease contract of 15
deposited in a joint account which he had with one of her maids. November 1957, are declared null and void; Wong Heng is
But he denied having taken advantage of her trust in order to condemned to pay unto plaintiff thru guardian of her property
secure the execution of the contracts in question. As counterclaim the sum of P55,554.25 with legal interest from the date of the
he sought the recovery of P9,210.49 which he said she owed him filing of the amended complaint; he is also ordered to pay the
for advances. sum of P3,120.00 for every month of his occupation as lessee
under the document of lease herein sustained, from 15
Wong's admission of the receipt of P22,000 and P3,000 was the November 1959, and the moneys he has consigned since then
cue for the filing of an amended complaint. Thus on June 9, 1960, shall be imputed to that; costs against Wong Heng.
aside from the nullity of the contracts, the collection of various
amounts allegedly delivered on different occasions was sought.

From this judgment both parties appealed directly to this Court. other act which may have been the subject of agreement. Indeed,
After the case was submitted for decision, both parties died, the cancellation of a contract in accordance with conditions
Wong Heng on October 21, 1962 and Justina Santos on December agreed upon beforehand is fulfillment.2
28, 1964. Wong was substituted by his wife, Lui She, the other
defendant in this case, while Justina Santos was substituted by And so it was held in Melencio v. Dy Tiao Lay 3 that a "provision
the Philippine Banking Corporation. in a lease contract that the lessee, at any time before he erected
any building on the land, might rescind the lease, can hardly be
Justina Santos maintained now reiterated by the Philippine regarded as a violation of article 1256 [now art. 1308] of the Civil
Banking Corporation that the lease contract (Plff Exh. 3) Code."
should have been annulled along with the four other contracts
(Plff Exhs. 4-7) because it lacks mutuality; because it included a The case of Singson Encarnacion v. Baldomar 4 cannot be cited in
portion which, at the time, was in custodia legis; because the support of the claim of want of mutuality, because of a difference
contract was obtained in violation of the fiduciary relations of the in factual setting. In that case, the lessees argued that they could
parties; because her consent was obtained through undue occupy the premises as long as they paid the rent. This is of
influence, fraud and misrepresentation; and because the lease course untenable, for as this Court said, "If this defense were to
contract, like the rest of the contracts, is absolutely simulated. be allowed, so long as defendants elected to continue the lease by
continuing the payment of the rentals, the owner would never be
Paragraph 5 of the lease contract states that "The lessee may at able to discontinue it; conversely, although the owner should
any time withdraw from this agreement." It is claimed that this desire the lease to continue the lessees could effectively thwart
stipulation offends article 1308 of the Civil Code which provides his purpose if they should prefer to terminate the contract by the
that "the contract must bind both contracting parties; its validity simple expedient of stopping payment of the rentals." Here, in
or compliance cannot be left to the will of one of them." contrast, the right of the lessee to continue the lease or to
terminate it is so circumscribed by the term of the contract that it
We have had occasion to delineate the scope and application of cannot be said that the continuance of the lease depends upon his
article 1308 in the early case of Taylor v. Uy Tieng Piao.1 We said will. At any rate, even if no term had been fixed in the agreement,
in that case: this case would at most justify the fixing of a period5 but not the
annulment of the contract.
Article 1256 [now art. 1308] of the Civil Code in our opinion
creates no impediment to the insertion in a contract for personal Nor is there merit in the claim that as the portion of the property
service of a resolutory condition permitting the cancellation of formerly owned by the sister of Justina Santos was still in the
the contract by one of the parties. Such a stipulation, as can be process of settlement in the probate court at the time it was
readily seen, does not make either the validity or the fulfillment leased, the lease is invalid as to such portion. Justina Santos
of the contract dependent upon the will of the party to whom is became the owner of the entire property upon the death of her
conceded the privilege of cancellation; for where the contracting sister Lorenzo on September 22, 1957 by force of article 777 of
parties have agreed that such option shall exist, the exercise of the Civil Code. Hence, when she leased the property on
the option is as much in the fulfillment of the contract as any November 15, she did so already as owner thereof. As this Court

explained in upholding the sale made by an heir of a property
under judicial administration: A I explained to her each and every one of these conditions and I
also told her these conditions were quite onerous for her, I don't
That the land could not ordinarily be levied upon while in really know if I have expressed my opinion, but I told her that we
custodia legis does not mean that one of the heirs may not sell would rather not execute any contract anymore, but to hold it as
the right, interest or participation which he has or might have in it was before, on a verbal month to month contract of lease.
the lands under administration. The ordinary execution of
property in custodia legis is prohibited in order to avoid Q But, she did not follow your advice, and she went with the
interference with the possession by the court. But the sale made contract just the same?
by an heir of his share in an inheritance, subject to the result of
the pending administration, in no wise stands in the way of such A She agreed first . . .
administration.6
Q Agreed what?
It is next contended that the lease contract was obtained by
Wong in violation of his fiduciary relationship with Justina A Agreed with my objectives that it is really onerous and that I
Santos, contrary to article 1646, in relation to article 1941 of the was really right, but after that, I was called again by her and she
Civil Code, which disqualifies "agents (from leasing) the property told me to follow the wishes of Mr. Wong Heng.
whose administration or sale may have been entrusted to them."
But Wong was never an agent of Justina Santos. The relationship x x x x x x x x x
of the parties, although admittedly close and confidential, did not
amount to an agency so as to bring the case within the Q So, as far as consent is concerned, you were satisfied that
prohibition of the law. this document was perfectly proper?

Just the same, it is argued that Wong so completely dominated x x x x x x x x x
her life and affairs that the contracts express not her will but only
his. Counsel for Justina Santos cites the testimony of Atty. Tomas A Your Honor, if I have to express my personal opinion, I
S. Yumol who said that he prepared the lease contract on the would say she is not, because, as I said before, she told me
basis of data given to him by Wong and that she told him that "Whatever Mr. Wong wants must be followed."8
"whatever Mr. Wong wants must be followed."7
Wong might indeed have supplied the data which Atty. Yumol
The testimony of Atty. Yumol cannot be read out of context in embodied in the lease contract, but to say this is not to detract
order to warrant a finding that Wong practically dictated the from the binding force of the contract. For the contract was fully
terms of the contract. What this witness said was: explained to Justina Santos by her own lawyer. One incident,
related by the same witness, makes clear that she voluntarily
Q Did you explain carefully to your client, Doa Justina, the consented to the lease contract. This witness said that the
contents of this document before she signed it? original term fixed for the lease was 99 years but that as he

doubted the validity of a lease to an alien for that length of time, destroyed their house during the liberation of Manila. For while a
he tried to persuade her to enter instead into a lease on a month- witness claimed that the sisters were saved by other persons (the
to-month basis. She was, however, firm and unyielding. Instead of brothers Edilberto and Mariano Sta. Ana)13 it was Justina Santos
heeding the advice of the lawyer, she ordered him, "Just follow herself who, according to her own witness, Benjamin C. Alonzo,
Mr. Wong Heng."9 Recounting the incident, Atty. Yumol declared said "very emphatically" that she and her sister would have
on cross examination: perished in the fire had it not been for Wong.14 Hence the recital
in the deed of conditional option (Plff Exh. 7) that "[I]tong si
Considering her age, ninety (90) years old at the time and her Wong Heng ang siyang nagligtas sa aming dalawang magkapatid
condition, she is a wealthy woman, it is just natural when she sa halos ay tiyak na kamatayan", and the equally emphatic
said "This is what I want and this will be done." In particular avowal of gratitude in the lease contract (Plff Exh. 3).
reference to this contract of lease, when I said "This is not
proper," she said "You just go ahead, you prepare that, I am As it was with the lease contract (Plff Exh. 3), so it was with the
the owner, and if there is any illegality, I am the only one that can rest of the contracts (Plff Exhs. 4-7) the consent of Justina
question the illegality."10 Santos was given freely and voluntarily. As Atty. Alonzo,
testifying for her, said:
Atty. Yumol further testified that she signed the lease contract in
the presence of her close friend, Hermenegilda Lao, and her maid, [I]n nearly all documents, it was either Mr. Wong Heng or Judge
Natividad Luna, who was constantly by her side.11 Any of them Torres and/or both. When we had conferences, they used to tell
could have testified on the undue influence that Wong me what the documents should contain. But, as I said, I would
supposedly wielded over Justina Santos, but neither of them was always ask the old woman about them and invariably the old
presented as a witness. The truth is that even after giving his woman used to tell me: "That's okay. It's all right."15
client time to think the matter over, the lawyer could not make
her change her mind. This persuaded the lower court to uphold But the lower court set aside all the contracts, with the exception
the validity of the lease contract against the claim that it was of the lease contract of November 15, 1957, on the ground that
procured through undue influence. they are contrary to the expressed wish of Justina Santos and that
their considerations are fictitious. Wong stated in his deposition
Indeed, the charge of undue influence in this case rests on a mere that he did not pay P360 a month for the additional premises
inference12 drawn from the fact that Justina Santos could not leased to him, because she did not want him to, but the trial court
read (as she was blind) and did not understand the English did not believe him. Neither did it believe his statement that he
language in which the contract is written, but that inference has paid P1,000 as consideration for each of the contracts (namely,
been overcome by her own evidence. the option to buy the leased premises, the extension of the lease
to 99 years, and the fixing of the term of the option at 50 years),
Nor is there merit in the claim that her consent to the lease but that the amount was returned to him by her for safekeeping.
contract, as well as to the rest of the contracts in question, was Instead, the court relied on the testimony of Atty. Alonzo in
given out of a mistaken sense of gratitude to Wong who, she was reaching the conclusion that the contracts are void for want of
made to believe, had saved her and her sister from a fire that consideration.

prohibition against the transfer of lands to aliens. "The illicit
Atty. Alonzo declared that he saw no money paid at the time of purpose then becomes the illegal causa"19 rendering the
the execution of the documents, but his negative testimony does contracts void.
not rule out the possibility that the considerations were paid at
some other time as the contracts in fact recite. What is more, the Taken singly, the contracts show nothing that is necessarily
consideration need not pass from one party to the other at the illegal, but considered collectively, they reveal an insidious
time a contract is executed because the promise of one is the pattern to subvert by indirection what the Constitution directly
consideration for the other.16 prohibits. To be sure, a lease to an alien for a reasonable period is
valid. So is an option giving an alien the right to buy real property
With respect to the lower court's finding that in all probability on condition that he is granted Philippine citizenship. As this
Justina Santos could not have intended to part with her property Court said in Krivenko v. Register of Deeds:20
while she was alive nor even to lease it in its entirety as her
house was built on it, suffice it to quote the testimony of her own [A]liens are not completely excluded by the Constitution from the
witness and lawyer who prepared the contracts (Plff Exhs. 4-7) in use of lands for residential purposes. Since their residence in the
question, Atty. Alonzo: Philippines is temporary, they may be granted temporary rights
such as a lease contract which is not forbidden by the
The ambition of the old woman, before her death, according to Constitution. Should they desire to remain here forever and share
her revelation to me, was to see to it that these properties be our fortunes and misfortunes, Filipino citizenship is not
enjoyed, even to own them, by Wong Heng because Doa Justina impossible to acquire.
told me that she did not have any relatives, near or far, and she
considered Wong Heng as a son and his children her But if an alien is given not only a lease of, but also an option to
grandchildren; especially her consolation in life was when she buy, a piece of land, by virtue of which the Filipino owner cannot
would hear the children reciting prayers in Tagalog.17 sell or otherwise dispose of his property,21 this to last for 50
years, then it becomes clear that the arrangement is a virtual
She was very emphatic in the care of the seventeen (17) dogs and transfer of ownership whereby the owner divests himself in
of the maids who helped her much, and she told me to see to it stages not only of the right to enjoy the land ( jus possidendi, jus
that no one could disturb Wong Heng from those properties. That utendi, jus fruendi and jus abutendi) but also of the right to
is why we thought of the ninety-nine (99) years lease; we thought dispose of it ( jus disponendi) rights the sum total of which
of adoption, believing that thru adoption Wong Heng might make up ownership. It is just as if today the possession is
acquire Filipino citizenship; being the adopted child of a Filipino transferred, tomorrow, the use, the next day, the disposition, and
citizen.18 so on, until ultimately all the rights of which ownership is made
up are consolidated in an alien. And yet this is just exactly what
This is not to say, however, that the contracts (Plff Exhs. 3-7) are the parties in this case did within the space of one year, with the
valid. For the testimony just quoted, while dispelling doubt as to result that Justina Santos' ownership of her property was
the intention of Justina Santos, at the same time gives the clue to reduced to a hollow concept. If this can be done, then the
what we view as a scheme to circumvent the Constitutional Constitutional ban against alien landholding in the Philippines, as

announced in Krivenko v. Register of Deeds,22 is indeed in grave That policy would be defeated and its continued violation
peril. sanctioned if, instead of setting the contracts aside and ordering
the restoration of the land to the estate of the deceased Justina
It does not follow from what has been said, however, that Santos, this Court should apply the general rule of pari delicto. To
because the parties are in pari delicto they will be left where they the extent that our ruling in this case conflicts with that laid
are, without relief. For one thing, the original parties who were down in Rellosa v. Gaw Chee Hun 26 and subsequent similar
guilty of a violation of the fundamental charter have died and cases, the latter must be considered as pro tanto qualified.
have since been substituted by their administrators to whom it
would be unjust to impute their guilt.23 For another thing, and The claim for increased rentals and attorney's fees, made in
this is not only cogent but also important, article 1416 of the Civil behalf of Justina Santos, must be denied for lack of merit.
Code provides, as an exception to the rule on pari delicto, that
"When the agreement is not illegal per se but is merely And what of the various amounts which Wong received in trust
prohibited, and the prohibition by law is designed for the from her? It appears that he kept two classes of accounts, one
protection of the plaintiff, he may, if public policy is thereby pertaining to amount which she entrusted to him from time to
enhanced, recover what he has paid or delivered." The time, and another pertaining to rentals from the Ongpin property
Constitutional provision that "Save in cases of hereditary and from the Rizal Avenue property, which he himself was
succession, no private agricultural land shall be transferred or leasing.
assigned except to individuals, corporations, or associations
qualified to acquire or hold lands of the public domain in the With respect to the first account, the evidence shows that he
Philippines"24 is an expression of public policy to conserve lands received P33,724.27 on November 8, 1957 (Plff Exh. 16);
for the Filipinos. As this Court said in Krivenko: P7,354.42 on December 1, 1957 (Plff Exh. 13); P10,000 on
December 6, 1957 (Plff Exh. 14) ; and P18,928.50 on August 26,
It is well to note at this juncture that in the present case we have 1959 (Def. Exh. 246), or a total of P70,007.19. He claims,
no choice. We are construing the Constitution as it is and not as however, that he settled his accounts and that the last amount of
we may desire it to be. Perhaps the effect of our construction is to P18,928.50 was in fact payment to him of what in the liquidation
preclude aliens admitted freely into the Philippines from owning was found to be due to him.
sites where they may build their homes. But if this is the solemn
mandate of the Constitution, we will not attempt to compromise He made disbursements from this account to discharge Justina
it even in the name of amity or equity . . . . Santos' obligations for taxes, attorneys' fees, funeral services and
security guard services, but the checks (Def Exhs. 247-278)
For all the foregoing, we hold that under the Constitution aliens drawn by him for this purpose amount to only P38,442.84.27
may not acquire private or public agricultural lands, including Besides, if he had really settled his accounts with her on August
residential lands, and, accordingly, judgment is affirmed, without 26, 1959, we cannot understand why he still had P22,000 in the
costs.25 bank and P3,000 in his possession, or a total of P25,000. In his
answer, he offered to pay this amount if the court so directed

him. On these two grounds, therefore, his claim of liquidation and this Court must concede that daily expenses are not easy to
settlement of accounts must be rejected. compute, for this reason, the Court faced with the choice of the
two alternatives will choose the middle course which after all is
After subtracting P38,442.84 (expenditures) from P70,007.19 permitted by the rules of proof, Sec. 69, Rule 123 for in the
(receipts), there is a difference of P31,564 which, added to the ordinary course of things, a person will live within his income so
amount of P25,000, leaves a balance of P56,564.3528 in favor of that the conclusion of the Court will be that there is neither
Justina Santos. deficit nor superavit and will let the matter rest here.

As to the second account, the evidence shows that the monthly Both parties on appeal reiterate their respective claims but we
income from the Ongpin property until its sale in Rizal Avenue agree with the lower court that both claims should be denied.
July, 1959 was P1,000, and that from the Rizal Avenue property, Aside from the reasons given by the court, we think that the claim
of which Wong was the lessee, was P3,120. Against this account of Justina Santos totalling P37,235, as rentals due to her after
the household expenses and disbursements for the care of the 17 deducting various expenses, should be rejected as the evidence is
dogs and the salaries of the 8 maids of Justina Santos were none too clear about the amounts spent by Wong for food29
charged. This account is contained in a notebook (Def. Exh. 6) masses30 and salaries of her maids.31 His claim for P9,210.49
which shows a balance of P9,210.49 in favor of Wong. But it is must likewise be rejected as his averment of liquidation is belied
claimed that the rental from both the Ongpin and Rizal Avenue by his own admission that even as late as 1960 he still had
properties was more than enough to pay for her monthly P22,000 in the bank and P3,000 in his possession.
expenses and that, as a matter of fact, there should be a balance
in her favor. The lower court did not allow either party to recover ACCORDINGLY, the contracts in question (Plff Exhs. 3-7) are
against the other. Said the court: annulled and set aside; the land subject-matter of the contracts is
ordered returned to the estate of Justina Santos as represented
[T]he documents bear the earmarks of genuineness; the trouble by the Philippine Banking Corporation; Wong Heng (as
is that they were made only by Francisco Wong and Antonia substituted by the defendant-appellant Lui She) is ordered to pay
Matias, nick-named Toning, which was the way she signed the the Philippine Banking Corporation the sum of P56,564.35, with
loose sheets, and there is no clear proof that Doa Justina had legal interest from the date of the filing of the amended
authorized these two to act for her in such liquidation; on the complaint; and the amounts consigned in court by Wong Heng
contrary if the result of that was a deficit as alleged and sought to shall be applied to the payment of rental from November 15,
be there shown, of P9,210.49, that was not what Doa Justina 1959 until the premises shall have been vacated by his heirs.
apparently understood for as the Court understands her Costs against the defendant-appellant.
statement to the Honorable Judge of the Juvenile Court . . . the
reason why she preferred to stay in her home was because there
she did not incur in any debts . . . this being the case, . . . the Court
will not adjudicate in favor of Wong Heng on his counterclaim; on
the other hand, while it is claimed that the expenses were much 23. G.R. No. L-34338 November 21, 1984
less than the rentals and there in fact should be a superavit, . . .

LOURDES VALERIO LIM, petitioner,
vs. To Whom It May Concern:
PEOPLE OF THE PHILIPPINES, respondent.
This is to certify that I have received from Mrs. Maria de Guzman
Petitioner Lourdes Valerio Lim was found guilty of the crime of Vda. de Ayroso. of Gapan, Nueva Ecija, six hundred fifteen kilos of
estafa and was sentenced "to suffer an imprisonment of four (4) leaf tobacco to be sold at Pl.30 per kilo. The proceed in the
months and one (1) day as minimum to two (2) years and four amount of Seven Hundred Ninety Nine Pesos and 50/100 (P
(4) months as maximum, to indemnify the offended party in the 799.50) will be given to her as soon as it was sold.
amount of P559.50, with subsidize imprisonment in case of
insolvency, and to pay the costs." (p. 14, Rollo) This was signed by the appellant and witnessed by the
complainant's sister, Salud Bantug, and the latter's maid,
From this judgment, appeal was taken to the then Court of Genoveva Ruiz. The appellant at that time was bringing a jeep,
Appeals which affirmed the decision of the lower court but and the tobacco was loaded in the jeep and brought by the
modified the penalty imposed by sentencing her "to suffer an appellant. Of the total value of P799.50, the appellant had paid to
indeterminate penalty of one (1) month and one (1) day of Ayroso only P240.00, and this was paid on three different times.
arresto mayor as minimum to one (1) year and one (1) day of Demands for the payment of the balance of the value of the
prision correccional as maximum, to indemnify the complainant tobacco were made upon the appellant by Ayroso, and
in the amount of P550.50 without subsidiary imprisonment, and particularly by her sister, Salud Bantug. Salud Bantug further
to pay the costs of suit." (p. 24, Rollo) testified that she had gone to the house of the appellant several
times, but the appellant often eluded her; and that the "camarin"
The question involved in this case is whether the receipt, Exhibit the appellant was empty. Although the appellant denied that
"A", is a contract of agency to sell or a contract of sale of the demands for payment were made upon her, it is a fact that on
subject tobacco between petitioner and the complainant, Maria October 19, 1966, she wrote a letter to Salud Bantug which reads
de Guzman Vda. de Ayroso, thereby precluding criminal liability as follows:
of petitioner for the crime charged.
Dear Salud,
The findings of facts of the appellate court are as follows:
Hindi ako nakapunta dian noon a 17 nitong nakaraan, dahil
... The appellant is a businesswoman. On January 10, 1966, the kokonte pa ang nasisingil kong pera, magintay ka hanggang dito
appellant went to the house of Maria Ayroso and proposed to sell sa linggo ito at tiak na ako ay magdadala sa iyo. Gosto ko Salud ay
Ayroso's tobacco. Ayroso agreed to the proposition of the makapagbigay man lang ako ng marami para hindi masiadong
appellant to sell her tobacco consisting of 615 kilos at P1.30 a kahiyahiya sa iyo. Ngayon kung gosto mo ay kahit konte muna ay
kilo. The appellant was to receive the overprice for which she bibigyan kita. Pupunta lang kami ni Mina sa Maynila ngayon.
could sell the tobacco. This agreement was made in the presence Salud kung talagang kailangan mo ay bukas ay dadalhan kita ng
of plaintiff's sister, Salud G. Bantug. Salvador Bantug drew the pera.
document, Exh. A, dated January 10, 1966, which reads:

Medio mahirap ang maningil sa palengke ng Cabanatuan dahil 3. Whether or not the honorable Court of Appeals was legally
nagsisilipat ang mga suki ko ng puesto. Huwag kang mabahala at right in holding that the foregoing receipt is a contract of agency
tiyak na babayaran kita. to sell as against the theory of the petitioner that it is a contract
of sale. (pp. 3-4, Rollo)
Patnubayan tayo ng mahal na panginoon Dios. (Exh. B).
It is clear in the agreement, Exhibit "A", that the proceeds of the
Ludy sale of the tobacco should be turned over to the complainant as
soon as the same was sold, or, that the obligation was
Pursuant to this letter, the appellant sent a money order for immediately demandable as soon as the tobacco was disposed of.
P100.00 on October 24, 1967, Exh. 4, and another for P50.00 on Hence, Article 1197 of the New Civil Code, which provides that
March 8, 1967; and she paid P90.00 on April 18, 1967 as the courts may fix the duration of the obligation if it does not fix a
evidenced by the receipt Exh. 2, dated April 18, 1967, or a total of period, does not apply.
P240.00. As no further amount was paid, the complainant filed a
complaint against the appellant for estafa. (pp. 14, 15, 16, Rollo) Anent the argument that petitioner was not an agent because
Exhibit "A" does not say that she would be paid the commission if
In this petition for review by certiorari, Lourdes Valerio Lim the goods were sold, the Court of Appeals correctly resolved the
poses the following questions of law, to wit: matter as follows:

1. Whether or not the Honorable Court of Appeals was legally ... Aside from the fact that Maria Ayroso testified that the
right in holding that the foregoing document (Exhibit "A") "fixed appellant asked her to be her agent in selling Ayroso's tobacco,
a period" and "the obligation was therefore, immediately the appellant herself admitted that there was an agreement that
demandable as soon as the tobacco was sold" (Decision, p. 6) as upon the sale of the tobacco she would be given something. The
against the theory of the petitioner that the obligation does not appellant is a businesswoman, and it is unbelievable that she
fix a period, but from its nature and the circumstances it can be would go to the extent of going to Ayroso's house and take the
inferred that a period was intended in which case the only action tobacco with a jeep which she had brought if she did not intend
that can be maintained is a petition to ask the court to fix the to make a profit out of the transaction. Certainly, if she was doing
duration thereof; a favor to Maria Ayroso and it was Ayroso who had requested her
to sell her tobacco, it would not have been the appellant who
2. Whether or not the Honorable Court of Appeals was legally would have gone to the house of Ayroso, but it would have been
right in holding that "Art. 1197 of the New Civil Code does not Ayroso who would have gone to the house of the appellant and
apply" as against the alternative theory of the petitioner that the deliver the tobacco to the appellant. (p. 19, Rollo)
fore. going receipt (Exhibit "A") gives rise to an obligation
wherein the duration of the period depends upon the will of the The fact that appellant received the tobacco to be sold at P1.30
debtor in which case the only action that can be maintained is a per kilo and the proceeds to be given to complainant as soon as it
petition to ask the court to fix the duration of the period; and was sold, strongly negates transfer of ownership of the goods to
the petitioner. The agreement (Exhibit "A') constituted her as an

agent with the obligation to return the tobacco if the same was Development Co., Ltd. The parties stipulated, among in the
not sold. contract of purchase and sale with mortgage, that the buyer will
ACCORDINGLY, the petition for review on certiorari is dismissed
for lack of merit. With costs.
Build on the said parcel land the Sto. Domingo Church and
Convent

while the seller for its part will
24. G.R. No. L-22558 May 31, 1967
Construct streets on the NE and NW and SW sides of the land
GREGORIO ARANETA, INC., petitioner, herein sold so that the latter will be a block surrounded by
vs. streets on all four sides; and the street on the NE side shall be
THE PHILIPPINE SUGAR ESTATES DEVELOPMENT CO., named "Sto. Domingo Avenue;"
LTD., respondent.
The buyer, Philippine Sugar Estates Development Co., Ltd.,
Araneta and Araneta for petitioner. finished the construction of Sto. Domingo Church and Convent,
Rosauro Alvarez and Ernani Cruz Pao for but the seller, Gregorio Araneta, Inc., which began constructing
respondent. the streets, is unable to finish the construction of the street in the
Northeast side named (Sto. Domingo Avenue) because a certain
REYES, J.B.L., J.: third-party, by the name of Manuel Abundo, who has been
physically occupying a middle part thereof, refused to vacate the
Petition for certiorari to review a judgment of the Court of same; hence, on May 7, 1958, Philippine Sugar Estates
Appeals, in its CA-G.R. No. 28249-R, affirming with modification, Development Co., Lt. filed its complaint against J. M. Tuason & Co.,
an amendatory decision of the Court of First Instance of Manila, Inc., and instance, seeking to compel the latter to comply with
in its Civil Case No. 36303, entitled "Philippine Sugar Estates their obligation, as stipulated in the above-mentioned deed of
Development Co., Ltd., plaintiff, versus J. M. Tuason & Co., Inc. and sale, and/or to pay damages in the event they failed or refused to
Gregorio Araneta, Inc., defendants." perform said obligation.

As found by the Court of Appeals, the facts of this case are: Both defendants J. M. Tuason and Co. and Gregorio Araneta, Inc.
answered the complaint, the latter particularly setting up the
J. M. Tuason & Co., Inc. is the owner of a big tract land situated in principal defense that the action was premature since its
Quezon City, otherwise known as the Sta. Mesa Heights obligation to construct the streets in question was without a
Subdivision, and covered by a Torrens title in its name. On July definite period which needs to he fixed first by the court in a
28, 1950, through Gregorio Araneta, Inc., it (Tuason & Co.) sold a proper suit for that purpose before a complaint for specific
portion thereof with an area of 43,034.4 square meters, more or performance will prosper.
less, for the sum of P430,514.00, to Philippine Sugar Estates

The issues having been joined, the lower court proceeded with In said appellate court, defendant-appellant Gregorio Araneta,
the trial, and upon its termination, it dismissed plaintiff's Inc. contended mainly that the relief granted, i.e., fixing of a
complaint (in a decision dated May 31, 1960), upholding the period, under the amendatory decision of July 16, 1960, was not
defenses interposed by defendant Gregorio Araneta, justified by the pleadings and not supported by the facts
Inc.1wph1.t submitted at the trial of the case in the court below and that the
relief granted in effect allowed a change of theory after the
Plaintiff moved to reconsider and modify the above decision, submission of the case for decision.
praying that the court fix a period within which defendants will
comply with their obligation to construct the streets in question. Ruling on the above contention, the appellate court declared that
the fixing of a period was within the pleadings and that there was
Defendant Gregorio Araneta, Inc. opposed said motion, no true change of theory after the submission of the case for
maintaining that plaintiff's complaint did not expressly or decision since defendant-appellant Gregorio Araneta, Inc. itself
impliedly allege and pray for the fixing of a period to comply with squarely placed said issue by alleging in paragraph 7 of the
its obligation and that the evidence presented at the trial was affirmative defenses contained in its answer which reads
insufficient to warrant the fixing of such a period.
7. Under the Deed of Sale with Mortgage of July 28, 1950, herein
On July 16, 1960, the lower court, after finding that "the proven defendant has a reasonable time within which to comply with its
facts precisely warrants the fixing of such a period," issued an obligations to construct and complete the streets on the NE, NW
order granting plaintiff's motion for reconsideration and and SW sides of the lot in question; that under the circumstances,
amending the dispositive portion of the decision of May 31, 1960, said reasonable time has not elapsed;
to read as follows:
Disposing of the other issues raised by appellant which were
WHEREFORE, judgment is hereby rendered giving defendant ruled as not meritorious and which are not decisive in the
Gregorio Araneta, Inc., a period of two (2) years from notice resolution of the legal issues posed in the instant appeal before
hereof, within which to comply with its obligation under the us, said appellate court rendered its decision dated December 27,
contract, Annex "A". 1963, the dispositive part of which reads

Defendant Gregorio Araneta, Inc. presented a motion to IN VIEW WHEREOF, judgment affirmed and modified; as a
reconsider the above quoted order, which motion, plaintiff consequence, defendant is given two (2) years from the date of
opposed. finality of this decision to comply with the obligation to construct
streets on the NE, NW and SW sides of the land sold to plaintiff so
On August 16, 1960, the lower court denied defendant Gregorio that the same would be a block surrounded by streets on all four
Araneta, Inc's. motion; and the latter perfected its appeal Court of sides.
Appeals.


Unsuccessful in having the above decision reconsidered, in as first amended; for the original decision is clear that the
defendant-appellant Gregorio Araneta, Inc. resorted to a petition complaint proceeded on the theory that the period for
for review by certiorari to this Court. We gave it due course. performance had already elapsed, that the contract had been
breached and defendant was already answerable in damages.
We agree with the petitioner that the decision of the Court of
Appeals, affirming that of the Court of First Instance is legally Granting, however, that it lay within the Court's power to fix the
untenable. The fixing of a period by the courts under Article 1197 period of performance, still the amended decision is defective in
of the Civil Code of the Philippines is sought to be justified on the that no basis is stated to support the conclusion that the period
basis that petitioner (defendant below) placed the absence of a should be set at two years after finality of the judgment. The list
period in issue by pleading in its answer that the contract with paragraph of Article 1197 is clear that the period can not be set
respondent Philippine Sugar Estates Development Co., Ltd. gave arbitrarily. The law expressly prescribes that
petitioner Gregorio Araneta, Inc. "reasonable time within which
to comply with its obligation to construct and complete the the Court shall determine such period as may under the
streets." Neither of the courts below seems to have noticed that, circumstances been probably contemplated by the parties.
on the hypothesis stated, what the answer put in issue was not
whether the court should fix the time of performance, but All that the trial court's amended decision (Rec. on Appeal, p.
whether or not the parties agreed that the petitioner should have 124) says in this respect is that "the proven facts precisely
reasonable time to perform its part of the bargain. If the contract warrant the fixing of such a period," a statement manifestly
so provided, then there was a period fixed, a "reasonable time;" insufficient to explain how the two period given to petitioner
and all that the court should have done was to determine if that herein was arrived at.
reasonable time had already elapsed when suit was filed if it had
passed, then the court should declare that petitioner had It must be recalled that Article 1197 of the Civil Code involves a
breached the contract, as averred in the complaint, and fix the two-step process. The Court must first determine that "the
resulting damages. On the other hand, if the reasonable time had obligation does not fix a period" (or that the period is made to
not yet elapsed, the court perforce was bound to dismiss the depend upon the will of the debtor)," but from the nature and the
action for being premature. But in no case can it be logically held circumstances it can be inferred that a period was intended" (Art.
that under the plea above quoted, the intervention of the court to 1197, pars. 1 and 2). This preliminary point settled, the Court
fix the period for performance was warranted, for Article 1197 is must then proceed to the second step, and decide what period
precisely predicated on the absence of any period fixed by the was "probably contemplated by the parties" (Do., par. 3). So that,
parties. ultimately, the Court can not fix a period merely because in its
opinion it is or should be reasonable, but must set the time that
Even on the assumption that the court should have found that no the parties are shown to have intended. As the record stands, the
reasonable time or no period at all had been fixed (and the trial trial Court appears to have pulled the two-year period set in its
court's amended decision nowhere declared any such fact) still, decision out of thin air, since no circumstances are mentioned to
the complaint not having sought that the Court should set a support it. Plainly, this is not warranted by the Civil Code.
period, the court could not proceed to do so unless the complaint

In this connection, it is to be borne in mind that the contract
shows that the parties were fully aware that the land described
therein was occupied by squatters, because the fact is expressly
mentioned therein (Rec. on Appeal, Petitioner's Appendix B, pp. 25. G.R. No. L-55480
12-13). As the parties must have known that they could not take
the law into their own hands, but must resort to legal processes PACIFICA MILLARE, petitioner,
in evicting the squatters, they must have realized that the vs.
duration of the suits to be brought would not be under their HON. HAROLD M. HERNANDO, In his capacity as
control nor could the same be determined in advance. The Presiding Judge, Court of Instance of Abra, Second
conclusion is thus forced that the parties must have intended to Judicial District, Branch I, ANTONIO CO and ELSA CO,
defer the performance of the obligations under the contract until respondents.
the squatters were duly evicted, as contended by the petitioner
Gregorio Araneta, Inc.
FELICIANO, J.:
The Court of Appeals objected to this conclusion that it would
render the date of performance indefinite. Yet, the circumstances On 17 June 1975, a five-year Contract of Lease 1 was executed
admit no other reasonable view; and this very indefiniteness is between petitioner Pacifica Millare as lessor and private
what explains why the agreement did not specify any exact respondent Elsa Co, married to Antonio Co, as lessee. Under the
periods or dates of performance. written agreement, which was scheduled to expire on 31 May
1980, the lessor-petitioner agreed to rent out to thelessee at a
It follows that there is no justification in law for the setting the monthly rate of P350.00 the "People's Restaurant", a commercial
date of performance at any other time than that of the eviction of establishment located at the corner of McKinley and Pratt Streets
the squatters occupying the land in question; and in not so in Bangued, Abra.
holding, both the trial Court and the Court of Appeals committed
reversible error. It is not denied that the case against one of the The present dispute arose from events which transpired during
squatters, Abundo, was still pending in the Court of Appeals the months of May and July in 1980. According to the Co spouses,
when its decision in this case was rendered. sometime during the last week of May 1980, the lessor informed
them that they could continue leasing the People's Restaurant so
In view of the foregoing, the decision appealed from is reversed, long as they were amenable to paying creased rentals of
and the time for the performance of the obligations of petitioner P1,200.00 a month. In response, a counteroffer of P700.00 a
Gregorio Araneta, Inc. is hereby fixed at the date that all the month was made by the Co spouses. At this point, the lessor
squatters on affected areas are finally evicted therefrom. allegedly stated that the amount of monthly rentals could be
resolved at a later time since "the matter is simple among us",
Costs against respondent Philippine Sugar Estates Development, which alleged remark was supposedly taken by the spouses Co to
Co., Ltd. So ordered. mean that the Contract of Lease had been renewed, prompting
them to continue occupying the subject premises and to forego

their search for a substitute place to rent. 2 In contrast, the lessor action due to plaintiffs' failure to establish a valid renewal of the
flatly denied ever having considered, much less offered, a Contract of Lease, and (b) lack of jurisdiction by the trial court
renewal of the Contract of Lease. over the complaint for failure of plaintiffs to secure a certification
from the Lupong Tagapayapa of the barangay wherein both
The variance in versions notwithstanding, the record shows that disputants reside attesting that no amicable settlement between
on 22 July 1980, Mrs. Millare wrote the Co spouses requesting them had been reached despite efforts to arrive at one, as
them to vacate the leased premises as she had no intention of required by Section 6 of Presidential Decree No. 1508. The Co
renewing the Contract of Lease which had, in the meantime, spouses opposed the motion to dismiss. 7
already expirecl. 3 In reply, the Co spouses reiterated their
unwillingness to pay the Pl,200.00 monthly rentals supposedly In an Order dated 15 October 1980, respondent judge denied the
sought bv Mrs. Millare which they considered "highly excessive, motion to dismiss and ordered the renewal of the Contract of
oppressive and contrary to existing laws". They also signified Lease. Furthermore plaintiffs were allowed to deposit all
their intention to deposit the amount of rentals in court, in view accruing monthly rentals in court, while defendant Millare was
of Mrs. Millare's refusal to accept their counter-offer.4 Another directed to submit her answer to the complaint. 8 A motion for
letter of demand from Mrs. Millare was received on 28 July 1980 reconsideration 9 was subsequently filed which, however, was
by the Co spouses, who responded by depositing the rentals for likewise denied. 10 Hence, on 13 November 1980, Mrs. Millare
June and July (at 700.00 a month) in court. filed the instant Petition for Certiorari, Prohibition and
Mandamus, seeking injunctive relief from the abovementioned
On 30 August 1980, a Saturday, the Co spouses jumped the gun, orders. This Court issued a temporary restraining order on 21
as it were, and filed a Complaint 5 (docketed as Civil Case No. November 1980 enjoining respondent, judge from conducting
1434) with the then Court of First Instance of Abra against Mrs. further proceedings in Civil Case No. 1434. 11 Apparently, before
Millare and seeking judgment (a) ordering the renewal of the the temporary restraining order could be served on the
Contract of Lease at a rental rate of P700.00 a nionth and for a respondent judge, he rendered a "Judgment by Default" dated 26
period of ten years, (b) ordering the defendant to collect the sum November 1980 ordering the renewal of the lease contract for a
of P1,400.00 deposited by plaintiffs with the court, and (c) term of 5 years counted from the expiration date of the original
ordering the defendant to pay damages in the amount of lease contract, and fixing monthly rentals thereunder at P700.00
P50,000.00. The following Monday, on 1 September 1980, Mrs. a month, payable in arrears. On18 March 1981, this Court gave
Millare filed an ejectment case against the Co spouses in the due course to the Petition for Certiorari, Prohibition and
Municipal Court of Bangued, Abra, docketed as Civil Case No. 661. Mandamus. 12
The spouses Co, defendants therein, sut)sequently set up lis
pendens as a Civil Case No. 661. The spouses Co, defendants Two issues are presented for resolution: (1) whether or not the
therein, subsequently set up lis pendens as a defense against the trial court acquired jurisdiction over Civil Case No. 1434; and (2)
complaint for ejectment. whether or not private respondents have a valid cause of action
against petitioner.
Mrs. Millare, defendant in Civil Case No. 1434, countered with an
Omnibus Motion to Dismiss6 rounded on (a) lack of cause of

Turning to the first issue, petitioner's attack on the jurisdiction of 13. This contract of lease is subject to the laws and
the trial court must fail, though for reasons different from those regulations ofthe goverrunent; and that this contract of lease may
cited by the respondent judge. 13 We would note firstly that the be renewed after a period of five (5) years under the terms and
conciliation procedure required under P.D. 1508 is not a conditions as will be mutually agreed upon by the parties at the
jurisdictional requirement in the sense that failure to have prior time of renewal; ... (Emphasis supplied.)
recourse to such procedure would not deprive a court of its
jurisdiction either over the subject matter or over the person of The respondent judge, in his Answer and Comment to the
the defendant.14 Secondly, the acord shows that two complaints Petition, urges that under paragraph 13 quoted above.
were submitted to the barangay authorities for conciliation
one by petitioner for ejectment and the other by private there was already a consummated and finished mutual
respondents for renewal of the Contract of Lease. It appears agreement of the parties to renew the contract of lease after five
further that both complaints were, in fact, heard by the Lupong years; what is only left unsettled between the parties to the
Tagapayapa in the afternoon of 30 August 1980. After attempts at contract of lease is the amount of the monthly rental; the lessor
conciliation had proven fruitless, Certifications to File Action insists Pl,200 a month, while the lessee is begging P700 a month
authorizing the parties to pursue their respective claims in court which doubled the P350 monthly rental under the original
were then issued at 5:20 p.m. of that same aftemoon, as attested contract .... In short, the lease contract has never expired because
to by the Barangay Captain in a Certification presented in paragraph 13 thereof had expressly mandated that it is
evidence by petitioner herself. 15 renewable. ...16

Petitioner would, nonetheless, assail the proceedings in the trial In the "Judgment by Default" he rendered, the respondent Judge
court on a technicaety, i.e., private respondents allegedly filed elaborated his views obviously highly emotional in character
their complaint at 4:00 p.m. of 30 August 1980, or one hour and in the following extraordinary tatements:
twenty minutes before the issuance of the requisite certification
by the Lupng Tagapayapa. The defect in procedure admittedly However, it is now the negative posture of the defendant-lessor
initially present at that particular moment when private to block, reject and refuse to renew said lease contract. It is the
respondents first filed the complaint in the trial court, was cured defendant-lessor's assertion and position that she can at the
by the subsequent issuance of the Certifications to File Action by mere click of her fingers, just throw-out the plaintiffs-lessees
the barangay Lupong Tagapayapa Such certifications in any event from the leased premises and any time after the original term of
constituted substantial comphance with the requirement of P.D. the lease contract had already expired; This negative position of
1508. the defendantlessor, to the mind of this Court does not conform
to the principles and correct application of the philosophy
We turn to the second issue, that is, whether or not the complaint underlying the law of lease; for indeed, the law of lease is
in Civil Case No. 1434 filed by the respondent Co spouses impressed with public interest, social justice and equity; reason
claiming renewal of the contract of lease stated a valid cause of for which, this Court cannot sanction lot owner's business and
action. Paragraph 13 of the Contract of Lease reads as follows: commercial speculations by allowing them with "unbridled
discretion" to raise rentals even to the extent of "extraordinary

gargantuan proportions, and calculated to unreasonably and years and the lessee is not required before hand to give express
unjustly eject the helpless lessee because he cannot afford said notice of this fact to the lessor because it was expressly stipulated
inflated monthly rental and thereby said lessee is placed without in the original lease contract to be renewed; Wherefore, the bare
any alternative, except to surrender and vacate the premises refusal of the lessor to renew the lease contract unless the
mediately,-" Many business establishments would be closed and monthly rental is P1,200.00 is contrary to law, morals, good
the public would directly suffer the direct consequences; customs, public policy, justice and equity because no one should
Nonetheless, this is not the correct concept or perspective the unjustly enrich herself at the expense of another. Article 1197
law of lease, that is, to place the lessee always at the mercy of the and 1670 of the New Civil Code must therefore govern the case at
lessor's "Merchant of Venice" and to agit the latter's personal bar and whereby this Court is authorized to fix the period thereof
whims and caprices; the defendant-lessor's hostile attitude by by ordering the renewal of the lease contract to another fixed
imposing upon the lessee herein an "unreasonable and term of five (5) years.17
extraordinary gargantuan monthly rental of P1,200.00", to the
mind of this Court, is "fly-by night unjust enrichment" at the Clearly, the respondent judge's grasp of both the law and the
expense of said lessees; but, no Man should unjustly enrich Enghsh language is tenuous at best. We are otherwise unable to
himself at the expense of another; under these facts and comprehend how he arrived at the reading set forth above.
circumstances surrounding this case, the action therefore to Paragraph 13 of the Contract of Lease can only mean that the
renew the lease contract! is "tenable" because it falls squarely lessor and lessee may agree to renew the contract upon their
within the coverage and command of Articles 1197 and 1670 of reaching agreement on the terms and conditions to be embodied
the New Civil Code, to wit: in such renewal contract. Failure to reach agreement on the
terms and conditions of the renewal contract will of course
x x x x x x x x x prevent the contract from being renewed at all. In the instant
case, the lessor and the lessee conspicuously failed to reach
The term "to be renewed" as expressly stipulated by the herein agreement both on the amount of the rental to be payable during
parties in the original contract of lease means that the lease may the renewal term, and on the term of the renewed contract.
be renewed for another term of five (5) years; its equivalent to a
promise made by the lessor to the lessee, and as a unilateral The respondent judge cited Articles 1197 and 1670 of the Civil
stipulation, obliges the lessor to fulfill her promise; of course the Code to sustain the "Judgment by Default" by which he ordered
lessor is free to comply and honor her commitment or back-out the renewal of the lease for another term of five years and fixed
from her promise to renew the lease contract; but, once expressly monthly rentals thereunder at P700.00 a month. Article 1197 of
stipulated, the lessor shall not be allowed to evade or violate the the Civil Code provides as follows:
obligation to renew the lease because, certainly, the lessor may
be held hable for damages caused to the lessee as a consequence If the obligation does not fix a period, but from its nature and the
of the unjustifiable termination of the lease or renewal of the circumstances it can be inferred that a period was intended, the
same; In other words, the lessor is guilty of breach of contract: courts may fix the duration thereof.
Since the original lease was fixed for five (5) years, it follows,
therefore, that the lease contract is renewable for another five (5)

The courts shall also fix the duration of the period when it possibly have a period of five years, but rather would have been a
depends upon the will of the debtor. month-to-month lease since the rentals (under the original
contract) were payable on a monthly basis. At the latest, an
In every case, the courts shall determine such period as may, implied new lease (had one arisen) would have expired as of the
under the circumstances, have been probably contemplated by end of July 1980 in view of the written demands served by the
the parties. Once fixed by the courts, the period cannot be petitioner upon the private respondents to vacate the previously
changed by them. (Emphasis supplied.) leased premises.

The first paragraph of Article 1197 is clearly inapplicable, since It follows that the respondent judge's decision requiring renewal
the Contract of Lease did in fact fix an original period of five of the lease has no basis in law or in fact. Save in the limited and
years, which had expired. It is also clear from paragraph 13 of the exceptional situations envisaged inArticles ll97 and 1670 of the
Contract of Lease that the parties reserved to themselves the Civil Code, which do not obtain here, courts have no authority to
faculty of agreeing upon the period of the renewal contract. The prescribe the terms and conditions of a contract for the parties.
second paragraph of Article 1197 is equally clearly inapplicable As pointed out by Mr. Justice J.B.L. Reyes in Republic vs.
since the duration of the renewal period was not left to the wiu of Philippine Long Distance Telephone,Co.,[[18
the lessee alone, but rather to the will of both the lessor and the
lessee. Most importantly, Article 1197 applies only where a [P]arties cannot be coerced to enter into a contract where no
contract of lease clearly exists. Here, the contract was not agreement is had between them as to the principal terms and
renewed at all, there was in fact no contract at all the period of conditions of the contract. Freedom to stipulate such terms and
which could have been fixed. conditions is of the essence of our contractual system, and by
express provision of the statute, a contract may be annulled if
Article 1670 of the Civil Code reads thus: tainted by violence, intimidation or undue influence (Article
1306, 1336, 1337, Civil Code of the Philippines).
If at the end of the contract the lessee should continue enjoying
the thing left for 15 days with the acquiescence of the lessor and Contractual terms and conditions created by a court for two
unless a notice to the contrary by either party has previously parties are a contradiction in terms. If they are imposed by a
been given. It is understood that there is an implied new lease, judge who draws upon his own private notions of what morals,
not for the period of the original contract but for the time good customs, justice, equity and public policy" demand, the
established in Articles 1682 and 1687. The ther terms of the resulting "agreement" cannot, by definition, be consensual or
original contract shall be revived. (Emphasis suplied.) contractual in nature. It would also follow that such coerced
terms and conditions cannot be the law as between the parties
The respondents themselves, public and private, do not pretend themselves. Contracts spring from the volition of the parties. That
that the continued occupancy of the leased premises after 31 May volition cannot be supplied by a judge and a judge who pretends
1980, the date of expiration of the contract, was with the to do so, acts tyrannically, arbitrarily and in excess of his
acquiescence of the lessor. Even if it be assumed that tacite jurisdiction. 19
reconduccion had occurred, the implied new lease could not

WHEREFORE, the Petition for Certiorari, Prohibition and
mandamus is granted. The Orders of the respondent judge in The facts are as follows:
Civil Case No. 1434 dated 26 September 1980 (denying
petitioner's motion to dismiss) and 4 November 1980 (denying Dan T. Lim works in the business of supplying scrap papers,
petitioner's motion for reconsideration), and the "Judgment by cartons, and other raw materials, under the name Quality Paper
Default" rendered by the respondent judge dated 26 November and Plastic Products, Enterprises, to factories engaged in the
1980, are hereby annulled and set aside and Civil Case No. 1434 paper mill business.4 From February 2007 to March 2007, he
is hereby dismissed. The temporary restraining order dated 21 delivered scrap papers worth 7,220,968.31 to Arco Pulp and
November 1980 issued by this ourt, is hereby made permanent. Paper Company, Inc. (Arco Pulp and Paper) through its Chief
No pronouncement as to costs. Executive Officer and President, Candida A. Santos.5 The parties
allegedly agreed that Arco Pulp and Paper would either pay Dan
T. Lim the value of the raw materials or deliver to him their
finished products of equivalent value.6

26.(also 103) G.R. No. 206806 June 25, 2014 Dan T. Lim alleged that when he delivered the raw materials,
Arco Pulp and Paper issued a post-dated check dated April 18,
ARCO PULP AND PAPER CO., INC. and CANDIDA A. 20077 in the amount of 1,487,766.68 as partial payment, with the
SANTOS, Petitioners, assurance that the check would not bounce.8 When he deposited
vs. the check on April 18, 2007, it was dishonored for being drawn
DAN T. LIM, doing business under the name and style against a closed account.9
of QUALITY PAPERS & PLASTIC PRODUCTS
ENTERPRISES, Respondent. On the same day, Arco Pulp and Paper and a certain Eric Sy
executed a memorandum of agreement10 where Arco Pulp and
D E C I S I O N Paper bound themselves to deliver their finished products to
Megapack Container Corporation, owned by Eric Sy, for his
LEONEN, J.: account. According to the memorandum, the raw materials would
be supplied by Dan T. Lim, through his company, Quality Paper
Novation must be stated in clear and unequivocal terms to and Plastic Products. The memorandum of agreement reads as
extinguish an obligation. It cannot be presumed and may be follows:
implied only if the old and new contracts are incompatible on
every point. Per meeting held at ARCO, April 18, 2007, it has been mutually
agreed between Mrs. Candida A. Santos and Mr. Eric Sy that ARCO
Before us is a petition for review on certiorari1 assailing the will deliver 600 tons Test Liner 150/175 GSM, full width 76
Court of Appeals decision2 in CA-G.R. CV No. 95709, which inches at the price of P18.50 per kg. to Megapack Container for
stemmed from a complaint3 filed in the Regional Trial Court of Mr. Eric Sys account. Schedule of deliveries are as follows:
Valenzuela City, Branch 171, for collection of sum of money.

. . . . On January 11, 2013, the Court of Appeals20 rendered a
decision21 reversing and setting aside the judgment dated
It has been agreed further that the Local OCC materials to be used September 19, 2008 and ordering Arco Pulp and Paper to jointly
for the production of the above Test Liners will be supplied by and severally pay Dan T. Lim the amount of P7,220,968.31 with
Quality Paper & Plastic Products Ent., total of 600 Metric Tons at interest at 12% per annum from the time of demand; P50,000.00
P6.50 per kg. (price subject to change per advance notice). moral damages; P50,000.00 exemplary damages; and P50,000.00
Quantity of Local OCC delivery will be based on the quantity of attorneys fees.22
Test Liner delivered to Megapack Container Corp. based on the
above production schedule.11 The appellate court ruled that the facts and circumstances in this
case clearly showed the existence of an alternative obligation.23
On May 5, 2007, Dan T.Lim sent a letter12 to Arco Pulp and Paper It also ruled that Dan T. Lim was entitled to damages and
demanding payment of the amount of 7,220,968.31, but no attorneys fees due to the bad faith exhibited by Arco Pulp and
payment was made to him.13 Paper in not honoring its undertaking.24

Dan T. Lim filed a complaint14 for collection of sum of money Its motion for reconsideration25 having been denied,26 Arco
with prayer for attachment with the Regional Trial Court, Branch Pulp and Paper and its President and Chief Executive Officer,
171, Valenzuela City, on May 28, 2007. Arco Pulp and Paper filed Candida A. Santos, bring this petition for review on certiorari.
its answer15 but failed to have its representatives attend the pre-
trial hearing. Hence, the trial court allowed Dan T. Lim to present On one hand, petitioners argue that the execution of the
his evidence ex parte.16 memorandum of agreement constituted a novation of the original
obligation since Eric Sy became the new debtor of respondent.
On September 19, 2008, the trial court rendered a judgment in They also argue that there is no legal basis to hold petitioner
favor of Arco Pulp and Paper and dismissed the complaint, Candida A. Santos personally liable for the transaction that
holding that when Arco Pulp and Paper and Eric Sy entered into petitioner corporation entered into with respondent. The Court
the memorandum of agreement, novation took place, which of Appeals, they allege, also erred in awarding moral and
extinguished Arco Pulp and Papers obligation to Dan T. Lim.17 exemplary damages and attorneys fees to respondent who did
not show proof that he was entitled to damages.27
Dan T. Lim appealed18 the judgment with the Court of Appeals.
According to him, novation did not take place since the Respondent, on the other hand, argues that the Court of Appeals
memorandum of agreement between Arco Pulp and Paper and was correct in ruling that there was no proper novation in this
Eric Sy was an exclusive and private agreement between them. case. He argues that the Court of Appeals was correct in ordering
He argued that if his name was mentioned in the contract, it was the payment of 7,220,968.31 with damages since the debt of
only for supplying the parties their required scrap papers, where petitioners remains unpaid.28 He also argues that the Court of
his conformity through a separate contract was indispensable.19 Appeals was correct in holding petitioners solidarily liable since
petitioner Candida A. Santos was "the prime mover for such
outstanding corporate liability."29 In their reply, petitioners

reiterate that novation took place since there was nothing in the "In an alternative obligation, there is more than one object, and
memorandum of agreement showing that the obligation was the fulfillment of one is sufficient, determined by the choice of the
alternative. They also argue that when respondent allowed them debtor who generally has the right of election."32 The right of
to deliver the finished products to Eric Sy, the original obligation election is extinguished when the party who may exercise that
was novated.30 option categorically and unequivocally makes his or her choice
known.33
A rejoinder was submitted by respondent, but it was noted
without action in view of A.M. No. 99-2-04-SC dated November The choice of the debtor must also be communicated to the
21, 2000.31 creditor who must receive notice of it since: The object of this
notice is to give the creditor . . . opportunity to express his
The issues to be resolved by this court are as follows: consent, or to impugn the election made by the debtor, and only
after said notice shall the election take legal effect when
1. Whether the obligation between the parties was extinguished consented by the creditor, or if impugned by the latter, when
by novation declared proper by a competent court.34

2. Whether Candida A. Santos was solidarily liable with Arco Pulp According to the factual findings of the trial court and the
and Paper Co., Inc. appellate court, the original contract between the parties was for
respondent to deliver scrap papers worth P7,220,968.31 to
3. Whether moral damages, exemplary damages, and attorneys petitioner Arco Pulp and Paper. The payment for this delivery
fees can be awarded became petitioner Arco Pulp and Papers obligation. By
agreement, petitioner Arco Pulp and Paper, as the debtor, had the
The petition is denied. option to either (1) pay the price or(2) deliver the finished
products of equivalent value to respondent.35
The obligation between the
parties was an alternative The appellate court, therefore, correctly identified the obligation
obligation between the parties as an alternative obligation, whereby
petitioner Arco Pulp and Paper, after receiving the raw materials
The rule on alternative obligations is governed by Article 1199 of from respondent, would either pay him the price of the raw
the Civil Code, which states: materials or, in the alternative, deliver to him the finished
products of equivalent value.
Article 1199. A person alternatively bound by different
prestations shall completely perform one of them. When petitioner Arco Pulp and Paper tendered a check to
respondent in partial payment for the scrap papers, they
The creditor cannot be compelled to receive part of one and part exercised their option to pay the price. Respondents receipt of
of the other undertaking. the check and his subsequent act of depositing it constituted his
notice of petitioner Arco Pulp and Papers option to pay.

This choice was also shown by the terms of the memorandum of Article 1293. Novation which consists in substituting a new
agreement, which was executed on the same day. The debtor in the place of the original one, may be made even without
memorandum declared in clear terms that the delivery of the knowledge or against the will of the latter, but not without
petitioner Arco Pulp and Papers finished products would be to a the consent of the creditor. Payment by the new debtor gives him
third person, thereby extinguishing the option to deliver the the rights mentioned in Articles 1236 and 1237. (1205a)
finished products of equivalent value to respondent.
Novation extinguishes an obligation between two parties when
The memorandum of there is a substitution of objects or debtors or when there is
agreement did not constitute subrogation of the creditor. It occurs only when the new contract
a novation of the original declares so "in unequivocal terms" or that "the old and the new
contract obligations be on every point incompatible with each other."36

The trial court erroneously ruled that the execution of the Novation was extensively discussed by this court in Garcia v.
memorandum of agreement constituted a novation of the Llamas:37
contract between the parties. When petitioner Arco Pulp and
Paper opted instead to deliver the finished products to a third Novation is a mode of extinguishing an obligation by changing its
person, it did not novate the original obligation between the objects or principal obligations, by substituting a new debtor in
parties. place of the old one, or by subrogating a third person to the rights
of the creditor. Article 1293 of the Civil Code defines novation as
The rules on novation are outlined in the Civil Code, thus: follows:

Article 1291. Obligations may be modified by: "Art. 1293. Novation which consists in substituting a new debtor
in the place of the original one, may be made even without the
(1) Changing their object or principal conditions; knowledge or against the will of the latter, but not without the
consent of the creditor. Payment by the new debtor gives him
(2) Substituting the person of the debtor; rights mentioned in articles 1236 and 1237."

(3) Subrogating a third person in the rights of the creditor. In general, there are two modes of substituting the person of the
(1203) debtor: (1) expromision and (2) delegacion. In expromision, the
initiative for the change does not come from and may even be
Article 1292. In order that an obligation may be extinguished by made without the knowledge of the debtor, since it consists of
another which substitute the same, it is imperative that it be so a third persons assumption of the obligation. As such, it logically
declared in unequivocal terms, or that the old and the new requires the consent of the third person and the creditor. In
obligations be on every point incompatible with each other. delegacion, the debtor offers, and the creditor accepts, a third
(1204) person who consents to the substitution and assumes the

obligation; thus, the consent of these three persons are In the civil law setting, novatio is literally construed as to make
necessary. Both modes of substitution by the debtor require the new. So it is deeply rooted in the Roman Law jurisprudence, the
consent of the creditor. principle novatio non praesumitur that novation is never
presumed.At bottom, for novation tobe a jural reality, its animus
Novation may also be extinctive or modificatory. It is extinctive must be ever present, debitum pro debito basically
when an old obligation is terminated by the creation of a new one extinguishing the old obligation for the new one.39 (Emphasis
that takes the place of the former. It is merely modificatory when supplied) There is nothing in the memorandum of agreement
the old obligation subsists to the extent that it remains that states that with its execution, the obligation of petitioner
compatible with the amendatory agreement. Whether extinctive Arco Pulp and Paper to respondent would be extinguished. It also
or modificatory, novation is made either by changing the object does not state that Eric Sy somehow substituted petitioner Arco
or the principal conditions, referred to as objective or real Pulp and Paper as respondents debtor. It merely shows that
novation; or by substituting the person of the debtor or petitioner Arco Pulp and Paper opted to deliver the finished
subrogating a third person to the rights of the creditor, an act products to a third person instead.
known as subjective or personal novation. For novation to take
place, the following requisites must concur: The consent of the creditor must also be secured for the novation
to be valid:
1) There must be a previous valid obligation.
Novation must be expressly consented to. Moreover, the
2) The parties concerned must agree to a new contract. conflicting intention and acts of the parties underscore the
absence of any express disclosure or circumstances with which to
3) The old contract must be extinguished. deduce a clear and unequivocal intent by the parties to novate
the old agreement.40 (Emphasis supplied)
4) There must be a valid new contract.
In this case, respondent was not privy to the memorandum of
Novation may also be express or implied. It is express when the agreement, thus, his conformity to the contract need not be
new obligation declares in unequivocal terms that the old secured. This is clear from the first line of the memorandum,
obligation is extinguished. It is implied when the new obligation which states:
is incompatible with the old one on every point. The test of
incompatibility is whether the two obligations can stand Per meeting held at ARCO, April 18, 2007, it has been mutually
together, each one with its own independent existence.38 agreed between Mrs. Candida A. Santos and Mr. Eric Sy. . . .41
(Emphasis supplied)
If the memorandum of agreement was intended to novate the
Because novation requires that it be clear and unequivocal, it is original agreement between the parties, respondent must have
never presumed, thus: first agreed to the substitution of Eric Sy as his new debtor. The
memorandum of agreement must also state in clear and
unequivocal terms that it has replaced the original obligation of

petitioner Arco Pulp and Paper to respondent. Neither of these wanton, reckless, malicious or in bad faith, and oppressive or
circumstances is present in this case. abusive.42

Petitioner Arco Pulp and Papers act of tendering partial payment Further, the following requisites must be proven for the recovery
to respondent also conflicts with their alleged intent to pass on of moral damages:
their obligation to Eric Sy. When respondent sent his letter of
demand to petitioner Arco Pulp and Paper, and not to Eric Sy, it An award of moral damages would require certain conditions to
showed that the former neither acknowledged nor consented to be met, to wit: (1)first, there must be an injury, whether physical,
the latter as his new debtor. These acts, when taken together, mental or psychological, clearly sustained by the claimant; (2)
clearly show that novation did not take place. Since there was no second, there must be culpable act or omission factually
novation, petitioner Arco Pulp and Papers obligation to established; (3) third, the wrongful act or omission of the
respondent remains valid and existing. Petitioner Arco Pulp and defendant is the proximate cause of the injury sustained by the
Paper, therefore, must still pay respondent the full amount of claimant; and (4) fourth, the award of damages is predicated on
P7,220,968.31. any of the cases stated in Article 2219 of the Civil Code.43

Petitioners are liable for Here, the injury suffered by respondent is the loss of
damages P7,220,968.31 from his business. This has remained unpaid since
2007. This injury undoubtedly was caused by petitioner Arco
Under Article 2220 of the Civil Code, moral damages may be Pulp and Papers act of refusing to pay its obligations.
awarded in case of breach of contract where the breach is due to
fraud or bad faith: When the obligation became due and demandable, petitioner
Arco Pulp and Paper not only issued an unfunded check but also
Art. 2220. Willfull injury to property may be a legal ground for entered into a contract with a third person in an effort to evade
awarding moral damages if the court should find that, under the its liability. This proves the third requirement.
circumstances, such damages are justly due. The same rule
applies to breaches of contract where the defendant acted As to the fourth requisite, Article 2219 of the Civil Code provides
fraudulently or in bad faith. (Emphasis supplied) that moral damages may be awarded in the following instances:

Moral damages are not awarded as a matter of right but only Article 2219. Moral damages may be recovered in the following
after the party claiming it proved that the breach was due to and analogous cases:
fraud or bad faith. As this court stated:
(1) A criminal offense resulting in physical injuries;
Moral damages are not recoverable simply because a contract has
been breached. They are recoverable only if the party from whom (2) Quasi-delicts causing physical injuries;
it is claimed acted fraudulently or in bad faith or in wanton
disregard of his contractual obligations. The breach must be (3) Seduction, abduction, rape, or other lascivious acts;

(4) Adultery or concubinage; Article 20. Every person who, contrary to law, wilfully or
negligently causes damage to another, shall indemnify the latter
(5) Illegal or arbitrary detention or arrest; for the same.

(6) Illegal search; Article 21.Any person who wilfully causes loss or injury to
another in a manner that is contrary to morals, good customs or
(7) Libel, slander or any other form of defamation; public policy shall compensate the latter for the damage.

(8) Malicious prosecution; To be actionable, Article 20 requires a violation of law, while
Article 21 only concerns with lawful acts that are contrary to
(9) Acts mentioned in Article 309; morals, good customs, and public policy:

(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, Article 20 concerns violations of existing law as basis for an
32, 34, and 35. injury. It allows recovery should the act have been willful or
negligent. Willful may refer to the intention to do the act and the
Breaches of contract done in bad faith, however, are not specified desire to achieve the outcome which is considered by the plaintiff
within this enumeration. When a party breaches a contract, he or in tort action as injurious. Negligence may refer to a situation
she goes against Article 19 of the Civil Code, which states: Article where the act was consciously done but without intending the
19. Every person must, in the exercise of his rights and in the result which the plaintiff considers as injurious.
performance of his duties, act with justice, give everyone his due,
and observe honesty and good faith. Article 21, on the other hand, concerns injuries that may be
caused by acts which are not necessarily proscribed by law. This
Persons who have the right to enter into contractual relations article requires that the act be willful, that is, that there was an
must exercise that right with honesty and good faith. Failure to intention to do the act and a desire to achieve the outcome. In
do so results in an abuse of that right, which may become the cases under Article 21, the legal issues revolve around whether
basis of an action for damages. Article 19, however, cannot be its such outcome should be considered a legal injury on the part of
sole basis: the plaintiff or whether the commission of the act was done in
violation of the standards of care required in Article 19.45
Article 19 is the general rule which governs the conduct of
human relations. By itself, it is not the basis of an actionable tort. When parties act in bad faith and do not faithfully comply with
Article 19 describes the degree of care required so that an their obligations under contract, they run the risk of violating
actionable tort may arise when it is alleged together with Article Article 1159 of the Civil Code:
20 or Article 21.44

Article 20 and 21 of the Civil Code are as follows:

Article 1159. Obligations arising from contracts have the force of When petitioner Arco Pulp and Paper issued a check in partial
law between the contracting parties and should be complied with payment of its obligation to respondent, it was presumably with
in good faith. the knowledge that it was being drawn against a closed account.
Worse, it attempted to shift their obligations to a third person
Article 2219, therefore, is not an exhaustive list of the instances without the consent of respondent.
where moral damages may be recovered since it only specifies,
among others, Article 21. When a party reneges on his or her Petitioner Arco Pulp and Papers actions clearly show "a
obligations arising from contracts in bad faith, the act is not only dishonest purpose or some moral obliquity and conscious doing
contrary to morals, good customs, and public policy; it is also a of a wrong, a breach of known duty through some motive or
violation of Article 1159. Breaches of contract become the basis interest or ill will that partakes of the nature of fraud."48 Moral
of moral damages, not only under Article 2220, but also under damages may, therefore, be awarded.
Articles 19 and 20 in relation to Article 1159.
Exemplary damages may also be awarded. Under the Civil Code,
Moral damages, however, are not recoverable on the mere breach exemplary damages are due in the following circumstances:
of the contract. Article 2220 requires that the breach be done
fraudulently or in bad faith. In Adriano v. Lasala:46 Article 2232. In contracts and quasi-contracts, the court may
award exemplary damages if the defendant acted in a wanton,
To recover moral damages in an action for breach of contract, the fraudulent, reckless, oppressive, or malevolent manner.
breach must be palpably wanton, reckless and malicious, in bad
faith, oppressive, or abusive. Hence, the person claiming bad faith Article 2233. Exemplary damages cannot be recovered as a
must prove its existence by clear and convincing evidence for the matter of right; the court will decide whether or not they should
law always presumes good faith. be adjudicated.

Bad faith does not simply connote bad judgment or negligence. It Article 2234. While the amount of the exemplary damages need
imports a dishonest purpose or some moral obliquity and not be proven, the plaintiff must show that he is entitled to moral,
conscious doing of a wrong, a breach of known duty through temperate or compensatory damages before the court may
some motive or interest or ill will that partakes of the nature of consider the question of whether or not exemplary damages
fraud. It is, therefore, a question of intention, which can be should be awarded.
inferred from ones conduct and/or contemporaneous
statements.47 (Emphasis supplied) In Tankeh v. Development Bank of the Philippines,49 we stated
that:
Since a finding of bad faith is generally premised on the intent of
the doer, it requires an examination of the circumstances in each The purpose of exemplary damages is to serve as a deterrent to
case. future and subsequent parties from the commission of a similar
offense. The case of People v. Ranteciting People v. Dalisay held
that:

Also known as punitive or vindictive damages, exemplary or Business owners must always be forthright in their dealings.
corrective damages are intended to serve as a deterrent to They cannot be allowed to renege on their obligations,
serious wrong doings, and as a vindication of undue sufferings considering that these obligations were freely entered into by
and wanton invasion of the rights of an injured or a punishment them. Exemplary damages may also be awarded in this case to
for those guilty of outrageous conduct. These terms are generally, serve as a deterrent to those who use fraudulent means to evade
but not always, used interchangeably. In common law, there is their liabilities.
preference in the use of exemplary damages when the award is to
account for injury to feelings and for the sense of indignity and Since the award of exemplary damages is proper, attorneys fees
humiliation suffered by a person as a result of an injury that has and cost of the suit may also be recovered.
been maliciously and wantonly inflicted, the theory being that
there should be compensation for the hurt caused by the highly Article 2208 of the Civil Code states:
reprehensible conduct of the defendantassociated with such
circumstances as willfulness, wantonness, malice, gross Article 2208. In the absence of stipulation, attorney's fees and
negligence or recklessness, oppression, insult or fraud or gross expenses of litigation, other than judicial costs, cannot be
fraudthat intensifies the injury. The terms punitive or recovered, except:
vindictive damages are often used to refer to those species of
damages that may be awarded against a person to punish him for (1) When exemplary damages are awarded[.]
his outrageous conduct. In either case, these damages are Petitioner Candida A. Santos
intended in good measure to deter the wrongdoer and others like is solidarily liable with
him from similar conduct in the future.50 (Emphasis supplied; petitioner corporation
citations omitted)
Petitioners argue that the finding of solidary liability was
The requisites for the award of exemplary damages are as erroneous since no evidence was adduced to prove that the
follows: transaction was also a personal undertaking of petitioner Santos.
We disagree.
(1) they may be imposed by way of example in addition to
compensatory damages, and only after the claimant's right to In Heirs of Fe Tan Uy v. International Exchange Bank,52 we
them has been established; stated that:

(2) that they cannot be recovered as a matter of right, their Basic is the rule in corporation law that a corporation is a
determination depending upon the amount of compensatory juridical entity which is vested with a legal personality separate
damages that may be awarded to the claimant; and and distinct from those acting for and in its behalf and, in general,
from the people comprising it. Following this principle,
(3) the act must be accompanied by bad faith or done in a obligations incurred by the corporation, acting through its
wanton, fraudulent, oppressive or malevolent manner.51 directors, officers and employees, are its sole liabilities. A

director, officer or employee of a corporation is generally not Arco Pulp and Paper. She also issued the check in partial payment
held personally liable for obligations incurred by the corporation. of petitioner corporations obligations to respondent on behalf of
Nevertheless, this legal fiction may be disregarded if it is used as petitioner Arco Pulp and Paper. This is clear on the face of the
a means to perpetrate fraud or an illegal act, or as a vehicle for check bearing the account name, "Arco Pulp & Paper, Co., Inc."54
the evasion of an existing obligation, the circumvention of Any obligation arising from these acts would not, ordinarily, be
statutes, or to confuse legitimate issues. petitioner Santos personal undertaking for which she would be
solidarily liable with petitioner Arco Pulp and Paper.
. . . .
We find, however, that the corporate veil must be pierced. In
Before a director or officer of a corporation can be held Livesey v. Binswanger Philippines:55
personally liable for corporate obligations, however, the
following requisites must concur: (1) the complainant must Piercing the veil of corporate fiction is an equitable doctrine
allege in the complaint that the director or officer assented to developed to address situations where the separate corporate
patently unlawful acts of the corporation, or that the officer was personality of a corporation is abused or used for wrongful
guilty of gross negligence or bad faith; and (2) the complainant purposes. Under the doctrine, the corporate existence may be
must clearly and convincingly prove such unlawful acts, disregarded where the entity is formed or used for non-
negligence or bad faith. legitimate purposes, such as to evade a just and due obligation, or
to justify a wrong, to shield or perpetrate fraud or to carry out
While it is true that the determination of the existence of any of similar or inequitable considerations, other unjustifiable aims or
the circumstances that would warrant the piercing of the veil of intentions, in which case, the fiction will be disregarded and the
corporate fiction is a question of fact which cannot be the subject individuals composing it and the two corporations will be treated
of a petition for review on certiorari under Rule 45, this Court as identical.56 (Emphasis supplied)
can take cognizance of factual issues if the findings of the lower
court are not supported by the evidence on record or are based According to the Court of Appeals, petitioner Santos was
on a misapprehension of facts.53 (Emphasis supplied) solidarily liable with petitioner Arco Pulp and Paper, stating that:

As a general rule, directors, officers, or employees of a In the present case, We find bad faith on the part of the
corporation cannot be held personally liable for obligations [petitioners] when they unjustifiably refused to honor their
incurred by the corporation. However, this veil of corporate undertaking in favor of the [respondent]. After the check in the
fiction may be pierced if complainant is able to prove, as in this amount of 1,487,766.68 issued by [petitioner] Santos was
case, that (1) the officer is guilty of negligence or bad faith, and dishonored for being drawn against a closed account, [petitioner]
(2) such negligence or bad faith was clearly and convincingly corporation denied any privity with [respondent]. These acts
proven. prompted the [respondent] to avail of the remedies provided by
law in order to protect his rights.57
Here, petitioner Santos entered into a contract with respondent
in her capacity as the President and Chief Executive Officer of

We agree with the Court of Appeals. Petitioner Santos cannot be II. With regard particularly to an award of interest in the concept
allowed to hide behind the corporate veil.1wphi1 When of actual and compensatory damages, the rate of interest, as well
petitioner Arco Pulp and Papers obligation to respondent as the accrual thereof, is imposed, as follows:
became due and demandable, she not only issued an unfunded
check but also contracted with a third party in an effort to shift 1. When the obligation is breached, and it consists in the payment
petitioner Arco Pulp and Papers liability. She unjustifiably of a sum of money, i.e., a loan or forbearance of money, the
refused to honor petitioner corporations obligations to interest due should be that which may have been stipulated in
respondent. These acts clearly amount to bad faith. In this writing. Furthermore, the interest due shall itself earn legal
instance, the corporate veil may be pierced, and petitioner Santos interest from the time it is judicially demanded. In the absence of
may be held solidarily liable with petitioner Arco Pulp and Paper. stipulation, the rate of interest shall be 6% per annum to be
computed from default, i.e., from judicial or extrajudicial demand
The rate of interest due on under and subject to the provisions of Article 1169 of the Civil
the obligation must be Code.
reduced in view of Nacar v.
Gallery Frames58 2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages
In view, however, of the promulgation by this court of the awarded may be imposed at the discretion of the court at the rate
decision dated August 13, 2013 in Nacar v. Gallery Frames,59 the of 6% per annum. No interest, however, shall be adjudged on
rate of interest due on the obligation must be modified from 12% unliquidated claims or damages, except when or until the
per annum to 6% per annum from the time of demand. demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable
Nacar effectively amended the guidelines stated in Eastern certainty, the interest shall begin to run from the time the claim is
Shipping v. Court of Appeals,60 and we have laid down the made judicially or extrajudicially (Art. 1169, Civil Code), but
following guidelines with regard to the rate of legal interest: when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only
To recapitulate and for future guidance, the guidelines laid down from the date the judgment of the court is made (at which time
in the case of Eastern Shipping Linesare accordingly modified to the quantification of damages may be deemed to have been
embody BSP-MB Circular No. 799, as follows: reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally
I. When an obligation, regardless of its source, i.e., law, contracts, adjudged.
quasi-contracts, delicts or quasi-delicts is breached, the
contravenor can be held liable for damages. The provisions under 3. When the judgment of the court awarding a sum of money
Title XVIII on "Damages" of the Civil Code govern in determining becomes final and executory, the rate of legal interest, whether
the measure of recoverable damages. the case falls under paragraph 1 or paragraph 2, above, shall be
6% per annum from such finality until its satisfaction, this

interim period being deemed to be by then an equivalent to a HONORABLE COURT OF APPEALS AND ANTONIO P. SO,
forbearance of credit. respondents.

And, in addition to the above, judgments that have become final Gloria A. Fortun for petitioner.
and executory prior to July 1, 2013, shall not be disturbed and
shall continue to be implemented applying the rate of interest Roselino Reyes Isler for respondents.
fixed therein.61 (Emphasis supplied; citations omitted.)

According to these guidelines, the interest due on the obligation CUEVAS, J.:
of P7,220,968.31 should now be at 6% per annum, computed
from May 5, 2007, when respondent sent his letter of demand to This is a petition to review the Resolution dated June 30, 1980 of
petitioners. This interest shall continue to be due from the the then Court of Appeals (now the Intermediate Appellate
finality of this decision until its full satisfaction. Court) in CA-G.R. No. SP-10573, entitled "Ernesto V. Ronquillo
versus the Hon. Florellana Castro-Bartolome, etc." and the Order
WHEREFORE, the petition is DENIED in part. The decision in CA- of said court dated August 20, 1980, denying petitioner's motion
G.R. CV No. 95709 is AFFIRMED. for reconsideration of the above resolution.

Petitioners Arco Pulp & Paper Co., Inc. and Candida A. Santos are Petitioner Ernesto V. Ronquillo was one of four (4) defendants in
hereby ordered solidarily to pay respondent Dan T. Lim the Civil Case No. 33958 of the then Court of First Instance of Rizal
amount of P7,220,968.31 with interest of 6% per annum at the (now the Regional Trial Court), Branch XV filed by private
time of demand until finality of judgment and its full satisfaction, respondent Antonio P. So, on July 23, 1979, for the collection of
with moral damages in the amount of P50,000.00, exemplary the sum of P17,498.98 plus attorney's fees and costs. The other
damages in the amount of P50,000.00, and attorney's fees in the defendants were Offshore Catertrade Inc., Johnny Tan and Pilar
amount of P50,000.00. Tan. The amount of P117,498.98 sought to be collected
represents the value of the checks issued by said defendants in
payment for foodstuffs delivered to and received by them. The
said checks were dishonored by the drawee bank.

On December 13, 1979, the lower court rendered its Decision 1
based on the compromise agreement submitted by the parties,
the pertinent portion of which reads as follows:
27. G.R. No. L-55138 September 28, 1984
1. Plaintiff agrees to reduce its total claim of P117,498-95 to
ERNESTO V. RONQUILLO, petitioner, only P11,000 .00 and defendants agree to acknowledge the
vs. validity of such claim and further bind themselves to initially pay
out of the total indebtedness of P10,000.00 the amount of

P55,000.00 on or before December 24, 1979, the balance of Court. The amount deposited was subsequently withdrawn by
P55,000.00, defendants individually and jointly agree to pay private respondent. 3
within a period of six months from January 1980, or before June
30, 1980; (Emphasis supplied) On the same day, January 16, 1980, the lower court ordered the
issuance of a writ of execution for the balance of the initial
xxx xxx xxx amount payable, against the other two defendants, Offshore
Catertrade Inc. and Johnny Tan 4 who did not pay their shares.
4. That both parties agree that failure on the part of either
party to comply with the foregoing terms and conditions, the On January 22, 1980, private respondent moved for the
innocent party will be entitled to an execution of the decision reconsideration and/or modification of the aforesaid Order of
based on this compromise agreement and the defaulting party execution and prayed instead for the "execution of the decision in
agrees and hold themselves to reimburse the innocent party for its entirety against all defendants, jointly and severally." 5
attorney's fees, execution fees and other fees related with the Petitioner opposed the said motion arguing that under the
execution. decision of the lower court being executed which has already
become final, the liability of the four (4) defendants was not
xxx xxx xxx expressly declared to be solidary, consequently each defendant is
obliged to pay only his own pro-rata or 1/4 of the amount due
On December 26, 1979, herein private respondent (then plaintiff and payable.
filed a Motion for Execution on the ground that defendants failed
to make the initial payment of P55,000.00 on or before December On March 17, 1980, the lower court issued an Order reading as
24, 1979 as provided in the Decision. Said motion for execution follows:
was opposed by herein petitioner (as one of the defendants)
contending that his inability to make the payment was due to ORDER
private respondent's own act of making himself scarce and
inaccessible on December 24, 1979. Petitioner then prayed that Regardless of whatever the compromise agreement has intended
private respondent be ordered to accept his payment in the the payment whether jointly or individually, or jointly and
amount of P13,750.00. 2 severally, the fact is that only P27,500.00 has been paid. There
appears to be a non-payment in accordance with the compromise
During the hearing of the Motion for Execution and the agreement of the amount of P27,500.00 on or before December
Opposition thereto on January 16, 1980, petitioner, as one of the 24, 1979. The parties are reminded that the payment is condition
four defendants, tendered the amount of P13,750.00, as his sine qua non to the lifting of the preliminary attachment and the
prorata share in the P55,000.00 initial payment. Another execution of an affidavit of desistance.
defendant, Pilar P. Tan, offered to pay the same amount. Because
private respondent refused to accept their payments, demanding WHEREFORE, let writ of execution issue as prayed for
from them the full initial installment of P 55,000.00, petitioner
and Pilar Tan instead deposited the said amount with the Clerk of

On March 17, 1980, petitioner moved for the reconsideration of On April 2, 1980, the lower court denied petitioner's motion for
the above order, and the same was set for hearing on March reconsideration but the scheduled public sale in that same day
25,1980. did not proceed in view of the pendency of a certiorari
proceeding before the then Court of Appeals.
Meanwhile, or more specifically on March 19, 1980, a writ of
execution was issued for the satisfaction of the sum of On June 30, 1980, the said court issued a Resolution, the
P82,500.00 as against the properties of the defendants (including pertinent portion of which reads as follows:
petitioner), "singly or jointly hable." 6
This Court, however, finds the present petition to have been filed
On March 20, 1980, Special Sheriff Eulogio C. Juanson of Rizal, prematurely. The rule is that before a petition for certiorari can
issued a notice of sheriff's sale, for the sale of certain furnitures be brought against an order of a lower court, all remedies
and appliances found in petitioner's residence to satisfy the sum available in that court must first be exhausted. In the case at bar,
of P82,500.00. The public sale was scheduled for April 2, 1980 at herein petitioner filed a petition without waiting for a resolution
10:00 a.m. 7 of the Court on the motion for reconsideration, which could have
been favorable to the petitioner. The fact that the hearing of the
Petitioner's motion for reconsideration of the Order of Execution motion for reconsideration had been reset on the same day the
dated March 17, 1980 which was set for hearing on March 25, public sale was to take place is of no moment since the motion for
1980, was upon motion of private respondent reset to April 2, reconsideration of the Order of March 17, 1980 having been
1980 at 8:30 a.m. Realizing the actual threat to property rights seasonably filed, the scheduled public sale should be suspended.
poised by the re-setting of the hearing of s motion for Moreover, when the defendants, including herein petitioner,
reconsideration for April 2, 1980 at 8:30 a.m. such that if his defaulted in their obligation based on the compromise
motion for reconsideration would be denied he would have no agreement, private respondent had become entitled to move for
more time to obtain a writ from the appellate court to stop the an execution of the decision based on the said agreement.
scheduled public sale of his personal properties at 10:00 a.m. of
the same day, April 2, 1980, petitioner filed on March 26, 1980 a WHEREFORE, the instant petition for certiorari and prohibition
petition for certiorari and prohibition with the then Court of with preliminary injunction is hereby denied due course. The
Appeals (CA-G.R. No. SP-10573), praying at the same time for the restraining order issued in our resolution dated April 9, 1980 is
issuance of a restraining order to stop the public sale. He raised hereby lifted without pronouncement as to costs.
the question of the validity of the order of execution, the writ of
execution and the notice of public sale of his properties to satisfy SO ORDERED.
fully the entire unpaid obligation payable by all of the four (4)
defendants, when the lower court's decision based on the Petitioner moved to reconsider the aforesaid Resolution alleging
compromise agreement did not specifically state the liability of that on April 2, 1980, the lower court had already denied the
the four (4) defendants to be solidary. motion referred to and consequently, the legal issues being
raised in the petition were already "ripe" for determination. 8

The said motion was however denied by the Court of Appeals in 1. Was the filing of a petition for certiorari before the then
its Resolution dated August 20, 1980. Court of Appeals against the Order of Execution issued by the
lower court, dated March 17, 1980, proper, despite the pendency
Hence, this petition for review, petitioner contending that the of a motion for reconsideration of the same questioned Order?
Court of Appeals erred in
2. What is the nature of the liability of the defendants
(a) declaring as premature, and in denying due course to the (including petitioner), was it merely joint, or was it several or
petition to restrain implementation of a writ of execution issued solidary?
at variance with the final decision of the lower court filed barely
four (4) days before the scheduled public sale of the attached Anent the first issue raised, suffice it to state that while as a
movable properties; general rule, a motion for reconsideration should precede
recourse to certiorari in order to give the trial court an
(b) denying reconsideration of the Resolution of June 30, opportunity to correct the error that it may have committed, the
1980, which declared as premature the filing of the petition, said rule is not absolutes 9 and may be dispensed with in
although there is proof on record that as of April 2, 1980, the instances where the filing of a motion for reconsideration would
motion referred to was already denied by the lower court and serve no useful purpose, such as when the motion for
there was no more motion pending therein; reconsideration would raise the same point stated in the motion
10 or where the error is patent for the order is void 11 or where
(c) failing to resolve the legal issues raised in the petition and the relief is extremely urgent, as in cases where execution had
in not declaring the liabilities of the defendants, under the final already been ordered 12 where the issue raised is one purely of
decision of the lower court, to be only joint; law. 13

(d) not holding the lower court's order of execution dated In the case at bar, the records show that not only was a writ of
March 17, 1980, the writ of execution and the notice of sheriff's execution issued but petitioner's properties were already
sale, executing the lower court's decision against "all defendants, scheduled to be sold at public auction on April 2, 1980 at 10:00
singly and jointly", to be at variance with the lower court's final a.m. The records likewise show that petitioner's motion for
decision which did not provide for solidary obligation; and reconsideration of the questioned Order of Execution was filed
on March 17, 1980 and was set for hearing on March 25, 1980 at
(e) not declaring as invalid and unlawful the threatened 8:30 a.m., but upon motion of private respondent, the hearing
execution, as against the properties of petitioner who had paid was reset to April 2, 1980 at 8:30 a.m., the very same clay when
his pro-rata share of the adjudged obligation, of the total unpaid petitioner's properties were to be sold at public auction. Needless
amount payable by his joint co-defendants. to state that under the circumstances, petitioner was faced with
imminent danger of his properties being immediately sold the
The foregoing assigned errors maybe synthesized into the more moment his motion for reconsideration is denied. Plainly,
important issues of urgency prompted recourse to the Court of Appeals and the
adequate and speedy remedy for petitioner under the situation

was to file a petition for certiorari with prayer for restraining 1. Plaintiff agrees to reduce its total claim of P117,498.95 to
order to stop the sale. For him to wait until after the hearing of only P110,000.00 and defendants agree to acknowledge the
the motion for reconsideration on April 2, 1980 before taking validity of such claim and further bind themselves to initially pay
recourse to the appellate court may already be too late since out of the total indebtedness of P110,000.00, the amount of
without a restraining order, the public sale can proceed at 10:00 P5,000.00 on or before December 24, 1979, the balance of
that morning. In fact, the said motion was already denied by the P55,000.00, defendants individually and jointly agree to pay
lower court in its order dated April 2, 1980 and were it not for within a period of six months from January 1980 or before June
the pendency of the petition with the Court of Appeals and the 30, 1980. (Emphasis supply)
restraining order issued thereafter, the public sale scheduled that
very same morning could have proceeded. Clearly then, by the express term of the compromise agreement
and the decision based upon it, the defendants obligated
The other issue raised refers to the nature of the liability of themselves to pay their obligation "individually and jointly".
petitioner, as one of the defendants in Civil Case No. 33958, that
is whether or not he is liable jointly or solidarily. The term "individually" has the same meaning as "collectively",
"separately", "distinctively", respectively or "severally". An
In this regard, Article 1207 and 1208 of the Civil Code provides agreement to be "individually liable" undoubtedly creates a
several obligation, 14 and a "several obligation is one by which
one individual binds himself to perform the whole obligation. 15
Art. 1207. The concurrence of two or more debtors in one and
the same obligation does not imply that each one of the former In the case of Parot vs. Gemora 16 We therein ruled that "the
has a right to demand, or that each one of the latter is bound to phrase juntos or separadamente or in the promissory note is an
render, entire compliance with the prestation. Then is a solidary express statement making each of the persons who signed it
liability only when the obligation expressly so states, or when the individually liable for the payment of the fun amount of the
law or the nature of the obligation requires solidarity. obligation contained therein." Likewise in Un Pak Leung vs.
Negorra 17 We held that "in the absence of a finding of facts that
Art. 1208. If from the law,or the nature or the wording of the the defendants made themselves individually hable for the debt
obligation to which the preceding article refers the contrary does incurred they are each liable only for one-half of said amount
not appear, the credit or debt shall be presumed to be divided
into as many equal shares as there are creditors and debtors, the The obligation in the case at bar being described as "individually
credits or debts being considered distinct from one another, and jointly", the same is therefore enforceable against one of the
subject to the Rules of Court governing the multiplicity of quits. numerous obligors.

The decision of the lower court based on the parties' compromise IN VIEW OF THE FOREGOING CONSIDERATIONS, the instant
agreement, provides: petition is hereby DISMISSED. Cost against petitioner.


No. ET-03023 Serial No. 351672, and Plate No. J-21536, Quezon
City, 1967. The insurance coverage was for "own damage" not to
28. G.R. No. L-36413 September 26, 1988 exceed P600.00 and "third-party liability" in the amount of
P20,000.00.
MALAYAN INSURANCE CO., INC., petitioner, During the effectivity of said insurance policy, and more
vs. particularly on 19 December 1967, at about 3:30 o'clock in the
THE HON. COURT OF APPEALS (THIRD DIVISION) afternoon, the insured jeep, while being driven by one Juan P.
MARTIN C. VALLEJOS, SIO CHOY, SAN LEON RICE MILL, Campollo an employee of the respondent San Leon Rice Mill, Inc.,
INC. and PANGASINAN TRANSPORTATION CO., INC., collided with a passenger bus belonging to the respondent
respondents. Pangasinan Transportation Co., Inc. (PANTRANCO, for short) at
the national highway in Barrio San Pedro, Rosales, Pangasinan,
Freqillana Jr. for petitioner. causing damage to the insured vehicle and injuries to the driver,
Juan P. Campollo, and the respondent Martin C. Vallejos, who was
B.F. Estrella & Associates for respondent Martin riding in the ill-fated jeep.
Vallejos.
As a result, Martin C. Vallejos filed an action for damages against
Vicente Erfe Law Office for respondent Pangasinan Sio Choy, Malayan Insurance Co., Inc. and the PANTRANCO before
Transportation Co., Inc. the Court of First Instance of Pangasinan, which was docketed as
Civil Case No. U-2021. He prayed therein that the defendants be
Nemesio Callanta for respondent Sio Choy and San ordered to pay him, jointly and severally, the amount of
Leon Rice Mill, Inc. P15,000.00, as reimbursement for medical and hospital
expenses; P6,000.00, for lost income; P51,000.00 as actual, moral
PADILLA, J.: and compensatory damages; and P5,000.00, for attorney's fees.

Review on certiorari of the judgment * of the respondent Answering, PANTRANCO claimed that the jeep of Sio Choy was
appellate court in CA-G.R. No. 47319-R, dated 22 February 1973, then operated at an excessive speed and bumped the
which affirmed, with some modifications, the decision, ** dated PANTRANCO bus which had moved to, and stopped at, the
27 April 1970, rendered in Civil Case No. U-2021 of the Court of shoulder of the highway in order to avoid the jeep; and that it had
First Instance of Pangasinan. observed the diligence of a good father of a family to prevent
damage, especially in the selection and supervision of its
The antecedent facts of the case are as follows: employees and in the maintenance of its motor vehicles. It prayed
that it be absolved from any and all liability.
On 29 March 1967, herein petitioner, Malayan Insurance Co., Inc.,
issued in favor of private respondent Sio Choy Private Car Defendant Sio Choy and the petitioner insurance company, in
Comprehensive Policy No. MRO/PV-15753, effective from 18 their answer, also denied liability to the plaintiff, claiming that
April 1967 to 18 April 1968, covering a Willys jeep with Motor the fault in the accident was solely imputable to the PANTRANCO.

Sio Choy, however, later filed a separate answer with a cross- (a) P4,103 as actual damages;
claim against the herein petitioner wherein he alleged that he
had actually paid the plaintiff, Martin C. Vallejos, the amount of (b) P18,000.00 representing the unearned income of plaintiff
P5,000.00 for hospitalization and other expenses, and, in his Martin C. Vallejos for the period of three (3) years;
cross-claim against the herein petitioner, he alleged that the
petitioner had issued in his favor a private car comprehensive (c) P5,000.00 as moral damages;
policy wherein the insurance company obligated itself to
indemnify Sio Choy, as insured, for the damage to his motor (d) P2,000.00 as attomey's fees or the total of P29,103.00,
vehicle, as well as for any liability to third persons arising out of plus costs.
any accident during the effectivity of such insurance contract,
which policy was in full force and effect when the vehicular The above-named parties against whom this judgment is
accident complained of occurred. He prayed that he be rendered are hereby held jointly and severally liable. With
reimbursed by the insurance company for the amount that he respect, however, to Malayan Insurance Co., Inc., its liability will
may be ordered to pay. be up to only P20,000.00.

Also later, the herein petitioner sought, and was granted, leave to As no satisfactory proof of cost of damage to its bus was
file a third-party complaint against the San Leon Rice Mill, Inc. for presented by defendant Pantranco, no award should be made in
the reason that the person driving the jeep of Sio Choy, at the its favor. Its counter-claim for attorney's fees is also dismissed for
time of the accident, was an employee of the San Leon Rice Mill, not being proved. 1
Inc. performing his duties within the scope of his assigned task,
and not an employee of Sio Choy; and that, as the San Leon Rice On appeal, the respondent Court of Appeals affirmed the
Mill, Inc. is the employer of the deceased driver, Juan P. Campollo, judgment of the trial court that Sio Choy, the San Leon Rice Mill,
it should be liable for the acts of its employee, pursuant to Art. Inc. and the Malayan Insurance Co., Inc. are jointly and severally
2180 of the Civil Code. The herein petitioner prayed that liable for the damages awarded to the plaintiff Martin C. Vallejos.
judgment be rendered against the San Leon Rice Mill, Inc., making It ruled, however, that the San Leon Rice Mill, Inc. has no
it liable for the amounts claimed by the plaintiff and/or ordering obligation to indemnify or reimburse the petitioner insurance
said San Leon Rice Mill, Inc. to reimburse and indemnify the company for whatever amount it has been ordered to pay on its
petitioner for any sum that it may be ordered to pay the plaintiff. policy, since the San Leon Rice Mill, Inc. is not a privy to the
contract of insurance between Sio Choy and the insurance
After trial, judgment was rendered as follows: company. 2

WHEREFORE, in view of the foregoing findings of this Court Hence, the present recourse by petitioner insurance company.
judgment is hereby rendered in favor of the plaintiff and against
Sio Choy and Malayan Insurance Co., Inc., and third-party The petitioner prays for the reversal of the appellate court's
defendant San Leon Rice Mill, Inc., as follows: judgment, or, in the alternative, to order the San Leon Rice Mill,

Inc. to reimburse petitioner any amount, in excess of one-half We do not agree with the aforesaid ruling. We hold instead that it
(1/2) of the entire amount of damages, petitioner may be is only respondents Sio Choy and San Leon Rice Mill, Inc, (to the
ordered to pay jointly and severally with Sio Choy. exclusion of the petitioner) that are solidarily liable to
respondent Vallejos for the damages awarded to Vallejos.
The Court, acting upon the petition, gave due course to the same,
but "only insofar as it concerns the alleged liability of respondent It must be observed that respondent Sio Choy is made liable to
San Leon Rice Mill, Inc. to petitioner, it being understood that no said plaintiff as owner of the ill-fated Willys jeep, pursuant to
other aspect of the decision of the Court of Appeals shall be Article 2184 of the Civil Code which provides:
reviewed, hence, execution may already issue in favor of
respondent Martin C. Vallejos against the respondents, without Art. 2184. In motor vehicle mishaps, the owner is solidarily liable
prejudice to the determination of whether or not petitioner shall with his driver, if the former, who was in the vehicle, could have,
be entitled to reimbursement by respondent San Leon Rice Mill, by the use of due diligence, prevented the misfortune it is
Inc. for the whole or part of whatever the former may pay on the disputably presumed that a driver was negligent, if he had been
P20,000.00 it has been adjudged to pay respondent Vallejos." 3 found guilty of reckless driving or violating traffic regulations at
least twice within the next preceding two months.
However, in order to determine the alleged liability of
respondent San Leon Rice Mill, Inc. to petitioner, it is important If the owner was not in the motor vehicle, the provisions of
to determine first the nature or basis of the liability of petitioner article 2180 are applicable.
to respondent Vallejos, as compared to that of respondents Sio
Choy and San Leon Rice Mill, Inc. On the other hand, it is noted that the basis of liability of
respondent San Leon Rice Mill, Inc. to plaintiff Vallejos, the
Therefore, the two (2) principal issues to be resolved are (1) former being the employer of the driver of the Willys jeep at the
whether the trial court, as upheld by the Court of Appeals, was time of the motor vehicle mishap, is Article 2180 of the Civil Code
correct in holding petitioner and respondents Sio Choy and San which reads:
Leon Rice Mill, Inc. "solidarily liable" to respondent Vallejos; and
(2) whether petitioner is entitled to be reimbursed by Art. 2180. The obligation imposed by article 2176 is demandable
respondent San Leon Rice Mill, Inc. for whatever amount not only for one's own acts or omissions, but also for those of
petitioner has been adjudged to pay respondent Vallejos on its persons for whom one is responsible.
insurance policy.
xxx xxx xxx
As to the first issue, it is noted that the trial court found, as
affirmed by the appellate court, that petitioner and respondents Employers shall be liable for the damages caused by their
Sio Choy and San Leon Rice Mill, Inc. are jointly and severally employees and household helpers acting within the scope of their
liable to respondent Vallejos. assigned tasks, even though the former are not engaged ill any
business or industry.


xxx xxx xxx
While it is true that where the insurance contract provides for
The responsibility treated in this article shall cease when the indemnity against liability to third persons, such third persons
persons herein mentioned proved that they observed all the can directly sue the insurer, 6 however, the direct liability of the
diligence of a good father of a family to prevent damage. insurer under indemnity contracts against third party liability
does not mean that the insurer can be held solidarily liable with
It thus appears that respondents Sio Choy and San Leon Rice Mill, the insured and/or the other parties found at fault. The liability
Inc. are the principal tortfeasors who are primarily liable to of the insurer is based on contract; that of the insured is based on
respondent Vallejos. The law states that the responsibility of two tort.
or more persons who are liable for a quasi-delict is solidarily. 4
In the case at bar, petitioner as insurer of Sio Choy, is liable to
On the other hand, the basis of petitioner's liability is its respondent Vallejos, but it cannot, as incorrectly held by the trial
insurance contract with respondent Sio Choy. If petitioner is court, be made "solidarily" liable with the two principal
adjudged to pay respondent Vallejos in the amount of not more tortfeasors namely respondents Sio Choy and San Leon Rice Mill,
than P20,000.00, this is on account of its being the insurer of Inc. For if petitioner-insurer were solidarily liable with said two
respondent Sio Choy under the third party liability clause (2) respondents by reason of the indemnity contract against third
included in the private car comprehensive policy existing party liability-under which an insurer can be directly sued by a
between petitioner and respondent Sio Choy at the time of the third party this will result in a violation of the principles
complained vehicular accident. underlying solidary obligation and insurance contracts.

In Guingon vs. Del Monte, 5 a passenger of a jeepney had just In solidary obligation, the creditor may enforce the entire
alighted therefrom, when he was bumped by another passenger obligation against one of the solidary debtors. 7 On the other
jeepney. He died as a result thereof. In the damage suit filed by hand, insurance is defined as "a contract whereby one
the heirs of said passenger against the driver and owner of the undertakes for a consideration to indemnify another against loss,
jeepney at fault as well as against the insurance company which damage, or liability arising from an unknown or contingent
insured the latter jeepney against third party liability, the trial event." 8
court, affirmed by this Court, adjudged the owner and the driver
of the jeepney at fault jointly and severally liable to the heirs of In the case at bar, the trial court held petitioner together with
the victim in the total amount of P9,572.95 as damages and respondents Sio Choy and San Leon Rice Mills Inc. solidarily
attorney's fees; while the insurance company was sentenced to liable to respondent Vallejos for a total amount of P29,103.00,
pay the heirs the amount of P5,500.00 which was to be applied as with the qualification that petitioner's liability is only up to
partial satisfaction of the judgment rendered against said owner P20,000.00. In the context of a solidary obligation, petitioner may
and driver of the jeepney. Thus, in said Guingon case, it was only be compelled by respondent Vallejos to pay the entire obligation
the owner and the driver of the jeepney at fault, not including the of P29,013.00, notwithstanding the qualification made by the
insurance company, who were held solidarily liable to the heirs trial court. But, how can petitioner be obliged to pay the entire
of the victim. obligation when the amount stated in its insurance policy with

respondent Sio Choy for indemnity against third party liability is the insurer in this respect, the equitable right of subrogation as
only P20,000.00? Moreover, the qualification made in the the legal effect of payment inures to the insurer without any
decision of the trial court to the effect that petitioner is sentenced formal assignment or any express stipulation to that effect in the
to pay up to P20,000.00 only when the obligation to pay policy" (44 Am. Jur. 2nd 746). Stated otherwise, when the
P29,103.00 is made solidary, is an evident breach of the concept insurance company pays for the loss, such payment operates as
of a solidary obligation. Thus, We hold that the trial court, as an equitable assignment to the insurer of the property and all
upheld by the Court of Appeals, erred in holding petitioner, remedies which the insured may have for the recovery thereof.
solidarily liable with respondents Sio Choy and San Leon Rice That right is not dependent upon , nor does it grow out of any
Mill, Inc. to respondent Vallejos. privity of contract (emphasis supplied) or upon written
assignment of claim, and payment to the insured makes the
As to the second issue, the Court of Appeals, in affirming the insurer assignee in equity (Shambley v. Jobe-Blackley Plumbing
decision of the trial court, ruled that petitioner is not entitled to and Heating Co., 264 N.C. 456, 142 SE 2d 18). 9
be reimbursed by respondent San Leon Rice Mill, Inc. on the
ground that said respondent is not privy to the contract of It follows, therefore, that petitioner, upon paying respondent
insurance existing between petitioner and respondent Sio Choy. Vallejos the amount of riot exceeding P20,000.00, shall become
We disagree. the subrogee of the insured, the respondent Sio Choy; as such, it
is subrogated to whatever rights the latter has against
The appellate court overlooked the principle of subrogation in respondent San Leon Rice Mill, Inc. Article 1217 of the Civil Code
insurance contracts. Thus gives to a solidary debtor who has paid the entire obligation the
right to be reimbursed by his co-debtors for the share which
... Subrogation is a normal incident of indemnity insurance (Aetna corresponds to each.
L. Ins. Co. vs. Moses, 287 U.S. 530, 77 L. ed. 477). Upon payment
of the loss, the insurer is entitled to be subrogated pro tanto to Art. 1217. Payment made by one of the solidary debtors
any right of action which the insured may have against the third extinguishes the obligation. If two or more solidary debtors offer
person whose negligence or wrongful act caused the loss (44 Am. to pay, the creditor may choose which offer to accept.
Jur. 2nd 745, citing Standard Marine Ins. Co. vs. Scottish
Metropolitan Assurance Co., 283 U.S. 284, 75 L. ed. 1037). He who made the payment may claim from his co-debtors only
the share which corresponds to each, with the interest for the
The right of subrogation is of the highest equity. The loss in the payment already made. If the payment is made before the debt is
first instance is that of the insured but after reimbursement or due, no interest for the intervening period may be demanded.
compensation, it becomes the loss of the insurer (44 Am. Jur. 2d,
746, note 16, citing Newcomb vs. Cincinnati Ins. Co., 22 Ohio St. xxx xxx xxx
382).
In accordance with Article 1217, petitioner, upon payment to
Although many policies including policies in the standard form, respondent Vallejos and thereby becoming the subrogee of
now provide for subrogation, and thus determine the rights of

solidary debtor Sio Choy, is entitled to reimbursement from
respondent San Leon Rice Mill, Inc. Tomas Yumol for Fajardo, defendant-appellee.

To recapitulate then: We hold that only respondents Sio Choy and PLANA, J.:
San Leon Rice Mill, Inc. are solidarily liable to the respondent
Martin C. Vallejos for the amount of P29,103.00. Vallejos may Appeal by the Philippine National Bank (PNB) from the Order of
enforce the entire obligation on only one of said solidary debtors. the defunct Court of First Instance of Manila (Branch XX) in its
If Sio Choy as solidary debtor is made to pay for the entire Civil Case No. 46741 dismissing PNB's complaint against several
obligation (P29,103.00) and petitioner, as insurer of Sio Choy, is solidary debtors for the collection of a sum of money on the
compelled to pay P20,000.00 of said entire obligation, petitioner ground that one of the defendants (Ceferino Valencia) died
would be entitled, as subrogee of Sio Choy as against San Leon during the pendency of the case (i.e., after the plaintiff had
Rice Mills, Inc., to be reimbursed by the latter in the amount of presented its evidence) and therefore the complaint, being a
P14,551.50 (which is 1/2 of P29,103.00 ) money claim based on contract, should be prosecuted in the
testate or intestate proceeding for the settlement of the estate of
WHEREFORE, the petition is GRANTED. The decision of the trial the deceased defendant pursuant to Section 6 of Rule 86 of the
court, as affirmed by the Court of Appeals, is hereby AFFIRMED, Rules of Court which reads:
with the modification above-mentioned. Without pronouncement
as to costs. SEC. 6. Solidary obligation of decedent. the obligation of the
decedent is solidary with another debtor, the claim shall be filed
against the decedent as if he were the only debtor, without
prejudice to the right of the estate to recover contribution from
the other debtor. In a joint obligation of the decedent, the claim
29. G.R. No. L-28046 May 16, 1983 shall be confined to the portion belonging to him.

PHILIPPINE NATIONAL BANK, plaintiff-appellant, The appellant assails the order of dismissal, invoking its right of
vs. recourse against one, some or all of its solidary debtors under
INDEPENDENT PLANTERS ASSOCIATION, INC., Article 1216 of the Civil Code
ANTONIO DIMAYUGA, DELFIN FAJARDO, CEFERINO
VALENCIA, MOISES CARANDANG, LUCIANO CASTILLO, ART. 1216. The creditor may proceed against any one of the
AURELIO VALENCIA, LAURO LEVISTE, GAVINO solidary debtors or some or all of them simultaneously. The
GONZALES, LOPE GEVANA and BONIFACIO LAUREANA, demand made against one of them shall not be an obstacle to
defendants-appellees. those which may subsequently be directed against the others, so
long as the debt has not been fully collected.
Basa, Ilao, del Rosario Diaz for plaintiff-appellant.
The sole issue thus raised is whether in an action for collection of
Laurel Law Office for Dimayuga. a sum of money based on contract against all the solidary

debtors, the death of one defendant deprives the court of settlement of the estate of the deceased debtor wherein his claim
jurisdiction to proceed with the case against the surviving could be filed.
defendants.
Similarly, in PNB vs. Asuncion, 80 SCRA 321 at 323-324, this
It is now settled that the quoted Article 1216 grants the creditor Court, speaking thru Mr. Justice Makasiar, reiterated the doctrine.
the substantive right to seek satisfaction of his credit from one,
some or all of his solidary debtors, as he deems fit or convenient A cursory perusal of Section 6, Rule 86 of the Revised Rules of
for the protection of his interests; and if, after instituting a Court reveals that nothing therein prevents a creditor from
collection suit based on contract against some or all of them and, proceeding against the surviving solidary debtors. Said provision
during its pendency, one of the defendants dies, the court retains merely sets up the procedure in enforcing collection in case a
jurisdiction to continue the proceedings and decide the case in creditor chooses to pursue his claim against the estate of the
respect of the surviving defendants. Thus in Manila Surety & deceased solidary, debtor.
Fidelity Co., Inc. vs. Villarama et al., 107 Phil. 891 at 897, this
Court ruled: It is crystal clear that Article 1216 of the New Civil Code is the
applicable provision in this matter. Said provision gives the
Construing Section 698 of the Code of Civil Procedure from creditor the right to 'proceed against anyone of the solidary
whence the aforequoted provision (Sec. 6, Rule 86) was taken, debtors or some or all of them simultaneously.' The choice is
this Court held that where two persons are bound in solidum for undoubtedly left to the solidary, creditor to determine against
the same debt and one of them dies, the whole indebtedness can whom he will enforce collection. In case of the death of one of the
be proved against the estate of the latter, the decedent's liability solidary debtors, he (the creditor) may, if he so chooses, proceed
being absolute and primary; and if the claim is not presented against the surviving solidary debtors without necessity of filing
within the time provided by the rules, the same will be barred as a claim in the estate of the deceased debtors. It is not mandatory
against the estate. It is evident from the foregoing that Section 6 for him to have the case dismissed against the surviving debtors
of Rule 87 (now Rule 86) provides the procedure should the and file its claim in the estate of the deceased solidary debtor . . .
creditor desire to go against the deceased debtor, but there is
certainly nothing in the said provision making compliance with As correctly argued by petitioner, if Section 6, Rule 86 of the
such procedure a condition precedent before an ordinary action Revised Rules of Court were applied literally, Article 1216 of the
against the surviving solidary debtors, should the creditor choose New Civil Code would, in effect, be repealed since under the Rules
to demand payment from the latter, could be entertained to the of Court, petitioner has no choice but to proceed against the
extent that failure to observe the same would deprive the court estate of Manuel Barredo only. Obviously, this provision
jurisdiction to take cognizance of the action against the surviving diminishes the Bank's right under the New Civil, Code to proceed
debtors. Upon the other hand, the Civil Code expressly allows the against any one, some or all of the solidary debtors. Such a
creditor to proceed against any one of the solidary debtors or construction is not sanctioned by the principle, which is too well
some or all of them simultaneously. There is, therefore, nothing settled to require citation, that a substantive law cannot be
improper in the creditor's filing of an action against the surviving amended by a procedural rule. Otherwise stared, Section 6, Rule
solidary debtors alone, instead of instituting a proceeding for the 86 of the Revised Rules of Court cannot be made to prevail over

Article 1216 of the New Civil Code, the former being merely when its rear left side hit the front left portion of a Sarao jeep
procedural, while the latter, substantive. coming from the opposite direction. As a result of the collision,
Cresencio Pinohermoso, the jeeps driver, lost control of the
WHEREFORE the appealed order of dismissal of the court a quo vehicle, and bumped and killed Jose Mabansag, a bystander who
in its Civil Case No. 46741 is hereby set aside in respect of the was standing along the highways shoulder. The jeep turned
surviving defendants; and the case is remanded to the turtle three (3) times before finally stopping at about 25 meters
corresponding Regional Trial Court for proceedings. proceedings. from the point of impact. Two of the jeeps passengers, Armando
No costs. Nablo and an unidentified woman, were instantly killed, while
the other passengers sustained serious physical injuries.

The prosecution charged Calang with multiple homicide, multiple
serious physical injuries and damage to property thru reckless
30. G.R. No. 190696 August 3, 2010 imprudence before the Regional Trial Court (RTC), Branch 31,
Calbayog City. The RTC, in its decision dated May 21, 2001, found
ROLITO CALANG and PHILTRANCO SERVICE Calang guilty beyond reasonable doubt of reckless imprudence
ENTERPRISES, INC., Petitioners, resulting to multiple homicide, multiple physical injuries and
vs. damage to property, and sentenced him to suffer an
PEOPLE OF THE PHILIPPINES, Respondent. indeterminate penalty of thirty days of arresto menor, as
minimum, to four years and two months of prision correccional,
R E S O L U T I O N as maximum. The RTC ordered Calang and Philtranco, jointly and
severally, to pay P50,000.00 as death indemnity to the heirs of
BRION, J.: Armando; P50,000.00 as death indemnity to the heirs of
Mabansag; and P90,083.93 as actual damages to the private
We resolve the motion for reconsideration filed by the complainants.
petitioners, Philtranco Service Enterprises, Inc. (Philtranco) and
Rolito Calang, to challenge our Resolution of February 17, 2010. The petitioners appealed the RTC decision to the Court of
Our assailed Resolution denied the petition for review on Appeals (CA), docketed as CA-G.R. CR No. 25522. The CA, in its
certiorari for failure to show any reversible error sufficient to decision dated November 20, 2009, affirmed the RTC decision in
warrant the exercise of this Courts discretionary appellate toto. The CA ruled that petitioner Calang failed to exercise due
jurisdiction. care and precaution in driving the Philtranco bus. According to
the CA, various eyewitnesses testified that the bus was traveling
Antecedent Facts fast and encroached into the opposite lane when it evaded a
pushcart that was on the side of the road. In addition, he failed to
At around 2:00 p.m. of April 22, 1989, Rolito Calang was driving slacken his speed, despite admitting that he had already seen the
Philtranco Bus No. 7001, owned by Philtranco along Daang jeep coming from the opposite direction when it was still half a
Maharlika Highway in Barangay Lambao, Sta. Margarita, Samar kilometer away. The CA further ruled that Calang demonstrated a

reckless attitude when he drove the bus, despite knowing that it We see no reason to overturn the lower courts finding on
was suffering from loose compression, hence, not roadworthy. Calangs culpability. The finding of negligence on his part by the
trial court, affirmed by the CA, is a question of fact that we cannot
The CA added that the RTC correctly held Philtranco jointly and pass upon without going into factual matters touching on the
severally liable with petitioner Calang, for failing to prove that it finding of negligence. In petitions for review on certiorari under
had exercised the diligence of a good father of the family to Rule 45 of the Revised Rules of Court, this Court is limited to
prevent the accident. reviewing only errors of law, not of fact, unless the factual
findings complained of are devoid of support by the evidence on
The petitioners filed with this Court a petition for review on record, or the assailed judgment is based on a misapprehension
certiorari. In our Resolution dated February 17, 2010, we denied of facts.
the petition for failure to sufficiently show any reversible error in
the assailed decision to warrant the exercise of this Courts Liability of Philtranco
discretionary appellate jurisdiction.
We, however, hold that the RTC and the CA both erred in holding
The Motion for Reconsideration Philtranco jointly and severally liable with Calang. We emphasize
that Calang was charged criminally before the RTC. Undisputedly,
In the present motion for reconsideration, the petitioners claim Philtranco was not a direct party in this case. Since the cause of
that there was no basis to hold Philtranco jointly and severally action against Calang was based on delict, both the RTC and the
liable with Calang because the former was not a party in the CA erred in holding Philtranco jointly and severally liable with
criminal case (for multiple homicide with multiple serious Calang, based on quasi-delict under Articles 21761 and 21802 of
physical injuries and damage to property thru reckless the Civil Code. Articles 2176 and 2180 of the Civil Code pertain to
imprudence) before the RTC. the vicarious liability of an employer for quasi-delicts that an
employee has committed. Such provision of law does not apply to
The petitioners likewise maintain that the courts below civil liability arising from delict.
overlooked several relevant facts, supported by documentary
exhibits, which, if considered, would have shown that Calang was If at all, Philtrancos liability may only be subsidiary. Article 102
not negligent, such as the affidavit and testimony of witness of the Revised Penal Code states the subsidiary civil liabilities of
Celestina Cabriga; the testimony of witness Rodrigo Bocaycay; innkeepers, tavernkeepers and proprietors of establishments, as
the traffic accident sketch and report; and the jeepneys follows:
registration receipt. The petitioners also insist that the jeeps
driver had the last clear chance to avoid the collision. In default of the persons criminally liable, innkeepers,
tavernkeepers, and any other persons or corporations shall be
We partly grant the motion. civilly liable for crimes committed in their establishments, in all
cases where a violation of municipal ordinances or some general
Liability of Calang or special police regulations shall have been committed by them
or their employees.1avvphil

purpose, with due notice to the employer, as part of the
Innkeepers are also subsidiary liable for the restitution of goods proceedings for the execution of the judgment.4
taken by robbery or theft within their houses from guests lodging
therein, or for the payment of the value thereof, provided that WHEREFORE, we PARTLY GRANT the present motion. The Court
such guests shall have notified in advance the innkeeper himself, of Appeals decision that affirmed in toto the RTC decision, finding
or the person representing him, of the deposit of such goods Rolito Calang guilty beyond reasonable doubt of reckless
within the inn; and shall furthermore have followed the imprudence resulting in multiple homicide, multiple serious
directions which such innkeeper or his representative may have physical injuries and damage to property, is AFFIRMED, with the
given them with respect to the care of and vigilance over such MODIFICATION that Philtrancos liability should only be
goods. No liability shall attach in case of robbery with violence subsidiary. No costs.
against or intimidation of persons unless committed by the
innkeepers employees.

The foregoing subsidiary liability applies to employers, according
to Article 103 of the Revised Penal Code, which reads: 31. G.R. No. 204866 January 21, 2015

The subsidiary liability established in the next preceding article RUKS KONSULT AND CONSTRUCTION, Petitioner,
shall also apply to employers, teachers, persons, and vs.
corporations engaged in any kind of industry for felonies ADWORLD SIGN AND ADVERTISING CORPORATION*
committed by their servants, pupils, workmen, apprentices, or and TRANSWORLD MEDIA ADS, INC., Respondents.
employees in the discharge of their duties.
D E C I S I O N
The provisions of the Revised Penal Code on subsidiary liability
Articles 102 and 103 are deemed written into the judgments in PERLAS-BERNABE, J.:
cases to which they are applicable. Thus, in the dispositive
portion of its decision, the trial court need not expressly Assailed in this petition for review on certiorari1 are the
pronounce the subsidiary liability of the employer.3 Nonetheless, Decision2 dated November 16, 2011 and the Resolution3 dated
before the employers subsidiary liability is enforced, adequate December 10, 2012 of the Court of Appeals (CA) in CA-G.R. CV No.
evidence must exist establishing that (1) they are indeed the 94693 which affirmed the Decision4 dated August 25, 2009 of the
employers of the convicted employees; (2) they are engaged in Regional Trial Court of Makati City, Branch 142 (RTC) in Civil
some kind of industry; (3) the crime was committed by the Case No. 03-1452 holding, inter alia, petitioner Ruks Konsult and
employees in the discharge of their duties; and (4) the execution Construction (Ruks) and respondent Transworld Media Ads, Inc.
against the latter has not been satisfied due to insolvency. The (Transworld) jointly and severally liable to respondent Adworld
determination of these conditions may be done in the same Sign and Advertising Corporation (Adworld) for damages.
criminal action in which the employees liability, criminal and
civil, has been pronounced, in a hearing set for that precise The Facts

only contracted the use of the same. In this relation, Comark
The instant case arose from a complaint for damages filed by prayed for exemplary damages from Transworld for
Adworld against Transworld and Comark International unreasonably includingit as a party-defendant in the complaint.8
Corporation (Comark) before the RTC.5 In the complaint,
Adworld alleged that it is the owner of a 75 ft. x 60 ft. billboard Lastly, Ruks admitted that it entered into a contract with
structure located at EDSA Tulay, Guadalupe, Barangka Transworld for the construction of the latters billboard
Mandaluyong, which was misaligned and its foundation impaired structure, but denied liability for the damages caused by its
when, on August 11, 2003, the adjacent billboard structure collapse. It contended that when Transworld hired its services,
owned by Transworld and used by Comark collapsed and there was already an existing foundation for the billboard and
crashed against it. Resultantly, on August 19, 2003, Adworld sent that it merely finished the structure according to the terms and
Transworld and Comark a letter demanding payment for the conditions of its contract with the latter.9
repairs of its billboard as well asloss of rental income. On August
29, 2003, Transworld sent its reply, admitting the damage caused The RTC Ruling
by its billboard structure on Adworlds billboard, but
nevertheless, refused and failed to pay the amounts demanded by In a Decision10 dated August 25, 2009, the RTC ultimately ruled
Adworld. As Adworlds final demand letter also went unheeded, in Adworlds favor, and accordingly, declared, inter alia,
it was constrained to file the instant complaint, praying for Transworld and Ruks jointly and severally liable to Adworld in
damages in the aggregate amount of P474,204.00, comprised of the amount of P474,204.00 as actual damages, with legal interest
P281,204.00 for materials, P72,000.00 for labor, and from the date of the filing of the complaint until full payment
P121,000.00 for indemnity for loss of income.6 thereof, plus attorneys fees in the amount of P50,000.00.11 The
RTC found both Transworld and Ruks negligent in the
In its Answer with Counterclaim, Transworld averred that the construction of the collapsed billboard as they knew that the
collapse of its billboard structure was due to extraordinarily foundation supporting the same was weak and would pose
strong winds that occurred instantly and unexpectedly, and danger to the safety of the motorists and the other adjacent
maintained that the damage caused to Adworlds billboard properties, such as Adworlds billboard, and yet, they did not do
structure was hardly noticeable. Transworld likewise filed a anything to remedy the situation.12 In particular, the RTC
Third-Party Complaint against Ruks, the company which built the explained that Transworld was made aware by Ruks that the
collapsed billboard structure in the formers favor.1wphi1 It initial construction of the lower structure of its billboard did not
was alleged therein that the structure constructed by Ruks had a have the proper foundation and would require additional
weak and poor foundation not suited for billboards, thus, prone columns and pedestals to support the structure.
to collapse, and as such, Ruks should ultimately be held liable for Notwithstanding, however, Ruks proceeded with the
the damages caused to Adworlds billboard structure.7 construction of the billboards upper structure and merely
assumed that Transworld would reinforce its lower structure.13
For its part, Comark denied liability for the damages caused to The RTC then concluded that these negligent acts were the direct
Adworlds billboard structure, maintaining that it does not have and proximate cause of the damages suffered by Adworlds
any interest on Transworlds collapsed billboard structure as it billboard.14

Aggrieved, both Transworld and Ruks appealed to the CA. In a The primordial issue for the Courts resolution is whether or not
Resolution dated February 3, 2011, the CA dismissed the CA correctly affirmed the ruling of the RTC declaring Ruks
Transworlds appeal for its failure to file an appellants brief on jointly and severally liable with Transworld for damages
time.15 Transworld elevated its case before the Court, docketed sustained by Adworld.
as G.R. No. 197601.16 However, in a Resolution17 dated
November 23, 2011, the Court declared the case closed and The Courts Ruling
terminated for failure of Transworld to file the intended petition
for review on certiorariwithin the extended reglementary period. The petition is without merit.
Subsequently, the Court issued an Entry of Judgment18 dated
February 22, 2012 in G.R. No. 197601 declaring the Courts At the outset, it must be stressed that factual findings of the RTC,
November 23, 2011 Resolution final and executory. when affirmed by the CA, are entitled to great weight by the
Court and are deemed final and conclusive when supported by
The CA Ruling the evidence on record.25 Absent any exceptions to this rule
such as when it is established that the trial court ignored,
In a Decision19 dated November 16, 2011, the CA denied Rukss overlooked, misconstrued, or misinterpreted cogent facts and
appeal and affirmed the ruling of the RTC. It adhered to the RTCs circumstances that, if considered, would change the outcome of
finding of negligence on the part of Transworld and Ruks which the case26 such findings must stand.
brought about the damage to Adworlds billboard. It found that
Transworld failed to ensure that Ruks will comply with the After a judicious perusal of the records, the Court sees no cogent
approved plans and specifications of the structure, and that Ruks reason to deviate from the findings of the RTC and the CA and
continued to install and finish the billboard structure despite the their uniform conclusion that both Transworld and Ruks
knowledge that there were no adequate columns to support the committed acts resulting in the collapse of the formers billboard,
same.20 which in turn, caused damage to the adjacent billboard of
Adworld.
Dissatisfied, Ruks moved for reconsideration,21 which was,
however, denied in a Resolution22 dated December 10, Jurisprudence defines negligence as the omission to do
2012,hence, this petition. something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human
On the other hand, Transworld filed another appeal before the affairs, would do, or the doing of something which a prudent and
Court, docketed as G.R. No. 205120.23 However, the Court denied reasonable man would not do.27 It is the failure to observe for
outright Transworlds petition in a Resolution24 dated April 15, the protection of the interest of another person that degree of
2013, holding that the same was already bound by the dismissal care, precaution, and vigilance which the circumstances justly
of its petition filed in G.R. No. 197601. demand, whereby such other person suffers injury.28

The Issue Before the Court

In this case, the CA correctly affirmed the RTCs finding that actor's negligence ceases to be a proximate cause merely because
Transworlds initial construction of its billboards lower it does not exceed the negligence of other actors. Each wrongdoer
structure without the proper foundation, and that of Rukss is responsible for the entire result and is liable as though his acts
finishing its upper structure and just merely assuming that were the sole cause of the injury.
Transworld would reinforce the weak foundation are the two (2)
successive acts which were the direct and proximate cause of the There is no contribution between joint [tortfeasors] whose
damages sustained by Adworld. Worse, both Transworld and liability is solidary since both of them are liable for the total
Ruks were fully aware that the foundation for the formers damage.1wphi1 Where the concurrent or successive negligent
billboard was weak; yet, neither of them took any positive step to acts or omissions of two or more persons, although acting
reinforce the same. They merely relied on each others word that independently, are in combination the direct and proximate
repairs would be done to such foundation, but none was done at cause of a single injury to a third person, it is impossible to
all. Clearly, the foregoing circumstances show that both determine in what proportion each contributed to the injury and
Transworld and Ruks are guilty of negligence in the construction either of them is responsible for the whole injury. x x x.
of the formers billboard, and perforce, should be held liable for (Emphases and underscoring supplied)
its collapse and the resulting damage to Adworlds billboard
structure. As joint tortfeasors, therefore, they are solidarily liable In conclusion, the CA correctly affirmed the ruling of the RTC
to Adworld. Verily, "[j]oint tortfeasors are those who command, declaring Ruks jointly and severally liable with Transworld for
instigate, promote, encourage, advise, countenance, cooperate in, damages sustained by Adworld.
aid or abet the commission of a tort, or approve of it after it is
done, if done for their benefit. They are also referred to as those WHEREFORE, the petition is DENIED. The Decision dated
who act together in committing wrong or whose acts, if November 16, 2011 and the Resolution dated December 10, 2012
independent of each other, unite in causing a single injury. Under of the Court of Appeals in CA-G.R. CV No. 94693 are hereby
Article 219429 of the Civil Code, joint tortfeasors are solidarily AFFIRMED.
liable for the resulting damage. In other words, joint tortfeasors
are each liable as principals, to the same extent and in the same
manner as if they had performed the wrongful act themselves."30
The Courts pronouncement in People v. Velasco31 is instructive
on this matter, to wit:32 32. G.R. No. L-28497 November 6, 1928

Where several causes producing an injury are concurrent and THE BACHRACH MOTOR CO., INC., plaintiff-appellee,
each is an efficient cause without which the injury would not vs.
have happened, the injury may be attributed to all or any of the FAUSTINO ESPIRITU, defendant-appellant.
causes and recovery may be had against any or all of the
responsible persons although under the circumstances of the ------------------------------
case, it may appear that one of them was more culpable, and that
the duty owed by them to the injured person was not same. No G.R. No. L-28498 November 6, 1928

purchased and two others, numbered 77197 and 92744,
THE BACHRACH MOTOR CO., INC., plaintiff-appellee, respectively, the same that were mortgaged in the purchase of
vs. the other truck referred to in the other case. The defendant failed
FAUSTINO ESPIRITU, defendant-appellant, and to pay P4,208.28 of this sum.
ROSARIO ESPIRITU, intervenor-appellant.
In both sales it was agreed that 12 per cent interest would be
Ernesto Zaragoza and Simeon Ramos for defendant- paid upon the unpaid portion of the price at the executon of the
appellant. contracts, and in case of non-payment of the total debt upon its
Benito Soliven and Jose Varela Calderon for maturity, 25 per cent thereon, as penalty.
intervenor-appellant.
B. Francisco for appellee. In addition to the mortagage deeds referred to, which the
defendant executed in favor of the plaintiff, the defendant at the
AVANCEA, C. J.: same time also signed a promissory note solidarily with his
brother Rosario Espiritu for the several sums secured by the two
These two cases, Nos. 28497 and 28948, were tried together. mortgages (Exhibits B and D).

It appears, in connection with case 28497; that on July 28, 1925 Rosario Espiritu appeared in these two cases as intervenor,
the defendant Faustino Espiritu purchased of the plaintiff alleging to be the exclusive owner of the two White trucks Nos.
corporation a two-ton White truck for P11,983.50, paying P1,000 77197 and 92744, which appear to have been mortgaged by the
down to apply on account of this price, and obligating himself to defendants to the plaintiff. lawphi1.net
pay the remaining P10,983.50 within the periods agreed upon.
To secure the payment of this sum, the defendants mortgaged the While these two cases were pending in the lower court the
said truck purchased and, besides, three others, two of which are mortgaged trucks were sold by virtue of the mortgage, all of them
numbered 77197 and 92744 respectively, and all of the White together bringing in, after deducting the sheriff's fees and
make (Exhibit A). These two trucks had been purchased from the transportation charges to Manila, the net sum of P3,269.58.
same plaintiff and were fully paid for by the defendant and his
brother Rosario Espiritu. The defendant failed to pay P10,477.82 The judgment appealed from ordered the defendants and the
of the price secured by this mortgage. intervenor to pay plaintiff in case 28497 the sum of P7,732.09
with interest at the rate of 12 per cent per annum from May 1,
In connection with case 28498, it appears that on February 18, 1926 until fully paid, and 25 per cent thereof in addition as
1925 the defendant bought a one-ton White truck of the plaintiff penalty. In case 28498, the trial court ordered the defendant and
corporation for the sum of P7,136.50, and after having deducted the intervenor to pay plaintiff the sum of P4,208.28 with interest
the P500 cash payment and the 12 per cent annual interest on at 12 per cent per annum from December 1, 1925 until fully paid,
the unpaid principal, obligated himself to make payment of this and 25 per cent thereon as penalty.
sum within the periods agreed upon. To secure this payment the
defendant mortgaged to the plaintiff corporation the said truck

The appellants contend that trucks 77197 and 92744 were not was in Batac, Ilocos Norte, many miles away from Manila. And the
mortgaged, because, when the defendant signed the mortgage fact that on the 24th of said month of July, the plaintiff sent some
deeds these trucks were not included in those documents, and truck accessory parts by rail to Ilocos for the intervenor does not
were only put in later, without defendant's knowledge. But there necessarily prove that the latter could not have been in Manila on
is positive proof that they were included at the time the the 25th of that month.
defendant signed these documents. Besides, there were
presented two of defendant's letters to Hidalgo, an employee of In view of his conclusion that the intervenor signed the
the plaintiff's written a few days before the transaction, promissory notes secured by trucks 77197 and 92744 and
acquiescing in the inclusion of all his White trucks already paid consented to the mortgage of the same, it is immaterial whether
for, in the mortgage (Exhibit H-I). he was or was not the exclusive owner thereof.

Appellants also alleged that on February 4, 1925, the defendant It is finally contended that the 25 per cent penalty upon the debt,
sold his rights in said trucks Nos. 77197 and 92744 to the in addition to the interest of 12 per cent per annum, makes the
intervenor, and that as the latter did not sign the mortgage deeds, contract usurious. Such a contention is not well founded. Article
such trucks cannot be considered as mortgaged. But the evidence 1152 of the Civil Code permits the agreement upon a penalty
shows that while the intervenor Rosario Espiritu did not sign the apart from the interest. Should there be such an agreemnet, the
two mortgage deeds (Exhibits A and C), yet, together with the penalty, as was held in the case of Lopez vs. Hernaez (32 Phil.,
defendants Faustino Espiritu, he signed the two promissory 631), does not include the interest, and which may be demamded
notes (Exhibits B and D) secured by these two mortgages. All separetely. According to this, the penalty is not to be added to the
these instruments were executed at the same time, and when the interest for the determination of whether the interest exceeds
trucks 77197 and 92744 were included in the mortgages, the the rate fixed by the law, since said rate was fixed only for the
intervenor Rosario Espiritu was aware of it and consented to interest. But considering that the obligation was partly
such inclusion. These facts are supported by the testimony of performed, and making use of the power given to the court by
Bachrach, manager of the plaintiff corporation, of Agustin article 1154 of the Civil Code, this penalty is reduced to 10 per
Ramirez, who witnessed the execution of all these documents, cent of the unpaid debt.
and of Angel Hidalgo, who witnessed the execution of Exhibits B
and D. With the sole modification that instead of 25 per cent upon the
sum owed, the defendants need pay only 10 per cent thereon as
We do not find the statement of the intervenor Rosario Espiritu penalty, the judgment appealed from is affired in all other
that he did not sign promissory notes Exhibits B and C to be respects without special pronouncement as to costs. So ordered.
sufficient to overthrow this evidence. A comparison of his
genuine signature on Exhibit AA with those appearing on
promissory notes B and C, convinces us that the latter are his
signatures. And such is our conclusion, notwithstanding the
evidence presented to establish that on the date when Exhibits B 33. G.R. No. L-41093 October 30, 1978
appears to have been signed, that is July 25, 1925, the intervenor

ROBES-FRANCISCO REALTY & DEVELOPMENT Petitioner corporation questions the award for nominal damages
CORPORATION, petitioner, of P20,000.00 and attorney's fee of P5,000.00 which are allegedly
vs. excessive and unjustified.
COURT OF FIRST INSTANCE OF RIZAL (BRANCH
XXXIV), and LOLITA MILLAN, respondents. In the Court's resolution of October 20, 1975, We gave due course
to the Petition only as regards the portion of the decision
Purugganan & Bersamin for petitioner. awarding nominal damages. 1

Salvador N. Beltran for respondent. The following incidents are not in dispute:

In May 1962 Robes-Francisco Realty & Development
MUOZ PALMA, J.: Corporation, now petitioner, agreed to sell to private respondent
Lolita Millan for and in consideration of the sum of P3,864.00,
This is a direct appeal on questions of law from a decision of the payable in installments, a parcel of land containing an area of
Court of First Instance of Rizal, Branch XXXIV, presided by the approximately 276 square meters, situated in Barrio Camarin,
Honorable Bernardo P. Pardo, the dispositive portion of which Caloocan City, known as Lot No. 20, Block No. 11 of its Franville
reads: Subdivision. 2

WHEREFORE, judgment is hereby rendered commanding the Millan complied with her obligation under the contract and paid
defendant to register the deed of absolute sale it had executed in the installments stipulated therein, the final payment having
favor of plaintiff with the Register of Deeds of Caloocan City and been made on December 22, 1971. The vendee made a total
secure the corresponding title in the name of plaintiff within ten payment of P5,193.63 including interests and expenses for
(10) days after finality of this decision; if, for any reason, this not registration of title. 3
possible, defendant is hereby sentenced to pay plaintiff the sum
of P5,193.63 with interest at 4% per annum from June 22, 1972 Thereafter, Lolita Millan made repeated demands upon the
until fully paid. corporation for the execution of the final deed of sale and the
issuance to her of the transfer certificate of title over the lot. On
In either case, defendant is sentenced to pay plaintiff nominal March 2, 1973, the parties executed a deed of absolute sale of the
damages in the amount of P20,000.00 plus attorney's fee in the aforementioned parcel of land. The deed of absolute sale
amount of P5,000.00 and costs. contained, among others, this particular provision:

SO ORDERED. That the VENDOR further warrants that the transfer certificate of
title of the above-described parcel of land shall be transferred in
Caloocan City, February 11, 1975. (rollo, p. 21) the name of the VENDEE within the period of six (6) months from
the date of full payment and in case the VENDOR fails to issue
said transfer certificate of title, it shall bear the obligation to

refund to the VENDEE the total amount already paid for, plus an of P10 million and that the owner's duplicate certificate of title of
interest at the rate of 4% per annum. (record on appeal, p. 9) the subdivision was in the possession of the Government Service
Insurance System (GSIS), the trial court, on February 11, 1975,
Notwithstanding the lapse of the above-mentioned stipulated rendered judgment the dispositive portion of which is quoted in
period of six (6) months, the corporation failed to cause the pages 1 and 2 of this Decision. We hold that the trial court did not
issuance of the corresponding transfer certificate of title over the err in awarding nominal damages; however, the circumstances of
lot sold to Millan, hence, the latter filed on August 14, 1974 a the case warrant a reduction of the amount of P20,000.00
complaint for specific performance and damages against Robes- granted to private respondent Millan.
Francisco Realty & Development Corporation in the Court of First
Instance of Rizal, Branch XXXIV, Caloocan City, docketed therein There can be no dispute in this case under the pleadings and the
as Civil Case No. C-3268. 4 admitted facts that petitioner corporation was guilty of delay,
amounting to nonperformance of its obligation, in issuing the
The complaint prayed for judgment (1) ordering the reformation transfer certificate of title to vendee Millan who had fully paid up
of the deed of absolute sale; (2) ordering the defendant to deliver her installments on the lot bought by her. Article 170 of the Civil
to plaintiff the certificate of title over the lot free from any lien or Code expressly provides that those who in the performance of
encumbrance; or, should this be not possible, to pay plaintiff the their obligations are guilty of fraud, negligence, or delay, and
value of the lot which should not be less than P27,600.00 those who in any manner contravene the tenor thereof, are liable
(allegedly the present estimated value of the lot); and (3) for damages.
ordering the defendant to pay plaintiff damages, corrective and
actual in the sum of P15 000.00. 5 Petitioner contends that the deed of absolute sale executed
between the parties stipulates that should the vendor fail to issue
The corporation in its answer prayed that the complaint be the transfer certificate of title within six months from the date of
dismissed alleging that the deed of absolute sale was voluntarily full payment, it shall refund to the vendee the total amount paid
executed between the parties and the interest of the plaintiff was for with interest at the rate of 4% per annum, hence, the vendee
amply protected by the provision in said contract for payment of is bound by the terms of the provision and cannot recover more
interest at 4% per annum of the total amount paid, for the delay than what is agreed upon. Presumably, petitioner in invoking
in the issuance of the title. 6 Article 1226 of the Civil Code which provides that in obligations
with a penal clause, the penalty shall substitute the indemnity for
At the pretrial conference the parties agreed to submit the case damages and the payment of interests in case of noncompliance,
for decision on the pleadings after defendant further made if there is no stipulation to the contrary.
certain admissions of facts not contained in its answer. 7
The foregoing argument of petitioner is totally devoid of merit.
Finding that the realty corporation failed to cause the issuance of We would agree with petitioner if the clause in question were to
the corresponding transfer certificate of title because the parcel be considered as a penal clause. Nevertheless, for very obvious
of land conveyed to Millan was included among other properties reasons, said clause does not convey any penalty, for even
of the corporation mortgaged to the GSIS to secure an obligation without it, pursuant to Article 2209 of the Civil Code, the vendee

would be entitled to recover the amount paid by her with legal It is true as petitioner claims that under American jurisprudence
rate of interest which is even more than the 4% provided for in nominal damages by their very nature are small sums fixed by
the clause. 7-A the court without regard to the extent of the harm done to the
injured party.
It is therefore inconceivable that the aforecited provision in the
deed of sale is a penal clause which will preclude an award of It is generally held that a nominal damage is a substantial claim, if
damages to the vendee Millan. In fact the clause is so worded as based upon the violation of a legal right; in such case, the law
to work to the advantage of petitioner corporation. presumes a damage, although actual or compensatory damages
are not proven; in truth nominal damages are damages in name
Unfortunately, the vendee, now private respondent, submitted only and not in fact, and are allowed, not as an equivalent of a
her case below without presenting evidence on the actual wrong inflicted, but simply in recogniton of the existence of a
damages suffered by her as a result of the nonperformance of technical injury. (Fouraker v. Kidd Springs Boating and Fishing
petitioner's obligation under the deed of sale. Nonetheless, the Club, 65 S. W. 2d 796-797, citing 17 C.J. 720, and a number of
facts show that the right of the vendee to acquire title to the lot authorities). 9
bought by her was violated by petitioner and this entitles her at
the very least to nominal damages. In this jurisdiction, in Vda. de Medina, et al. v. Cresencia, et al.
1956, which was an action for damages arising out of a vehicular
The pertinent provisions of our Civil Code follow: accident, this Court had occasion to eliminate an award of
P10,000.00 imposed by way of nominal damages, the Court
Art. 2221. Nominal damages are adjudicated in order that a stating inter alia that the amount cannot, in common sense, be
right of the plaintiff, which has been violated or invaded by the demeed "nominal". 10
defendant, may be vindicated or recognized, and not for the
purpose of indemnifying the plaintiff for any loss suffered by him. In a subsequent case, viz: Northwest Airlines, Inc. v. Nicolas L.
Cuenca, 1965, this Court, however, through then Justice Roberto
Art. 2222. The court may award nominal damages in every Concepcion who later became Chief Justice of this Court,
obligation arising from any source enumerated in article 1157, or sustained an award of P20,000.00 as nominal damages in favor of
in every case where any property right has been invaded. respnodent Cuenca. The Court there found special reasons for
considering P20,000.00 as "nominal". Cuenca who was the holder
Under the foregoing provisions nominal damages are not of a first class ticket from Manila to Tokyo was rudely compelled
intended for indemnification of loss suffered but for the by an agent of petitioner Airlines to move to the tourist class
vindication or recognition of a right violated or invaded. They are notwithstanding its knowledge that Cuenca as Commissioner of
recoverable where some injury has been done the amount of Public Highways of the Republic of the Philippines was travelling
which the evidence fails to show, the assessment of damages in his official capacity as a delegate of the country to a conference
being left to the discretion of the court according to the in Tokyo." 11
circumstances of the case. 8


Actually, as explained in the Court's decision in Northwest shown that he is entitled to recover moral, temperate or
Airlines, there is no conflict between that case and Medina, for in compensatory damages."
the latter, the P10,000.00 award for nominal damages was
eliminated principally because the aggrieved party had already Here, respondent Millan did not submit below any evidence to
been awarded P6,000.00 as compensatory damages, P30,000.00 prove that she suffered actual or compensatory damages. 14
as moral damages and P10,000.00 as exemplary damages, and
"nominal damages cannot coexist with compensatory damages," To conclude, We hold that the sum of Ten Thousand Pesos
while in the case of Commissioner Cuenca, no such (P10,000.00) by way of nominal damages is fair and just under
compensatory, moral, or exemplary damages were granted to the the following circumstances, viz: respondent Millan bought the
latter. 12 lot from petitioner in May, 1962, and paid in full her installments
on December 22, 1971, but it was only on March 2, 1973, that a
At any rate, the circumstances of a particular case will determine deed of absolute sale was executed in her favor, and
whether or not the amount assessed as nominal damages is notwithstanding the lapse of almost three years since she made
within the scope or intent of the law, more particularly, Article her last payment, petitioner still failed to convey the
2221 of the Civil Code. corresponding transfer certificate of title to Millan who
accordingly was compelled to file the instant complaint in August
In the situation now before Us, We are of the view that the of 1974.
amount of P20,000.00 is excessive. The admitted fact that
petitioner corporation failed to convey a transfer certificate of PREMISES CONSIDERED, We modify the decision of the trial
title to respondent Millan because the subdivision property was court and reduce the nominal damages to Ten Thousand Pesos
mortgaged to the GSIS does not in itself show that there was bad (P10,000.00). In all other respects the aforesaid decision stands.
faith or fraud. Bad faith is not to be presumed. Moreover, there
was the expectation of the vendor that arrangements were
possible for the GSIS to make partial releases of the subdivision
lots from the overall real estate mortgage. It was simply
unfortunate that petitioner did not succeed in that regard. 34. G.R. No. L-26339 December 14, 1979

For that reason We cannot agree with respondent Millan Chat the MARIANO C. PAMINTUAN, petitioner-appellant,
P20,000.00 award may be considered in the nature of exemplary vs.
damages. COURT OF APPEALS and YU PING KUN CO., INC.,
respondent-appellees.
In case of breach of contract, exemplary damages may be
awarded if the guilty party acted in wanton, fraudulent, reckless, V. E. del Rosario & Associates for appellant.
oppressive or malevolent manner. 13 Furthermore, exemplary or
corrective damages are to be imposed by way of example or Sangco & Sangalang for private respondent.
correction for the public good, only if the injured party has

acceptance by Japanese suppliers of firm offers for the
AQUINO, J.: consignment to Pamintuan of plastic sheetings valued at forty-
seven thousand dollars. Acting on that information, the company
This case is about the recovery compensatory, damages for lost no time in securing in favor of Pamintuan an irrevocable
breach of a contract of sale in addition to liquidated damages. letter of credit for two hundred sixty-five thousand five hundred
fifty pesos.
Mariano C. Pamintuan appealed from the judgment of the Court
of Appeals wherein he was ordered to deliver to Yu Ping Kun Co., Pamintuan was apprised by the bank on August 1, 1960 of that
Inc. certain plastic sheetings and, if he could not do so, to pay the letter of credit which made reference to the delivery to Yu Ping
latter P100,559.28 as damages with six percent interest from the Kun Co., Inc. on or before October 31, 1960 of 336, 360 yards of
date of the filing of the complaint. The facts and the findings of plastic sheetings (p. 21, Record on Appeal).
the Court of Appeals are as follows:
On September 27 and 30 and October 4, 1960, the Japanese
In 1960, Pamintuan was the holder of a barter license wherein he suppliers shipped to Pamintuan, through Toyo Menka Kaisha,
was authorized to export to Japan one thousand metric tons of Ltd., the plastic sheetings in four shipments to wit: (1) Firm Offer
white flint corn valued at forty-seven thousand United States No. 327 for 50,000 yards valued at $9,000; (2) Firm Offer No. 328
dollars in exchange for a collateral importation of plastic for 70,000 yards valued at $8,050; (3) Firm Offers Nos. 329 and
sheetings of an equivalent value. 343 for 175,000 and 18,440 yards valued at $22,445 and $2,305,
respectively, and (4) Firm Offer No. 330 for 26,000 yards valued
By virtue of that license, he entered into an agreement to ship his at $5,200, or a total of 339,440 yards with an aggregate value of
corn to Tokyo Menka Kaisha, Ltd. of Osaka, Japan in exchange for $47,000 (pp. 4-5 and 239-40, Record on Appeal).
plastic sheetings. He contracted to sell the plastic sheetings to Yu
Ping Kun Co., Inc. for two hundred sixty-five thousand five The plastic sheetings arrived in Manila and were received by
hundred fifty pesos. The company undertook to open an Pamintuan. Out of the shipments, Pamintuan delivered to the
irrevocable domestic letter of credit for that amount in favor of company's warehouse only the following quantities of plastic
Pamintuan. sheetings:

It was further agreed that Pamintuan would deliver the plastic November 11, 1960 140 cases, size 48 inches by 50 yards.
sheetings to the company at its bodegas in Manila or suburbs November 14, 1960 258 cases out of 352 cases.
directly from the piers "within one month upon arrival of" the November 15, 1960 11 cases out of 352 cases. November 15,
carrying vessels. Any violation of the contract of sale would 1960 10 cases out of 100 cases. November 15, 1960 30
entitle the aggreived party to collect from the offending party cases out of 100 cases.
liquidated damages in the sum of ten thousand pesos (Exh. A).
Pamintuan withheld delivery of (1) 50 cases of plastic sheetings
On July 28, 1960, the company received a copy of the letter from containing 26,000 yards valued at $5,200; (2) 37 cases containing
the Manila branch of Toyo Menka Kaisha, Ltd. confirming the 18,440 yards valued at $2,305; (3) 60 cases containing 30,000

yards valued at $5,400 and (4) 83 cases containing 40,850 yards The unrealized profits awarded as damages in the trial court's
valued at $5,236.97. While the plastic sheetings were arriving in decision were computed as follows (pp. 248-9, Record on
Manila, Pamintuan informed the president of Yu Ping Kun Co., Appeal):
Inc. that he was in dire need of cash with which to pay his
obligations to the Philippine National Bank. Inasmuch as the (1) 26,000 yards with a contract price of Pl.13 per yard and a
computation of the prices of each delivery would allegedly be a selling price at the time of delivery of Pl.75 a
long process, Pamintuan requested that he be paid immediately. yard........................................................... P16,120.00

Consequently, Pamintuan and the president of the company, (2) 18,000 yards with a contract price of P0.7062 per yard and
Benito Y.C. Espiritu, agreed to fix the price of the plastic sheetings selling price of Pl.20 per yard at the time of
at P0.782 a yard, regardless of the kind, quality or actual invoice delivery......................................... 9,105.67
value thereof. The parties arrived at that figure by dividing the
total price of P265,550 by 339,440 yards, the aggregate quantity (3) 30,000 yards with a contract price of Pl.017 per yard and a
of the shipments. selling price of Pl.70 per yard. 20,490.00

After Pamintuan had delivered 224,150 yards of sheetings of (4) 40,850 yards with a contract price of P0.7247 per
interior quality valued at P163,.047.87, he refused to deliver the yard and a selling price of P1.25 a yard at the time of
remainder of the shipments with a total value of P102,502.13 delivery.............................................. 21,458.50 Total unrealized
which were covered by (i) Firm Offer No. 330, containing 26,000 profits....................... P67,174.17
yards valued at P29,380; (2) Firm Offer No. 343, containing
18,440 yards valued at P13,023.25; (3) Firm Offer No. 217, The overpayment of P12,282.26 made to Pamintuan by Yu Ping
containing 30,000 yards valued at P30,510 and (4) Firm Offer No. Kun Co., Inc. for the 224,150 yards, which the trial court regarded
329 containing 40,850 yards valued at P29,588.88 (See pp. 243- as an item of damages suffered by the company, was computed as
2, Record on Appeal). follows (p. 71, Record on Appeal):

As justification for his refusal, Pamintuan said that the company Liquidation value of 224,150 yards at P0.7822 a yard
failed to comply with the conditions of the contract and that it .............................................................................. P175,330.13
was novated with respect to the price.
Actual peso value of 224,150 yards as per firm offers or as per
On December 2, 1960, the company filed its amended complaint contract............................................ 163,047.87
for damages against Pamintuan. After trial, the lower court
rendered the judgment mentioned above but including moral Overpayment................................................................ P 12,282.26
damages.
To these two items of damages (P67,174.17 as unrealized profits
and P12,282.26 as overpayment), the trial court added (a)
P10,000 as stipulated liquidated damages, (b) P10,000 as moral

damages, (c) Pl,102.85 as premium paid by the company on the process delivered only the poorer or cheaper kind or those which
bond of P102,502.13 for the issuance of the writ of preliminary he had predetermined to deliver and did not conceal in his
attachment and (d) P10,000 as attorney's fees, or total damages brother's name and thus deceived the unwary party into
of P110,559.28) p. 250, Record on Appeal). The Court of Appeals overpaying him the sum of P 1 2,282.26 for the said deliveries,
affirmed that judgment with the modification that the moral and would thereafter refuse to make any further delivery in
damages were disallowed (Resolution of June 29, 1966). flagrant violation of his plighted word, would now ask us to
sanction his actuation" (pp. 61-62, Rollo).
Pamintuan appealed. The Court of Appeals in its decision of
March 18, 1966 found that the contract of sale between The main contention of appellant Pamintuan is that the buyer, Yu
Pamintuan and the company was partly consummated. The Ping Kun Co., Inc., is entitled to recover only liquidated damages.
company fulfilled its obligation to obtain the Japanese suppliers' That contention is based on the stipulation "that any violation of
confirmation of their acceptance of firm offers totalling $47,000. the provisions of this contract (of sale) shall entitle the aggrieved
Pamintuan reaped certain benefits from the contract. Hence, he is party to collect from the offending party liquidated damages in
estopped to repudiate it; otherwise, he would unjustly enrich the sum of P10,000 ".
himself at the expense of the company.
Pamintuan relies on the rule that a penalty and liquidated
The Court of Appeals found that the writ of attachment was damages are the same (Lambert vs. Fox 26 Phil. 588); that "in
properly issued. It also found that Pamintuan was guilty of fraud obligations with a penal clause, the penalty shall substitute the
because (1) he was able to make the company agree to change indemnity for damages and the payment of interests in case of
the manner of paying the price by falsely alleging that there was a non-compliance, if there is no stipulation to the contrary " (1st
delay in obtaining confirmation of the suppliers' acceptance of sentence of Art. 1226, Civil Code) and, it is argued, there is no
the offer to buy; (2) he caused the plastic sheetings to be such stipulation to the contrary in this case and that "liquidated
deposited in the bonded warehouse of his brother and then damages are those agreed upon by the parties to a contract, to be
required his brother to make him Pamintuan), his attorney-in- paid in case of breach thereof" (Art. 2226, Civil Code).
fact so that he could control the disposal of the goods; (3)
Pamintuan, as attorney-in-fact of the warehouseman, endorsed to We hold that appellant's contention cannot be sustained because
the customs broker the warehouse receipts covering the plastic the second sentence of article 1226 itself provides that I
sheetings withheld by him and (4) he overpriced the plastic nevertheless, damages shall be paid if the obligor ... is guilty of
sheetings which he delivered to the company. fraud in the fulfillment of the obligation". "Responsibility arising
from fraud is demandable in all obligations" (Art. 1171, Civil
The Court of Appeals described Pamintuan as a man "who, after Code). "In case of fraud, bad faith, malice or wanton attitude, the
having succeeded in getting another to accommodate him by obligor shall be responsible for an damages which may be
agreeing to liquidate his deliveries on the basis of P0.7822 per reasonably attributed to the non-performance of the obligation"
yard, irrespective of invoice value, on the pretense that he would (Ibid, art. 2201).
deliver what in the first place he ought to deliver anyway, when
he knew all the while that he had no such intention, and in the

The trial court and the Court of Appeals found that Pamintuan After a conscientious consideration of the facts of the case, as
was guilty of fraud because he did not make a complete delivery found by Court of Appeals and the trial court, and after reflecting
of the plastic sheetings and he overpriced the same. That factual on the/tenor of the stipulation for liquidated damages herein, the
finding is conclusive upon this Court. true nature of which is not easy to categorize, we further hold
that justice would be adequately done in this case by allowing Yu
There is no justification for the Civil Code to make an apparent Ping Kun Co., Inc. to recover only the actual damages proven and
distinction between penalty and liquidated damages because the not to award to it the stipulated liquidated damages of ten
settled rule is that there is no difference between penalty and thousand pesos for any breach of the contract. The proven
liquidated damages insofar as legal results are concerned and damages supersede the stipulated liquidated damages.
that either may be recovered without the necessity of proving
actual damages and both may be reduced when proper (Arts. This view finds support in the opinion of Manresa (whose
1229, 2216 and 2227, Civil Code. See observations of Justice J.B.L. comments were the bases of the new matter found in article
Reyes, cited in 4 Tolentino's Civil Code, p. 251). 1226, not found in article 1152 of the old Civil Code) that in case
of fraud the difference between the proven damages and the
Castan Tobeas notes that the penal clause in an obligation has stipulated penalty may be recovered (Vol. 8, part. 1, Codigo Civil,
three functions: "1. Una funcion coercitiva o de garantia, 5th Ed., 1950, p. 483).
consistente en estimular al deudor al complimiento de la
obligacion principal, ante la amenaza de tener que pagar la pena. Hence, the damages recoverable by the firm would amount to
2. Una funcion liquidadora del dao, o sea la de evaluar por ninety thousand five hundred fifty-nine pesos and twenty-eight
anticipado los perjuicios que habria de ocasionar al acreedor el centavos (P90,559.28), with six percent interest a year from the
incumplimiento o cumplimiento inadecuado de la obligacion. 3. filing of the complaint.
Una funcion estrictamente penal, consistente en sancionar o
castigar dicho incumplimiento o cumplimiento inadecuado, With that modification the judgment of the Court of Appeals is
atribuyendole consecuencias mas onerosas para el deudor que affirmed in all respects. No costs in this instance.
las que normalmente lleva aparejadas la infraccion contractual. "
(3 Derecho Civil Espanol, 9th Ed., p. 128).

The penalty clause is strictly penal or cumulative in character
and does not partake of the nature of liquidated damages (pena 35. G.R. No. 204702 January 14, 2015
sustitutiva) when the parties agree "que el acreedor podra pedir,
en el supuesto incumplimiento o mero retardo de la obligacion RICARDO C. HONRADO, Petitioner,
principal, ademas de la pena, los danos y perjuicios. Se habla en vs.
este caso de pena cumulativa, a differencia de aquellos otros GMA NETWORK FILMS, INC., Respondent.
ordinarios, en que la pena es sustitutiva de la reparacion
ordinaria." (Ibid, Castan Tobenas, p. 130). D E C I S I O N


CARPIO, J.: Two of the films covered by the Agreement were Evangeline
Katorse and Bubot for which GMA Films paid P1.5 million each.
The Case
In 2003, GMA Films sued petitioner in the Regional Trial Court of
We review1 the Decision2 of the Court of Appeals (CA) ordering Quezon City (trial court) to collect P1.6 million representing the
petitioner Ricardo C. Honrado (petitioner) to pay a sum of money fee it paid for Evangeline Katorse (P1.5 million) and a portion of
to respondent GMA Network Films, Inc. for breach of contract the fee it paid for Bubot (P350,0004). GMA Films alleged that it
and breach of trust. rejected Evangeline Katorse because "its running time was too
short for telecast"5 and petitioner only remitted P900,000 to the
The Facts owner of Bubot (Juanita Alano [Alano]), keeping for himself the
balance of P350,000. GMA Films prayed for the return of such
On 11December 1998, respondent GMA Network Films, Inc. amount on the theory that an implied trust arose between the
(GMA Films) entered into a "TV Rights Agreement" (Agreement) parties as petitioner fraudulently kept it for himself.6
with petitioner under which petitioner, as licensor of 36 films,
granted to GMA Films, for a fee of P60.75 million, the exclusive Petitioner denied liability, counter-alleging that after GMA Films
right to telecast the 36 films for a period of three years. Under rejected Evangeline Katorse, he replaced it with another film,
Paragraph 3 of the Agreement, the parties agreed that "all Winasak na Pangarap, which GMA Films accepted. As proof of
betacam copies of the [films] should pass through broadcast such acceptance, petitioner invoked a certification of GMA
quality test conducted by GMA-7," the TV station operated by Network, dated 30 March 1999, attesting that such film "is of
GMA Network, Inc. (GMA Network), an affiliate of GMA Films. The good broadcast quality"7 (Film Certification). Regarding the fee
parties also agreed to submit the films for review by the Movie GMA Films paid for Bubot, petitioner alleged that he had settled
and Television Review and Classification Board (MTRCB) and his obligation to Alano. Alternatively, petitioner alleged that GMA
stipulated on the remedies in the event that MTRCB bans the Films, being a stranger to the contracts he entered into with the
telecasting ofany of the films (Paragraph 4): owners of the films in question, has no personality to question his
compliance with the terms of such contracts. Petitioner
The PROGRAMME TITLES listed above shall be subject to counterclaimed for attorneys fees.
approval by the Movie and Television Review and Classification
Board (MTRCB) and, in the event of disapproval, LICENSOR The Ruling of the Trial Court
[Petitioner] will either replace the censored PROGRAMME
TITLES with another title which is mutually acceptable to both The trial court dismissed GMA Films complaint and, finding
parties or, failure to do such, a proportionate reduction from the merit in petitioners counterclaim, ordered GMA Films to pay
total price shall either be deducted or refunded whichever is the attorneys fees (P100,000). The trial court gave credence to
case by the LICENSOR OR LICENSEE [GMA Films].3 (Emphasis petitioners defense that he replaced Evangeline Katorse with
supplied) Winasak na Pangarap. On the disposal of the fee GMA Films paid
for Bubot, the trial court rejected GMA Films theory of implied

trust, finding insufficient GMA Films proof that petitioner The question is whether the CA erred in finding petitioner liable
pocketed any portion of the fee in question. for breach of the Agreement and breach of trust.

GMA Films appealed to the CA. The Ruling of the Court

The Ruling of the Court of Appeals We grant the petition. We find GMA Films complaint without
merit and accordingly reinstate the trial courts ruling dismissing
The CA granted GMA Films appeal, set aside the trial courts it with the modification that the award of attorneys fees is
ruling, and ordered respondent to pay GMA Films P2 million8 as deleted. Petitioner Committed No Breach of Contract or Trust
principal obligation with 12% annual interest, exemplary
damages (P100,000), attorneys fees (P200,000), litigation MTRCB Disapproval the Stipulated
expenses (P100,000) and the costs. Brushing aside the trial Basis for Film Replacement
courts appreciation of the evidence, the CA found that (1) GMA
Films was authorized under Paragraph 4 of the Agreement to The parties do not quarrel on the meaning of Paragraph 4 of the
reject Evangeline Katorse, and (2) GMA Films never accepted Agreement which states:
Winasak na Pangarap as replacement because it was a "bold"
film.9 The PROGRAMME TITLES listed [in the Agreement] x x x shall be
subject to approval by the Movie and Television Review and
On petitioners liability for the fee GMA Films paid for Bubot, the Classification Board (MTRCB) and, in the event of disapproval,
CA sustained GMA Films contention that petitioner was under LICENSOR [Petitioner] will either replace the censored
obligation to turn over to the film owners the fullamount GMA PROGRAMME TITLES with another title which is mutually
Films paid for the films as "nowhere in the TV Rights Agreement acceptable to both parties or, failure to do such, a proportionate
does it provide that the licensor is entitled to any commission x x reduction from the total price shall either be deducted or
x [hence] x x x [petitioner] Honrado cannot claim any portion of refunded whichever is the case by the LICENSOR OR LICENSEE
the purchase price paid for by x x x GMA Films."10 The CA [GMA Films].11 (Emphasis supplied)
concluded that petitioners retention of a portion of the fee for
Bubot gave rise to an implied trust between him and GMA Films, Under this stipulation, what triggersthe rejection and
obligating petitioner, as trustee, to return to GMA Films, as replacement of any film listed in the Agreement is the
beneficiary, the amount claimed by the latter. "disapproval" of its telecasting by MTRCB.

Hence, this petition. Petitioner prays for the reinstatement of the Nor is there any dispute that GMA Films rejected Evangeline
trial courts ruling while GMA Films attacks the petition for lack Katorse not because it was disapproved by MTRCB but because
of merit. the films total running time was too short for telecast
(undertime). Instead of rejecting GMA Films demand for falling
The Issue outside of the terms of Paragraph 4, petitioner voluntarily
acceded to it and replaced such film with Winasak na Pangarap.

What is disputed is whether GMA Films accepted the of the Agreement
replacement film offered by petitioner.
GMA Films also seeks refund for the balance of the fees it paid to
Petitioner maintains that the Film Certification issued by GMA petitioner for Bubot which petitioner allegedly failed to turn-over
Network attesting to the "good broadcast quality" of Winasak na to the films owner, Alano.14 Implicit in GMA Films claim is the
Pangarap amounted to GMA Films acceptance of such film. On theory that the Agreement obliges petitioner to give to the film
the other hand, GMA Films insists that such clearance pertained owners the entire amount he received from GMA Films and that
only to the technical quality of the film but not to its content his failure to do so gave rise to an implied trust, obliging
which it rejected because it found the film as "bomba" (bold).12 petitioner to hold whatever amount he kept in trust for GMA
The CA, working under the assumption that the ground GMA Films. The CA sustained GMA Films interpretation, noting that
Films invoked to reject Winasak na Pangarap was sanctioned the Agreement "does not provide that the licensor is entitled to
under the Agreement, found merit in the latters claim. We hold any commission."15
that regardless of the import of the Film Certification, GMA Films
rejection of Winasak na Pangarap finds no basis in the This is error.
Agreement.
The Agreement, as its full title denotes ("TV Rights Agreement"),
In terms devoid of any ambiguity, Paragraph 4 of the Agreement is a licensing contract, the essence of which is the transfer by the
requires the intervention of MTRCB, the state censor, before GMA licensor (petitioner) to the licensee (GMA Films), for a fee, of the
Films can reject a film and require its replacement. Specifically, exclusive right to telecast the films listed in the Agreement.
Paragraph 4 requires that MTRCB, after reviewing a film listed in Stipulations for payment of "commission" to the licensor is
the Agreement, disapprove or X-rate it for telecasting. GMA Films incongruous to the nature of such contracts unless the licensor
does not allege, and we find no proof on record indicating, that merely acted as agent of the film owners. Nowhere in the
MTRCB reviewed Winasak na Pangarap and X-rated it. Indeed, Agreement, however, did the parties stipulate that petitioner
GMA Films own witness, Jose Marie Abacan (Abacan), then Vice- signed the contract in such capacity. On the contrary, the
President for Program Management of GMA Network, testified Agreement repeatedly refers to petitioner as "licensor" and GMA
during trial that it was GMA Network which rejected Winasak na Films as "licensee." Nor did the parties stipulate that the fees paid
Pangarap because the latter considered the film "bomba."13 In by GMA Films for the films listed in the Agreement will be turned
doing so, GMA Network went beyond its assigned role under the over by petitioner to the film owners. Instead, the Agreement
Agreement of screening films to test their broadcast quality and merely provided that the total fees will be paid in three
assumed the function of MTRCB to evaluate the films for the installments (Paragraph 3).16
propriety of their content. This runs counter to the clear terms of
Paragraphs 3 and 4 of the Agreement. We entertain no doubt that petitioner forged separate
contractual arrangements with the owners of the films listed in
Disposal of the Fees Paid to the Agreement, spelling out the terms of payment to the latter.
Whether or not petitioner complied with these terms, however, is
Petitioner Outside of the Terms a matter to which GMA Films holds absolutely no interest. Being a

stranger to such arrangements, GMA Films is no more entitled to JOSE CANGCO, plaintiff-appellant,
complain of any breach by petitioner of his contracts with the vs.
film owners than the film owners are for any breach by GMA MANILA RAILROAD CO., defendant-appellee.
Films of its Agreement with petitioner.
Ramon Sotelo for appellant.
We find it unnecessary to pass upon the question whether an Kincaid & Hartigan for appellee.
implied trust arose between the parties, as held by the
CA.1wphi1 Such conclusion was grounded on the erroneous
assumption that GMA Films holds an interest in the disposition of
the licensing fees it paid to petitioner. FISHER, J.:

Award of Attorney's Fees to Petitioner Improper At the time of the occurrence which gave rise to this litigation the
plaintiff, Jose Cangco, was in the employment of Manila Railroad
The trial court awarded attorney's fees to petitioner as it Company in the capacity of clerk, with a monthly wage of P25. He
"deemed it just and reasonable"17 to do so, using the amount lived in the pueblo of San Mateo, in the province of Rizal, which is
provided by petitioner on the witness stand (P100,000). located upon the line of the defendant railroad company; and in
Undoubtedly, attorney's fees may be awarded if the trial court coming daily by train to the company's office in the city of Manila
"deems it just and equitable."18 Such ground, however, must be where he worked, he used a pass, supplied by the company,
fully elaborated in the body of the ruling.19 Its mere invocation, which entitled him to ride upon the company's trains free of
without more, negates the nature of attorney's fees as a form of charge. Upon the occasion in question, January 20, 1915, the
actual damages. plaintiff arose from his seat in the second class-car where he was
riding and, making, his exit through the door, took his position
WHEREFORE, we GRANT the petition. The Decision, dated 30 upon the steps of the coach, seizing the upright guardrail with his
April 2012 and Resolution, dated 19 November 2012, of the right hand for support.
Court of Appeals are SET ASIDE. The Decision, dated 5 December
2008, of the Regional Trial Court of Quezon City (Branch 223) is On the side of the train where passengers alight at the San Mateo
REINSTATED with the MODIFICATION that the award of station there is a cement platform which begins to rise with a
attorney's fees is DELETED. moderate gradient some distance away from the company's
office and extends along in front of said office for a distance
SO ORDERED. sufficient to cover the length of several coaches. As the train
slowed down another passenger, named Emilio Zuiga, 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
36. G.R. No. L-12191 October 14, 1918 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 P790.25 in the form of medical and surgical fees and for other
platform. His body at once rolled from the platform and was expenses in connection with the process of his curation.
drawn under the moving car, where his right arm was badly
crushed and lacerated. It appears that after the plaintiff alighted Upon August 31, 1915, he instituted this proceeding in the Court
from the train the car moved forward possibly six meters before of First Instance of the city of Manila to recover damages of the
it came to a full stop. defendant company, founding his action upon the negligence of
the servants and employees of the defendant in placing the sacks
The accident occurred between 7 and 8 o'clock on a dark night, of melons upon the platform and leaving them so placed as to be
and as the railroad station was lighted dimly by a single light a menace to the security of passenger alighting from the
located some distance away, objects on the platform where the company's trains. At the hearing in the Court of First Instance, his
accident occurred were difficult to discern especially to a person Honor, the trial judge, found the facts substantially as above
emerging from a lighted car. stated, and drew therefrom his conclusion to the effect that,
although negligence was attributable to the defendant by reason
The explanation of the presence of a sack of melons on the of the fact that the sacks of melons were so placed as to obstruct
platform where the plaintiff alighted is found in the fact that it passengers passing to and from the cars, nevertheless, the
was the customary season for harvesting these melons and a plaintiff himself had failed to use due caution in alighting from
large lot had been brought to the station for the shipment to the the coach and was therefore precluded form recovering.
market. They were contained in numerous sacks which has been Judgment was accordingly entered in favor of the defendant
piled on the platform in a row one upon another. The testimony company, and the plaintiff appealed.
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 It can not be doubted that the employees of the railroad company
due to the fact that his foot alighted upon one of these melons at were guilty of negligence in piling these sacks on the platform in
the moment he stepped upon the platform. His statement that he the manner above stated; that their presence caused the plaintiff
failed to see these objects in the darkness is readily to be to fall as he alighted from the train; and that they therefore
credited. constituted an effective legal cause of the injuries sustained by
the plaintiff. It necessarily follows that the defendant company is
The plaintiff was drawn from under the car in an unconscious liable for the damage thereby occasioned unless recovery is
condition, and it appeared that the injuries which he had received barred by the plaintiff's own contributory negligence. In
were very serious. He was therefore brought at once to a certain resolving this problem it is necessary that each of these
hospital in the city of Manila where an examination was made conceptions of liability, to-wit, the primary responsibility of the
and his arm was amputated. The result of this operation was defendant company and the contributory negligence of the
unsatisfactory, and the plaintiff was then carried to another plaintiff should be separately examined.
hospital where a second operation was performed and the
member was again amputated higher up near the shoulder. It It is important to note that the foundation of the legal liability of
appears in evidence that the plaintiff expended the sum 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 subject to article 1101, 1103, and 1104 of the same code. (Rakes
defendant to exercise due care in its performance. That is to say, vs. Atlantic, Gulf and Pacific Co., 7 Phil. Rep., 359 at 365.)
its liability is direct and immediate, differing essentially, in legal
viewpoint from that presumptive responsibility for the This distinction is of the utmost importance. The liability, which,
negligence of its servants, imposed by article 1903 of the Civil under the Spanish law, is, in certain cases imposed upon
Code, which can be rebutted by proof of the exercise of due care employers with respect to damages occasioned by the negligence
in their selection and supervision. Article 1903 of the Civil Code of their employees to persons to whom they are not bound by
is not applicable to obligations arising ex contractu, but only to contract, is not based, as in the English Common Law, upon the
extra-contractual obligations or to use the technical form of principle of respondeat superior if it were, the master would
expression, that article relates only to culpa aquiliana and not to be liable in every case and unconditionally but upon the
culpa contractual. principle announced in article 1902 of the Civil Code, which
imposes upon all persons who by their fault or negligence, do
Manresa (vol. 8, p. 67) in his commentaries upon articles 1103 injury to another, the obligation of making good the damage
and 1104 of the Civil Code, clearly points out this distinction, caused. One who places a powerful automobile in the hands of a
which was also recognized by this Court in its decision in the case servant whom he knows to be ignorant of the method of
of Rakes vs. Atlantic, Gulf and Pacific Co. (7 Phil. rep., 359). In managing such a vehicle, is himself guilty of an act of negligence
commenting upon article 1093 Manresa clearly points out the which makes him liable for all the consequences of his
difference between "culpa, substantive and independent, which imprudence. The obligation to make good the damage arises at
of itself constitutes the source of an obligation between persons the very instant that the unskillful servant, while acting within
not formerly connected by any legal tie" and culpa considered as the scope of his employment causes the injury. The liability of the
an accident in the performance of an obligation already existing . . 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
In the Rakes case (supra) the decision of this court was made to done within the scope of his employment or not, if the damage
rest squarely upon the proposition that article 1903 of the Civil done by the servant does not amount to a breach of the contract
Code is not applicable to acts of negligence which constitute the between the master and the person injured.
breach of a contract.
It is not accurate to say that proof of diligence and care in the
Upon this point the Court said: selection and control of the servant relieves the master from
liability for the latter's acts on the contrary, that proof shows
The acts to which these articles [1902 and 1903 of the Civil Code] that the responsibility has never existed. As Manresa says (vol. 8,
are applicable are understood to be those not growing out of pre- p. 68) the liability arising from extra-contractual culpa is always
existing duties of the parties to one another. But where relations based upon a voluntary act or omission which, without willful
already formed give rise to duties, whether springing from intent, but by mere negligence or inattention, has caused damage
contract or quasi-contract, then breaches of those duties are 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 This theory bases the responsibility of the master ultimately on
equal diligence, thereby performs his duty to third persons to his own negligence and not on that of his servant. This is the
whom he is bound by no contractual ties, and he incurs no notable peculiarity of the Spanish law of negligence. It is, of
liability whatever if, by reason of the negligence of his servants, course, in striking contrast to the American doctrine that, in
even within the scope of their employment, such third person relations with strangers, the negligence of the servant in
suffer damage. True it is that under article 1903 of the Civil Code conclusively the negligence of the master.
the law creates a presumption that he has been negligent in the
selection or direction of his servant, but the presumption is The opinion there expressed by this Court, to the effect that in
rebuttable and yield to proof of due care and diligence in this case of extra-contractual culpa based upon negligence, it is
respect. necessary that there shall have been some fault attributable to
the defendant personally, and that the last paragraph of article
The supreme court of Porto Rico, in interpreting identical 1903 merely establishes a rebuttable presumption, is in complete
provisions, as found in the Porto Rico Code, has held that these accord with the authoritative opinion of Manresa, who says (vol.
articles are applicable to cases of extra-contractual culpa 12, p. 611) that the liability created by article 1903 is imposed by
exclusively. (Carmona vs. Cuesta, 20 Porto Rico Reports, 215.) reason of the breach of the duties inherent in the special relations
of authority or superiority existing between the person called
This distinction was again made patent by this Court in its upon to repair the damage and the one who, by his act or
decision in the case of Bahia vs. Litonjua and Leynes, (30 Phil. omission, was the cause of it.
rep., 624), which was an action brought upon the theory of the
extra-contractual liability of the defendant to respond for the On the other hand, the liability of masters and employers for the
damage caused by the carelessness of his employee while acting negligent acts or omissions of their servants or agents, when such
within the scope of his employment. The Court, after citing the acts or omissions cause damages which amount to the breach of a
last paragraph of article 1903 of the Civil Code, said: contact, is not based upon a mere presumption of the master's
negligence in their selection or control, and proof of exercise of
From this article two things are apparent: (1) That when an the utmost diligence and care in this regard does not relieve the
injury is caused by the negligence of a servant or employee there master of his liability for the breach of his contract.
instantly arises a presumption of law that there was negligence
on the part of the master or employer either in selection of the Every legal obligation must of necessity be extra-contractual or
servant or employee, or in supervision over him after the contractual. Extra-contractual obligation has its source in the
selection, or both; and (2) that that presumption is juris tantum breach or omission of those mutual duties which civilized society
and not juris et de jure, and consequently, may be rebutted. It imposes upon it members, or which arise from these relations,
follows necessarily that if the employer shows to the satisfaction other than contractual, of certain members of society to others,
of the court that in selection and supervision he has exercised the generally embraced in the concept of status. The legal rights of
care and diligence of a good father of a family, the presumption is each member of society constitute the measure of the
overcome and he is relieved from liability. corresponding legal duties, mainly negative in character, which

the existence of those rights imposes upon all other members of the facts averred show a contractual undertaking by defendant
society. The breach of these general duties whether due to willful for the benefit of plaintiff, and it is alleged that plaintiff has failed
intent or to mere inattention, if productive of injury, give rise to or refused to perform the contract, it is not necessary for plaintiff
an obligation to indemnify the injured party. The fundamental to specify in his pleadings whether the breach of the contract is
distinction between obligations of this character and those which due to willful fault or to negligence on the part of the defendant,
arise from contract, rests upon the fact that in cases of non- or of his servants or agents. Proof of the contract and of its
contractual obligation it is the wrongful or negligent act or nonperformance is sufficient prima facie to warrant a recovery.
omission itself which creates the vinculum juris, whereas in
contractual relations the vinculum exists independently of the As a general rule . . . it is logical that in case of extra-contractual
breach of the voluntary duty assumed by the parties when culpa, a suing creditor should assume the burden of proof of its
entering into the contractual relation. existence, as the only fact upon which his action is based; while
on the contrary, in a case of negligence which presupposes the
With respect to extra-contractual obligation arising from existence of a contractual obligation, if the creditor shows that it
negligence, whether of act or omission, it is competent for the exists and that it has been broken, it is not necessary for him to
legislature to elect and our Legislature has so elected whom prove negligence. (Manresa, vol. 8, p. 71 [1907 ed., p. 76]).
such an obligation is imposed is morally culpable, or, on the
contrary, for reasons of public policy, to extend that liability, As it is not necessary for the plaintiff in an action for the breach
without regard to the lack of moral culpability, so as to include of a contract to show that the breach was due to the negligent
responsibility for the negligence of those person who acts or conduct of defendant or of his servants, even though such be in
mission are imputable, by a legal fiction, to others who are in a fact the actual cause of the breach, it is obvious that proof on the
position to exercise an absolute or limited control over them. The part of defendant that the negligence or omission of his servants
legislature which adopted our Civil Code has elected to limit or agents caused the breach of the contract would not constitute
extra-contractual liability with certain well-defined exceptions a defense to the action. If the negligence of servants or agents
to cases in which moral culpability can be directly imputed to could be invoked as a means of discharging the liability arising
the persons to be charged. This moral responsibility may consist from contract, the anomalous result would be that person acting
in having failed to exercise due care in the selection and control through the medium of agents or servants in the performance of
of one's agents or servants, or in the control of persons who, by their contracts, would be in a better position than those acting in
reason of their status, occupy a position of dependency with person. If one delivers a valuable watch to watchmaker who
respect to the person made liable for their conduct. contract to repair it, and the bailee, by a personal negligent act
causes its destruction, he is unquestionably liable. Would it be
The position of a natural or juridical person who has undertaken logical to free him from his liability for the breach of his contract,
by contract to render service to another, is wholly different from which involves the duty to exercise due care in the preservation
that to which article 1903 relates. When the sources of the of the watch, if he shows that it was his servant whose negligence
obligation upon which plaintiff's cause of action depends is a caused the injury? If such a theory could be accepted, juridical
negligent act or omission, the burden of proof rests upon plaintiff persons would enjoy practically complete immunity from
to prove the negligence if he does not his action fails. But when damages arising from the breach of their contracts if caused by

negligent acts as such juridical persons can of necessity only act caused by the negligence of his driver. In that case the court
through agents or servants, and it would no doubt be true in most commented on the fact that no evidence had been adduced in the
instances that reasonable care had been taken in selection and trial court that the defendant had been negligent in the
direction of such servants. If one delivers securities to a banking employment of the driver, or that he had any knowledge of his
corporation as collateral, and they are lost by reason of the lack of skill or carefulness.
negligence of some clerk employed by the bank, would it be just
and reasonable to permit the bank to relieve itself of liability for In the case of Baer Senior & Co's Successors vs. Compania
the breach of its contract to return the collateral upon the Maritima (6 Phil. Rep., 215), the plaintiff sued the defendant for
payment of the debt by proving that due care had been exercised damages caused by the loss of a barge belonging to plaintiff
in the selection and direction of the clerk? which was allowed to get adrift by the negligence of defendant's
servants in the course of the performance of a contract of towage.
This distinction between culpa aquiliana, as the source of an The court held, citing Manresa (vol. 8, pp. 29, 69) that if the
obligation, and culpa contractual as a mere incident to the "obligation of the defendant grew out of a contract made between
performance of a contract has frequently been recognized by the it and the plaintiff . . . we do not think that the provisions of
supreme court of Spain. (Sentencias of June 27, 1894; November articles 1902 and 1903 are applicable to the case."
20, 1896; and December 13, 1896.) In the decisions of November
20, 1896, it appeared that plaintiff's action arose ex contractu, In the case of Chapman vs. Underwood (27 Phil. Rep., 374),
but that defendant sought to avail himself of the provisions of plaintiff sued the defendant to recover damages for the personal
article 1902 of the Civil Code as a defense. The Spanish Supreme injuries caused by the negligence of defendant's chauffeur while
Court rejected defendant's contention, saying: driving defendant's automobile in which defendant was riding at
the time. The court found that the damages were caused by the
These are not cases of injury caused, without any pre-existing negligence of the driver of the automobile, but held that the
obligation, by fault or negligence, such as those to which article master was not liable, although he was present at the time,
1902 of the Civil Code relates, but of damages caused by the saying:
defendant's failure to carry out the undertakings imposed by the
contracts . . . . . . . unless the negligent acts of the driver are continued for a
length of time as to give the owner a reasonable opportunity to
A brief review of the earlier decision of this court involving the observe them and to direct the driver to desist therefrom. . . . The
liability of employers for damage done by the negligent acts of act complained of must be continued in the presence of the
their servants will show that in no case has the court ever owner for such length of time that the owner by his acquiescence,
decided that the negligence of the defendant's servants has been makes the driver's acts his own.
held to constitute a defense to an action for damages for breach
of contract. In the case of Yamada vs. Manila Railroad Co. and Bachrach
Garage & Taxicab Co. (33 Phil. Rep., 8), it is true that the court
In the case of Johnson vs. David (5 Phil. Rep., 663), the court held rested its conclusion as to the liability of the defendant upon
that the owner of a carriage was not liable for the damages article 1903, although the facts disclosed that the injury

complaint of by plaintiff constituted a breach of the duty to him defendant was liable for the damages negligently caused by its
arising out of the contract of transportation. The express ground servants to a person to whom it was bound by contract, and
of the decision in this case was that article 1903, in dealing with made reference to the fact that the defendant was negligent in
the liability of a master for the negligent acts of his servants the selection and control of its servants, that in such a case the
"makes the distinction between private individuals and public court would have held that it would have been a good defense to
enterprise;" that as to the latter the law creates a rebuttable the action, if presented squarely upon the theory of the breach of
presumption of negligence in the selection or direction of the contract, for defendant to have proved that it did in fact
servants; and that in the particular case the presumption of exercise care in the selection and control of the servant.
negligence had not been overcome.
The true explanation of such cases is to be found by directing the
It is evident, therefore that in its decision Yamada case, the court attention to the relative spheres of contractual and extra-
treated plaintiff's action as though founded in tort rather than as contractual obligations. The field of non- contractual obligation is
based upon the breach of the contract of carriage, and an much more broader than that of contractual obligations,
examination of the pleadings and of the briefs shows that the comprising, as it does, the whole extent of juridical human
questions of law were in fact discussed upon this theory. Viewed relations. These two fields, figuratively speaking, concentric; that
from the standpoint of the defendant the practical result must is to say, the mere fact that a person is bound to another by
have been the same in any event. The proof disclosed beyond contract does not relieve him from extra-contractual liability to
doubt that the defendant's servant was grossly negligent and that such person. When such a contractual relation exists the obligor
his negligence was the proximate cause of plaintiff's injury. It also may break the contract under such conditions that the same act
affirmatively appeared that defendant had been guilty of which constitutes the source of an extra-contractual obligation
negligence in its failure to exercise proper discretion in the had no contract existed between the parties.
direction of the servant. Defendant was, therefore, liable for the
injury suffered by plaintiff, whether the breach of the duty were The contract of defendant to transport plaintiff carried with it, by
to be regarded as constituting culpa aquiliana or culpa implication, the duty to carry him in safety and to provide safe
contractual. As Manresa points out (vol. 8, pp. 29 and 69) means of entering and leaving its trains (civil code, article 1258).
whether negligence occurs an incident in the course of the That duty, being contractual, was direct and immediate, and its
performance of a contractual undertaking or its itself the source non-performance could not be excused by proof that the fault
of an extra-contractual undertaking obligation, its essential was morally imputable to defendant's servants.
characteristics are identical. There is always an act or omission
productive of damage due to carelessness or inattention on the The railroad company's defense involves the assumption that
part of the defendant. Consequently, when the court holds that a even granting that the negligent conduct of its servants in placing
defendant is liable in damages for having failed to exercise due an obstruction upon the platform was a breach of its contractual
care, either directly, or in failing to exercise proper care in the obligation to maintain safe means of approaching and leaving its
selection and direction of his servants, the practical result is trains, the direct and proximate cause of the injury suffered by
identical in either case. Therefore, it follows that it is not to be plaintiff was his own contributory negligence in failing to wait
inferred, because the court held in the Yamada case that until the train had come to a complete stop before alighting.

Under the doctrine of comparative negligence announced in the care has been defined to be, not the care which may or should be
Rakes case (supra), if the accident was caused by plaintiff's own used by the prudent man generally, but the care which a man of
negligence, no liability is imposed upon defendant's negligence ordinary prudence would use under similar circumstances, to
and plaintiff's negligence merely contributed to his injury, the avoid injury." (Thompson, Commentaries on Negligence, vol. 3,
damages should be apportioned. It is, therefore, important to sec. 3010.)
ascertain if defendant was in fact guilty of negligence.
Or, it we prefer to adopt the mode of exposition used by this
It may be admitted that had plaintiff waited until the train had court in Picart vs. Smith (37 Phil. rep., 809), we may say that the
come to a full stop before alighting, the particular injury suffered test is this; Was there anything in the circumstances surrounding
by him could not have occurred. Defendant contends, and cites the plaintiff at the time he alighted from the train which would
many authorities in support of the contention, that it is have admonished a person of average prudence that to get off the
negligence per se for a passenger to alight from a moving train. train under the conditions then existing was dangerous? If so, the
We are not disposed to subscribe to this doctrine in its absolute plaintiff should have desisted from alighting; and his failure so to
form. We are of the opinion that this proposition is too badly desist was contributory negligence.1awph!l.net
stated and is at variance with the experience of every-day life. In
this particular instance, that the train was barely moving when As the case now before us presents itself, the only fact from
plaintiff alighted is shown conclusively by the fact that it came to which a conclusion can be drawn to the effect that plaintiff was
stop within six meters from the place where he stepped from it. guilty of contributory negligence is that he stepped off the car
Thousands of person alight from trains under these conditions without being able to discern clearly the condition of the
every day of the year, and sustain no injury where the company platform and while the train was yet slowly moving. In
has kept its platform free from dangerous obstructions. There is considering the situation thus presented, it should not be
no reason to believe that plaintiff would have suffered any injury overlooked that the plaintiff was, as we find, ignorant of the fact
whatever in alighting as he did had it not been for defendant's that the obstruction which was caused by the sacks of melons
negligent failure to perform its duty to provide a safe alighting piled on the platform existed; and as the defendant was bound by
place. 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
We are of the opinion that the correct doctrine relating to this assume, in the absence of some circumstance to warn him to the
subject is that expressed in Thompson's work on Negligence (vol. contrary, that the platform was clear. The place, as we have
3, sec. 3010) as follows: 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
The test by which to determine whether the passenger has been duty owing by it to the plaintiff; for if it were by any possibility
guilty of negligence in attempting to alight from a moving railway concede that it had right to pile these sacks in the path of
train, is that of ordinary or reasonable care. It is to be considered alighting passengers, the placing of them adequately so that their
whether an ordinarily prudent person, of the age, sex and presence would be revealed.
condition of the passenger, would have acted as the passenger
acted under the circumstances disclosed by the evidence. This

As pertinent to the question of contributory negligence on the according to the standard mortality tables, is approximately
part of the plaintiff in this case the following circumstances are to thirty-three years. We are of the opinion that a fair compensation
be noted: The company's platform was constructed upon a level for the damage suffered by him for his permanent disability is the
higher than that of the roadbed and the surrounding ground. The sum of P2,500, and that he is also entitled to recover of defendant
distance from the steps of the car to the spot where the alighting the additional sum of P790.25 for medical attention, hospital
passenger would place his feet on the platform was thus reduced, services, and other incidental expenditures connected with the
thereby decreasing the risk incident to stepping off. The nature of treatment of his injuries.
the platform, constructed as it was of cement material, also
assured to the passenger a stable and even surface on which to The decision of lower court is reversed, and judgment is hereby
alight. Furthermore, the plaintiff was possessed of the vigor and rendered plaintiff for the sum of P3,290.25, and for the costs of
agility of young manhood, and it was by no means so risky for both instances. So ordered.
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 37. G.R. No. 73867 February 29, 1988
are circumstances necessarily affecting the safety of the
passenger, and should be considered. Women, it has been TELEFAST COMMUNICATIONS/PHILIPPINE WIRELESS,
observed, as a general rule are less capable than men of alighting INC., petitioner,
with safety under such conditions, as the nature of their wearing vs.
apparel obstructs the free movement of the limbs. Again, it may IGNACIO CASTRO, SR., SOFIA C. CROUCH, IGNACIO
be noted that the place was perfectly familiar to the plaintiff as it CASTRO JR., AURORA CASTRO, SALVADOR CASTRO,
was his daily custom to get on and of the train at this station. MARIO CASTRO, CONRADO CASTRO, ESMERALDA C.
There could, therefore, be no uncertainty in his mind with regard FLORO, AGERICO CASTRO, ROLANDO CASTRO,
either to the length of the step which he was required to take or VIRGILIO CASTRO AND GLORIA CASTRO, and
the character of the platform where he was alighting. Our HONORABLE INTERMEDIATE APPELLATE COURT,
conclusion is that the conduct of the plaintiff in undertaking to respondents.
alight while the train was yet slightly under way was not
characterized by imprudence and that therefore he was not guilty PADILLA, J.:
of contributory negligence.
Petition for review on certiorari of the decision * of the
The evidence shows that the plaintiff, at the time of the accident, Intermediate Appellate Court, dated 11 February 1986, in AC-G.R.
was earning P25 a month as a copyist clerk, and that the injuries No. CV-70245, entitled "Ignacio Castro, Sr., et al., Plaintiffs-
he has suffered have permanently disabled him from continuing Appellees, versus Telefast Communication/Philippine Wireless,
that employment. Defendant has not shown that any other Inc., Defendant-Appellant."
gainful occupation is open to plaintiff. His expectancy of life,

The facts of the case are as follows: 2. Ignacio Castro Sr., P20,000.00 as moral damages.

On 2 November 1956, Consolacion Bravo-Castro wife of plaintiff 3. Ignacio Castro Jr., P20,000.00 as moral damages.
Ignacio Castro, Sr. and mother of the other plaintiffs, passed away
in Lingayen, Pangasinan. On the same day, her daughter Sofia C. 4. Aurora Castro, P10,000.00 moral damages.
Crouch, who was then vacationing in the Philippines, addressed a
telegram to plaintiff Ignacio Castro, Sr. at 685 Wanda, Scottsburg, 5. Salvador Castro, P10,000.00 moral damages.
Indiana, U.S.A., 47170 announcing Consolacion's death. The
telegram was accepted by the defendant in its Dagupan office, for 6. Mario Castro, P10,000.00 moral damages.
transmission, after payment of the required fees or charges.
7. Conrado Castro, P10,000 moral damages.
The telegram never reached its addressee. Consolacion was
interred with only her daughter Sofia in attendance. Neither the 8. Esmeralda C. Floro, P20,000.00 moral damages.
husband nor any of the other children of the deceased, then all
residing in the United States, returned for the burial. 9. Agerico Castro, P10,000.00 moral damages.

When Sofia returned to the United States, she discovered that the 10. Rolando Castro, P10,000.00 moral damages.
wire she had caused the defendant to send, had not been
received. She and the other plaintiffs thereupon brought action 11. Virgilio Castro, P10,000.00 moral damages.
for damages arising from defendant's breach of contract. The
case was filed in the Court of First Instance of Pangasinan and 12. Gloria Castro, P10,000.00 moral damages.
docketed therein as Civil Case No. 15356. The only defense of the
defendant was that it was unable to transmit the telegram Defendant is also ordered to pay P5,000.00 attorney's fees,
because of "technical and atmospheric factors beyond its exemplary damages in the amount of P1,000.00 to each of the
control." 1 No evidence appears on record that defendant ever plaintiffs and costs. 2
made any attempt to advise the plaintiff Sofia C. Crouch as to why
it could not transmit the telegram. On appeal by petitioner, the Intermediate Appellate Court
affirmed the trial court's decision but eliminated the award of
The Court of First Instance of Pangasinan, after trial, ordered the P16,000.00 as compensatory damages to Sofia C. Crouch and the
defendant (now petitioner) to pay the plaintiffs (now private award of P1,000.00 to each of the private respondents as
respondents) damages, as follows, with interest at 6% per exemplary damages. The award of P20,000.00 as moral damages
annum: to each of Sofia C. Crouch, Ignacio Castro, Jr. and Esmeralda C.
Floro was also reduced to P120,000. 00 for each. 3
1. Sofia C. Crouch, P31.92 and P16,000.00 as compensatory
damages and P20,000.00 as moral damages. Petitioner appeals from the judgment of the appellate court,
contending that the award of moral damages should be

eliminated as defendant's negligent act was not motivated by be recovered if they are the proximate results of the defendant's
"fraud, malice or recklessness." wrongful act or omission." (Emphasis supplied).

In other words, under petitioner's theory, it can only be held Here, petitioner's act or omission, which amounted to gross
liable for P 31.92, the fee or charges paid by Sofia C. Crouch for negligence, was precisely the cause of the suffering private
the telegram that was never sent to the addressee thereof. respondents had to undergo.

Petitioner's contention is without merit. As the appellate court properly observed:

Art. 1170 of the Civil Code provides that "those who in the [Who] can seriously dispute the shock, the mental anguish and
performance of their obligations are guilty of fraud, negligence or the sorrow that the overseas children must have suffered upon
delay, and those who in any manner contravene the tenor learning of the death of their mother after she had already been
thereof, are liable for damages." Art. 2176 also provides that interred, without being given the opportunity to even make a
"whoever by act or omission causes damage to another, there choice on whether they wanted to pay her their last respects?
being fault or negligence, is obliged to pay for the damage done." There is no doubt that these emotional sufferings were
proximately caused by appellant's omission and substantive law
In the case at bar, petitioner and private respondent Sofia C. provides for the justification for the award of moral damages. 4
Crouch entered into a contract whereby, for a fee, petitioner
undertook to send said private respondent's message overseas We also sustain the trial court's award of P16,000.00 as
by telegram. This, petitioner did not do, despite performance by compensatory damages to Sofia C. Crouch representing the
said private respondent of her obligation by paying the required expenses she incurred when she came to the Philippines from the
charges. Petitioner was therefore guilty of contravening its United States to testify before the trial court. Had petitioner not
obligation to said private respondent and is thus liable for been remiss in performing its obligation, there would have been
damages. no need for this suit or for Mrs. Crouch's testimony.

This liability is not limited to actual or quantified damages. To The award of exemplary damages by the trial court is likewise
sustain petitioner's contrary position in this regard would result justified and, therefore, sustained in the amount of P1,000.00 for
in an inequitous situation where petitioner will only be held each of the private respondents, as a warning to all telegram
liable for the actual cost of a telegram fixed thirty (30) years ago. companies to observe due diligence in transmitting the messages
of their customers.
We find Art. 2217 of the Civil Code applicable to the case at bar. It
states: "Moral damages include physical suffering, mental WHEREFORE, the petition is DENIED. The decision appealed
anguish, fright, serious anxiety, besmirched reputation, wounded from is modified so that petitioner is held liable to private
feelings, moral shock, social humiliation, and similar injury. respondents in the following amounts:
Though incapable of pecuniary computation, moral damages may

(1) P10,000.00 as moral damages, to each of private Resolution3 dated July 1, 2003, denying petitioner's motion for
respondents; reconsideration, be reversed and set aside.

(2) P1,000.00 as exemplary damages, to each of private The Regional Trial Court (RTC) of Quezon City, Branch 81,
respondents; accurately summarized the facts as culled from the records, thus:

(3) P16,000.00 as compensatory damages, to private The evidence on record has established that in the year 1987 the
respondent Sofia C. Crouch; National Power Corporation (NPC) filed with the MTC Quezon
City a case for ejectment against several persons allegedly
(4) P5,000.00 as attorney's fees; and illegally occupying its properties in Baesa, Quezon City. Among
the defendants in the ejectment case was Leoncio Ramoy, one of
(5) Costs of suit. the plaintiffs in the case at bar. On April 28, 1989 after the
defendants failed to file an answer in spite of summons duly
SO ORDERED. served, the MTC Branch 36, Quezon City rendered judgment for
the plaintiff [MERALCO] and "ordering the defendants to
demolish or remove the building and structures they built on the
land of the plaintiff and to vacate the premises." In the case of
Leoncio Ramoy, the Court found that he was occupying a portion
38. G.R. No. 158911 March 4, 2008 of Lot No. 72-B-2-B with the exact location of his apartments
indicated and encircled in the location map as No. 7. A copy of the
MANILA ELECTRIC COMPANY, Petitioner, decision was furnished Leoncio Ramoy (Exhibits 2, 2-A, 2-B, 2-C,
vs. pp. 128-131, Record; TSN, July 2, 1993, p. 5).
MATILDE MACABAGDAL RAMOY, BIENVENIDO
RAMOY, ROMANA RAMOY-RAMOS, ROSEMARIE On June 20, 1990 NPC wrote Meralco requesting for the
RAMOY, OFELIA DURIAN and CYRENE PANADO, "immediate disconnection of electric power supply to all
Respondents. residential and commercial establishments beneath the NPC
transmission lines along Baesa, Quezon City (Exh. 7, p. 143,
D E C I S I O N Record). Attached to the letter was a list of establishments
affected which included plaintiffs Leoncio and Matilde Ramoy
AUSTRIA-MARTINEZ, J.: (Exh. 9), as well as a copy of the court decision (Exh. 2). After
deliberating on NPC's letter, Meralco decided to comply with
This resolves the Petition for Review on Certiorari under Rule 45 NPC's request (Exhibits 6, 6-A, 6-A-1, 6-B) and thereupon issued
of the Rules of Court, praying that the Decision1 of the Court of notices of disconnection to all establishments affected including
Appeals (CA) dated December 16, 2002, ordering petitioner plaintiffs Leoncio Ramoy (Exhs. 3, 3-A to 3-C), Matilde
Manila Electric Company (MERALCO) to pay Leoncio Ramoy2 Ramoy/Matilde Macabagdal (Exhibits 3-D to 3-E), Rosemarie
moral and exemplary damages and attorney's fees, and the CA

Ramoy (Exh. 3-F), Ofelia Durian (Exh. 3-G), Jose Valiza (Exh. 3-H)
and Cyrene S. Panado (Exh. 3-I). The record also shows that at the request of NPC, defendant
Meralco re-connected the electric service of four customers
In a letter dated August 17, 1990 Meralco requested NPC for a previously disconnected none of whom was any of the plaintiffs
joint survey to determine all the establishments which are (Exh. 14).4
considered under NPC property in view of the fact that "the
houses in the area are very close to each other" (Exh. 12). Shortly The RTC decided in favor of MERALCO by dismissing herein
thereafter, a joint survey was conducted and the NPC personnel respondents' claim for moral damages, exemplary damages and
pointed out the electric meters to be disconnected (Exh. 13; TSN, attorney's fees. However, the RTC ordered MERALCO to restore
October 8, 1993, p. 7; TSN, July 1994, p. 8). the electric power supply of respondents.

In due time, the electric service connection of the plaintiffs Respondents then appealed to the CA. In its Decision dated
[herein respondents] was disconnected (Exhibits D to G, with December 16, 2002, the CA faulted MERALCO for not requiring
submarkings, pp. 86-87, Record). from National Power Corporation (NPC) a writ of execution or
demolition and in not coordinating with the court sheriff or other
Plaintiff Leoncio Ramoy testified that he and his wife are the proper officer before complying with the NPC's request. Thus, the
registered owners of a parcel of land covered by TCT No. 326346, CA held MERALCO liable for moral and exemplary damages and
a portion of which was occupied by plaintiffs Rosemarie Ramoy, attorney's fees. MERALCO's motion for reconsideration of the
Ofelia Durian, Jose Valiza and Cyrene S. Panado as lessees. When Decision was denied per Resolution dated July 1, 2003.
the Meralco employees were disconnecting plaintiffs' power
connection, plaintiff Leoncio Ramoy objected by informing the Hence, herein petition for review on certiorari on the following
Meralco foreman that his property was outside the NPC property grounds:
and pointing out the monuments showing the boundaries of his
property. However, he was threatened and told not to interfere I
by the armed men who accompanied the Meralco employees.
After the electric power in Ramoy's apartment was cut off, the THE COURT OF APPEALS GRAVELY ERRED WHEN IT FOUND
plaintiffs-lessees left the premises. MERALCO NEGLIGENT WHEN IT DISCONNECTED THE SUBJECT
ELECTRIC SERVICE OF RESPONDENTS.
During the ocular inspection ordered by the Court and attended
by the parties, it was found out that the residence of plaintiffs- II
spouses Leoncio and Matilde Ramoy was indeed outside the NPC
property. This was confirmed by defendant's witness R.P. THE COURT OF APPEALS GRAVELY ERRED WHEN IT AWARDED
Monsale III on cross-examination (TSN, October 13, 1993, pp. 10 MORAL AND EXEMPLARY DAMAGES AND ATTORNEY'S FEES
and 11). Monsale also admitted that he did not inform his AGAINST MERALCO UNDER THE CIRCUMSTANCES THAT THE
supervisor about this fact nor did he recommend re-connection LATTER ACTED IN GOOD FAITH IN THE DISCONNECTION OF
of plaintiffs' power supply (Ibid., p. 14). THE ELECTRIC SERVICES OF THE RESPONDENTS. 5

recovering that which may have been lost or suffered. The
The petition is partly meritorious. remedy serves to preserve the interests of the promissee that
may include his "expectation interest," which is his interest in
MERALCO admits6 that respondents are its customers under a having the benefit of his bargain by being put in as good a
Service Contract whereby it is obliged to supply respondents position as he would have been in had the contract been
with electricity. Nevertheless, upon request of the NPC, performed, or his "reliance interest," which is his interest in
MERALCO disconnected its power supply to respondents on the being reimbursed for loss caused by reliance on the contract by
ground that they were illegally occupying the NPC's right of way. being put in as good a position as he would have been in had the
Under the Service Contract, "[a] customer of electric service must contract not been made; or his "restitution interest," which is his
show his right or proper interest over the property in order that interest in having restored to him any benefit that he has
he will be provided with and assured a continuous electric conferred on the other party. Indeed, agreements can accomplish
service."7 MERALCO argues that since there is a Decision of the little, either for their makers or for society, unless they are made
Metropolitan Trial Court (MTC) of Quezon City ruling that herein the basis for action. The effect of every infraction is to create a
respondents were among the illegal occupants of the NPC's right new duty, that is, to make recompense to the one who has been
of way, MERALCO was justified in cutting off service to injured by the failure of another to observe his contractual
respondents. obligation unless he can show extenuating circumstances, like
proof of his exercise of due diligence x x x or of the attendance of
Clearly, respondents' cause of action against MERALCO is fortuitous event, to excuse him from his ensuing liability.9
anchored on culpa contractual or breach of contract for the (Emphasis supplied)
latter's discontinuance of its service to respondents under Article
1170 of the Civil Code which provides: Article 1173 also provides that the fault or negligence of the
obligor consists in the omission of that diligence which is
Article 1170. Those who in the performance of their obligations required by the nature of the obligation and corresponds with
are guilty of fraud, negligence, or delay, and those who in any the circumstances of the persons, of the time and of the place.
manner contravene the tenor thereof, are liable for damages. The Court emphasized in Ridjo Tape & Chemical Corporation v.
Court of Appeals10 that "as a public utility, MERALCO has the
In Radio Communications of the Philippines, Inc. v. Verchez,8 the obligation to discharge its functions with utmost care and
Court expounded on the nature of culpa contractual, thus: diligence."11

"In culpa contractual x x x the mere proof of the existence of the The Court agrees with the CA that under the factual milieu of the
contract and the failure of its compliance justify, prima facie, a present case, MERALCO failed to exercise the utmost degree of
corresponding right of relief. The law, recognizing the obligatory care and diligence required of it. To repeat, it was not enough for
force of contracts, will not permit a party to be set free from MERALCO to merely rely on the Decision of the MTC without
liability for any kind of misperformance of the contractual ascertaining whether it had become final and executory. Verily,
undertaking or a contravention of the tenor thereof. A breach only upon finality of said Decision can it be said with
upon the contract confers upon the injured party a valid cause for conclusiveness that respondents have no right or proper interest

over the subject property, thus, are not entitled to the services of circumstances, such damages are justly due. The same rule
MERALCO. applies to breaches of contract where the defendant acted
fraudulently or in bad faith.
Although MERALCO insists that the MTC Decision is final and
executory, it never showed any documentary evidence to support In the present case, MERALCO wilfully caused injury to Leoncio
this allegation. Moreover, if it were true that the decision was Ramoy by withholding from him and his tenants the supply of
final and executory, the most prudent thing for MERALCO to have electricity to which they were entitled under the Service
done was to coordinate with the proper court officials in Contract. This is contrary to public policy because, as discussed
determining which structures are covered by said court order. above, MERALCO, being a vital public utility, is expected to
Likewise, there is no evidence on record to show that this was exercise utmost care and diligence in the performance of its
done by MERALCO. obligation. It was incumbent upon MERALCO to do everything
within its power to ensure that the improvements built by
The utmost care and diligence required of MERALCO necessitates respondents are within the NPCs right of way before
such great degree of prudence on its part, and failure to exercise disconnecting their power supply. The Court emphasized in
the diligence required means that MERALCO was at fault and Samar II Electric Cooperative, Inc. v. Quijano14 that:
negligent in the performance of its obligation. In Ridjo Tape,12
the Court explained: Electricity is a basic necessity the generation and distribution of
which is imbued with public interest, and its provider is a public
[B]eing a public utility vested with vital public interest, utility subject to strict regulation by the State in the exercise of
MERALCO is impressed with certain obligations towards its police power. Failure to comply with these regulations will give
customers and any omission on its part to perform such duties rise to the presumption of bad faith or abuse of right.15
would be prejudicial to its interest. For in the final analysis, the (Emphasis supplied)
bottom line is that those who do not exercise such prudence in
the discharge of their duties shall be made to bear the Thus, by analogy, MERALCO's failure to exercise utmost care and
consequences of such oversight.13 diligence in the performance of its obligation to Leoncio Ramoy,
its customer, is tantamount to bad faith. Leoncio Ramoy testified
This being so, MERALCO is liable for damages under Article 1170 that he suffered wounded feelings because of MERALCO's
of the Civil Code. actions.16 Furthermore, due to the lack of power supply, the
lessees of his four apartments on subject lot left the premises.17
The next question is: Are respondents entitled to moral and Clearly, therefore, Leoncio Ramoy is entitled to moral damages in
exemplary damages and attorney's fees? the amount awarded by the CA.

Article 2220 of the Civil Code provides: Leoncio Ramoy, the lone witness for respondents, was the only
one who testified regarding the effects on him of MERALCO's
Article 2220. Willful injury to property may be a legal ground for electric service disconnection. His co-respondents Matilde
awarding moral damages if the court should find that, under the

Ramoy, Rosemarie Ramoy, Ofelia Durian and Cyrene Panado did Labor Relations Commission, the Court held that "additional facts
not present any evidence of damages they suffered. must be pleaded and proven to warrant the grant of moral
damages under the Civil Code, these being, x x x social
It is a hornbook principle that damages may be awarded only if humiliation, wounded feelings, grave anxiety, etc. that resulted
proven. In Mahinay v. Velasquez, Jr.,18 the Court held thus: therefrom."

In order that moral damages may be awarded, there must be x x x The award of moral damages must be anchored to a clear
pleading and proof of moral suffering, mental anguish, fright and showing that respondent actually experienced mental anguish,
the like. While respondent alleged in his complaint that he besmirched reputation, sleepless nights, wounded feelings or
suffered mental anguish, serious anxiety, wounded feelings and similar injury. There was no better witness to this experience
moral shock, he failed to prove them during the trial. Indeed, than respondent himself. Since respondent failed to testify on the
respondent should have taken the witness stand and should have witness stand, the trial court did not have any factual basis to
testified on the mental anguish, serious anxiety, wounded award moral damages to him.19 (Emphasis supplied)
feelings and other emotional and mental suffering he purportedly
suffered to sustain his claim for moral damages. Mere allegations Thus, only respondent Leoncio Ramoy, who testified as to his
do not suffice; they must be substantiated by clear and wounded feelings, may be awarded moral damages.20
convincing proof. No other person could have proven such
damages except the respondent himself as they were extremely With regard to exemplary damages, Article 2232 of the Civil Code
personal to him. provides that in contracts and quasi-contracts, the court may
award exemplary damages if the defendant, in this case
In Keirulf vs. Court of Appeals, we held: MERALCO, acted in a wanton, fraudulent, reckless, oppressive, or
malevolent manner, while Article 2233 of the same Code
"While no proof of pecuniary loss is necessary in order that moral provides that such damages cannot be recovered as a matter of
damages may be awarded, the amount of indemnity being left to right and the adjudication of the same is within the discretion of
the discretion of the court, it is nevertheless essential that the the court.1avvphi1
claimant should satisfactorily show the existence of the factual
basis of damages and its causal connection to defendants acts. The Court finds that MERALCO fell short of exercising the due
This is so because moral damages, though incapable of pecuniary diligence required, but its actions cannot be considered wanton,
estimation, are in the category of an award designed to fraudulent, reckless, oppressive or malevolent. Records show
compensate the claimant for actual injury suffered and not to that MERALCO did take some measures, i.e., coordinating with
impose a penalty on the wrongdoer. In Francisco vs. GSIS, the NPC officials and conducting a joint survey of the subject area, to
Court held that there must be clear testimony on the anguish and verify which electric meters should be disconnected although
other forms of mental suffering. Thus, if the plaintiff fails to take these measures are not sufficient, considering the degree of
the witness stand and testify as to his/her social humiliation, diligence required of it. Thus, in this case, exemplary damages
wounded feelings and anxiety, moral damages cannot be should not be awarded.
awarded. In Cocoland Development Corporation vs. National

Since the Court does not deem it proper to award exemplary
damages in this case, then the CA's award for attorney's fees (10) When at least double judicial costs are awarded;
should likewise be deleted, as Article 2208 of the Civil Code
states that in the absence of stipulation, attorney's fees cannot be (11) In any other case where the court deems it just and
recovered except in cases provided for in said Article, to wit: equitable that attorneys fees and expenses of litigation should be
recovered.
Article 2208. In the absence of stipulation, attorneys fees and
expenses of litigation, other than judicial costs, cannot be In all cases, the attorneys fees and expenses of litigation must be
recovered, except: reasonable.

(1) When exemplary damages are awarded; None of the grounds for recovery of attorney's fees are present.

(2) When the defendants act or omission has compelled the WHEREFORE, the petition is PARTLY GRANTED. The Decision of
plaintiff to litigate with third persons or to incur expenses to the Court of Appeals is AFFIRMED with MODIFICATION. The
protect his interest; award for exemplary damages and attorney's fees is DELETED.

(3) In criminal cases of malicious prosecution against the
plaintiff;
39. G.R. No. 162467 May 8, 2009
(4) In case of a clearly unfounded civil action or proceeding
against the plaintiff; MINDANAO TERMINAL AND BROKERAGE SERVICE,
INC. Petitioner,
(5) Where the defendant acted in gross and evident bad faith in vs.
refusing to satisfy the plaintiffs plainly valid, just and PHOENIX ASSURANCE COMPANY OF NEW
demandable claim; YORK/MCGEE & CO., INC., Respondent.

(6) In actions for legal support; D E C I S I O N

(7) In actions for the recovery of wages of household helpers, TINGA, J.:
laborers and skilled workers;
Before us is a petition for review on certiorari1 under Rule 45 of
(8) In actions for indemnity under workmens compensation and the 1997 Rules of Civil Procedure of the 29 October 20032
employers liability laws; Decision of the Court of Appeals and the 26 February 2004
Resolution3 of the same court denying petitioners motion for
(9) In a separate civil action to recover civil liability arising from reconsideration.
a crime;

The facts of the case are not disputed. Phoenix and McGee instituted an action for damages7 against
Mindanao Terminal in the Regional Trial Court (RTC) of Davao
Del Monte Philippines, Inc. (Del Monte) contracted petitioner City, Branch 12. After trial, the RTC,8 in a decision dated 20
Mindanao Terminal and Brokerage Service, Inc. (Mindanao October 1999, held that the only participation of Mindanao
Terminal), a stevedoring company, to load and stow a shipment Terminal was to load the cargoes on board the M/V Mistrau
of 146,288 cartons of fresh green Philippine bananas and 15,202 under the direction and supervision of the ships officers, who
cartons of fresh pineapples belonging to Del Monte Fresh would not have accepted the cargoes on board the vessel and
Produce International, Inc. (Del Monte Produce) into the cargo signed the foremans report unless they were properly arranged
hold of the vessel M/V Mistrau. The vessel was docked at the port and tightly secured to withstand voyage across the open seas.
of Davao City and the goods were to be transported by it to the Accordingly, Mindanao Terminal cannot be held liable for
port of Inchon, Korea in favor of consignee Taegu Industries, Inc. whatever happened to the cargoes after it had loaded and stowed
Del Monte Produce insured the shipment under an "open cargo them. Moreover, citing the survey report, it was found by the RTC
policy" with private respondent Phoenix Assurance Company of that the cargoes were damaged on account of a typhoon which
New York (Phoenix), a non-life insurance company, and private M/V Mistrau had encountered during the voyage. It was further
respondent McGee & Co. Inc. (McGee), the underwriting held that Phoenix and McGee had no cause of action against
manager/agent of Phoenix.4 Mindanao Terminal because the latter, whose services were
contracted by Del Monte, a distinct corporation from Del Monte
Mindanao Terminal loaded and stowed the cargoes aboard the Produce, had no contract with the assured Del Monte Produce.
M/V Mistrau. The vessel set sail from the port of Davao City and The RTC dismissed the complaint and awarded the counterclaim
arrived at the port of Inchon, Korea. It was then discovered upon of Mindanao Terminal in the amount of P83,945.80 as actual
discharge that some of the cargo was in bad condition. The damages and P100,000.00 as attorneys fees.9 The actual
Marine Cargo Damage Surveyor of Incok Loss and Average damages were awarded as reimbursement for the expenses
Adjuster of Korea, through its representative Byeong Yong Ahn incurred by Mindanao Terminals lawyer in attending the
(Byeong), surveyed the extent of the damage of the shipment. In a hearings in the case wherein he had to travel all the way from
survey report, it was stated that 16,069 cartons of the banana Metro Manila to Davao City.
shipment and 2,185 cartons of the pineapple shipment were so
damaged that they no longer had commercial value.5 Phoenix and McGee appealed to the Court of Appeals. The
appellate court reversed and set aside10 the decision of the RTC
Del Monte Produce filed a claim under the open cargo policy for in its 29 October 2003 decision. The same court ordered
the damages to its shipment. McGees Marine Claims Insurance Mindanao Terminal to pay Phoenix and McGee "the total amount
Adjuster evaluated the claim and recommended that payment in of $210,265.45 plus legal interest from the filing of the complaint
the amount of $210,266.43 be made. A check for the until fully paid and attorneys fees of 20% of the claim."11 It
recommended amount was sent to Del Monte Produce; the latter sustained Phoenixs and McGees argument that the damage in
then issued a subrogation receipt6 to Phoenix and McGee. the cargoes was the result of improper stowage by Mindanao
Terminal. It imposed on Mindanao Terminal, as the stevedore of
the cargo, the duty to exercise extraordinary diligence in loading

and stowing the cargoes. It further held that even with the for tort may arise even under a contract, where tort is that which
absence of a contractual relationship between Mindanao breaches the contract18 . In the present case, Phoenix and McGee
Terminal and Del Monte Produce, the cause of action of Phoenix are not suing for damages for injuries arising from the breach of
and McGee could be based on quasi-delict under Article 2176 of the contract of service but from the alleged negligent manner by
the Civil Code.12 which Mindanao Terminal handled the cargoes belonging to Del
Monte Produce. Despite the absence of contractual relationship
Mindanao Terminal filed a motion for reconsideration,13 which between Del Monte Produce and Mindanao Terminal, the
the Court of Appeals denied in its 26 February 200414 allegation of negligence on the part of the defendant should be
resolution. Hence, the present petition for review. sufficient to establish a cause of action arising from quasi-
delict.19
Mindanao Terminal raises two issues in the case at bar, namely:
whether it was careless and negligent in the loading and stowage The resolution of the two remaining issues is determinative of
of the cargoes onboard M/V Mistrau making it liable for damages; the ultimate result of this case.
and, whether Phoenix and McGee has a cause of action against
Mindanao Terminal under Article 2176 of the Civil Code on Article 1173 of the Civil Code is very clear that if the law or
quasi-delict. To resolve the petition, three questions have to be contract does not state the degree of diligence which is to be
answered: first, whether Phoenix and McGee have a cause of observed in the performance of an obligation then that which is
action against Mindanao Terminal; second, whether Mindanao expected of a good father of a family or ordinary diligence shall
Terminal, as a stevedoring company, is under obligation to be required. Mindanao Terminal, a stevedoring company which
observe the same extraordinary degree of diligence in the was charged with the loading and stowing the cargoes of Del
conduct of its business as required by law for common carriers15 Monte Produce aboard M/V Mistrau, had acted merely as a labor
and warehousemen;16 and third, whether Mindanao Terminal provider in the case at bar. There is no specific provision of law
observed the degree of diligence required by law of a stevedoring that imposes a higher degree of diligence than ordinary diligence
company. for a stevedoring company or one who is charged only with the
loading and stowing of cargoes. It was neither alleged nor proven
We agree with the Court of Appeals that the complaint filed by by Phoenix and McGee that Mindanao Terminal was bound by
Phoenix and McGee against Mindanao Terminal, from which the contractual stipulation to observe a higher degree of diligence
present case has arisen, states a cause of action. The present than that required of a good father of a family. We therefore
action is based on quasi-delict, arising from the negligent and conclude that following Article 1173, Mindanao Terminal was
careless loading and stowing of the cargoes belonging to Del required to observe ordinary diligence only in loading and
Monte Produce. Even assuming that both Phoenix and McGee stowing the cargoes of Del Monte Produce aboard M/V Mistrau.
have only been subrogated in the rights of Del Monte Produce,
who is not a party to the contract of service between Mindanao imposing a higher degree of diligence,21 on Mindanao Terminal
Terminal and Del Monte, still the insurance carriers may have a in loading and stowing the cargoes. The case of Summa Insurance
cause of action in light of the Courts consistent ruling that the act Corporation v. CA, which involved the issue of whether an
that breaks the contract may be also a tort.17 In fine, a liability arrastre operator is legally liable for the loss of a shipment in its

custody and the extent of its liability, is inapplicable to the factual stevedore ends upon the loading and stowing of the cargo in the
circumstances of the case at bar. Therein, a vessel owned by the vessel.1avvphi1
National Galleon Shipping Corporation (NGSC) arrived at Pier 3,
South Harbor, Manila, carrying a shipment consigned to the order It is not disputed that Mindanao Terminal was performing purely
of Caterpillar Far East Ltd. with Semirara Coal Corporation stevedoring function while the private respondent in the Summa
(Semirara) as "notify party." The shipment, including a bundle of case was performing arrastre function. In the present case,
PC 8 U blades, was discharged from the vessel to the custody of Mindanao Terminal, as a stevedore, was only charged with the
the private respondent, the exclusive arrastre operator at the loading and stowing of the cargoes from the pier to the ships
South Harbor. Accordingly, three good-order cargo receipts were cargo hold; it was never the custodian of the shipment of Del
issued by NGSC, duly signed by the ship's checker and a Monte Produce. A stevedore is not a common carrier for it does
representative of private respondent. When Semirara inspected not transport goods or passengers; it is not akin to a
the shipment at house, it discovered that the bundle of PC8U warehouseman for it does not store goods for profit. The loading
blades was missing. From those facts, the Court observed: and stowing of cargoes would not have a far reaching public
ramification as that of a common carrier and a warehouseman;
x x x The relationship therefore between the consignee and the the public is adequately protected by our laws on contract and on
arrastre operator must be examined. This relationship is much quasi-delict. The public policy considerations in legally imposing
akin to that existing between the consignee or owner of shipped upon a common carrier or a warehouseman a higher degree of
goods and the common carrier, or that between a depositor and a diligence is not present in a stevedoring outfit which mainly
warehouseman[22 ]. In the performance of its obligations, an provides labor in loading and stowing of cargoes for its clients.
arrastre operator should observe the same degree of diligence as
that required of a common carrier and a warehouseman as In the third issue, Phoenix and McGee failed to prove by
enunciated under Article 1733 of the Civil Code and Section 3(b) preponderance of evidence25 that Mindanao Terminal had acted
of the Warehouse Receipts Law, respectively. Being the custodian negligently. Where the evidence on an issue of fact is in equipoise
of the goods discharged from a vessel, an arrastre operator's duty or there is any doubt on which side the evidence preponderates
is to take good care of the goods and to turn them over to the the party having the burden of proof fails upon that issue. That is
party entitled to their possession. (Emphasis supplied)23 to say, if the evidence touching a disputed fact is equally
balanced, or if it does not produce a just, rational belief of its
There is a distinction between an arrastre and a stevedore.24 existence, or if it leaves the mind in a state of perplexity, the party
Arrastre, a Spanish word which refers to hauling of cargo, holding the affirmative as to such fact must fail.261avvphi1
comprehends the handling of cargo on the wharf or between the
establishment of the consignee or shipper and the ship's tackle. We adopt the findings27 of the RTC,28 which are not disputed by
The responsibility of the arrastre operator lasts until the delivery Phoenix and McGee. The Court of Appeals did not make any new
of the cargo to the consignee. The service is usually performed by findings of fact when it reversed the decision of the trial court.
longshoremen. On the other hand, stevedoring refers to the The only participation of Mindanao Terminal was to load the
handling of the cargo in the holds of the vessel or between the cargoes on board M/V Mistrau.29 It was not disputed by Phoenix
ship's tackle and the holds of the vessel. The responsibility of the and McGee that the materials, such as ropes, pallets, and

cardboards, used in lashing and rigging the cargoes were all the stevedore was under the supervision of the shipper and
provided by M/V Mistrau and these materials meets industry officers of the vessel. Even the materials used for stowage, such
standard.30 as ropes, pallets, and cardboards, are provided for by the vessel.
Even the survey report found that it was because of the
It was further established that Mindanao Terminal loaded and boisterous stormy weather due to the typhoon Seth, as
stowed the cargoes of Del Monte Produce aboard the M/V encountered by M/V Mistrau during its voyage, which caused the
Mistrau in accordance with the stowage plan, a guide for the area shipments in the cargo hold to collapse, shift and bruise in
assignments of the goods in the vessels hold, prepared by Del extensive extent.39 Even the deposition of Byeong was not
Monte Produce and the officers of M/V Mistrau.31 The loading supported by the conclusion in the survey report that:
and stowing was done under the direction and supervision of the
ship officers. The vessels officer would order the closing of the CAUSE OF DAMAGE
hatches only if the loading was done correctly after a final
inspection.32 The said ship officers would not have accepted the x x x
cargoes on board the vessel if they were not properly arranged
and tightly secured to withstand the voyage in open seas. They From the above facts and our survey results, we are of the
would order the stevedore to rectify any error in its loading and opinion that damage occurred aboard the carrying vessel during
stowing. A foremans report, as proof of work done on board the sea transit, being caused by ships heavy rolling and pitching
vessel, was prepared by the checkers of Mindanao Terminal and under boisterous weather while proceeding from 1600 hrs on
concurred in by the Chief Officer of M/V Mistrau after they were 7th October to 0700 hrs on 12th October, 1994 as described in
satisfied that the cargoes were properly loaded.33 the sea protest.40

Phoenix and McGee relied heavily on the deposition of Byeong As it is clear that Mindanao Terminal had duly exercised the
Yong Ahn34 and on the survey report35 of the damage to the required degree of diligence in loading and stowing the cargoes,
cargoes. Byeong, whose testimony was refreshed by the survey which is the ordinary diligence of a good father of a family, the
report,36 found that the cause of the damage was improper grant of the petition is in order.
stowage37 due to the manner the cargoes were arranged such
that there were no spaces between cartons, the use of cardboards However, the Court finds no basis for the award of attorneys fees
as support system, and the use of small rope to tie the cartons in favor of petitioner.lawphil.net None of the circumstances
together but not by the negligent conduct of Mindanao Terminal enumerated in Article 2208 of the Civil Code exists. The present
in loading and stowing the cargoes. As admitted by Phoenix and case is clearly not an unfounded civil action against the plaintiff
McGee in their Comment38 before us, the latter is merely a as there is no showing that it was instituted for the mere purpose
stevedoring company which was tasked by Del Monte to load and of vexation or injury. It is not sound public policy to set a
stow the shipments of fresh banana and pineapple of Del Monte premium to the right to litigate where such right is exercised in
Produce aboard the M/V Mistrau. How and where it should load good faith, even if erroneously.41 Likewise, the RTC erred in
and stow a shipment in a vessel is wholly dependent on the awarding P83,945.80 actual damages to Mindanao Terminal.
shipper and the officers of the vessel. In other words, the work of Although actual expenses were incurred by Mindanao Terminal

in relation to the trial of this case in Davao City, the lawyer of Appellate Court denying his Partial Motion for Reconsideration
Mindanao Terminal incurred expenses for plane fare, hotel (Rollo, p. 2).
accommodations and food, as well as other miscellaneous
expenses, as he attended the trials coming all the way from The dispositive portion of the Intermediate Appellate Court's
Manila. But there is no showing that Phoenix and McGee made a decision is as follows:
false claim against Mindanao Terminal resulting in the protracted
trial of the case necessitating the incurrence of expenditures.42 WHEREFORE, the decision appealed from is hereby REVERSED. A
new one is hereby entered ordering the defendant Asiatic
WHEREFORE, the petition is GRANTED. The decision of the Court Integrated Corporation to pay the plaintiff P221.90 actual
of Appeals in CA-G.R. CV No. 66121 is SET ASIDE and the decision medical expenses, P900.00 for the amount paid for the operation
of the Regional Trial Court of Davao City, Branch 12 in Civil Case and management of a school bus, P20,000.00 as moral damages
No. 25,311.97 is hereby REINSTATED MINUS the awards of due to pains, sufferings and sleepless nights and P l0,000.00 as
P100,000.00 as attorneys fees and P83,945.80 as actual attorney's fees.
damages.
SO ORDERED. (p. 20, Rollo)

The findings of respondent Appellate Court are as follows:

40. G.R. No. 71049 May 29, 1987 The evidence of the plaintiff (petitioner herein) shows that in the
morning of August 15, 1974 he, together with his neighbors, went
BERNARDINO JIMENEZ, petitioner, to Sta. Ana public market to buy "bagoong" at the time when the
vs. public market was flooded with ankle deep rainwater. After
CITY OF MANILA and INTERMEDIATE APPELLATE purchasing the "bagoong" he turned around to return home but
COURT, respondents. he stepped on an uncovered opening which could not be seen
because of the dirty rainwater, causing a dirty and rusty four-
PARAS, J.: inch nail, stuck inside the uncovered opening, to pierce the left
leg of plaintiff-petitioner penetrating to a depth of about one and
This is a petition for review on certiorari of: (1) the decision * of a half inches. After administering first aid treatment at a nearby
the Intermediate Appellate Court in AC-G.R. No. 013887-CV drugstore, his companions helped him hobble home. He felt ill
Bernardino Jimenez v. Asiatic Integrated Corporation and City of and developed fever and he had to be carried to Dr. Juanita
Manila, reversing the decision ** of the Court of First Instance of Mascardo. Despite the medicine administered to him by the
Manila, Branch XXII in Civil Case No. 96390 between the same latter, his left leg swelled with great pain. He was then rushed to
parties, but only insofar as holding Asiatic Integrated the Veterans Memorial Hospital where he had to be confined for
Corporation solely liable for damages and attorney's fees instead twenty (20) days due to high fever and severe pain.
of making the City of Manila jointly and solidarily liable with it as
prayed for by the petitioner and (2) the resolution of the same

Upon his discharge from the hospital, he had to walk around with filed its comment on August 13, 1985 (Rollo, p. 34) while
crutches for fifteen (15) days. His injury prevented him from petitioner filed its reply on August 21, 1985 (Reno, p. 51).
attending to the school buses he is operating. As a result, he had
to engage the services of one Bienvenido Valdez to supervise his Thereafter, the Court in the resolution of September 11, 1985
business for an aggregate compensation of nine hundred pesos (Rollo, p. 62) gave due course to the petition and required both
(P900.00). (Decision, AC-G.R. CV No. 01387, Rollo, pp. 13-20). parties to submit simultaneous memoranda

Petitioner sued for damages the City of Manila and the Asiatic Petitioner filed his memorandum on October 1, 1985 (Rollo, p.
Integrated Corporation under whose administration the Sta. Ana 65) while respondent filed its memorandum on October 24, 1985
Public Market had been placed by virtue of a Management and (Rollo, p. 82).
Operating Contract (Rollo, p. 47).
In the resolution of October 13, 1986, this case was transferred to
The lower court decided in favor of respondents, the dispositive the Second Division of this Court, the same having been assigned
portion of the decision reading: to a member of said Division (Rollo, p. 92).

WHEREFORE, judgment is hereby rendered in favor of the The petition is impressed with merit.
defendants and against the plaintiff dismissing the complaint
with costs against the plaintiff. For lack of sufficient evidence, the As correctly found by the Intermediate Appellate Court, there is
counterclaims of the defendants are likewise dismissed. no doubt that the plaintiff suffered injuries when he fell into a
(Decision, Civil Case No. 96390, Rollo, p. 42). drainage opening without any cover in the Sta. Ana Public
Market. Defendants do not deny that plaintiff was in fact injured
As above stated, on appeal, the Intermediate Appellate Court held although the Asiatic Integrated Corporation tries to minimize the
the Asiatic Integrated Corporation liable for damages but extent of the injuries, claiming that it was only a small puncture
absolved respondent City of Manila. and that as a war veteran, plaintiff's hospitalization at the War
Veteran's Hospital was free. (Decision, AC-G.R. CV No. 01387,
Hence this petition. Rollo, p. 6).

The lone assignment of error raised in this petition is on whether Respondent City of Manila maintains that it cannot be held liable
or not the Intermediate Appellate Court erred in not ruling that for the injuries sustained by the petitioner because under the
respondent City of Manila should be jointly and severally liable Management and Operating Contract, Asiatic Integrated
with Asiatic Integrated Corporation for the injuries petitioner Corporation assumed all responsibility for damages which may
suffered. be suffered by third persons for any cause attributable to it.

In compliance with the resolution of July 1, 1985 of the First It has also been argued that the City of Manila cannot be held
Division of this Court (Rollo, p. 29) respondent City of Manila liable under Article 1, Section 4 of Republic Act No. 409 as
amended (Revised Charter of Manila) which provides:

The City shall not be liable or held for damages or injuries to In the same suit, the Supreme Court clarified further that under
persons or property arising from the failure of the Mayor, the Article 2189 of the Civil Code, it is not necessary for the liability
Municipal Board, or any other City Officer, to enforce the therein established to attach, that the defective public works
provisions of this chapter, or any other law or ordinance, or from belong to the province, city or municipality from which
negligence of said Mayor, Municipal Board, or any other officers responsibility is exacted. What said article requires is that the
while enforcing or attempting to enforce said provisions. province, city or municipality has either "control or supervision"
over the public building in question.
This issue has been laid to rest in the case of City of Manila v.
Teotico (22 SCRA 269-272 [1968]) where the Supreme Court In the case at bar, there is no question that the Sta. Ana Public
squarely ruled that Republic Act No. 409 establishes a general Market, despite the Management and Operating Contract
rule regulating the liability of the City of Manila for "damages or between respondent City and Asiatic Integrated Corporation
injury to persons or property arising from the failure of city remained under the control of the former.
officers" to enforce the provisions of said Act, "or any other law
or ordinance or from negligence" of the City "Mayor, Municipal For one thing, said contract is explicit in this regard, when it
Board, or other officers while enforcing or attempting to enforce provides:
said provisions."
II
Upon the other hand, Article 2189 of the Civil Code of the
Philippines which provides that: That immediately after the execution of this contract, the
SECOND PARTY shall start the painting, cleaning, sanitizing and
Provinces, cities and municipalities shall be liable for damages for repair of the public markets and talipapas and within ninety (90)
the death of, or injuries suffered by any person by reason of days thereof, the SECOND PARTY shall submit a program of
defective conditions of roads, streets, bridges, public buildings improvement, development, rehabilitation and reconstruction of
and other public works under their control or supervision. the city public markets and talipapas subject to prior approval of
the FIRST PARTY. (Rollo, p. 44)
constitutes a particular prescription making "provinces, cities
and municipalities ... liable for damages for the death of, or injury xxx xxx xxx
suffered by any person by reason" specifically "of the
defective condition of roads, streets, bridges, public buildings, VI
and other public works under their control or supervision." In
other words, Art. 1, sec. 4, R.A. No. 409 refers to liability arising That all present personnel of the City public markets and
from negligence, in general, regardless of the object, thereof, talipapas shall be retained by the SECOND PARTY as long as their
while Article 2189 of the Civil Code governs liability due to services remain satisfactory and they shall be extended the same
"defective streets, public buildings and other public works" in rights and privileges as heretofore enjoyed by them. Provided,
particular and is therefore decisive on this specific case. however, that the SECOND PARTY shall have the right, subject to

prior approval of the FIRST PARTY to discharge any of the supervision and control of that particular market, more
present employees for cause. (Rollo, p. 45). specifically, to check the safety of the place for the public.

VII Thus the Asst. Chief of the Market Division and Deputy Market
Administrator of the City of Manila testified as follows:
That the SECOND PARTY may from time to time be required by
the FIRST PARTY, or his duly authorized representative or Court This market master is an employee of the City of Manila?
representatives, to report, on the activities and operation of the
City public markets and talipapas and the facilities and Mr. Ymson Yes, Your Honor.
conveniences installed therein, particularly as to their cost of
construction, operation and maintenance in connection with the Q What are his functions?
stipulations contained in this Contract. (lbid)
A Direct supervision and control over the market area assigned
The fact of supervision and control of the City over subject public to him."(T.s.n.,pp. 41-42, Hearing of May 20, 1977.)
market was admitted by Mayor Ramon Bagatsing in his letter to
Secretary of Finance Cesar Virata which reads: xxx xxx xxx

These cases arose from the controversy over the Management Court As far as you know there is or is there any specific
and Operating Contract entered into on December 28, 1972 by employee assigned with the task of seeing to it that the Sta. Ana
and between the City of Manila and the Asiatic Integrated Market is safe for the public?
Corporation, whereby in consideration of a fixed service fee, the
City hired the services of the said corporation to undertake the Mr. Ymson Actually, as I stated, Your Honor, that the Sta. Ana has
physical management, maintenance, rehabilitation and its own market master. The primary duty of that market master
development of the City's public markets and' Talipapas' subject is to make the direct supervision and control of that particular
to the control and supervision of the City. market, the check or verifying whether the place is safe for public
safety is vested in the market master. (T.s.n., pp. 2425, Hearing of
xxx xxx xxx July 27, 1977.) (Emphasis supplied.) (Rollo, p. 76).

It is believed that there is nothing incongruous in the exercise of Finally, Section 30 (g) of the Local Tax Code as amended,
these powers vis-a-vis the existence of the contract, inasmuch as provides:
the City retains the power of supervision and control over its
public markets and talipapas under the terms of the contract. The treasurer shall exercise direct and immediate supervision
(Exhibit "7-A") (Emphasis supplied.) (Rollo, p. 75). administration and control over public markets and the
personnel thereof, including those whose duties concern the
In fact, the City of Manila employed a market master for the Sta. maintenance and upkeep of the market and ordinances and other
Ana Public Market whose primary duty is to take direct

pertinent rules and regulations. (Emphasis supplied.) (Rollo, p. fell into the opening, it was already uncovered, and five (5)
76) months after the incident happened, the opening was still
uncovered. (Rollo, pp. 57; 59). Moreover, while there are findings
The contention of respondent City of Manila that petitioner that during floods the vendors remove the iron grills to hasten
should not have ventured to go to Sta. Ana Public Market during a the flow of water (Decision, AC-G.R. CV No. 0 1387; Rollo, p. 17),
stormy weather is indeed untenable. As observed by respondent there is no showing that such practice has ever been prohibited,
Court of Appeals, it is an error for the trial court to attribute the much less penalized by the City of Manila. Neither was it shown
negligence to herein petitioner. More specifically stated, the that any sign had been placed thereabouts to warn passersby of
findings of appellate court are as follows: the impending danger.

... The trial court even chastised the plaintiff for going to market To recapitulate, it appears evident that the City of Manila is
on a rainy day just to buy bagoong. A customer in a store has the likewise liable for damages under Article 2189 of the Civil Code,
right to assume that the owner will comply with his duty to keep respondent City having retained control and supervision over the
the premises safe for customers. If he ventures to the store on the Sta. Ana Public Market and as tort-feasor under Article 2176 of
basis of such assumption and is injured because the owner did the Civil Code on quasi-delicts
not comply with his duty, no negligence can be imputed to the
customer. (Decision, AC-G. R. CV No. 01387, Rollo, p. 19). Petitioner had the right to assume that there were no openings in
the middle of the passageways and if any, that they were
As a defense against liability on the basis of a quasi-delict, one adequately covered. Had the opening been covered, petitioner
must have exercised the diligence of a good father of a family. could not have fallen into it. Thus the negligence of the City of
(Art. 1173 of the Civil Code). Manila is the proximate cause of the injury suffered, the City is
therefore liable for the injury suffered by the peti- 4 petitioner.
There is no argument that it is the duty of the City of Manila to
exercise reasonable care to keep the public market reasonably Respondent City of Manila and Asiatic Integrated Corporation
safe for people frequenting the place for their marketing needs. being joint tort-feasors are solidarily liable under Article 2194 of
the Civil Code.
While it may be conceded that the fulfillment of such duties is
extremely difficult during storms and floods, it must however, be PREMISES CONSIDERED, the decision of the Court of Appeals is
admitted that ordinary precautions could have been taken during hereby MODIFIED, making the City of Manila and the Asiatic
good weather to minimize the dangers to life and limb under Integrated Corporation solidarily liable to pay the plaintiff
those difficult circumstances. P221.90 actual medical expenses, P900.00 for the amount paid
for the operation and management of the school bus, P20,000.00
For instance, the drainage hole could have been placed under the as moral damages due to pain, sufferings and sleepless nights and
stalls instead of on the passage ways. Even more important is the P10,000.00 as attorney's fees.
fact, that the City should have seen to it that the openings were
covered. Sadly, the evidence indicates that long before petitioner

by the defendant United Construction Co. and by the third-party
defendants Juan F. Nakpil and Sons and Juan F. Nakpil.
41. G.R. No. L-47851 October 3, 1986
The dispositive portion of the modified decision of the lower
JUAN F. NAKPIL & SONS, and JUAN F. NAKPIL, court reads:
petitioners,
vs. WHEREFORE, judgment is hereby rendered:
THE COURT OF APPEALS, UNITED CONSTRUCTION
COMPANY, INC., JUAN J. CARLOS, and the PHILIPPINE (a) Ordering defendant United Construction Co., Inc. and third-
BAR ASSOCIATION, respondents. party defendants (except Roman Ozaeta) to pay the plaintiff,
jointly and severally, the sum of P989,335.68 with interest at the
G.R. No. L-47863 October 3, 1986 legal rate from November 29, 1968, the date of the filing of the
complaint until full payment;
THE UNITED CONSTRUCTION CO., INC., petitioner,
vs. (b) Dismissing the complaint with respect to defendant Juan J.
COURT OF APPEALS, ET AL., respondents. Carlos;

G.R. No. L-47896 October 3, 1986 (c) Dismissing the third-party complaint;

PHILIPPINE BAR ASSOCIATION, ET AL., petitioners, (d) Dismissing the defendant's and third-party defendants'
vs. counterclaims for lack of merit;
COURT OF APPEALS, ET AL., respondents.
(e) Ordering defendant United Construction Co., Inc. and third-
party defendants (except Roman Ozaeta) to pay the costs in equal
shares.
PARAS, J.:
SO ORDERED. (Record on Appeal p. 521; Rollo, L- 47851, p. 169).
These are petitions for review on certiorari of the November 28,
1977 decision of the Court of Appeals in CA-G.R. No. 51771-R The dispositive portion of the decision of the Court of Appeals
modifying the decision of the Court of First Instance of Manila, reads:
Branch V, in Civil Case No. 74958 dated September 21, 1971 as
modified by the Order of the lower court dated December 8, WHEREFORE, the judgment appealed from is modified to include
1971. The Court of Appeals in modifying the decision of the lower an award of P200,000.00 in favor of plaintiff-appellant Philippine
court included an award of an additional amount of P200,000.00 Bar Association, with interest at the legal rate from November 29,
to the Philippine Bar Association to be paid jointly and severally 1968 until full payment to be paid jointly and severally by
defendant United Construction Co., Inc. and third party

defendants (except Roman Ozaeta). In all other respects, the defendant in this case. The plans and specifications for the
judgment dated September 21, 1971 as modified in the December building were prepared by the other third-party defendants Juan
8, 1971 Order of the lower court is hereby affirmed with COSTS F. Nakpil & Sons. The building was completed in June, 1966.
to be paid by the defendant and third party defendant (except
Roman Ozaeta) in equal shares. In the early morning of August 2, 1968 an unusually strong
earthquake hit Manila and its environs and the building in
SO ORDERED. question sustained major damage. The front columns of the
building buckled, causing the building to tilt forward
Petitioners Juan F. Nakpil & Sons in L-47851 and United dangerously. The tenants vacated the building in view of its
Construction Co., Inc. and Juan J. Carlos in L-47863 seek the precarious condition. As a temporary remedial measure, the
reversal of the decision of the Court of Appeals, among other building was shored up by United Construction, Inc. at the cost of
things, for exoneration from liability while petitioner Philippine P13,661.28.
Bar Association in L-47896 seeks the modification of aforesaid
decision to obtain an award of P1,830,000.00 for the loss of the On November 29, 1968, the plaintiff commenced this action for
PBA building plus four (4) times such amount as damages the recovery of damages arising from the partial collapse of the
resulting in increased cost of the building, P100,000.00 as building against United Construction, Inc. and its President and
exemplary damages; and P100,000.00 as attorney's fees. General Manager Juan J. Carlos as defendants. Plaintiff alleges
that the collapse of the building was accused by defects in the
These petitions arising from the same case filed in the Court of construction, the failure of the contractors to follow plans and
First Instance of Manila were consolidated by this Court in the specifications and violations by the defendants of the terms of the
resolution of May 10, 1978 requiring the respective respondents contract.
to comment. (Rollo, L-47851, p. 172).
Defendants in turn filed a third-party complaint against the
The facts as found by the lower court (Decision, C.C. No. 74958; architects who prepared the plans and specifications, alleging in
Record on Appeal, pp. 269-348; pp. 520-521; Rollo, L-47851, p. essence that the collapse of the building was due to the defects in
169) and affirmed by the Court of Appeals are as follows: the said plans and specifications. Roman Ozaeta, the then
president of the plaintiff Bar Association was included as a third-
The plaintiff, Philippine Bar Association, a civic-non-profit party defendant for damages for having included Juan J. Carlos,
association, incorporated under the Corporation Law, decided to President of the United Construction Co., Inc. as party defendant.
construct an office building on its 840 square meters lot located
at the comer of Aduana and Arzobispo Streets, Intramuros, On March 3, 1969, the plaintiff and third-party defendants Juan F.
Manila. The construction was undertaken by the United Nakpil & Sons and Juan F. Nakpil presented a written stipulation
Construction, Inc. on an "administration" basis, on the suggestion which reads:
of Juan J. Carlos, the president and general manager of said
corporation. The proposal was approved by plaintiff's board of 1. That in relation to defendants' answer with counterclaims
directors and signed by its president Roman Ozaeta, a third-party and third- party complaints and the third-party defendants

Nakpil & Sons' answer thereto, the plaintiff need not amend its 1. Whether the damage sustained by the PBA building during
complaint by including the said Juan F. Nakpil & Sons and Juan F. the August 2, 1968 earthquake had been caused, directly or
Nakpil personally as parties defendant. indirectly, by:

2. That in the event (unexpected by the undersigned) that (a) The inadequacies or defects in the plans and specifications
the Court should find after the trial that the above-named prepared by third-party defendants;
defendants Juan J. Carlos and United Construction Co., Inc. are
free from any blame and liability for the collapse of the PBA (b) The deviations, if any, made by the defendants from said
Building, and should further find that the collapse of said building plans and specifications and how said deviations contributed to
was due to defects and/or inadequacy of the plans, designs, and the damage sustained;
specifications p by the third-party defendants, or in the event
that the Court may find Juan F. Nakpil and Sons and/or Juan F. (c) The alleged failure of defendants to observe the requisite
Nakpil contributorily negligent or in any way jointly and quality of materials and workmanship in the construction of the
solidarily liable with the defendants, judgment may be rendered building;
in whole or in part. as the case may be, against Juan F. Nakpil &
Sons and/or Juan F. Nakpil in favor of the plaintiff to all intents (d) The alleged failure to exercise the requisite degree of
and purposes as if plaintiff's complaint has been duly amended supervision expected of the architect, the contractor and/or the
by including the said Juan F. Nakpil & Sons and Juan F. Nakpil as owner of the building;
parties defendant and by alleging causes of action against them
including, among others, the defects or inadequacy of the plans, (e) An act of God or a fortuitous event; and
designs, and specifications prepared by them and/or failure in
the performance of their contract with plaintiff. (f) Any other cause not herein above specified.

3. Both parties hereby jointly petition this Honorable Court to 2. If the cause of the damage suffered by the building arose from
approve this stipulation. (Record on Appeal, pp. 274-275; Rollo, a combination of the above-enumerated factors, the degree or
L-47851,p.169). proportion in which each individual factor contributed to the
damage sustained;
Upon the issues being joined, a pre-trial was conducted on March
7, 1969, during which among others, the parties agreed to refer 3. Whether the building is now a total loss and should be
the technical issues involved in the case to a Commissioner. Mr. completely demolished or whether it may still be repaired and
Andres O. Hizon, who was ultimately appointed by the trial court, restored to a tenantable condition. In the latter case, the
assumed his office as Commissioner, charged with the duty to try determination of the cost of such restoration or repair, and the
the following issues: value of any remaining construction, such as the foundation,
which may still be utilized or availed of (Record on Appeal, pp.
275-276; Rollo, L-47851, p. 169).


Thus, the issues of this case were divided into technical issues contractual basis for such conclusion. (Record on Appeal, pp.
and non-technical issues. As aforestated the technical issues were 309-328; Ibid).
referred to the Commissioner. The non-technical issues were
tried by the Court. Thus, on September 21, 1971, the lower court rendered the
assailed decision which was modified by the Intermediate
Meanwhile, plaintiff moved twice for the demolition of the Appellate Court on November 28, 1977.
building on the ground that it may topple down in case of a
strong earthquake. The motions were opposed by the defendants All the parties herein appealed from the decision of the
and the matter was referred to the Commissioner. Finally, on Intermediate Appellate Court. Hence, these petitions.
April 30, 1979 the building was authorized to be demolished at
the expense of the plaintiff, but not another earthquake of high On May 11, 1978, the United Architects of the Philippines, the
intensity on April 7, 1970 followed by other strong earthquakes Association of Civil Engineers, and the Philippine Institute of
on April 9, and 12, 1970, caused further damage to the property. Architects filed with the Court a motion to intervene as amicus
The actual demolition was undertaken by the buyer of the curiae. They proposed to present a position paper on the liability
damaged building. (Record on Appeal, pp. 278-280; Ibid.) of architects when a building collapses and to submit likewise a
critical analysis with computations on the divergent views on the
After the protracted hearings, the Commissioner eventually design and plans as submitted by the experts procured by the
submitted his report on September 25, 1970 with the findings parties. The motion having been granted, the amicus curiae were
that while the damage sustained by the PBA building was caused granted a period of 60 days within which to submit their
directly by the August 2, 1968 earthquake whose magnitude was position.
estimated at 7.3 they were also caused by the defects in the plans
and specifications prepared by the third-party defendants' After the parties had all filed their comments, We gave due
architects, deviations from said plans and specifications by the course to the petitions in Our Resolution of July 21, 1978.
defendant contractors and failure of the latter to observe the
requisite workmanship in the construction of the building and of The position papers of the amicus curiae (submitted on
the contractors, architects and even the owners to exercise the November 24, 1978) were duly noted.
requisite degree of supervision in the construction of subject
building. The amicus curiae gave the opinion that the plans and
specifications of the Nakpils were not defective. But the
All the parties registered their objections to aforesaid findings Commissioner, when asked by Us to comment, reiterated his
which in turn were answered by the Commissioner. conclusion that the defects in the plans and specifications indeed
existed.
The trial court agreed with the findings of the Commissioner
except as to the holding that the owner is charged with full nine Using the same authorities availed of by the amicus curiae such
supervision of the construction. The Court sees no legal or as the Manila Code (Ord. No. 4131) and the 1966 Asep Code, the
Commissioner added that even if it can be proved that the defects

in the construction alone (and not in the plans and design) Art. 1723. The engineer or architect who drew up the plans and
caused the damage to the building, still the deficiency in the specifications for a building is liable for damages if within fifteen
original design and jack of specific provisions against torsion in years from the completion of the structure the same should
the original plans and the overload on the ground floor columns collapse by reason of a defect in those plans and specifications, or
(found by an the experts including the original designer) due to the defects in the ground. The contractor is likewise
certainly contributed to the damage which occurred. (Ibid, p. responsible for the damage if the edifice fags within the same
174). period on account of defects in the construction or the use of
materials of inferior quality furnished by him, or due to any
In their respective briefs petitioners, among others, raised the violation of the terms of the contract. If the engineer or architect
following assignments of errors: Philippine Bar Association supervises the construction, he shall be solidarily liable with the
claimed that the measure of damages should not be limited to contractor.
P1,100,000.00 as estimated cost of repairs or to the period of six
(6) months for loss of rentals while United Construction Co., Inc. Acceptance of the building, after completion, does not imply
and the Nakpils claimed that it was an act of God that caused the waiver of any of the causes of action by reason of any defect
failure of the building which should exempt them from mentioned in the preceding paragraph.
responsibility and not the defective construction, poor
workmanship, deviations from plans and specifications and other The action must be brought within ten years following the
imperfections in the case of United Construction Co., Inc. or the collapse of the building.
deficiencies in the design, plans and specifications prepared by
petitioners in the case of the Nakpils. Both UCCI and the Nakpils On the other hand, the general rule is that no person shall be
object to the payment of the additional amount of P200,000.00 responsible for events which could not be foreseen or which
imposed by the Court of Appeals. UCCI also claimed that it should though foreseen, were inevitable (Article 1174, New Civil Code).
be reimbursed the expenses of shoring the building in the
amount of P13,661.28 while the Nakpils opposed the payment of An act of God has been defined as an accident, due directly and
damages jointly and solidarity with UCCI. exclusively to natural causes without human intervention, which
by no amount of foresight, pains or care, reasonably to have been
The pivotal issue in this case is whether or not an act of God-an expected, could have been prevented. (1 Corpus Juris 1174).
unusually strong earthquake-which caused the failure of the
building, exempts from liability, parties who are otherwise liable There is no dispute that the earthquake of August 2, 1968 is a
because of their negligence. fortuitous event or an act of God.

The applicable law governing the rights and liabilities of the To exempt the obligor from liability under Article 1174 of the
parties herein is Article 1723 of the New Civil Code, which Civil Code, for a breach of an obligation due to an "act of God," the
provides: following must concur: (a) the cause of the breach of the
obligation must be independent of the will of the debtor; (b) the
event must be either unforseeable or unavoidable; (c) the event

must be such as to render it impossible for the debtor to fulfill his The negligence of the defendant and the third-party defendants
obligation in a normal manner; and (d) the debtor must be free petitioners was established beyond dispute both in the lower
from any participation in, or aggravation of the injury to the court and in the Intermediate Appellate Court. Defendant United
creditor. (Vasquez v. Court of Appeals, 138 SCRA 553; Estrada v. Construction Co., Inc. was found to have made substantial
Consolacion, 71 SCRA 423; Austria v. Court of Appeals, 39 SCRA deviations from the plans and specifications. and to have failed to
527; Republic of the Phil. v. Luzon Stevedoring Corp., 21 SCRA observe the requisite workmanship in the construction as well as
279; Lasam v. Smith, 45 Phil. 657). to exercise the requisite degree of supervision; while the third-
party defendants were found to have inadequacies or defects in
Thus, if upon the happening of a fortuitous event or an act of God, the plans and specifications prepared by them. As correctly
there concurs a corresponding fraud, negligence, delay or assessed by both courts, the defects in the construction and in the
violation or contravention in any manner of the tenor of the plans and specifications were the proximate causes that rendered
obligation as provided for in Article 1170 of the Civil Code, which the PBA building unable to withstand the earthquake of August 2,
results in loss or damage, the obligor cannot escape liability. 1968. For this reason the defendant and third-party defendants
cannot claim exemption from liability. (Decision, Court of
The principle embodied in the act of God doctrine strictly Appeals, pp. 30-31).
requires that the act must be one occasioned exclusively by the
violence of nature and all human agencies are to be excluded It is well settled that the findings of facts of the Court of Appeals
from creating or entering into the cause of the mischief. When the are conclusive on the parties and on this court (cases cited in
effect, the cause of which is to be considered, is found to be in Tolentino vs. de Jesus, 56 SCRA 67; Cesar vs. Sandiganbayan,
part the result of the participation of man, whether it be from January 17, 1985, 134 SCRA 105, 121), unless (1) the conclusion
active intervention or neglect, or failure to act, the whole is a finding grounded entirely on speculation, surmise and
occurrence is thereby humanized, as it were, and removed from conjectures; (2) the inference made is manifestly mistaken; (3)
the rules applicable to the acts of God. (1 Corpus Juris, pp. 1174- there is grave abuse of discretion; (4) the judgment is based on
1175). misapprehension of facts; (5) the findings of fact are conflicting ,
(6) the Court of Appeals went beyond the issues of the case and
Thus it has been held that when the negligence of a person its findings are contrary to the admissions of both appellant and
concurs with an act of God in producing a loss, such person is not appellees (Ramos vs. Pepsi-Cola Bottling Co., February 8, 1967,
exempt from liability by showing that the immediate cause of the 19 SCRA 289, 291-292; Roque vs. Buan, Oct. 31, 1967, 21 SCRA
damage was the act of God. To be exempt from liability for loss 648, 651); (7) the findings of facts of the Court of Appeals are
because of an act of God, he must be free from any previous contrary to those of the trial court; (8) said findings of facts are
negligence or misconduct by which that loss or damage may have conclusions without citation of specific evidence on which they
been occasioned. (Fish & Elective Co. v. Phil. Motors, 55 Phil. 129; are based; (9) the facts set forth in the petition as well as in the
Tucker v. Milan, 49 O.G. 4379; Limpangco & Sons v. Yangco petitioner's main and reply briefs are not disputed by the
Steamship Co., 34 Phil. 594, 604; Lasam v. Smith, 45 Phil. 657). respondents (Garcia vs. CA, June 30, 1970, 33 SCRA 622; Alsua-
Bett vs. Court of Appeals, July 30, 1979, 92 SCRA 322, 366); (10)
the finding of fact of the Court of Appeals is premised on the

supposed absence of evidence and is contradicted by evidence on
record (Salazar vs. Gutierrez, May 29, 1970, 33 SCRA 243, 247; The PBA in its brief insists that the proper award should be
Cited in G.R. No. 66497-98, Sacay v. Sandiganbayan, July 10, P1,830,000.00 representing the total value of the building (L-
1986). 47896, PBA's No. 1 Assignment of Error, p. 19), while both the
NAKPILS and UNITED question the additional award of
It is evident that the case at bar does not fall under any of the P200,000.00 in favor of the PBA (L- 47851, NAKPIL's Brief as
exceptions above-mentioned. On the contrary, the records show Petitioner, p. 6, UNITED's Brief as Petitioner, p. 25). The PBA
that the lower court spared no effort in arriving at the correct further urges that the unrealized rental income awarded to it
appreciation of facts by the referral of technical issues to a should not be limited to a period of one-half year but should be
Commissioner chosen by the parties whose findings and computed on a continuing basis at the rate of P178,671.76 a year
conclusions remained convincingly unrebutted by the until the judgment for the principal amount shall have been
intervenors/amicus curiae who were allowed to intervene in the satisfied L- 47896, PBA's No. 11 Assignment of Errors, p. 19).
Supreme Court.
The collapse of the PBA building as a result of the August 2, 1968
In any event, the relevant and logical observations of the trial earthquake was only partial and it is undisputed that the building
court as affirmed by the Court of Appeals that "while it is not could then still be repaired and restored to its tenantable
possible to state with certainty that the building would not have condition. The PBA, however, in view of its lack of needed
collapsed were those defects not present, the fact remains that funding, was unable, thru no fault of its own, to have the building
several buildings in the same area withstood the earthquake to repaired. UNITED, on the other hand, spent P13,661.28 to shore
which the building of the plaintiff was similarly subjected," up the building after the August 2, 1968 earthquake (L-47896, CA
cannot be ignored. Decision, p. 46). Because of the earthquake on April 7, 1970, the
trial court after the needed consultations, authorized the total
The next issue to be resolved is the amount of damages to be demolition of the building (L-47896, Vol. 1, pp. 53-54).
awarded to the PBA for the partial collapse (and eventual
complete collapse) of its building. There should be no question that the NAKPILS and UNITED are
liable for the damage resulting from the partial and eventual
The Court of Appeals affirmed the finding of the trial court based collapse of the PBA building as a result of the earthquakes.
on the report of the Commissioner that the total amount required
to repair the PBA building and to restore it to tenantable We quote with approval the following from the erudite decision
condition was P900,000.00 inasmuch as it was not initially a total penned by Justice Hugo E. Gutierrez (now an Associate Justice of
loss. However, while the trial court awarded the PBA said amount the Supreme Court) while still an Associate Justice of the Court of
as damages, plus unrealized rental income for one-half year, the Appeals:
Court of Appeals modified the amount by awarding in favor of
PBA an additional sum of P200,000.00 representing the damage There is no question that an earthquake and other forces of
suffered by the PBA building as a result of another earthquake nature such as cyclones, drought, floods, lightning, and perils of
that occurred on April 7, 1970 (L-47896, Vol. I, p. 92). the sea are acts of God. It does not necessarily follow, however,

that specific losses and suffering resulting from the occurrence of down to earth explanation of the collapse. The failure of the PBA
these natural force are also acts of God. We are not convinced on building, as a unique and distinct construction with no reference
the basis of the evidence on record that from the thousands of or comparison to other buildings, to weather the severe
structures in Manila, God singled out the blameless PBA building earthquake forces was traced to design deficiencies and defective
in Intramuros and around six or seven other buildings in various construction, factors which are neither mysterious nor esoteric.
parts of the city for collapse or severe damage and that God alone The theological allusion of appellant United that God acts in
was responsible for the damages and losses thus suffered. mysterious ways His wonders to perform impresses us to be
inappropriate. The evidence reveals defects and deficiencies in
The record is replete with evidence of defects and deficiencies in design and construction. There is no mystery about these acts of
the designs and plans, defective construction, poor workmanship, negligence. The collapse of the PBA building was no wonder
deviation from plans and specifications and other imperfections. performed by God. It was a result of the imperfections in the
These deficiencies are attributable to negligent men and not to a work of the architects and the people in the construction
perfect God. company. More relevant to our mind is the lesson from the
parable of the wise man in the Sermon on the Mount "which built
The act-of-God arguments of the defendants- appellants and third his house upon a rock; and the rain descended and the floods
party defendants-appellants presented in their briefs are came and the winds blew and beat upon that house; and it fen
premised on legal generalizations or speculations and on not; for it was founded upon a rock" and of the "foolish upon the
theological fatalism both of which ignore the plain facts. The sand. And the rain descended and man which built his house the
lengthy discussion of United on ordinary earthquakes and floods came, and the winds blew, and beat upon that house; and
unusually strong earthquakes and on ordinary fortuitous events it fell and great was the fall of it. (St. Matthew 7: 24-27)." The
and extraordinary fortuitous events leads to its argument that requirement that a building should withstand rains, floods,
the August 2, 1968 earthquake was of such an overwhelming and winds, earthquakes, and natural forces is precisely the reason
destructive character that by its own force and independent of why we have professional experts like architects, and engineers.
the particular negligence alleged, the injury would have been Designs and constructions vary under varying circumstances and
produced. If we follow this line of speculative reasoning, we will conditions but the requirement to design and build well does not
be forced to conclude that under such a situation scores of change.
buildings in the vicinity and in other parts of Manila would have
toppled down. Following the same line of reasoning, Nakpil and The findings of the lower Court on the cause of the collapse are
Sons alleges that the designs were adequate in accordance with more rational and accurate. Instead of laying the blame solely on
pre-August 2, 1968 knowledge and appear inadequate only in the the motions and forces generated by the earthquake, it also
light of engineering information acquired after the earthquake. If examined the ability of the PBA building, as designed and
this were so, hundreds of ancient buildings which survived the constructed, to withstand and successfully weather those forces.
earthquake better than the two-year old PBA building must have
been designed and constructed by architects and contractors The evidence sufficiently supports a conclusion that the
whose knowledge and foresight were unexplainably auspicious negligence and fault of both United and Nakpil and Sons, not a
and prophetic. Fortunately, the facts on record allow a more mysterious act of an inscrutable God, were responsible for the

damages. The Report of the Commissioner, Plaintiff's Objections 4. Two front corners, A7 and D7 columns were very much
to the Report, Third Party Defendants' Objections to the Report, less reinforced.
Defendants' Objections to the Report, Commissioner's Answer to
the various Objections, Plaintiffs' Reply to the Commissioner's Physical Evidence After the Earthquake, Proving Inadequacy of
Answer, Defendants' Reply to the Commissioner's Answer, design;
Counter-Reply to Defendants' Reply, and Third-Party Defendants'
Reply to the Commissioner's Report not to mention the exhibits 1. Column A7 suffered the severest fracture and maximum
and the testimonies show that the main arguments raised on sagging. Also D7.
appeal were already raised during the trial and fully considered
by the lower Court. A reiteration of these same arguments on 2. There are more damages in the front part of the building
appeal fails to convince us that we should reverse or disturb the than towards the rear, not only in columns but also in slabs.
lower Court's factual findings and its conclusions drawn from the
facts, among them: 3. Building leaned and sagged more on the front part of the
building.
The Commissioner also found merit in the allegations of the
defendants as to the physical evidence before and after the 4. Floors showed maximum sagging on the sides and toward
earthquake showing the inadequacy of design, to wit: the front corner parts of the building.

Physical evidence before the earthquake providing (sic) 5. There was a lateral displacement of the building of about
inadequacy of design; 8", Maximum sagging occurs at the column A7 where the floor is
lower by 80 cm. than the highest slab level.
1. inadequate design was the cause of the failure of the
building. 6. Slab at the corner column D7 sagged by 38 cm.

2. Sun-baffles on the two sides and in front of the building; The Commissioner concluded that there were deficiencies or
defects in the design, plans and specifications of the PBA building
a. Increase the inertia forces that move the building laterally which involved appreciable risks with respect to the accidental
toward the Manila Fire Department. forces which may result from earthquake shocks. He conceded,
however, that the fact that those deficiencies or defects may have
b. Create another stiffness imbalance. arisen from an obsolete or not too conservative code or even a
code that does not require a design for earthquake forces
3. The embedded 4" diameter cast iron down spout on all mitigates in a large measure the responsibility or liability of the
exterior columns reduces the cross-sectional area of each of the architect and engineer designer.
columns and the strength thereof.
The Third-party defendants, who are the most concerned with
this portion of the Commissioner's report, voiced opposition to

the same on the grounds that (a) the finding is based on a basic building (is) was (p. 29, Memo, of third- party defendants before
erroneous conception as to the design concept of the building, to the Commissioner).
wit, that the design is essentially that of a heavy rectangular box
on stilts with shear wan at one end; (b) the finding that there The difficulty expected by the Court if tills technical matter were
were defects and a deficiency in the design of the building would to be tried and inquired into by the Court itself, coupled with the
at best be based on an approximation and, therefore, rightly intrinsic nature of the questions involved therein, constituted the
belonged to the realm of speculation, rather than of certainty and reason for the reference of the said issues to a Commissioner
could very possibly be outright error; (c) the Commissioner has whose qualifications and experience have eminently qualified
failed to back up or support his finding with extensive, complex him for the task, and whose competence had not been questioned
and highly specialized computations and analyzes which he by the parties until he submitted his report. Within the
himself emphasizes are necessary in the determination of such a pardonable limit of the Court's ability to comprehend the
highly technical question; and (d) the Commissioner has meaning of the Commissioner's report on this issue, and the
analyzed the design of the PBA building not in the light of existing objections voiced to the same, the Court sees no compelling
and available earthquake engineering knowledge at the time of reasons to disturb the findings of the Commissioner that there
the preparation of the design, but in the light of recent and were defects and deficiencies in the design, plans and
current standards. specifications prepared by third-party defendants, and that said
defects and deficiencies involved appreciable risks with respect
The Commissioner answered the said objections alleging that to the accidental forces which may result from earthquake
third-party defendants' objections were based on estimates or shocks.
exhibits not presented during the hearing that the resort to
engineering references posterior to the date of the preparation of (2) (a) The deviations, if any, made by the defendants from
the plans was induced by the third-party defendants themselves the plans and specifications, and how said deviations contributed
who submitted computations of the third-party defendants are to the damage sustained by the building.
erroneous.
(b) The alleged failure of defendants to observe the requisite
The issue presently considered is admittedly a technical one of quality of materials and workmanship in the construction of the
the highest degree. It involves questions not within the ordinary building.
competence of the bench and the bar to resolve by themselves.
Counsel for the third-party defendants has aptly remarked that These two issues, being interrelated with each other, will be
"engineering, although dealing in mathematics, is not an exact discussed together.
science and that the present knowledge as to the nature of
earthquakes and the behaviour of forces generated by them still The findings of the Commissioner on these issues were as
leaves much to be desired; so much so "that the experts of the follows:
different parties, who are all engineers, cannot agree on what
equation to use, as to what earthquake co-efficients are, on the We now turn to the construction of the PBA Building and the
codes to be used and even as to the type of structure that the PBA alleged deficiencies or defects in the construction and violations

or deviations from the plans and specifications. All these may be Columns suffered worst displacement where the eccentricity of
summarized as follows: the columnar reinforcement assembly is more acute.

a. Summary of alleged defects as reported by Engineer Mario b. Summary of alleged defects as reported by Engr. Antonio
M. Bundalian. Avecilla.

(1) Wrongful and defective placing of reinforcing bars. Columns are first (or ground) floor, unless otherwise stated.

(2) Absence of effective and desirable integration of the 3 (1) Column D4 Spacing of spiral is changed from 2" to 5" on
bars in the cluster. centers,

(3) Oversize coarse aggregates: 1-1/4 to 2" were used. (2) Column D5 No spiral up to a height of 22" from the
Specification requires no larger than 1 inch. ground floor,

(4) Reinforcement assembly is not concentric with the (3) Column D6 Spacing of spiral over 4 l/2,
column, eccentricity being 3" off when on one face the main bars
are only 1 1/2' from the surface. (4) Column D7 Lack of lateral ties,

(5) Prevalence of honeycombs, (5) Column C7 Absence of spiral to a height of 20" from the
ground level, Spirals are at 2" from the exterior column face and
(6) Contraband construction joints, 6" from the inner column face,

(7) Absence, or omission, or over spacing of spiral hoops, (6) Column B6 Lack of spiral on 2 feet below the floor
beams,
(8) Deliberate severance of spirals into semi-circles in noted
on Col. A-5, ground floor, (7) Column B5 Lack of spirals at a distance of 26' below the
beam,
(9) Defective construction joints in Columns A-3, C-7, D-7 and
D-4, ground floor, (8) Column B7 Spirals not tied to vertical reinforcing bars,
Spirals are uneven 2" to 4",
(10) Undergraduate concrete is evident,
(9) Column A3 Lack of lateral ties,
(11) Big cavity in core of Column 2A-4, second floor,
(10) Column A4 Spirals cut off and welded to two separate
(12) Columns buckled at different planes. Columns buckled clustered vertical bars,
worst where there are no spirals or where spirals are cut.

(11) Column A4 (second floor Column is completely hollow (10) Column D6 Spirals are too far apart and apparently
to a height of 30" improperly spliced,

(12) Column A5 Spirals were cut from the floor level to the (11) Column D7 Lateral ties are too far apart, spaced 16" on
bottom of the spandrel beam to a height of 6 feet, centers.

(13) Column A6 No spirals up to a height of 30' above the There is merit in many of these allegations. The explanations
ground floor level, given by the engineering experts for the defendants are either
contrary to general principles of engineering design for
(14) Column A7 Lack of lateralties or spirals, reinforced concrete or not applicable to the requirements for
ductility and strength of reinforced concrete in earthquake-
c. Summary of alleged defects as reported by the experts of resistant design and construction.
the Third-Party defendants.
We shall first classify and consider defects which may have
Ground floor columns. appreciable bearing or relation to' the earthquake-resistant
property of the building.
(1) Column A4 Spirals are cut,
As heretofore mentioned, details which insure ductility at or near
(2) Column A5 Spirals are cut, the connections between columns and girders are desirable in
earthquake resistant design and construction. The omission of
(3) Column A6 At lower 18" spirals are absent, spirals and ties or hoops at the bottom and/or tops of columns
contributed greatly to the loss of earthquake-resistant strength.
(4) Column A7 Ties are too far apart, The plans and specifications required that these spirals and ties
be carried from the floor level to the bottom reinforcement of the
(5) Column B5 At upper fourth of column spirals are either deeper beam (p. 1, Specifications, p. 970, Reference 11). There
absent or improperly spliced, were several clear evidences where this was not done especially
in some of the ground floor columns which failed.
(6) Column B6 At upper 2 feet spirals are absent,
There were also unmistakable evidences that the spacings of the
(7) Column B7 At upper fourth of column spirals missing spirals and ties in the columns were in many cases greater than
or improperly spliced. those called for in the plans and specifications resulting again in
loss of earthquake-resistant strength. The assertion of the
(8) Column C7 Spirals are absent at lowest 18" engineering experts for the defendants that the improper
spacings and the cutting of the spirals did not result in loss of
(9) Column D5 At lowest 2 feet spirals are absent, strength in the column cannot be maintained and is certainly
contrary to the general principles of column design and

construction. And even granting that there be no loss in strength replace the spirals by wrapping around a new set of spirals. This
at the yield point (an assumption which is very doubtful) the is not quite correct. There is evidence to show that the pouring of
cutting or improper spacings of spirals will certainly result in the concrete for columns was sometimes done through the beam and
loss of the plastic range or ductility in the column and it is girder reinforcements which were already in place as in the case
precisely this plastic range or ductility which is desirable and of column A4 second floor. If the reinforcement for the girder and
needed for earthquake-resistant strength. column is to subsequently wrap around the spirals, this would
not do for the elasticity of steel would prevent the making of tight
There is no excuse for the cavity or hollow portion in the column column spirals and loose or improper spirals would result. The
A4, second floor, and although this column did not fail, this is proper way is to produce correct spirals down from the top of the
certainly an evidence on the part of the contractor of poor main column bars, a procedure which can not be done if either
construction. the beam or girder reinforcement is already in place. The
engineering experts for the defendants strongly assert and
The effect of eccentricities in the columns which were measured apparently believe that the cutting of the spirals did not
at about 2 1/2 inches maximum may be approximated in relation materially diminish the strength of the column. This belief
to column loads and column and beam moments. The main effect together with the difficulty of slipping the spirals on the top of
of eccentricity is to change the beam or girder span. The effect on the column once the beam reinforcement is in place may be a
the measured eccentricity of 2 inches, therefore, is to increase or sufficient motivation for the cutting of the spirals themselves.
diminish the column load by a maximum of about 1% and to The defendants, therefore, should be held responsible for the
increase or diminish the column or beam movements by about a consequences arising from the loss of strength or ductility in
maximum of 2%. While these can certainly be absorbed within column A5 which may have contributed to the damages sustained
the factor of safety, they nevertheless diminish said factor of by the building.
safety.
The lack of proper length of splicing of spirals was also proven in
The cutting of the spirals in column A5, ground floor is the the visible spirals of the columns where spalling of the concrete
subject of great contention between the parties and deserves cover had taken place. This lack of proper splicing contributed in
special consideration. a small measure to the loss of strength.

The proper placing of the main reinforcements and spirals in The effects of all the other proven and visible defects although
column A5, ground floor, is the responsibility of the general nor can certainly be accumulated so that they can contribute to
contractor which is the UCCI. The burden of proof, therefore, that an appreciable loss in earthquake-resistant strength. The
this cutting was done by others is upon the defendants. Other engineering experts for the defendants submitted an estimate on
than a strong allegation and assertion that it is the plumber or his some of these defects in the amount of a few percent. If
men who may have done the cutting (and this was flatly denied accumulated, therefore, including the effect of eccentricity in the
by the plumber) no conclusive proof was presented. The column the loss in strength due to these minor defects may run to
engineering experts for the defendants asserted that they could as much as ten percent.
have no motivation for cutting the bar because they can simply

To recapitulate: the omission or lack of spirals and ties at the called for in the specifications; that the hollow in column A4,
bottom and/or at the top of some of the ground floor columns second floor, the eccentricities in the columns, the lack of proper
contributed greatly to the collapse of the PBA building since it is length of splicing of spirals, and the cut in the spirals in column
at these points where the greater part of the failure occurred. The A5, ground floor, did not aggravate or contribute to the damage
liability for the cutting of the spirals in column A5, ground floor, suffered by the building; that the defects in the construction were
in the considered opinion of the Commissioner rests on the within the tolerable margin of safety; and that the cutting of the
shoulders of the defendants and the loss of strength in this spirals in column A5, ground floor, was done by the plumber or
column contributed to the damage which occurred. his men, and not by the defendants.

It is reasonable to conclude, therefore, that the proven defects, Answering the said objections, the Commissioner stated that,
deficiencies and violations of the plans and specifications of the since many of the defects were minor only the totality of the
PBA building contributed to the damages which resulted during defects was considered. As regards the objection as to failure to
the earthquake of August 2, 1968 and the vice of these defects state the number of cases where the spirals and ties were not
and deficiencies is that they not only increase but also aggravate carried from the floor level to the bottom reinforcement, the
the weakness mentioned in the design of the structure. In other Commissioner specified groundfloor columns B-6 and C-5 the
words, these defects and deficiencies not only tend to add but first one without spirals for 03 inches at the top, and in the latter,
also to multiply the effects of the shortcomings in the design of there were no spirals for 10 inches at the bottom. The
the building. We may say, therefore, that the defects and Commissioner likewise specified the first storey columns where
deficiencies in the construction contributed greatly to the the spacings were greater than that called for in the
damage which occurred. specifications to be columns B-5, B-6, C-7, C-6, C-5, D-5 and B-7.
The objection to the failure of the Commissioner to specify the
Since the execution and supervision of the construction work in number of columns where there was lack of proper length of
the hands of the contractor is direct and positive, the presence of splicing of spirals, the Commissioner mentioned groundfloor
existence of all the major defects and deficiencies noted and columns B-6 and B-5 where all the splices were less than 1-1/2
proven manifests an element of negligence which may amount to turns and were not welded, resulting in some loss of strength
imprudence in the construction work. (pp. 42-49, Commissioners which could be critical near the ends of the columns. He
Report). answered the supposition of the defendants that the spirals and
the ties must have been looted, by calling attention to the fact
As the parties most directly concerned with this portion of the that the missing spirals and ties were only in two out of the 25
Commissioner's report, the defendants voiced their objections to columns, which rendered said supposition to be improbable.
the same on the grounds that the Commissioner should have
specified the defects found by him to be "meritorious"; that the The Commissioner conceded that the hollow in column A-4,
Commissioner failed to indicate the number of cases where the second floor, did not aggravate or contribute to the damage, but
spirals and ties were not carried from the floor level to the averred that it is "evidence of poor construction." On the claim
bottom reinforcement of the deeper beam, or where the spacing that the eccentricity could be absorbed within the factor of safety,
of the spirals and ties in the columns were greater than that the Commissioner answered that, while the same may be true, it

also contributed to or aggravated the damage suffered by the thereof, although the act of a third person, or an act of God for
building. which he is not responsible, intervenes to precipitate the loss.

The objection regarding the cutting of the spirals in Column A-5, As already discussed, the destruction was not purely an act of
groundfloor, was answered by the Commissioner by reiterating God. Truth to tell hundreds of ancient buildings in the vicinity
the observation in his report that irrespective of who did the were hardly affected by the earthquake. Only one thing spells out
cutting of the spirals, the defendants should be held liable for the the fatal difference; gross negligence and evident bad faith,
same as the general contractor of the building. The Commissioner without which the damage would not have occurred.
further stated that the loss of strength of the cut spirals and
inelastic deflections of the supposed lattice work defeated the WHEREFORE, the decision appealed from is hereby MODIFIED
purpose of the spiral containment in the column and resulted in and considering the special and environmental circumstances of
the loss of strength, as evidenced by the actual failure of this this case, We deem it reasonable to render a decision imposing,
column. as We do hereby impose, upon the defendant and the third-party
defendants (with the exception of Roman Ozaeta) a solidary (Art.
Again, the Court concurs in the findings of the Commissioner on 1723, Civil Code, Supra, p. 10) indemnity in favor of the
these issues and fails to find any sufficient cause to disregard or Philippine Bar Association of FIVE MILLION (P5,000,000.00)
modify the same. As found by the Commissioner, the "deviations Pesos to cover all damages (with the exception of attorney's fees)
made by the defendants from the plans and specifications caused occasioned by the loss of the building (including interest charges
indirectly the damage sustained and that those deviations not and lost rentals) and an additional ONE HUNDRED THOUSAND
only added but also aggravated the damage caused by the defects (P100,000.00) Pesos as and for attorney's fees, the total sum
in the plans and specifications prepared by third-party being payable upon the finality of this decision. Upon failure to
defendants. (Rollo, Vol. I, pp. 128-142) pay on such finality, twelve (12%) per cent interest per annum
shall be imposed upon afore-mentioned amounts from finality
The afore-mentioned facts clearly indicate the wanton negligence until paid. Solidary costs against the defendant and third-party
of both the defendant and the third-party defendants in effecting defendants (except Roman Ozaeta).
the plans, designs, specifications, and construction of the PBA
building and We hold such negligence as equivalent to bad faith
in the performance of their respective tasks.

Relative thereto, the ruling of the Supreme Court in Tucker v. 42. G.R. No. 189563 April 7, 2014
Milan (49 O.G. 4379, 4380) which may be in point in this case
reads: GILAT SATELLITE NETWORKS, LTD., Petitioner,
vs.
One who negligently creates a dangerous condition cannot UNITED COCONUT PLANTERS BANK GENERAL
escape liability for the natural and probable consequences INSURANCE CO., INC., Respondent.


D E C I S I O N One Virtual failed to pay GILAT the amount of Four Hundred
Thousand Dollars (US$400,000.00) on the due date of May 30,
SERENO, CJ: 2000 in accordance with the payment schedule attached as
Annex "A" to the surety bond, prompting GILAT to write the
This is an appeal via a Petition for Review on Certiorari1 filed 6 surety defendant UCPB on June 5, 2000, a demand letter (Exhibit
November 2009 assailing the Decision2 and Resolution3 of the "G") for payment of the said amount of US$400,000.00. No part of
Court of Appeals (CA) in CA-G.R. CV No. 89263, which reversed the amount set forth in this demand has been paid to date by
the Decision4 of the Regional Trial Court (RTC), Branch 141, either One Virtual or defendant UCPB. One Virtual likewise failed
Makati City in Civil Case No. 02-461, ordering respondent to pay to pay on the succeeding payment instalment date of 30
petitioner a sum of money. November 2000 as set out in Annex "A" of the surety bond,
prompting GILAT to send a second demand letter dated January
The antecedent facts, as culled from the CA, are as follows: 24, 2001, for the payment of the full amount of US$1,200,000.00
guaranteed under the surety bond, plus interests and expenses
On September 15, 1999, One Virtual placed with GILAT a (Exhibits "H") and which letter was received by the defendant
purchase order for various telecommunications equipment (sic), surety on January 25, 2001. However, defendant UCPB failed to
accessories, spares, services and software, at a total purchase settle the amount of US$1,200,000.00 or a part thereof, hence, the
price of Two Million One Hundred Twenty Eight Thousand Two instant complaint."5 (Emphases in the original)
Hundred Fifty Dollars (US$2,128,250.00). Of the said purchase
price for the goods delivered, One Virtual promised to pay a On 24 April 2002, petitioner Gilat Satellite Networks, Ltd., filed a
portion thereof totalling US$1.2 Million in accordance with the Complaint6 against respondent UCPB General Insurance Co., Inc.,
payment schedule dated 22 November 1999. To ensure the to recover the amounts supposedly covered by the surety bond,
prompt payment of this amount, it obtained defendant UCPB plus interests and expenses. After due hearing, the RTC rendered
General Insurance Co., Inc.s surety bond dated 3 December 1999, its Decision,7 the dispositive portion of which is herein quoted:
in favor of GILAT.
WHEREFORE, premises considered, the Court hereby renders
During the period between [sic] September 1999 and June 2000, judgment for the plaintiff, and against the defendant, ordering, to
GILAT shipped and delivered to One Virtual the purchased wit:
products and equipment, as evidenced by airway bills/Bill of
Lading (Exhibits "F", "F-1" to "F-8"). All of the equipment 1. The defendant surety to pay the plaintiff the amount of One
(including the software components for which payment was Million Two Hundred Thousand Dollars (US$1,200,000.00)
secured by the surety bond, was shipped by GILAT and duly representing the principal debt under the Surety Bond, with legal
received by One Virtual. Under an endorsement dated December interest thereon at the rate of 12% per annum computed from
23, 1999 (Exhibit "E"), the surety issued, with One Virtuals the time the judgment becomes final and executory until the
conformity, an amendment to the surety bond, Annex "A" thereof, obligation is fully settled; and
correcting its expiry date from May 30, 2001 to July 30, 2001.


2. The defendant surety to pay the plaintiff the amount of Forty executory, and USD44,004.04 representing attorneys fees and
Four Thousand Four Dollars and Four Cents (US$44,004.04) litigation expenses.
representing attorneys fees and litigation expenses.
On 18 October 2007, respondent appealed to the CA.13 The
Accordingly, defendants counterclaim is hereby dismissed for appellate court rendered a Decision14 in the following manner:
want of merit.
WHEREFORE, this appealed case is DISMISSED for lack of
SO ORDERED. (Emphasis in the original) jurisdiction. The trial courts Decision dated December 28, 2006
is VACATED. Plaintiff-appellant Gilat Satellite Networks Ltd., and
In so ruling, the RTC reasoned that there is "no dispute that One Virtual are ordered to proceed to arbitration, the outcome of
plaintiff [petitioner] delivered all the subject equipments [sic] which shall necessary bind the parties, including the surety,
and the same was installed. Even with the delivery and defendant-appellant United Coconut Planters Bank General
installation made, One Virtual failed to pay any of the payments Insurance Co., Inc.
agreed upon. Demand notwithstanding, defendant failed and
refused and continued to fail and refused to settle the SO ORDERED. (Emphasis in the original)
obligation."8
The CA ruled that in "enforcing a surety contract, the
Considering that its liability was indeed that of a surety, as complementary-contracts-construed-together doctrine finds
"spelled out in the Surety Bond executed by and between One application." According to this doctrine, the accessory contract
Virtual as Principal, UCPB as Surety and GILAT as Creditor/Bond must be construed with the principal agreement.15 In this case,
Obligee,"9 respondent agreed and bound itself to pay in the appellate court considered the Purchase Agreement entered
accordance with the Payment Milestones. This obligation was not into between petitioner and One Virtual as the principal
made dependent on any condition outside the terms and contract,16 whose stipulations are also binding on the parties to
conditions of the Surety Bond and Payment Milestones.10 the suretyship.17 Bearing in mind the arbitration clause
contained in the Purchase Agreement18 and pursuant to the
Insofar as the interests were concerned, the RTC denied policy of the courts to encourage alternative dispute resolution
petitioners claim on the premise that while a surety can be held methods,19 the trial courts Decision was vacated; petitioner and
liable for interest even if it becomes more onerous than the One Virtual were ordered to proceed to arbitration.
principal obligation, the surety shall only accrue when the delay
or refusal to pay the principal obligation is without any justifiable On 9 September 2008, petitioner filed a Motion for
cause.11 Here, respondent failed to pay its surety obligation Reconsideration with Motion for Oral Argument. The motion was
because of the advice of its principal (One Virtual) not to pay.12 denied for lack of merit in a Resolution20 issued by the CA on 16
The RTC then obligated respondent to pay petitioner the amount September 2009.
of USD1,200,000.00 representing the principal debt under the
Surety Bond, with legal interest at the rate of 12% per annum Hence, the instant Petition.
computed from the time the judgment becomes final and

On 31 August 2010, respondent filed a Comment21 on the against One Virtual (via arbitration) before proceeding against
Petition for Review. On 24 November 2010, petitioner filed a respondent.28
Reply.22
On the other hand, respondent maintains that a surety contract is
ISSUES merely an accessory contract, which cannot exist without a valid
obligation.29 Thus, the surety may avail itself of all the defenses
From the foregoing, we reduce the issues to the following: available to the principal debtor and inherent in the debt30 that
is, the right to invoke the arbitration clause in the Purchase
1. Whether or not the CA erred in dismissing the case and Agreement.
ordering petitioner and One Virtual to arbitrate; and
We agree with petitioner.
2. Whether or not petitioner is entitled to legal interest due to the
delay in the fulfilment by respondent of its obligation under the In suretyship, the oft-repeated rule is that a suretys liability is
Suretyship Agreement. joint and solidary with that of the principal debtor. This
undertaking makes a surety agreement an ancillary contract, as it
THE COURTS RULING presupposes the existence of a principal contract.31
Nevertheless, although the contract of a surety is in essence
The existence of a suretyship agreement does not give the surety secondary only to a valid principal obligation, its liability to the
the right to intervene in the principal contract, nor can an creditor or "promise" of the principal is said to be direct, primary
arbitration clause between the buyer and the seller be invoked by and absolute; in other words, a surety is directly and equally
a non-party such as the surety. bound with the principal.32 He becomes liable for the debt and
duty of the principal obligor, even without possessing a direct or
Petitioner alleges that arbitration laws mandate that no court can personal interest in the obligations constituted by the latter.33
compel arbitration, unless a party entitled to it applies for this Thus, a surety is not entitled to a separate notice of default or to
relief.23 This referral, however, can only be demanded by one the benefit of excussion.34 It may in fact be sued separately or
who is a party to the arbitration agreement.24 Considering that together with the principal debtor.35
neither petitioner nor One Virtual has asked for a referral, there
is no basis for the CAs order to arbitrate. After a thorough examination of the pieces of evidence presented
by both parties,36 the RTC found that petitioner had delivered all
Moreover, Articles 1216 and 2047 of the Civil Code25 clearly the goods to One Virtual and installed them. Despite these
provide that the creditor may proceed against the surety without compliances, One Virtual still failed to pay its obligation,37
having first sued the principal debtor.26 Even the Surety triggering respondents liability to petitioner as the formers
Agreement itself states that respondent becomes liable upon surety.1wphi1 In other words, the failure of One Virtual, as the
"mere failure of the Principal to make such prompt payment."27 principal debtor, to fulfill its monetary obligation to petitioner
Thus, petitioner should not be ordered to make a separate claim gave the latter an immediate right to pursue respondent as the
surety.

To require the creditor to proceed to arbitration would render
Consequently, we cannot sustain respondents claim that the the very essence of suretyship nugatory and diminish its value in
Purchase Agreement, being the principal contract to which the commerce. At any rate, as we have held in Palmares v. Court of
Suretyship Agreement is accessory, must take precedence over Appeals,46 "if the surety is dissatisfied with the degree of activity
arbitration as the preferred mode of settling disputes. displayed by the creditor in the pursuit of his principal, he may
pay the debt himself and become subrogated to all the rights and
First, we have held in Stronghold Insurance Co. Inc. v. Tokyu remedies of the creditor."
Construction Co. Ltd.,38 that "[the] acceptance [of a surety
agreement], however, does not change in any material way the Interest, as a form of indemnity, may be awarded to a creditor for
creditors relationship with the principal debtor nor does it make the delay incurred by a debtor in the payment of the latters
the surety an active party to the principal creditor-debtor obligation, provided that the delay is inexcusable.
relationship. In other words, the acceptance does not give the
surety the right to intervene in the principal contract. The Anent the issue of interests, petitioner alleges that it deserves to
suretys role arises only upon the debtors default, at which time, be paid legal interest of 12% per annum from the time of its first
it can be directly held liable by the creditor for payment as a demand on respondent on 5 June 2000 or at most, from the
solidary obligor." Hence, the surety remains a stranger to the second demand on 24 January 2001 because of the latters delay
Purchase Agreement. We agree with petitioner that respondent in discharging its monetary obligation.47 Citing Article 1169 of
cannot invoke in its favor the arbitration clause in the Purchase the Civil Code, petitioner insists that the delay started to run from
Agreement, because it is not a party to that contract.39 An the time it demanded the fulfilment of respondents obligation
arbitration agreement being contractual in nature,40 it is binding under the suretyship contract. Significantly, respondent does not
only on the parties thereto, as well as their assigns and heirs.41 contest this point, but instead argues that it is only liable for legal
interest of 6% per annum from the date of petitioners last
Second, Section 24 of Republic Act No. 928542 is clear in stating demand on 24 January 2001.
that a referral to arbitration may only take place "if at least one
party so requests not later than the pre-trial conference, or upon In rejecting petitioners position, the RTC stated that interests
the request of both parties thereafter." Respondent has not may only accrue when the delay or the refusal of a party to pay is
presented even an iota of evidence to show that either petitioner without any justifiable cause.48 In this case, respondents failure
or One Virtual submitted its contesting claim for arbitration. to heed the demand was due to the advice of One Virtual that
petitioner allegedly breached its undertakings as stated in the
Third, sureties do not insure the solvency of the debtor, but Purchase Agreement.49 The CA, however, made no
rather the debt itself.43 They are contracted precisely to mitigate pronouncement on this matter.
risks of non-performance on the part of the obligor. This
responsibility necessarily places a surety on the same level as We sustain petitioner.
that of the principal debtor.44 The effect is that the creditor is
given the right to directly proceed against either principal debtor Article 2209 of the Civil Code is clear: "[i]f an obligation consists
or surety. This is the reason why excussion cannot be invoked.45 in the payment of a sum of money, and the debtor incurs a delay,

the indemnity for damages, there being no stipulation to the having the benefit of his bargain by being put in as good a
contrary, shall be the payment of the interest agreed upon, and in position as he would have been in had the contract been
the absence of stipulation, the legal interest." performed, or his "reliance interest," which is his interest in
being reimbursed for loss caused by reliance on the contract by
Delay arises from the time the obligee judicially or extrajudicially being put in as good a position as he would have been in had the
demands from the obligor the performance of the obligation, and contract not been made; or his "restitution interest," which is his
the latter fails to comply.50 Delay, as used in Article 1169, is interest in having restored to him any benefit that he has
synonymous with default or mora, which means delay in the conferred on the other party. Indeed, agreements can accomplish
fulfilment of obligations.51 It is the nonfulfillment of an little, either for their makers or for society, unless they are made
obligation with respect to time.52 In order for the debtor (in this the basis for action. The effect of every infraction is to create a
case, the surety) to be in default, it is necessary that the following new duty, that is, to make RECOMPENSE to the one who has been
requisites be present: (1) that the obligation be demandable and injured by the failure of another to observe his contractual
already liquidated; (2) that the debtor delays performance; and obligation unless he can show extenuating circumstances, like
(3) that the creditor requires the performance judicially or proof of his exercise of due diligence x x x or of the attendance of
extrajudicially.53 fortuitous event, to excuse him from his ensuing liability.
(Emphasis ours)
Having held that a surety upon demand fails to pay, it can be held
liable for interest, even if in thus paying, its liability becomes We agree with petitioner that records are bereft of proof to show
more than the principal obligation.54 The increased liability is that respondents delay was indeed justified by the
not because of the contract, but because of the default and the circumstances that is, One Virtuals advice regarding
necessity of judicial collection.55 petitioners alleged breach of obligations. The lower courts
Decision itself belied this contention when it said that "plaintiff is
However, for delay to merit interest, it must be inexcusable in not disputing that it did not complete commissioning work on
nature. In Guanio v. Makati-Shangri-la Hotel,56 citing RCPI v. one of the two systems because One Virtual at that time is
Verchez,57 we held thus: already in default and has not paid GILAT."58 Assuming
arguendo that the commissioning work was not completed,
In culpa contractual x x x the mere proof of the existence of the respondent has no one to blame but its principal, One Virtual; if
contract and the failure of its compliance justify, prima facie, a only it had paid its obligation on time, petitioner would not have
corresponding right of relief. The law, recognizing the obligatory been forced to stop operations. Moreover, the deposition of Mr.
force of contracts, will not permit a party to be set free from Erez Antebi, vice president of Gilat, repeatedly stated that
liability for any kind of misperformance of the contractual petitioner had delivered all equipment, including the licensed
undertaking or a contravention of the tenor thereof. A breach software; and that the equipment had been installed and in fact,
upon the contract confers upon the injured party a valid cause for gone into operation.59 Notwithstanding these compliances,
recovering that which may have been lost or suffered. The respondent still failed to pay.
remedy serves to preserve the interests of the promissee that
may include his "expectation interest," which is his interest in

As to the issue of when interest must accrue, our Civil Code is the case falls under paragraph 1 or paragraph 2, above, shall be
explicit in stating that it accrues from the time judicial or 6% per annum from such finality until its satisfaction, this
extrajudicial demand is made on the surety. This ruling is in interim period being deemed to be by then an equivalent to a
accordance with the provisions of Article 1169 of the Civil Code forbearance of credit.
and of the settled rule that where there has been an extra-judicial
demand before an action for performance was filed, interest on Applying the above-discussed concepts and in the absence of an
the amount due begins to run, not from the date of the filing of agreement as to interests, we are hereby compelled to award
the complaint, but from the date of that extra-judicial demand.60 petitioner legal interest at the rate of 6% per annum from 5 June
Considering that respondent failed to pay its obligation on 30 2000, its first date of extra judicial demand, until the satisfaction
May 2000 in accordance with the Purchase Agreement, and that of the debt in accordance with the revised guidelines enunciated
the extrajudicial demand of petitioner was sent on 5 June in Nacar.
2000,61 we agree with the latter that interest must start to run
from the time petitioner sent its first demand letter (5 June WHEREFORE, the Petition for Review on Certiorari is hereby
2000), because the obligation was already due and demandable GRANTED. The assailed Decision and Resolution of the Court of
at that time. Appeals in CA-G.R. CV No. 89263 are REVERSED. The Decision of
the Regional Trial Court, Branch 141, Makati City is REINSTATED,
With regard to the interest rate to be imposed, we take cue from with MODIFICATION insofar as the award of legal interest is
Nacar v. Gallery Frames,62 which modified the guidelines concerned. Respondent is hereby ordered to pay legal interest at
established in Eastern Shipping Lines v. CA63 in relation to the rate of 6% per annum from 5 June 2000 until the satisfaction
Bangko Sentral-Monetary Board Circular No. 799 (Series of of its obligation under the Suretyship Contract and Purchase
2013), to wit: Agreement.

1. When the obligation is breached, and it consists in the payment
of a sum of money, i.e., a loan or forbearance of money, the
interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded.1wphi1 In the 43. G.R. No. 184458 January 14, 2015
absence of stipulation, the rate of interest shall be 6% per annum
to be computed from default, i.e., from judicial or extrajudicial RODRIGO RIVERA, Petitioner,
demand under and subject to the provisions of Article 1169 of vs.
the Civil Code. SPOUSES SALVADOR CHUA AND VIOLETA S.
CHUA, Respondents.
x x x x
x - - - - - - - - - - - - - - - - - - - - - - - x
3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether G.R. No. 184472

SPS. SALVADOR CHUA and VIOLETA S. The parties were friends of long standing having known each
CHUA, Petitioners, other since 1973: Rivera and Salvador are kumpadres, the former
vs. is the godfather of the Spouses Chuas son.
RODRIGO RIVERA, Respondent.
On 24 February 1995, Rivera obtained a loan from the Spouses
D E C I S I O N Chua:
PEREZ, J.: PROMISSORY NOTE
Before us are consolidated Petitions for Review on Certiorari 120,000.00

under Rule 45 of the Rules of Court assailing the Decision1 of the
Court of Appeals in CA-G.R. SP No. 90609 which affirmed with FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay
modification the separate rulings of the Manila City trial courts, spouses SALVADOR C. CHUA and VIOLETA SY CHUA, the sum of
the Regional Trial Court, Branch 17 in Civil Case No. 02- One Hundred Twenty Thousand Philippine Currency
1052562 and the Metropolitan Trial Court (MeTC), Branch 30, in (P120,000.00) on December 31, 1995.
Civil Case No. 163661,3 a case for collection of a sum of money
due a promissory note. While all three (3) lower courts upheld It is agreed and understood that failure on my part to pay the
the validity and authenticity of the promissory note as duly amount of (120,000.00) One Hundred Twenty Thousand Pesos
signed by the obligor, Rodrigo Rivera (Rivera), petitioner in G.R. on December 31, 1995. (sic) I agree to pay the sum equivalent to
No. 184458, the appellate court modified the trial courts FIVE PERCENT (5%) interest monthly from the date of default
consistent awards: (1) the stipulated interest rate of sixty until the entire obligation is fully paid for.
percent (60%) reduced to twelve percent (12%) per
annumcomputed from the date of judicial or extrajudicial Should this note be referred to a lawyer for collection, I agree to
demand, and (2) reinstatement of the award of attorneys fees pay the further sum equivalent to twenty percent (20%) of the
also in a reduced amount of P50,000.00. total amount due and payable as and for attorneys fees which in
no case shall be less than P5,000.00 and to pay in addition the
In G.R. No. 184458, Rivera persists in his contention that there cost of suit and other incidental litigation expense.
was no valid promissory note and questions the entire ruling of
the lower courts. On the other hand, petitioners in G.R. No. Any action which may arise in connection with this note shall be
184472, Spouses Salvador and Violeta Chua (Spouses Chua), take brought in the proper Court of the City of Manila.
exception to the appellate courts reduction of the stipulated
interest rate of sixty percent (60%) to twelve percent (12%) per Manila, February 24, 1995[.]
annum.
(SGD.) RODRIGO RIVERA4
We proceed to the facts.

In October 1998, almost three years from the date of payment default; (4) PCIB Check No. 132224 signed by him which he
stipulated in the promissory note, Rivera, as partial payment for delivered to the Spouses Chua on 21 December 1998, should
the loan, issued and delivered to the SpousesChua, as payee, a have been issued in the amount of only 1,300.00, representing
check numbered 012467, dated 30 December 1998, drawn the amount he received from the Spouses Chuas saleslady; (5)
against Riveras current account with the Philippine Commercial contrary to the supposed agreement, the Spouses Chua presented
International Bank (PCIB) in the amount of P25,000.00. the check for payment in the amount of P133,454.00; and (6)
there was no demand for payment of the amount of P120,000.00
On 21 December 1998, the Spouses Chua received another check prior to the encashment of PCIB Check No. 0132224.5
presumably issued by Rivera, likewise drawn against Riveras
PCIB current account, numbered 013224, duly signed and dated, In the main, Rivera claimed forgery of the subject Promissory
but blank as to payee and amount. Ostensibly, as per Note and denied his indebtedness thereunder.
understanding by the parties, PCIB Check No. 013224 was issued
in the amount of P133,454.00 with "cash" as payee. Purportedly, The MeTC summarized the testimonies of both parties
both checks were simply partial payment for Riveras loan in the respective witnesses:
principal amount of P120,000.00.
[The spouses Chuas] evidence include[s] documentary evidence
Upon presentment for payment, the two checks were dishonored and oral evidence (consisting of the testimonies of [the spouses]
for the reason "account closed." Chua and NBI Senior Documents Examiner Antonio Magbojos). x
x x
As of 31 May 1999, the amount due the Spouses Chua was pegged
at P366,000.00 covering the principal of P120,000.00 plus five x x x x
percent (5%) interest per month from 1 January 1996 to 31 May
1999. Witness Magbojos enumerated his credentials as follows: joined
the NBI (1987); NBI document examiner (1989); NBI Senior
The Spouses Chua alleged that they have repeatedly demanded Document Examiner (1994 to the date he testified); registered
payment from Rivera to no avail. Because of Riveras unjustified criminologist; graduate of 18th Basic Training Course [i]n
refusal to pay, the Spouses Chua were constrained to file a suit on Questioned Document Examination conducted by the NBI; twice
11 June 1999. The case was raffled before the MeTC, Branch 30, attended a seminar on US Dollar Counterfeit Detection conducted
Manila and docketed as Civil Case No. 163661. by the US Embassy in Manila; attended a seminar on Effective
Methodology in Teaching and Instructional design conducted by
In his Answer with Compulsory Counterclaim, Rivera countered the NBI Academy; seminar lecturer on Questioned Documents,
that: (1) he never executed the subject Promissory Note; (2) in all Signature Verification and/or Detection; had examined more
instances when he obtained a loan from the Spouses Chua, the than a hundred thousand questioned documents at the time he
loans were always covered by a security; (3) at the time of the testified.
filing of the complaint, he still had an existing indebtedness to the
Spouses Chua, secured by a real estate mortgage, but not yet in

Upon [order of the MeTC], Mr. Magbojos examined the purported Promissory Note was not his signature and that he did not
signature of [Rivera] appearing in the Promissory Note and execute the Promissory Note.6
compared the signature thereon with the specimen signatures of
[Rivera] appearing on several documents. After a thorough study, After trial, the MeTC ruled in favor of the Spouses Chua:
examination, and comparison of the signature on the questioned
document (Promissory Note) and the specimen signatures on the WHEREFORE, [Rivera] is required to pay [the spouses
documents submitted to him, he concluded that the questioned Chua]: P120,000.00 plus stipulated interest at the rate of 5% per
signature appearing in the Promissory Note and the specimen month from 1 January 1996, and legal interest at the rate of 12%
signatures of [Rivera] appearing on the other documents percent per annum from 11 June 1999, as actual and
submitted were written by one and the same person. In compensatory damages; 20% of the whole amount due as
connection with his findings, Magbojos prepared Questioned attorneys fees.7
Documents Report No. 712-1000 dated 8 January 2001, with the
following conclusion: "The questioned and the standard On appeal, the Regional Trial Court, Branch 17, Manila affirmed
specimen signatures RODGRIGO RIVERA were written by one the Decision of the MeTC, but deleted the award of attorneys fees
and the same person." to the Spouses Chua:
[Rivera] testified as follows: he and [respondent] Salvador are WHEREFORE, except as to the amount of attorneys fees which is
"kumpadres;" in May 1998, he obtained a loan from [respondent] hereby deleted, the rest of the Decision dated October 21, 2002 is
Salvador and executed a real estate mortgage over a parcel of hereby AFFIRMED.8
land in favor of [respondent Salvador] as collateral; aside from
this loan, in October, 1998 he borrowed P25,000.00 from Both trial courts found the Promissory Note as authentic and
Salvador and issued PCIB Check No. 126407 dated 30 December validly bore the signature of Rivera. Undaunted, Rivera appealed
1998; he expressly denied execution of the Promissory Note to the Court of Appeals which affirmed Riveras liability under
dated 24 February 1995 and alleged that the signature appearing the Promissory Note, reduced the imposition of interest on the
thereon was not his signature; [respondent Salvadors] claim that loan from 60% to 12% per annum, and reinstated the award of
PCIB Check No. 0132224 was partial payment for the Promissory attorneys fees in favor of the Spouses Chua:
Note was not true, the truth being that he delivered the check to
[respondent Salvador] with the space for amount left blank as he WHEREFORE, the judgment appealed from is hereby AFFIRMED,
and [respondent] Salvador had agreed that the latter was to fill it subject to the MODIFICATION that the interest rate of 60% per
in with the amount of P1,300.00 which amount he owed [the annum is hereby reduced to12% per annum and the award of
spouses Chua]; however, on 29 December 1998 [respondent] attorneys fees is reinstated atthe reduced amount of P50,000.00
Salvador called him and told him that he had Costs against [Rivera].9
written P133,454.00 instead of P1,300.00; x x x. To rebut the
testimony of NBI Senior Document Examiner Magbojos, [Rivera] Hence, these consolidated petitions for review on certiorariof
reiterated his averment that the signature appearing on the Rivera in G.R. No. 184458 and the Spouses Chua in G.R. No.
184472, respectively raising the following issues:

A. In G.R. No. 184458 On 26 February 2009, Entry of Judgment was made in G.R. No.
184472.
1. WHETHER OR NOT THE HONORABLE COURT OF
APPEALS ERRED IN UPHOLDING THE RULING OF THE Thus, what remains for our disposition is G.R. No. 184458, the
RTC AND M[e]TC THAT THERE WAS A VALID appeal of Rivera questioning the entire ruling of the Court of
PROMISSORY NOTE EXECUTED BY [RIVERA]. Appeals in CA-G.R. SP No. 90609.
2. WHETHER OR NOT THE HONORABLE COURT OF Rivera continues to deny that heexecuted the Promissory Note;
APPEALS ERRED IN HOLDING THAT DEMAND IS NO he claims that given his friendship withthe Spouses Chua who
LONGER NECESSARY AND IN APPLYING THE PROVISIONS were money lenders, he has been able to maintain a loan account
OF THE NEGOTIABLE INSTRUMENTS LAW. with them. However, each of these loan transactions was
respectively "secured by checks or sufficient collateral."
3. WHETHER OR NOT THE HONORABLE COURT OF
APPEALS ERRED IN AWARDING ATTORNEYS FEES Rivera points out that the Spouses Chua "never demanded
DESPITE THE FACT THAT THE SAME HAS NO BASIS IN payment for the loan nor interest thereof (sic) from [Rivera] for
FACT AND IN LAW AND DESPITE THE FACT THAT [THE almost four (4) years from the time of the alleged default in
SPOUSES CHUA] DID NOT APPEAL FROM THE DECISION payment [i.e., after December 31, 1995]."13
OF THE RTC DELETING THE AWARD OF ATTORNEYS
FEES.10 On the issue of the supposed forgery of the promissory note, we
are not inclined to depart from the lower courts uniform rulings
B. In G.R. No. 184472 that Rivera indeed signed it.
[WHETHER OR NOT] THE HONORABLE COURT OF APPEALS Rivera offers no evidence for his asseveration that his signature
COMMITTED GROSS LEGAL ERROR WHEN IT MODIFIED THE on the promissory note was forged, only that the signature is not
APPEALED JUDGMENT BY REDUCING THE INTEREST RATE his and varies from his usual signature. He likewise makes a
FROM 60% PER ANNUM TO 12% PER ANNUM IN SPITE OF THE confusing defense of having previously obtained loans from the
FACT THAT RIVERA NEVER RAISED IN HIS ANSWER THE Spouses Chua who were money lenders and who had allowed
DEFENSE THAT THE SAID STIPULATED RATE OF INTEREST IS him a period of "almost four (4) years" before demanding
EXORBITANT, UNCONSCIONABLE, UNREASONABLE, payment of the loan under the Promissory Note.
INEQUITABLE, ILLEGAL, IMMORAL OR VOID. 11
First, we cannot give credence to such a naked claim of forgery

As early as 15 December 2008, wealready disposed of G.R. No. over the testimony of the National Bureau of Investigation (NBI)
184472 and denied the petition, via a Minute Resolution, for handwriting expert on the integrity of the promissory note. On
failure to sufficiently show any reversible error in the ruling of that score, the appellate court aptly disabled Riveras contention:
the appellate court specifically concerning the correct rate of
interest on Riveras indebtedness under the Promissory Note.12

[Rivera] failed to adduce clear and convincing evidence that the or impossible; (3) when there is grave abuse of discretion in the
signature on the promissory note is a forgery. The fact of forgery appreciation of facts; (4) when the findings of the appellate court
cannot be presumed but must be proved by clear, positive and go beyond the issues of the case, or fail to notice certain relevant
convincing evidence. Mere variance of signatures cannot be facts which, if properly considered, will justify a different
considered as conclusive proof that the same was forged. Save for conclusion; (5) when there is a misappreciation of facts; (6) when
the denial of Rivera that the signature on the note was not his, the findings of fact are conclusions without mention of the
there is nothing in the records to support his claim of forgery. specific evidence on which they are based, are premised on the
And while it is true that resort to experts is not mandatory or absence of evidence, or are contradicted by evidence on
indispensable to the examination of alleged forged documents, record.16 None of these exceptions obtains in this instance. There
the opinions of handwriting experts are nevertheless helpful in is no reason to depart from the separate factual findings of the
the courts determination of a documents authenticity. three (3) lower courts on the validity of Riveras signature
reflected in the Promissory Note.
To be sure, a bare denial will not suffice to overcome the positive
value of the promissory note and the testimony of the NBI Indeed, Rivera had the burden ofproving the material allegations
witness. In fact, even a perfunctory comparison of the signatures which he sets up in his Answer to the plaintiffs claim or cause of
offered in evidence would lead to the conclusion that the action, upon which issue is joined, whether they relate to the
signatures were made by one and the same person. whole case or only to certain issues in the case.17
It is a basic rule in civil cases that the party having the burden of In this case, Riveras bare assertion is unsubstantiated and
proof must establish his case by preponderance of evidence, directly disputed by the testimony of a handwriting expert from
which simply means "evidence which is of greater weight, or the NBI. While it is true that resort to experts is not mandatory or
more convincing than that which is offered in opposition to it." indispensable to the examination or the comparison of
handwriting, the trial courts in this case, on its own, using the
Evaluating the evidence on record, we are convinced that [the handwriting expert testimony only as an aid, found the disputed
Spouses Chua] have established a prima faciecase in their favor, document valid.18
hence, the burden of evidence has shifted to [Rivera] to prove his
allegation of forgery. Unfortunately for [Rivera], he failed to Hence, the MeTC ruled that:
substantiate his defense.14 Well-entrenched in jurisprudence is
the rule that factual findings of the trial court, especially when [Rivera] executed the Promissory Note after consideration of the
affirmed by the appellate court, are accorded the highest degree following: categorical statement of [respondent] Salvador that
of respect and are considered conclusive between the parties.15 A [Rivera] signed the Promissory Note before him, in his
review of such findings by this Court is not warranted except ([Riveras]) house; the conclusion of NBI Senior Documents
upon a showing of highly meritorious circumstances, such as: (1) Examiner that the questioned signature (appearing on the
when the findings of a trial court are grounded entirely on Promissory Note) and standard specimen signatures "Rodrigo
speculation, surmises or conjectures; (2) when a lower court's Rivera" "were written by one and the same person"; actual view
inference from its factual findings is manifestly mistaken, absurd

at the hearing of the enlarged photographs of the questioned preponderatedin favor of plaintiffs, the Spouses Chua. Rivera
signature and the standard specimen signatures.19 next argues that even assuming the validity of the Promissory
Note, demand was still necessary in order to charge him liable
Specifically, Rivera insists that: "[i]f that promissory note indeed thereunder. Rivera argues that it was grave error on the part of
exists, it is beyond logic for a money lender to extend another the appellate court to apply Section 70 of the Negotiable
loan on May 4, 1998 secured by a real estate mortgage, when he Instruments Law (NIL).22
was already in default and has not been paying any interest for a
loan incurred in February 1995."20 We agree that the subject promissory note is not a negotiable
instrument and the provisions of the NIL do not apply to this
We disagree. case. Section 1 of the NIL requires the concurrence of the
following elements to be a negotiable instrument:
It is likewise likely that precisely because of the long standing
friendship of the parties as "kumpadres," Rivera was allowed (a) It must be in writing and signed by the maker or
another loan, albeit this time secured by a real estate mortgage, drawer;
which will cover Riveras loan should Rivera fail to pay. There is
nothing inconsistent with the Spouses Chuas two (2) and (b) Must contain an unconditional promise or order to pay
successive loan accommodations to Rivera: one, secured by a real a sum certain in money;
estate mortgage and the other, secured by only a Promissory
Note. (c) Must be payable on demand, or at a fixed or
determinable future time;
Also completely plausible is thatgiven the relationship between
the parties, Rivera was allowed a substantial amount of time (d) Must be payable to order or to bearer; and
before the Spouses Chua demanded payment of the obligation
due under the Promissory Note. (e) Where the instrument is addressed to a drawee, he
must be named or otherwise indicated therein with
In all, Riveras evidence or lack thereof consisted only of a reasonable certainty.
barefaced claim of forgery and a discordant defense to assail the
authenticity and validity of the Promissory Note. Although the On the other hand, Section 184 of the NIL defines what negotiable
burden of proof rested on the Spouses Chua having instituted the promissory note is: SECTION 184. Promissory Note, Defined. A
civil case and after they established a prima facie case against negotiable promissory note within the meaning of this Act is an
Rivera, the burden of evidence shifted to the latter to establish unconditional promise in writing made by one person to another,
his defense.21 Consequently, Rivera failed to discharge the signed by the maker, engaging to pay on demand, or at a fixed or
burden of evidence, refute the existence of the Promissory Note determinable future time, a sum certain in money to order or to
duly signed by him and subsequently, that he did not fail to pay bearer. Where a note is drawn to the makers own order, it is not
his obligation thereunder. On the whole, there was no question complete until indorsed by him.
left on where the respective evidence of the parties

The Promissory Note in this case is made out to specific persons, In reciprocal obligations, neither party incurs in delay if the other
herein respondents, the Spouses Chua, and not to order or to does not comply or is not ready to comply in a proper manner
bearer, or to the order of the Spouses Chua as payees. However, with what is incumbent upon him. From the moment one of the
even if Riveras Promissory Note is not a negotiable instrument parties fulfills his obligation, delay by the other begins.
and therefore outside the coverage of Section 70 of the NIL which (Emphasis supplied)
provides that presentment for payment is not necessary to
charge the person liable on the instrument, Rivera is still liable There are four instances when demand is not necessary to
under the terms of the Promissory Note that he issued. constitute the debtor in default: (1) when there is an express
stipulation to that effect; (2) where the law so provides; (3) when
The Promissory Note is unequivocal about the date when the the period is the controlling motive or the principal inducement
obligation falls due and becomes demandable31 December for the creation of the obligation; and (4) where demand would
1995. As of 1 January 1996, Rivera had already incurred in delay be useless. In the first two paragraphs, it is not sufficient that the
when he failed to pay the amount of P120,000.00 due to the law or obligation fixes a date for performance; it must further
Spouses Chua on 31 December 1995 under the Promissory Note. state expressly that after the period lapses, default will
commence.
Article 1169 of the Civil Code explicitly provides:
We refer to the clause in the Promissory Note containing the
Art. 1169. Those obliged to deliver or to do something incur in stipulation of interest:
delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation. It is agreed and understood that failure on my part to pay the
amount of (P120,000.00) One Hundred Twenty Thousand Pesos
However, the demand by the creditor shall not be necessary in on December 31, 1995. (sic) I agree to pay the sum equivalent to
order that delay may exist: FIVE PERCENT (5%) interest monthly from the date of default
until the entire obligation is fully paid for.23
(1) When the obligation or the law expressly so declare; or
which expressly requires the debtor (Rivera) to pay a 5%
(2) When from the nature and the circumstances of the monthly interest from the "date of default" until the entire
obligation it appears that the designation of the time when obligation is fully paid for. The parties evidently agreed that the
the thing is to be delivered or the service is to be rendered maturity of the obligation at a date certain, 31 December 1995,
was a controlling motive for the establishment of the will give rise to the obligation to pay interest. The Promissory
contract; or Note expressly provided that after 31 December 1995, default
commences and the stipulation on payment of interest starts.
(3) When demand would be useless, as when the obligor
has rendered it beyond his power to perform. The date of default under the Promissory Note is 1 January 1996,
the day following 31 December 1995, the due date of the
obligation. On that date, Rivera became liable for the stipulated

interest which the Promissory Note says is equivalent to 5% a Art. 1226. In obligations with a penal clause, the penalty shall
month. In sum, until 31 December 1995, demand was not substitute the indemnity for damages and the payment of
necessary before Rivera could be held liable for the principal interests in case of noncompliance, if there isno stipulation to the
amount of P120,000.00. Thereafter, on 1 January 1996, upon contrary. Nevertheless, damages shall be paid if the obligor
default, Rivera became liable to pay the Spouses Chua damages, refuses to pay the penalty or is guilty of fraud in the fulfillment of
in the form of stipulated interest. the obligation.
The liability for damages of those who default, including those The penalty may be enforced only when it is demandable in
who are guilty of delay, in the performance of their obligations is accordance with the provisions of this Code.
laid down on Article 117024 of the Civil Code.
The penal clause is generally undertaken to insure performance
Corollary thereto, Article 2209 solidifies the consequence of and works as either, or both, punishment and reparation. It is an
payment of interest as an indemnity for damages when the exception to the general rules on recovery of losses and damages.
obligor incurs in delay: As an exception to the general rule, a penal clause must be
specifically set forth in the obligation.25
Art. 2209. If the obligation consists inthe payment of a sum of
money, and the debtor incurs in delay, the indemnity for In high relief, the stipulation in the Promissory Note is designated
damages, there being no stipulation to the contrary, shall be the as payment of interest, not as a penal clause, and is simply an
payment of the interest agreed upon, and in the absence of indemnity for damages incurred by the Spouses Chua because
stipulation, the legal interest, which is six percent per annum. Rivera defaulted in the payment of the amount of P120,000.00.
(Emphasis supplied) The measure of damages for the Riveras delay is limited to the
interest stipulated in the Promissory Note. In apt instances, in
Article 2209 is specifically applicable in this instance where: (1) default of stipulation, the interest is that provided by law.26
the obligation is for a sum of money; (2) the debtor, Rivera,
incurred in delay when he failed to pay on or before 31 December In this instance, the parties stipulated that in case of default,
1995; and (3) the Promissory Note provides for an indemnity for Rivera will pay interest at the rate of 5% a month or 60% per
damages upon default of Rivera which is the payment of a annum. On this score, the appellate court ruled:
5%monthly interest from the date of default.
It bears emphasizing that the undertaking based on the note
We do not consider the stipulation on payment of interest in this clearly states the date of payment tobe 31 December 1995. Given
case as a penal clause although Rivera, as obligor, assumed to pay this circumstance, demand by the creditor isno longer necessary
additional 5% monthly interest on the principal amount in order that delay may exist since the contract itself already
of P120,000.00 upon default. expressly so declares. The mere failure of [Spouses Chua] to
immediately demand or collect payment of the value of the note
Article 1226 of the Civil Code provides: does not exonerate [Rivera] from his liability therefrom. Verily,
the trial court committed no reversible error when it imposed

interest from 1 January 1996 on the ratiocination that [Spouses must be, between the first and the second action, identity of
Chua] were relieved from making demand under Article 1169 of parties, of subject matter and of causes of action.28
the Civil Code.
In this case, the petitions in G.R. Nos. 184458 and 184472 involve
x x x x an identity of parties and subject matter raising specifically
errors in the Decision of the Court of Appeals. Where the Court of
As observed by [Rivera], the stipulated interest of 5% per month Appeals disposition on the propriety of the reduction of the
or 60% per annum in addition to legal interests and attorneys interest rate was raised by the Spouses Chua in G.R. No. 184472,
fees is, indeed, highly iniquitous and unreasonable. Stipulated our ruling thereon affirming the Court of Appeals is a "bar by
interest rates are illegal if they are unconscionable and the Court prior judgment."
is allowed to temper interest rates when necessary. Since the
interest rate agreed upon is void, the parties are considered to At the time interest accrued from 1 January 1996, the date of
have no stipulation regarding the interest rate, thus, the rate of default under the Promissory Note, the then prevailing rate of
interest should be 12% per annum computed from the date of legal interest was 12% per annum under Central Bank (CB)
judicial or extrajudicial demand.27 Circular No. 416 in cases involving the loan or for bearance of
money.29 Thus, the legal interest accruing from the Promissory
The appellate court found the 5% a month or 60% per annum Note is 12% per annum from the date of default on 1 January
interest rate, on top of the legal interest and attorneys fees, 1996. However, the 12% per annumrate of legal interest is only
steep, tantamount to it being illegal, iniquitous and applicable until 30 June 2013, before the advent and effectivity of
unconscionable. Significantly, the issue on payment of interest Bangko Sentral ng Pilipinas (BSP) Circular No. 799, Series of
has been squarely disposed of in G.R. No. 184472 denying the 2013 reducing the rate of legal interest to 6% per annum.
petition of the Spouses Chua for failure to sufficiently showany Pursuant to our ruling in Nacar v. Gallery Frames,30 BSP Circular
reversible error in the ruling of the appellate court, specifically No. 799 is prospectively applied from 1 July 2013. In short, the
the reduction of the interest rate imposed on Riveras applicable rate of legal interest from 1 January 1996, the date
indebtedness under the Promissory Note. Ultimately, the denial when Rivera defaulted, to date when this Decision becomes final
of the petition in G.R. No. 184472 is res judicata in its concept of and executor is divided into two periods reflecting two rates of
"bar by prior judgment" on whether the Court of Appeals legal interest: (1) 12% per annum from 1 January 1996 to 30
correctly reduced the interest rate stipulated in the Promissory June 2013; and (2) 6% per annum FROM 1 July 2013 to date
Note. when this Decision becomes final and executory.
Res judicata applies in the concept of "bar by prior judgment" if As for the legal interest accruing from 11 June 1999, when
the following requisites concur: (1) the former judgment or order judicial demand was made, to the date when this Decision
must be final; (2) the judgment or order must be on the merits; becomes final and executory, such is likewise divided into two
(3) the decision must have been rendered by a court having periods: (1) 12% per annum from 11 June 1999, the date of
jurisdiction over the subject matter and the parties; and (4) there judicial demand to 30 June 2013; and (2) 6% per annum from 1
July 2013 to date when this Decision becomes final and

executor.31 We base this imposition of interest on interest due 2. When an obligation, not constituting a loan or
earning legal interest on Article 2212 of the Civil Code which forbearance of money, is breached, an interest on
provides that "interest due shall earn legal interest from the time the amount of damages awarded may be imposed
it is judicially demanded, although the obligation may be silent on at the discretion of the court at the rate of 6% per
this point." annum.1wphi1 No interest, however, shall be
adjudged on unliquidated claims or damages,
From the time of judicial demand, 11 June 1999, the actual except when or until the demand can be
amount owed by Rivera to the Spouses Chua could already be established with reasonable certainty. Accordingly,
determined with reasonable certainty given the wording of the where the demand is established with reasonable
Promissory Note.32 certainty, the interest shall begin to run from the
time the claim is made judicially or extrajudicially
We cite our recent ruling in Nacar v. Gallery Frames:33 (Art. 1169, Civil Code), but when such certainty
cannot be so reasonably established at the time the
I. When an obligation, regardless of its source, i.e., law, demand is made, the interest shall begin to run
contracts, quasicontracts, delicts or quasi-delicts is only from the date the judgment of the court is
breached, the contravenor can be held liable for damages. made (at which time the quantification of damages
The provisions under Title XVIII on "Damages" of the Civil may be deemed to have been reasonably
Code govern in determining the measure of recoverable ascertained). The actual base for the computation
damages. of legal interest shall, in any case, be on the amount
finally adjudged. 3. When the judgment of the court
II. With regard particularly to an award of interest in the awarding a sum of money becomes final and
concept of actual and compensatory damages, the rate of executory, the rate of legal interest, whether the
interest, as well as the accrual thereof, is imposed, as case falls under paragraph 1 or paragraph 2, above,
follows: shall be 6% per annum from such finality until its
satisfaction, this interim period being deemed to be
1. When the obligation is breached, and it consists by then an equivalent to a for bearance of credit.
in the payment of a sum of money, i.e., a loan or for And, in addition to the above, judgments that have
bearance of money, the interest due should be that become final and executory prior to July 1, 2013,
which may have been stipulated in writing. shall not be disturbed and shall continue to be
Furthermore, the interest due shall itself earn legal implemented applying the rate of interest fixed
interest from the time it is judicially demanded. In therein. (Emphasis supplied)
the absence of stipulation, the rate of interest shall
be 6% per annum to be computed from default, i.e., On the reinstatement of the award of attorneys fees based on the
from judicial or extra judicial demand under and stipulation in the Promissory Note, weagree with the reduction
subject to the provisions ofArticle 1169 of the Civil thereof but not the ratiocination of the appellate court that the
Code. attorneys fees are in the nature of liquidated damages or penalty.

The interest imposed in the Promissory Note already answers as principal annumon of
liquidated damages for Riveras default in paying his obligation. amount the total Column
We award attorneys fees, albeit in a reduced amount, in of P120,000.0 amount s 1-4
recognition that the Spouses Chua were compelled to litigate and 0 of
incurred expenses to protect their interests.34 Thus, the award B. 6% per column 2
of P50,000.00 as attorneys fees is proper. annumon the B. 6% per
principal annumon
For clarity and to obviate confusion, we chart the breakdown of amount the total
the total amount owed by Rivera to the Spouses Chua: of P120,000.0 amount
0 of
Face value Stipulated Interest Attorneys Total column
of the Interest A & B due fees Amount 235
Promissory earning
Note legal The total amount owing to the Spouses Chua set forth in this
interest A Decision shall further earn legal interest at the rate of 6% per
& B annum computed from its finality until full payment thereof, the
February A. January 1, A. June Wholesale interim period being deemed to be a forbearance of credit.
24, 1995 to 1996 to 11, 1999 Amount
December June 30, 2013 (date of WHEREFORE, the petition in G.R. No. 184458 is DENIED. The
31, 1995 judicial Decision of the Court of Appeals in CA-G.R. SP No. 90609 is
B. July 1 2013 demand) MODIFIED. Petitioner Rodrigo Rivera is ordered to pay
to date when to June respondents Spouse Salvador and Violeta Chua the following:
this Decision 30, 2013
becomes final B. July 1, (1) the principal amount of P120,000.00;
and executory 2013 to
date (2) legal interest of 12% per annumof the principal
when this amount of P120,000.00 reckoned from 1 January 1996
Decision until 30 June 2013;
becomes
final and (3) legal interest of 6% per annumof the principal amount
executor of P120,000.00 form 1 July 2013 to date when this
y Decision becomes final and executory;
P120,000.0 A. 12 % per A. 12% P50,000.0 Total (4) 12% per annumapplied to the total of paragraphs 2
0 annumon the per 0 amount and 3 from 11 June 1999, date of judicial demand, to 30
June 2013, as interest due earning legal interest;

(5) 6% per annumapplied to the total amount of DECISION
paragraphs 2 and 3 from 1 July 2013 to date when this
Decision becomes final and executor, asinterest due NACHURA, J.:
earning legal interest;

(6) Attorneys fees in the amount of P50,000.00; and Petitioner seeks a review of the Court of Appeals (CA)
Decision1[1] dated September 21, 2006 and Resolution2[2] dated
(7) 6% per annum interest on the total of the monetary February 23, 2007, which denied petitioners motion for
awards from the finality of this Decision until full payment reconsideration. The assailed Decision denied petitioners claim
thereof. for reimbursement for the amount it paid to respondent for the
manufacture of corrugated carton boxes.
Costs against petitioner Rodrigo Rivera.

The case arose from the following antecedents:

In the first quarter of 1998, petitioner, Solar Harvest, Inc.,
entered into an agreement with respondent, Davao Corrugated
44. SOLAR HARVEST, INC., G.R. No. 176868 Carton Corporation, for the purchase of corrugated carton boxes,
Petitioner, specifically designed for petitioners business of exporting fresh
Present: bananas, at US$1.10 each. The agreement was not reduced into
writing. To get the production underway, petitioner deposited,
CARPIO, J., on March 31, 1998, US$40,150.00 in respondents US Dollar
Chairperson, Savings Account with Westmont Bank, as full payment for the
- versus - NACHURA, ordered boxes.
PERALTA,
ABAD, and Despite such payment, petitioner did not receive any
MENDOZA, JJ. boxes from respondent. On January 3, 2001, petitioner wrote a
demand letter for reimbursement of the amount paid. 3[3] On
DAVAO CORRUGATED CARTON February 19, 2001, respondent replied that the boxes had been
CORPORATION, Promulgated: completed as early as April 3, 1998 and that petitioner failed to
Respondent. pick them up from the formers warehouse 30 days from
July 26, 2010 completion, as agreed upon. Respondent mentioned that

x------------------------------------------------------------------------------------x


petitioner even placed an additional order of 24,000 boxes, out of completed without waiting for petitioners payment. Respondent
which, 14,000 had been manufactured without any advanced stated that petitioner was to pick up the boxes at the factory as
payment from petitioner. Respondent then demanded petitioner agreed upon, but petitioner failed to do so. Respondent averred
to remove the boxes from the factory and to pay the balance of that, on October 8, 1998, petitioners representative, Bobby Que
US$15,400.00 for the additional boxes and P132,000.00 as (Que), went to the factory and saw that the boxes were ready for
storage fee. pick up. On February 20, 1999, Que visited the factory again and
supposedly advised respondent to sell the boxes as rejects to
On August 17, 2001, petitioner filed a Complaint for sum recoup the cost of the unpaid 14,000 boxes, because petitioners
of money and damages against respondent. The Complaint transaction to ship bananas to China did not materialize.
averred that the parties agreed that the boxes will be delivered Respondent claimed that the boxes were occupying warehouse
within 30 days from payment but respondent failed to space and that petitioner should be made to pay storage fee at
manufacture and deliver the boxes within such time. It further P60.00 per square meter for every month from April 1998. As
alleged counterclaim, respondent prayed that judgment be rendered
ordering petitioner to pay $15,400.00, plus interest, moral and
6. That repeated follow-up was made by the exemplary damages, attorneys fees, and costs of the suit.
plaintiff for the immediate production of the In reply, petitioner denied that it made a second order of
ordered boxes, but every time, defendant [would] 24,000 boxes and that respondent already completed the initial
only show samples of boxes and ma[k]e repeated order of 36,500 boxes and 14,000 boxes out of the second order.
promises to deliver the said ordered boxes. It maintained that respondent only manufactured a sample of the
ordered boxes and that respondent could not have produced
7. That because of the failure of the 14,000 boxes without the required pre-payments.6[6]
defendant to deliver the ordered boxes, plaintiff
ha[d] to cancel the same and demand payment During trial, petitioner presented Que as its sole witness.
and/or refund from the defendant but the latter Que testified that he ordered the boxes from respondent and
refused to pay and/or refund the US$40,150.00 deposited the money in respondents account.7[7] He specifically
payment made by the former for the ordered stated that, when he visited respondents factory, he saw that the
boxes.4[4] boxes had no print of petitioners logo.8[8] A few months later, he
followed-up the order and was told that the company had full
In its Answer with Counterclaim,5[5] respondent insisted production, and thus, was promised that production of the order
that, as early as April 3, 1998, it had already completed would be rushed. He told respondent that it should indeed rush
production of the 36,500 boxes, contrary to petitioners production because the need for the boxes was urgent.
allegation. According to respondent, petitioner, in fact, made an Thereafter, he asked his partner, Alfred Ong, to cancel the order
additional order of 24,000 boxes, out of which, 14,000 had been


because it was already late for them to meet their commitment to
ship the bananas to China.9[9] On cross-examination, Que further In its March 2, 2004 Decision, the Regional Trial Court
testified that China Zero Food, the Chinese company that ordered (RTC) ruled that respondent did not commit any breach of faith
the bananas, was sending a ship to Davao to get the bananas, but that would justify rescission of the contract and the consequent
since there were no cartons, the ship could not proceed. He said reimbursement of the amount paid by petitioner. The RTC said
that, at that time, bananas from Tagum Agricultural Development that respondent was able to produce the ordered boxes but
Corporation (TADECO) were already there. He denied that petitioner failed to obtain possession thereof because its ship did
petitioner made an additional order of 24,000 boxes. He not arrive. It thus dismissed the complaint and respondents
explained that it took three years to refer the matter to counsel counterclaims, disposing as follows:
because respondent promised to pay.10[10]
WHEREFORE, premises considered,
For respondent, Bienvenido Estanislao (Estanislao) judgment is hereby rendered in favor of defendant
testified that he met Que in Davao in October 1998 to inspect the and against the plaintiff and, accordingly, plaintiffs
boxes and that the latter got samples of them. In February 2000, complaint is hereby ordered DISMISSED without
they inspected the boxes again and Que got more samples. pronouncement as to cost. Defendants
Estanislao said that petitioner did not pick up the boxes because counterclaims are similarly dismissed for lack of
the ship did not arrive. 11 [11] Jaime Tan (Tan), president of merit.
respondent, also testified that his company finished production
of the 36,500 boxes on April 3, 1998 and that petitioner made a SO ORDERED.14[14]
second order of 24,000 boxes. He said that the agreement was for
respondent to produce the boxes and for petitioner to pick them Petitioner filed a notice of appeal with the CA.
up from the warehouse.12[12] He also said that the reason why
petitioner did not pick up the boxes was that the ship that was to On September 21, 2006, the CA denied the appeal for lack
carry the bananas did not arrive.13[13] According to him, during of merit.15[15] The appellate court held that petitioner failed to
the last visit of Que and Estanislao, he asked them to withdraw discharge its burden of proving what it claimed to be the parties
the boxes immediately because they were occupying a big space agreement with respect to the delivery of the boxes. According to
in his plant, but they, instead, told him to sell the cartons as the CA, it was unthinkable that, over a period of more than two
rejects. He was able to sell 5,000 boxes at P20.00 each for a total years, petitioner did not even demand for the delivery of the
of P100,000.00. They then told him to apply the said amount to boxes. The CA added that even assuming that the agreement was
the unpaid balance. for respondent to deliver the boxes, respondent would not be
liable for breach of contract as petitioner had not yet demanded
from it the delivery of the boxes.16[16]


the thing, in accordance with Articles 1385 and
Petitioner moved for reconsideration,17[17] but the motion 1388 and the Mortgage Law.
was denied by the CA in its Resolution of February 23, 2007.18[18]

In this petition, petitioner insists that respondent did not The right to rescind a contract arises once the other party
completely manufacture the boxes and that it was respondent defaults in the performance of his obligation. In determining
which was obliged to deliver the boxes to TADECO. when default occurs, Art. 1191 should be taken in conjunction
with Art. 1169 of the same law, which provides:
We find no reversible error in the assailed Decision that
would justify the grant of this petition. Art. 1169. Those obliged to deliver or to do
something incur in delay from the time the obligee
Petitioners claim for reimbursement is actually one for judicially or extrajudicially demands from them the
rescission (or resolution) of contract under Article 1191 of the fulfillment of their obligation.
Civil Code, which reads:
However, the demand by the creditor shall
Art. 1191. The power to rescind obligations not be necessary in order that delay may exist:
is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent (1) When the obligation or the law expressly
upon him. so declares; or

The injured party may choose between the (2) When from the nature and the
fulfillment and the rescission of the obligation, with circumstances of the obligation it appears
the payment of damages in either case. He may also that the designation of the time when the
seek rescission, even after he has chosen thing is to be delivered or the service is to
fulfillment, if the latter should become impossible. be rendered was a controlling motive for
the establishment of the contract; or
The court shall decree the rescission
claimed, unless there be just cause authorizing the (3) When demand would be useless, as
fixing of a period. when the obligor has rendered it beyond his
power to perform.
This is understood to be without prejudice
to the rights of third persons who have acquired In reciprocal obligations, neither party
incurs in delay if the other does not comply or is
not ready to comply in a proper manner with what
is incumbent upon him. From the moment one of


the parties fulfills his obligation, delay by the other Even assuming that a demand had been previously made
begins. before filing the present case, petitioners claim for
reimbursement would still fail, as the circumstances would show
In reciprocal obligations, as in a contract of sale, the that respondent was not guilty of breach of contract.
general rule is that the fulfillment of the parties respective
obligations should be simultaneous. Hence, no demand is The existence of a breach of contract is a factual matter
generally necessary because, once a party fulfills his obligation not usually reviewed in a petition for review under Rule 45.20[20]
and the other party does not fulfill his, the latter automatically The Court, in petitions for review, limits its inquiry only to
incurs in delay. But when different dates for performance of the questions of law. After all, it is not a trier of facts, and findings of
obligations are fixed, the default for each obligation must be fact made by the trial court, especially when reiterated by the CA,
determined by the rules given in the first paragraph of the must be given great respect if not considered as final.21[21] In
present article,19[19] that is, the other party would incur in delay dealing with this petition, we will not veer away from this
only from the moment the other party demands fulfillment of the doctrine and will thus sustain the factual findings of the CA,
formers obligation. Thus, even in reciprocal obligations, if the which we find to be adequately supported by the evidence on
period for the fulfillment of the obligation is fixed, demand upon record.
the obligee is still necessary before the obligor can be considered
in default and before a cause of action for rescission will accrue. As correctly observed by the CA, aside from the pictures of
the finished boxes and the production report thereof, there is
Evident from the records and even from the allegations in ample showing that the boxes had already been manufactured by
the complaint was the lack of demand by petitioner upon respondent. There is the testimony of Estanislao who
respondent to fulfill its obligation to manufacture and deliver the accompanied Que to the factory, attesting that, during their first
boxes. The Complaint only alleged that petitioner made a follow- visit to the company, they saw the pile of petitioners boxes and
up upon respondent, which, however, would not qualify as a Que took samples thereof. Que, petitioners witness, himself
demand for the fulfillment of the obligation. Petitioners witness confirmed this incident. He testified that Tan pointed the boxes to
also testified that they made a follow-up of the boxes, but not a him and that he got a sample and saw that it was blank. Ques
demand. Note is taken of the fact that, with respect to their claim absolute assertion that the boxes were not manufactured is,
for reimbursement, the Complaint alleged and the witness therefore, implausible and suspicious.
testified that a demand letter was sent to respondent. Without a
previous demand for the fulfillment of the obligation, petitioner In fact, we note that respondents counsel manifested in
would not have a cause of action for rescission against court, during trial, that his client was willing to shoulder
respondent as the latter would not yet be considered in breach of expenses for a representative of the court to visit the plant and
its contractual obligation. see the boxes.22[22] Had it been true that the boxes were not yet


completed, respondent would not have been so bold as to A. Thats true. The Solar Harvest made a
challenge the court to conduct an ocular inspection of their contact with Mr. Tan and I deposited the
warehouse. Even in its Comment to this petition, respondent money in the bank.
prays that petitioner be ordered to remove the boxes from its
factory site,23[23] which could only mean that the boxes are, up to Q. You said a while ago [t]hat you were
the present, still in respondents premises. the one who called Mr. Tan and placed the
order for 36,500 boxes, isnt it?
We also believe that the agreement between the parties A. First time it was Mr. Alfred Ong.
was for petitioner to pick up the boxes from respondents
warehouse, contrary to petitioners allegation. Thus, it was due to Q. It was Mr. Ong who placed the
petitioners fault that the boxes were not delivered to TADECO. order[,] not you?
A. Yes, sir.24[24]
Petitioner had the burden to prove that the agreement
was, in fact, for respondent to deliver the boxes within 30 days Q. Is it not a fact that the cartons were
from payment, as alleged in the Complaint. Its sole witness, Que, ordered through Mr. Bienvenido Estanislao?
was not even competent to testify on the terms of the agreement A. Yes, sir.25[25]
and, therefore, we cannot give much credence to his testimony. It
appeared from the testimony of Que that he did not personally Moreover, assuming that respondent was obliged to deliver the
place the order with Tan, thus: boxes, it could not have complied with such obligation. Que,
insisting that the boxes had not been manufactured, admitted
Q. No, my question is, you went to that he did not give respondent the authority to deliver the boxes
Davao City and placed your order there? to TADECO:
A. I made a phone call.
Q. Did you give authority to Mr. Tan to
Q. You made a phone call to Mr. Tan? deliver these boxes to TADECO?
A. The first time, the first call to Mr. A. No, sir. As I have said, before the
Alf[re]d Ong. Alfred Ong has a contact with delivery, we must have to check the carton,
Mr. Tan. the quantity and quality. But I have not seen
a single carton.
Q. So, your first statement that you
were the one who placed the order is not Q. Are you trying to impress upon the
true? [c]ourt that it is only after the boxes are


completed, will you give authority to Mr. boxes from respondents warehouse. After the lapse of said
Tan to deliver the boxes to TADECO[?] period and petitioner fails to effect such removal, respondent
A. Sir, because when I checked the shall have the right to dispose of the boxes in any manner it may
plant, I have not seen any carton. I asked Mr. deem fit.
Tan to rush the carton but not26[26]
SO ORDERED.
Q. Did you give any authority for Mr.
Tan to deliver these boxes to TADECO?
A. Because I have not seen any of my
carton.

Q. You dont have any authority yet 45. G.R. No. L-30056 August 30, 1988
given to Mr. Tan?
A. None, your Honor.27[27] MARCELO AGCAOILI, plaintiff-appellee
vs.
Surely, without such authority, TADECO would not have allowed GOVERNMENT SERVICE INSURANCE SYSTEM, defendant-
respondent to deposit the boxes within its premises. appellant.

In sum, the Court finds that petitioner failed to establish a Artemio L. Agcaoili for plaintiff-appellee.
cause of action for rescission, the evidence having shown that
respondent did not commit any breach of its contractual Office of the Government Corporate Counsel for defendant-
obligation. As previously stated, the subject boxes are still within appellant.
respondents premises. To put a rest to this dispute, we therefore
relieve respondent from the burden of having to keep the boxes
within its premises and, consequently, give it the right to dispose
of them, after petitioner is given a period of time within which to NARVASA, J.:
remove them from the premises.
The appellant Government Service Insurance System, (GSIS, for
WHEREFORE, premises considered, the petition is
short) having approved the application of the appellee Agcaoili for
DENIED. The Court of Appeals Decision dated September 21,
the purchase of a house and lot in the GSIS Housing Project at
2006 and Resolution dated February 23, 2007 are AFFIRMED. In
Nangka Marikina, Rizal, subject to the condition that the latter
addition, petitioner is given a period of 30 days from notice
should forthwith occupy the house, a condition that Agacoili tried to
within which to cause the removal of the 36,500
fulfill but could not for the reason that the house was absolutely
uninhabitable; Agcaoili, after paying the first installment and other
fees, having thereafter refused to make further payment of other
stipulated installments until GSIS had made the house habitable;

and appellant having refused to do so, opting instead to cancel the watchman, pending completion of the construction of the house.
award and demand the vacation by Agcaoili of the premises; and Agcaoili thereafter complained to the GSIS, to no avail.
Agcaoili having sued the GSIS in the Court of First Instance of Manila
for specific performance with damages and having obtained a The GSIS asked Agcaoili to pay the monthly amortizations and other
favorable judgment, the case was appealled to this Court by the fees. Agcaoili paid the first monthly installment and the incidental
GSIS. Its appeal must fail. fees, 3 but refused to make further payments until and unless the
GSIS completed the housing unit. What the GSIS did was to cancel
The essential facts are not in dispute. Approval of Agcaoili's the award and require Agcaoili to vacate the premises. 4 Agcaoili
aforementioned application for purchase 1 was contained in a letter reacted by instituting suit in the Court of First Instance of Manila for
2
addressed to Agcaoili and signed by GSIS Manager Archimedes specific performance and damages. 5 Pending the action, a written
Villanueva in behalf of the Chairman-General Manager, reading as protest was lodged by other awardees of housing units in the same
follows: subdivision, regarding the failure of the System to complete
construction of their own houses. 6 Judgment was in due course
Please be informed that your application to purchase rendered , 7 on the basis of the evidence adduced by Agcaoili only,
a house and lot in our GSIS Housing Project at the GSIS having opted to dispense with presentation of its own
Nangka, Marikina, Rizal, has been approved by this proofs. The judgment was in Agcaoili's favor and contained the
Office. Lot No. 26, Block No. (48) 2, together with the following dispositions, 8 to wit:
housing unit constructed thereon, has been allocated
to you. 1) Declaring the cancellation of the award (of a house
and lot) in favor of plaintiff (Mariano Agcaoili) illegal
You are, therefore, advised to occupy the said house and void;
immediately.
2) Ordering the defendant (GSIS) to respect and
If you fail to occupy the same within three (3) days enforce the aforesaid award to the plaintiff relative to
from receipt of this notice, your application shall be Lot No. 26, Block No. (48) 2 of the Government
considered automatically disapproved and the said Service Insurance System (GSIS) low cost housing
house and lot will be awarded to another applicant. project at Nangka Marikina, Rizal;
Agcaoili lost no time in occupying the house. He could not stay in it, 3) Ordering the defendant to complete the house in
however, and had to leave the very next day, because the house was question so as to make the same habitable and
nothing more than a shell, in such a state of incompleteness that authorizing it (defendant) to collect the monthly
civilized occupation was not possible: ceiling, stairs, double walling, amortization thereon only after said house shall have
lighting facilities, water connection, bathroom, toilet kitchen, been completed under the terms and conditions
drainage, were inexistent. Agcaoili did however ask a homeless mentioned in Exhibit A ;and
friend, a certain Villanueva, to stay in the premises as some sort of

4) Ordering the defendant to pay P100.00 as damages acceptance or approval form of the GSIS nor the notice to
and P300.00 as and for attorney's fees, and costs. commence payment of a monthly amortizations, which again refers
to "the house and lot awarded" contained any hint that the house
Appellant GSIS would have this Court reverse this judgment on the was incomplete, and was being sold "as is," i.e., in whatever state of
argument that completion it might be at the time. On the other hand, the condition
explicitly imposed on Agcaoili "to occupy the said house
1) Agcaoili had no right to suspend payment of amortizations on immediately," or in any case within three (3) days from notice,
account of the incompleteness of his housing unit, since said unit otherwise his "application shall be considered automatically
had been sold "in the condition and state of completion then disapproved and the said house and lot will be awarded to another
existing ... (and) he is deemed to have accepted the same in the applicant" would imply that construction of the house was more
condition he found it when he accepted the award;" and assuming or less complete, and it was by reasonable standards, habitable, and
indefiniteness of the contract in this regard, such circumstance that indeed, the awardee should stay and live in it; it could not be
precludes a judgment for specific performance. 9 interpreted as meaning that the awardee would occupy it in the
sense of a pioneer or settler in a rude wilderness, making do with
2) Perfection of the contract of sale between it and Agcaoili being whatever he found available in the envirornment.
conditioned upon the latter's immediate occupancy of the house
subject thereof, and the latter having failed to comply with the There was then a perfected contract of sale between the parties;
condition, no contract ever came into existence between them ; 10 there had been a meeting of the minds upon the purchase by
Agcaoili of a determinate house and lot in the GSIS Housing Project
3) Agcaoili's act of placing his homeless friend, Villanueva, in at Nangka Marikina, Rizal at a definite price payable in amortizations
possession, "without the prior or subsequent knowledge or consent at P31.56 per month, and from that moment the parties acquired
of the defendant (GSIS)" operated as a repudiation by Agcaoili of the the right to reciprocally demand performance. 13 It was, to be sure,
award and a deprivation of the GSIS at the same time of the the duty of the GSIS, as seller, to deliver the thing sold in a condition
reasonable rental value of the property. 11 suitable for its enjoyment by the buyer for the purpose
contemplated , 14 in other words, to deliver the house subject of the
Agcaoili's offer to buy from GSIS was contained in a printed form contract in a reasonably livable state. This it failed to do.
drawn up by the latter, entitled "Application to Purchase a House
and/or Lot." Agcaoili filled up the form, signed it, and submitted it. 12 It sold a house to Agcaoili, and required him to immediately occupy
The acceptance of the application was also set out in a form it under pain of cancellation of the sale. Under the circumstances
(mimeographed) also prepared by the GSIS. As already mentioned, there can hardly be any doubt that the house contemplated was one
this form sent to Agcaoili, duly filled up, advised him of the approval that could be occupied for purposes of residence in reasonable
of his "application to purchase a house and lot in our GSIS Housing comfort and convenience. There would be no sense to require the
Project at NANGKA, MARIKINA, RIZAL," and that "Lot No. 26, Block awardee to immediately occupy and live in a shell of a house, a
No. (48) 2, together with the housing unit constructed thereon, has structure consisting only of four walls with openings, and a roof, and
been allocated to you." Neither the application form nor the to theorize, as the GSIS does, that this was what was intended by

the parties, since the contract did not clearly impose upon it the capital, the question of interpretation arising therefrom, should be
obligation to deliver a habitable house, is to advocate an absurdity, resolved against it.
the creation of an unfair situation. By any objective interpretation of
its terms, the contract can only be understood as imposing on the It will not do, however, to dispose of the controversy by simply
GSIS an obligation to deliver to Agcaoili a reasonably habitable declaring that the contract between the parties had not been validly
dwelling in return for his undertaking to pay the stipulated price. cancelled and was therefore still in force, and that Agcaoili could not
Since GSIS did not fulfill that obligation, and was not willing to put be compelled by the GSIS to pay the stipulated price of the house
the house in habitable state, it cannot invoke Agcaoili's suspension and lot subject of the contract until and unless it had first completed
of payment of amortizations as cause to cancel the contract construction of the house. This would leave the contract hanging or
between them. It is axiomatic that "(i)n reciprocal obligations, in suspended animation, as it were, Agcaoili unwilling to pay unless
neither party incurs in delay if the other does not comply or is not the house were first completed, and the GSIS averse to completing
ready to comply in a proper manner with what is incumbent upon construction, which is precisely what has been the state of affairs
him." 15 between the parties for more than twenty (20) years now. On the
other hand, assuming it to be feasible to still finish the construction
Nor may the GSIS succeed in justifying its cancellation of the award of the house at this time, to compel the GSIS to do so so that
to Agcaoili by the claim that the latter had not complied with the Agcaoili's prestation to pay the price might in turn be demanded,
condition of occupying the house within three (3) days. The record without modifying the price therefor, would not be quite fair. The
shows that Agcaoili did try to fulfill the condition; he did try to cost to the GSIS of completion of construction at present prices
occupy the house but found it to be so uninhabitable that he had to would make the stipulated price disproportionate, unrealistic.
leave it the following day. He did however leave a friend in the
structure, who being homeless and hence willing to accept shelter The situation calls for the exercise by this Court of its equity
even of the most rudimentary sort, agreed to stay therein and look jurisdiction, to the end that it may render complete justice to both
after it. Thus the argument that Agcaoili breached the agreement by parties.
failing to occupy the house, and by allowing another person to stay
in it without the consent of the GSIS, must be rejected as devoid of As we . . reaffirmed in Air Manila, Inc. vs. Court of
merit. Industrial Relations (83 SCRA 579, 589 [1978]).
"(E)quity as the complement of legal jurisdiction
Finally, the GSIS should not be heard to say that the agreement seeks to reach and do complete justice where courts
between it and Agcaoili is silent, or imprecise as to its exact of law, through the inflexibility of their rules and want
prestation Blame for the imprecision cannot be imputed to Agcaoili; of power to adapt their judgments to the special
it was after all the GSIS which caused the contract to come into circumstances of cases, are incompetent so to do.
being by its written acceptance of Agcaoili's offer to purchase, that Equity regards the spirit of and not the letter, the
offer being contained in a printed form supplied by the GSIS. Said intent and not the form, the substance rather than
appellant having caused the ambiguity of which it would now make the circumstance, as it is variously expressed by
different courts... " 16

In this case, the Court can not require specific performance of the facts and exigencies of the case demand at the close
contract in question according to its literal terms, as this would of the trial or at the time of the making of the decree.
19
result in inequity. The prevailing rule is that in decreeing specific
performance equity requires 17
That adjustment is entirely consistent with the Civil Law principle
... not only that the contract be just and equitable in that in the exercise of rights a person must act with justice, give
its provisions, but that the consequences of specific everyone his due, and observe honesty and good faith. 20
performance likewise be equitable and just. The Adjustment of rights has been held to be particularly applicable
general rule is that this equitable relief will not be when there has been a depreciation of currency.
granted if, under the circumstances of the case, the
result of the specific enforcement of the contract Depreciation of the currency or other medium of
would be harsh, inequitable, oppressive, or result in payment contracted for has frequently been held to
an unconscionable advantage to the plaintiff . . justify the court in withholding specific performance
or at least conditioning it upon payment of the actual
In the exercise of its equity jurisdiction, the Court may adjust the value of the property contracted for. Thus, in an
rights of parties in accordance with the circumstances obtaining at action for the specific performance of a real estate
the time of rendition of judgment, when these are significantly contract, it has been held that where the currency in
different from those existing at the time of generation of those which the plaintiff had contracted to pay had greatly
rights. depreciated before enforcement was sought, the
relief would be denied unless the complaint would
The Court is not restricted to an adjustment of the undertake to pay the equitable value of the land.
rights of the parties as they existed when suit was (Willard & Tayloe [U.S.] 8 Wall 557,19 L. Ed 501;
brought, but will give relief appropriate to events Doughdrill v. Edwards, 59 Ala 424) 21
occuring ending the suit. 18
In determining the precise relief to give, the Court will "balance the
While equitable jurisdiction is generally to be equities" or the respective interests of the parties, and take account
determined with reference to the situation existing at of the relative hardship that one relief or another may occasion to
the time the suit is filed, the relief to be accorded by them .22
the decree is governed by the conditions which are
shown to exist at the time of making thereof, and not The completion of the unfinished house so that it may be put into
by the circumstances attending the inception of the habitable condition, as one form of relief to the plaintiff Agcaoili, no
litigation. In making up the final decree in an equity longer appears to be a feasible option in view of the not
suit the judge may rightly consider matters arising inconsiderable time that has already elapsed. That would require an
after suit was brought. Therefore, as a general rule, adjustment of the price of the subject of the sale to conform to
equity will administer such relief as the nature, rights, present prices of construction materials and labor. It is more in

keeping with the realities of the situation, and with equitable norms,
to simply require payment for the land on which the house stands,
and for the house itself, in its unfinished state, as of the time of the 46. G.R. No. L-15645 January 31, 1964
contract. In fact, this is an alternative relief proposed by Agcaoili
himself, i.e., "that judgment issue . . (o)rdering the defendant (GSIS) PAZ P. ARRIETA and VITALIADO ARRIETA, plaintiffs-
to execute a deed of sale that would embody and provide for a appellees,
reasonable amortization of payment on the basis of the present vs.
actual unfinished and uncompleted condition, worth and value of NATIONAL RICE AND CORN CORPORATION, defendant-
the said house. 23 appellant,
MANILA UNDERWRITERS INSURANCE CO., INC., defendant-
WHEREFORE, the judgment of the Court a quo insofar as it appellee.
invalidates and sets aside the cancellation by respondent GSIS of the
award in favor of petitioner Agcaoili of Lot No. 26, Block No. (48) 2 Teehankee and Carreon for plaintiffs-appellees.
of the GSIS low cost housing project at Nangka, Marikina, Rizal, and The Government Corporate Counsel for defendant-appellant.
orders the former to respect the aforesaid award and to pay Isidro A. Vera for defendant-appellee.
damages in the amounts specified, is AFFIRMED as being in accord
with the facts and the law. Said judgments is however modified by REGALA, J.:
deleting the requirement for respondent GSIS "to complete the
house in question so as to make the same habitable," and instead it This is an appeal of the defendant-appellant NARIC from the
is hereby ORDERED that the contract between the parties relative to decision of the trial court dated February 20, 1958, awarding to the
the property above described be modified by adding to the cost of plaintiffs-appellees the amount of $286,000.00 as damages for
the land, as of the time of perfection of the contract, the cost of the breach of contract and dismissing the counterclaim and third party
house in its unfinished state also as of the time of perfection of the complaint of the defendant-appellant NARIC.
contract, and correspondingly adjusting the amortizations to be paid
by petitioner Agcaoili, the modification to be effected after In accordance with Section 13 of Republic Act No. 3452, "the
determination by the Court a quo of the value of said house on the National Rice and Corn Administration (NARIC) is hereby abolished
basis of the agreement of the parties, or if this is not possible by and all its assets, liabilities, functions, powers which are not
such commissioner or commissioners as the Court may appoint. No inconsistent with the provisions of this Act, and all personnel are
pronouncement as to costs. transferred "to the Rice and Corn Administration (RCA).
SO ORDERED. All references, therefore, to the NARIC in this decision must

accordingly be adjusted and read as RCA pursuant to the
aforementioned law.


On May 19, 1952, plaintiff-appellee participated in the public immediate opening of the letter credit since she had by then made a
bidding called by the NARIC for the supply of 20,000 metric tons of tender to her supplier in Rangoon, Burma, "equivalent to 5% of the
Burmese rice. As her bid of $203.00 per metric ton was the lowest, F.O.B. price of 20,000 tons at $180.70 and in compliance with the
she was awarded the contract for the same. Accordingly, on July 1, regulations in Rangoon this 5% will be confiscated if the required
1952, plaintiff-appellee Paz P. Arrieta and the appellant corporation letter of credit is not received by them before August 4, 1952."
entered into a Contract of Sale of Rice, under the terms of which the
former obligated herself to deliver to the latter 20,000 metric tons On August 4, 1952, the Philippine National Bank informed the
of Burmess Rice at $203.00 per metric ton, CIF Manila. In turn, the appellant corporation that its application, "for a letter of credit for
defendant corporation committed itself to pay for the imported rice $3,614,000.00 in favor of Thiri Setkya has been approved by the
"by means of an irrevocable, confirmed and assignable letter of Board of Directors with the condition that marginal cash deposit be
credit in U.S. currency in favor of the plaintiff-appellee and/or paid and that drafts are to be paid upon presentment." (Exh. J-pl.;
supplier in Burma, immediately." Despite the commitment to pay Exh. 10-def., p. 19, Folder of Exhibits). Furthermore, the Bank
immediately "by means of an irrevocable, confirmed and assignable represented that it "will hold your application in abeyance pending
Letter of Credit," however, it was only on July 30, 1952, or a full compliance with the above stated requirement."
month from the execution of the contract, that the defendant
corporation, thru its general manager, took the first to open a letter As it turned out, however, the appellant corporation not in any
of credit by forwarding to the Philippine National Bank its financial position to meet the condition. As matter of fact, in a letter
Application for Commercial Letter Credit. The application was dated August 2, 1952, the NARIC bluntly confessed to the appellee
accompanied by a transmittal letter, the relevant paragraphs of its dilemma: "In this connection, please be advised that our
which read: application for opening of the letter of credit has been presented to
the bank since July 30th but the latter requires that we first deposit
In view of the fact that we do not have sufficient deposit 50% of the value of the letter amounting to aproximately
with your institution with which to cover the amount $3,614,000.00 which we are not in a position to meet." (Emphasis
required to be deposited as a condition for the opening of supplied. Exh. 9-Def.; Exh. 1-Pe., p. 18, Folder of Exhibits)
letters of credit, we will appreciate it if this application could
be considered special case. Consequently, the credit instrument applied for was opened only on
September 8, 1952 "in favor of Thiri Setkya, Rangoon, Burma, and/or
We understand that our supplier, Mrs. Paz P. Arrieta, has a assignee for $3,614,000.00," (which is more than two months from
deadline to meet which is August 4, 1952, and in order to the execution of the contract) the party named by the appellee as
comply therewith, it is imperative that the L/C be opened beneficiary of the letter of credit.1wph1.t
prior to that date. We would therefore request your full
cooperation on this matter. As a result of the delay, the allocation of appellee's supplier in
Rangoon was cancelled and the 5% deposit, amounting to 524,000
On the same day, July 30, 1952, Mrs. Paz P. Arrieta thru counsel, kyats or approximately P200,000.00 was forfeited. In this
advised the appellant corporation of the extreme necessity for the connection, it must be made of record that although the Burmese

authorities had set August 4, 1952, as the deadline for the As it is then, the disposition of this case depends on a determination
remittance of the required letter of credit, the cancellation of the of who was responsible for such failure. Stated differently, the issue
allocation and the confiscation of the 5% deposit were not effected is whether appellant's failure to open immediately the letter of
until August 20, 1952, or, a full half month after the expiration of the credit in dispute amounted to a breach of the contract of July 1,
deadline. And yet, even with the 15-day grace, appellant corporation 1952 for which it may be held liable in damages.
was unable to make good its commitment to open the disputed
letter of credit. Appellant corporation disclaims responsibility for the delay in the
opening of the letter of credit. On the contrary, it insists that the
The appellee endeavored, but failed, to restore the cancelled fault lies with the appellee. Appellant contends that the disputed
Burmese rice allocation. When the futility of reinstating the same negotiable instrument was not promptly secured because the
became apparent, she offered to substitute Thailand rice instead to appellee , failed to seasonably furnish data necessary and required
the defendant NARIC, communicating at the same time that the for opening the same, namely, "(1) the amount of the letter of
offer was "a solution which should be beneficial to the NARIC and to credit, (2) the person, company or corporation in whose favor it is to
us at the same time." (Exh. X-Pe., Exh. 25Def., p. 38, Folder of be opened, and (3) the place and bank where it may be negotiated."
Exhibits). This offer for substitution, however, was rejected by the Appellant would have this Court believe, therefore, that had these
appellant in a resolution dated November 15, 1952. informations been forthwith furnished it, there would have been no
delay in securing the instrument.
On the foregoing, the appellee sent a letter to the appellant,
demanding compensation for the damages caused her in the sum of Appellant's explanation has neither force nor merit. In the first
$286,000.00, U.S. currency, representing unrealized profit. The place, the explanation reaches into an area of the proceedings into
demand having been rejected she instituted this case now on which We are not at liberty to encroach. The explanation refers to a
appeal. question of fact. Nothing in the record suggests any arbitrary or
abusive conduct on the part of the trial judge in the formulation of
At the instance of the NARIC, a counterclaim was filed and the the ruling. His conclusion on the matter is sufficiently borne out by
Manila Underwriters Insurance Company was brought to the suit as the evidence presented. We are denied, therefore, the prerogative
a third party defendant to hold it liable on the performance bond it to disturb that finding, consonant to the time-honored tradition of
executed in favor of the plaintiff-appellee. this Tribunal to hold trial judges better situated to make conclusions
on questions of fact. For the record, We quote hereunder the lower
We find for the appellee. court's ruling on the point:
It is clear upon the records that the sole and principal reason for the The defense that the delay, if any in opening the letter of
cancellation of the allocation contracted by the appellee herein in credit was due to the failure of plaintiff to name the supplier,
Rangoon, Burma, was the failure of the letter of credit to be opened the amount and the bank is not tenable. Plaintiff stated in
with the contemplated period. This failure must, therefore, be taken Court that these facts were known to defendant even before
as the immediate cause for the consequent damage which resulted. the contract was executed because these facts were

necessarily revealed to the defendant before she could admitted and owned that it did "not have sufficient deposit with
qualify as a bidder. She stated too that she had given the your institution (the PNB) with which to cover the amount required
necessary data immediately after the execution of Exh. "A" to be deposited as a condition for the opening of letters of credit. ...
(the contract of July 1, 1952) to Mr. GABRIEL BELMONTE, .
General Manager of the NARIC, both orally and in writing and
that she also pressed for the opening of the letter of credit A number of logical inferences may be drawn from the
on these occasions. These statements have not been aforementioned admission. First, that the appellant knew the bank
controverted and defendant NARIC, notwithstanding its requirements for opening letters of credit; second, that appellant
previous intention to do so, failed to present Mr. Belmonte also knew it could not meet those requirement. When, therefore,
to testify or refute this. ... despite this awareness that was financially incompetent to open a
letter of credit immediately, appellant agreed in paragraph 8 of the
Secondly, from the correspondence and communications which contract to pay immediately "by means of an irrevocable, confirm
form part of the record of this case, it is clear that what singularly and assignable letter of credit," it must be similarly held to have
delayed the opening of the stipulated letter of credit and which, in bound itself to answer for all and every consequences that would
turn, caused the cancellation of the allocation in Burma, was the result from the representation. aptly observed by the trial court:
inability of the appellant corporation to meet the condition
importation by the Bank for granting the same. We do not think the ... Having called for bids for the importation of rice involving
appellant corporation can refute the fact that had it been able to put millions, $4,260,000.00 to be exact, it should have a
up the 50% marginal cash deposit demanded by the bank, then the certained its ability and capacity to comply with the
letter of credit would have been approved, opened and released as inevitably requirements in cash to pay for such importation.
early as August 4, 1952. The letter of the Philippine National Bank to Having announced the bid, it must be deemed to have
the NARIC was plain and explicit that as of the said date, appellant's impliedly assured suppliers of its capacity and facility to
"application for a letter of credit ... has been approved by the Board finance the importation within the required period,
of Directors with the condition that 50% marginal cash deposit be especially since it had imposed the supplier the 90-day
paid and that drafts are to be paid upon presentment." (Emphasis period within which the shipment of the rice must be
supplied) brought into the Philippines. Having entered in the contract,
it should have taken steps immediately to arrange for the
The liability of the appellant, however, stems not alone from this letter of credit for the large amount involved and inquired
failure or inability to satisfy the requirements of the bank. Its into the possibility of its issuance.
culpability arises from its willful and deliberate assumption of
contractual obligations even as it was well aware of its financial In relation to the aforequoted observation of the trial court, We
incapacity to undertake the prestation. We base this judgment upon would like to make reference also to Article 11 of the Civil Code
the letter which accompanied the application filed by the appellant which provides:
with the bank, a part of which letter was quoted earlier in this
decision. In the said accompanying correspondence, appellant

Those who in the performance of their obligation are guilty insurance and charges incident to its shipment here and the
of fraud, negligence, or delay, and those who in any manner forfeiture of the 5% deposit, the award granted by the lower court is
contravene the tenor thereof, are liable in damages. fair and equitable. For a clearer view of the equity of the damages
awarded, We reproduce below the testimony of the appellee,
Under this provision, not only debtors guilty of fraud, negligence or adequately supported by the evidence and record:
default in the performance of obligations a decreed liable; in
general, every debtor who fails in performance of his obligations is Q. Will you please tell the court, how much is the damage
bound to indemnify for the losses and damages caused thereby (De you suffered?
la Cruz Seminary of Manila, 18 Phil. 330; Municipality of Moncada v.
Cajuigan, 21 Phil. 184; De la Cavada v. Diaz, 37 Phil. 982; Maluenda A. Because the selling price of my rice is $203.00 per metric
& Co. v. Enriquez, 46 Phil. 916; Pasumil v. Chong, 49 Phil. 1003; ton, and the cost price of my rice is $180.00 We had to pay
Pando v. Gimenez, 54 Phil. 459; Acme Films v. Theaters Supply, 63 also $6.25 for shipping and about $164 for insurance. So
Phil. 657). The phrase "any manner contravene the tenor" of the adding the cost of the rice, the freight, the insurance, the
obligation includes any illicit act which impairs the strict and faithful total would be about $187.99 that would be $15.01 gross
fulfillment of the obligation or every kind or defective performance. profit per metric ton, multiply by 20,000 equals $300,200,
(IV Tolentino, Civil Code of the Philippines, citing authorities, p. 103.) that is my supposed profit if I went through the contract.
The NARIC would also have this Court hold that the subsequent offer The above testimony of the plaintiff was a general approximation of
to substitute Thailand rice for the originally contracted Burmese rice the actual figures involved in the transaction. A precise and more
amounted to a waiver by the appellee of whatever rights she might exact demonstration of the equity of the award herein is provided
have derived from the breach of the contract. We disagree. Waivers by Exhibit HH of the plaintiff and Exhibit 34 of the defendant,
are not presumed, but must be clearly and convincingly shown, hereunder quoted so far as germane.
either by express stipulation or acts admitting no other reasonable
explanation. (Ramirez v. Court of Appeals, 52 O.G. 779.) In the case It is equally of record now that as shown in her request dated
at bar, no such intent to waive has been established. July 29, 1959, and other communications subsequent thereto
for the opening by your corporation of the required letter of
We have carefully examined and studied the oral and documentary credit, Mrs. Arrieta was supposed to pay her supplier in
evidence presented in this case and upon which the lower court Burma at the rate of One Hundred Eighty Dollars and Seventy
based its award. Under the contract, the NARIC bound itself to buy Cents ($180.70) in U.S. Currency, per ton plus Eight Dollars
20,000 metric tons of Burmese rice at "$203.00 U.S. Dollars per ($8.00) in the same currency per ton for shipping and other
metric ton, all net shipped weight, and all in U.S. currency, C.I.F. handling expenses, so that she is already assured of a net
Manila ..." On the other hand, documentary and other evidence profit of Fourteen Dollars and Thirty Cents ($14.30), U.S.,
establish with equal certainty that the plaintiff-appellee was able to Currency, per ton or a total of Two Hundred and Eighty Six
secure the contracted commodity at the cost price of $180.70 per Thousand Dollars ($286,000.00), U.S. Currency, in the
metric ton from her supplier in Burma. Considering freights, aforesaid transaction. ...

Lastly, herein appellant filed a counterclaim asserting that it has allowed should be expressed in Philippine currency at the rate of
suffered, likewise by way of unrealized profit damages in the total exchange at the time of the judgment rather than at the rate of
sum of $406,000.00 from the failure of the projected contract to exchange prevailing on the date of defendant's breach. This ruling,
materialize. This counterclaim was supported by a cost study made however, can neither be applied nor extended to the case at bar for
and submitted by the appellant itself and wherein it was illustrated the same was laid down when there was no law against stipulating
how indeed had the importation pushed thru, NARIC would have foreign currencies in Philippine contracts. But now we have Republic
realized in profit the amount asserted in the counterclaim. And yet, Act No. 529 which expressly declares such stipulations as contrary to
the said amount of P406,000.00 was realizable by appellant despite public policy, void and of no effect. And, as We already pronounced
a number of expenses which the appellee under the contract, did in the case of Eastboard Navigation, Ltd. v. Juan Ysmael & Co., Inc.,
not have to incur. Thus, under the cost study submitted by the G.R. No. L-9090, September 10, 1957, if there is any agreement to
appellant, banking and unloading charges were to be shouldered by pay an obligation in a currency other than Philippine legal tender,
it, including an Import License Fee of 2% and superintendence fee of the same is null and void as contrary to public policy (Republic Act
$0.25 per metric ton. If the NARIC stood to profit over P400 000.00 529), and the most that could be demanded is to pay said obligation
from the disputed transaction inspite of the extra expenditures from in Philippine currency "to be measured in the prevailing rate of
which the herein appellee was exempt, we are convicted of the exchange at the time the obligation was incurred (Sec. 1, idem)."
fairness of the judgment presently under appeal.
UPON ALL THE FOREGOING, the decision appealed from is hereby
In the premises, however, a minor modification must be effected in affirmed, with the sole modification that the award should be
the dispositive portion of the decision appeal from insofar as it converted into the Philippine peso at the rate of exchange prevailing
expresses the amount of damages in U.S. currency and not in at the time the obligation was incurred or on July 1, 1952 when the
Philippine Peso. Republic Act 529 specifically requires the discharge contract was executed. The appellee insurance company, in the light
of obligations only "in any coin or currency which at the time of of this judgment, is relieved of any liability under this suit. No
payment is legal tender for public and private debts." In view of that pronouncement as to costs.
law, therefore, the award should be converted into and expressed in
Philippine Peso. Bengzon, C.J., Padilla, Concepcion, Paredes, Dizon and Makalintal,
JJ., concur.
This brings us to a consideration of what rate of exchange should Barrera, J., took no part.
apply in the conversion here decreed. Should it be at the time of the Reyes, J.B.L., J., reserves his vote.
breach, at the time the obligation was incurred or at the rate of
exchange prevailing on the promulgation of this decision.

In the case of Engel v. Velasco & Co., 47 Phil. 115, We ruled that in
an action for recovery of damages for breach of contract, even if the
obligation assumed by the defendant was to pay the plaintiff a sum
of money expressed in American currency, the indemnity to be 47. G.R. No. 159617 August 8, 2007

ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC., Suspects after taking the money and jewelries fled on board
petitioners, a Marson Toyota unidentified plate number.3
vs.
LULU V. JORGE and CESAR JORGE, respondents. Petitioner Sicam sent respondent Lulu a letter dated October 19,
1987 informing her of the loss of her jewelry due to the robbery
D E C I S I O N incident in the pawnshop. On November 2, 1987, respondent Lulu
then wrote a letter4 to petitioner Sicam expressing disbelief stating
AUSTRIA-MARTINEZ, J.: that when the robbery happened, all jewelry pawned were
deposited with Far East Bank near the pawnshop since it had been
Before us is a Petition for Review on Certiorari filed by Roberto C. the practice that before they could withdraw, advance notice must
Sicam, Jr. (petitioner Sicam) and Agencia de R.C. Sicam, Inc. be given to the pawnshop so it could withdraw the jewelry from the
(petitioner corporation) seeking to annul the Decision1 of the Court bank. Respondent Lulu then requested petitioner Sicam to prepare
of Appeals dated March 31, 2003, and its Resolution2 dated August the pawned jewelry for withdrawal on November 6, 1987 but
8, 2003, in CA G.R. CV No. 56633. petitioner Sicam failed to return the jewelry.
It appears that on different dates from September to October 1987, On September 28, 1988, respondent Lulu joined by her husband,
Lulu V. Jorge (respondent Lulu) pawned several pieces of jewelry Cesar Jorge, filed a complaint against petitioner Sicam with the
with Agencia de R. C. Sicam located at No. 17 Aguirre Ave., BF Regional Trial Court of Makati seeking indemnification for the loss of
Homes Paraaque, Metro Manila, to secure a loan in the total pawned jewelry and payment of actual, moral and exemplary
amount of P59,500.00. damages as well as attorney's fees. The case was docketed as Civil
Case No. 88-2035.
On October 19, 1987, two armed men entered the pawnshop and
took away whatever cash and jewelry were found inside the Petitioner Sicam filed his Answer contending that he is not the real
pawnshop vault. The incident was entered in the police blotter of party-in-interest as the pawnshop was incorporated on April 20,
the Southern Police District, Paraaque Police Station as follows: 1987 and known as Agencia de R.C. Sicam, Inc; that petitioner
corporation had exercised due care and diligence in the safekeeping
Investigation shows that at above TDPO, while victims were of the articles pledged with it and could not be made liable for an
inside the office, two (2) male unidentified persons entered event that is fortuitous.
into the said office with guns drawn. Suspects(sic) (1) went
straight inside and poked his gun toward Romeo Sicam and Respondents subsequently filed an Amended Complaint to include
thereby tied him with an electric wire while suspects (sic) (2) petitioner corporation.
poked his gun toward Divina Mata and Isabelita Rodriguez
and ordered them to lay (sic) face flat on the floor. Suspects Thereafter, petitioner Sicam filed a Motion to Dismiss as far as he is
asked forcibly the case and assorted pawned jewelries items concerned considering that he is not the real party-in-interest.
mentioned above.

Respondents opposed the same. The RTC denied the motion in an In finding petitioner Sicam liable together with petitioner
Order dated November 8, 1989.5 corporation, the CA applied the doctrine of piercing the veil of
corporate entity reasoning that respondents were misled into
After trial on the merits, the RTC rendered its Decision6 dated thinking that they were dealing with the pawnshop owned by
January 12, 1993, dismissing respondents complaint as well as petitioner Sicam as all the pawnshop tickets issued to them bear the
petitioners counterclaim. The RTC held that petitioner Sicam could words "Agencia de R.C. Sicam"; and that there was no indication on
not be made personally liable for a claim arising out of a corporate the pawnshop tickets that it was the petitioner corporation that
transaction; that in the Amended Complaint of respondents, they owned the pawnshop which explained why respondents had to
asserted that "plaintiff pawned assorted jewelries in defendants' amend their complaint impleading petitioner corporation.
pawnshop"; and that as a consequence of the separate juridical
personality of a corporation, the corporate debt or credit is not the The CA further held that the corresponding diligence required of a
debt or credit of a stockholder. pawnshop is that it should take steps to secure and protect the
pledged items and should take steps to insure itself against the loss
The RTC further ruled that petitioner corporation could not be held of articles which are entrusted to its custody as it derives earnings
liable for the loss of the pawned jewelry since it had not been from the pawnshop trade which petitioners failed to do; that Austria
rebutted by respondents that the loss of the pledged pieces of is not applicable to this case since the robbery incident happened in
jewelry in the possession of the corporation was occasioned by 1961 when the criminality had not as yet reached the levels attained
armed robbery; that robbery is a fortuitous event which exempts in the present day; that they are at least guilty of contributory
the victim from liability for the loss, citing the case of Austria v. negligence and should be held liable for the loss of jewelries; and
Court of Appeals;7 and that the parties transaction was that of a that robberies and hold-ups are foreseeable risks in that those
pledgor and pledgee and under Art. 1174 of the Civil Code, the engaged in the pawnshop business are expected to foresee.
pawnshop as a pledgee is not responsible for those events which
could not be foreseen. The CA concluded that both petitioners should be jointly and
severally held liable to respondents for the loss of the pawned
Respondents appealed the RTC Decision to the CA. In a Decision jewelry.
dated March 31, 2003, the CA reversed the RTC, the dispositive
portion of which reads as follows: Petitioners motion for reconsideration was denied in a Resolution
dated August 8, 2003.
WHEREFORE, premises considered, the instant Appeal is
GRANTED, and the Decision dated January 12, 1993,of the Hence, the instant petition for review with the following assignment
Regional Trial Court of Makati, Branch 62, is hereby of errors:
REVERSED and SET ASIDE, ordering the appellees to pay
appellants the actual value of the lost jewelry amounting to THE COURT OF APPEALS ERRED AND WHEN IT DID, IT
P272,000.00, and attorney' fees of P27,200.00.8 OPENED ITSELF TO REVERSAL, WHEN IT ADOPTED
UNCRITICALLY (IN FACT IT REPRODUCED AS ITS OWN

WITHOUT IN THE MEANTIME ACKNOWLEDGING IT) WHAT Anent the second error, petitioners point out that the CA finding on
THE RESPONDENTS ARGUED IN THEIR BRIEF, WHICH their negligence is likewise an unedited reproduction of
ARGUMENT WAS PALPABLY UNSUSTAINABLE. respondents brief which had the following defects:
THE COURT OF APPEALS ERRED, AND WHEN IT DID, IT (1) There were unrebutted evidence on record that
OPENED ITSELF TO REVERSAL BY THIS HONORABLE COURT, petitioners had observed the diligence required of them, i.e,
WHEN IT AGAIN ADOPTED UNCRITICALLY (BUT WITHOUT they wanted to open a vault with a nearby bank for purposes
ACKNOWLEDGING IT) THE SUBMISSIONS OF THE of safekeeping the pawned articles but was discouraged by
RESPONDENTS IN THEIR BRIEF WITHOUT ADDING ANYTHING the Central Bank (CB) since CB rules provide that they can
MORE THERETO DESPITE THE FACT THAT THE SAID only store the pawned articles in a vault inside the pawnshop
ARGUMENT OF THE RESPONDENTS COULD NOT HAVE BEEN premises and no other place;
SUSTAINED IN VIEW OF UNREBUTTED EVIDENCE ON
RECORD.9 (2) Petitioners were adjudged negligent as they did not take
insurance against the loss of the pledged jelweries, but it is
Anent the first assigned error, petitioners point out that the CAs judicial notice that due to high incidence of crimes, insurance
finding that petitioner Sicam is personally liable for the loss of the companies refused to cover pawnshops and banks because
pawned jewelries is "a virtual and uncritical reproduction of the of high probability of losses due to robberies;
arguments set out on pp. 5-6 of the Appellants brief."10
(3) In Hernandez v. Chairman, Commission on Audit (179
Petitioners argue that the reproduced arguments of respondents in SCRA 39, 45-46), the victim of robbery was exonerated from
their Appellants Brief suffer from infirmities, as follows: liability for the sum of money belonging to others and lost by
him to robbers.
(1) Respondents conclusively asserted in paragraph 2 of their
Amended Complaint that Agencia de R.C. Sicam, Inc. is the Respondents filed their Comment and petitioners filed their Reply
present owner of Agencia de R.C. Sicam Pawnshop, and thereto. The parties subsequently submitted their respective
therefore, the CA cannot rule against said conclusive Memoranda.
assertion of respondents;
We find no merit in the petition.
(2) The issue resolved against petitioner Sicam was not
among those raised and litigated in the trial court; and To begin with, although it is true that indeed the CA findings were
exact reproductions of the arguments raised in respondents
(3) By reason of the above infirmities, it was error for the CA (appellants) brief filed with the CA, we find the same to be not
to have pierced the corporate veil since a corporation has a fatally infirmed. Upon examination of the Decision, we find that it
personality distinct and separate from its individual expressed clearly and distinctly the facts and the law on which it is
stockholders or members. based as required by Section 8, Article VIII of the Constitution. The

discretion to decide a case one way or another is broad enough to Even petitioners counsel, Atty. Marcial T. Balgos, in his letter16
justify the adoption of the arguments put forth by one of the dated October 15, 1987 addressed to the Central Bank, expressly
parties, as long as these are legally tenable and supported by law referred to petitioner Sicam as the proprietor of the pawnshop
and the facts on records.11 notwithstanding the alleged incorporation in April 1987.
Our jurisdiction under Rule 45 of the Rules of Court is limited to the We also find no merit in petitioners' argument that since
review of errors of law committed by the appellate court. Generally, respondents had alleged in their Amended Complaint that petitioner
the findings of fact of the appellate court are deemed conclusive corporation is the present owner of the pawnshop, the CA is bound
and we are not duty-bound to analyze and calibrate all over again to decide the case on that basis.
the evidence adduced by the parties in the court a quo.12 This rule,
however, is not without exceptions, such as where the factual Section 4 Rule 129 of the Rules of Court provides that an admission,
findings of the Court of Appeals and the trial court are conflicting or verbal or written, made by a party in the course of the proceedings
contradictory13 as is obtaining in the instant case. in the same case, does not require proof. The admission may be
contradicted only by showing that it was made through palpable
However, after a careful examination of the records, we find no mistake or that no such admission was made.
justification to absolve petitioner Sicam from liability.
Thus, the general rule that a judicial admission is conclusive upon
The CA correctly pierced the veil of the corporate fiction and the party making it and does not require proof, admits of two
adjudged petitioner Sicam liable together with petitioner exceptions, to wit: (1) when it is shown that such admission was
corporation. The rule is that the veil of corporate fiction may be made through palpable mistake, and (2) when it is shown that no
pierced when made as a shield to perpetrate fraud and/or confuse such admission was in fact made. The latter exception allows one to
legitimate issues. 14 The theory of corporate entity was not meant to contradict an admission by denying that he made such an
promote unfair objectives or otherwise to shield them.15 admission.17
Notably, the evidence on record shows that at the time respondent The Committee on the Revision of the Rules of Court explained the
Lulu pawned her jewelry, the pawnshop was owned by petitioner second exception in this wise:
Sicam himself. As correctly observed by the CA, in all the pawnshop
receipts issued to respondent Lulu in September 1987, all bear the x x x if a party invokes an "admission" by an adverse party,
words "Agencia de R. C. Sicam," notwithstanding that the pawnshop but cites the admission "out of context," then the one
was allegedly incorporated in April 1987. The receipts issued after making the "admission" may show that he made no "such"
such alleged incorporation were still in the name of "Agencia de R. admission, or that his admission was taken out of context.
C. Sicam," thus inevitably misleading, or at the very least, creating
the wrong impression to respondents and the public as well, that x x x that the party can also show that he made no "such
the pawnshop was owned solely by petitioner Sicam and not by a admission", i.e., not in the sense in which the admission is
corporation. made to appear.

That is the reason for the modifier "such" because if the rule is a matter of defense, the merit of which can only be
simply states that the admission may be contradicted by reached after consideration of the evidence to be presented
showing that "no admission was made," the rule would not in due course.19
really be providing for a contradiction of the admission but
just a denial.18 (Emphasis supplied). Unmistakably, the alleged admission made in respondents'
Amended Complaint was taken "out of context" by petitioner Sicam
While it is true that respondents alleged in their Amended to suit his own purpose. Ineluctably, the fact that petitioner Sicam
Complaint that petitioner corporation is the present owner of the continued to issue pawnshop receipts under his name and not under
pawnshop, they did so only because petitioner Sicam alleged in his the corporation's name militates for the piercing of the corporate
Answer to the original complaint filed against him that he was not veil.
the real party-in-interest as the pawnshop was incorporated in April
1987. Moreover, a reading of the Amended Complaint in its entirety We likewise find no merit in petitioners' contention that the CA
shows that respondents referred to both petitioner Sicam and erred in piercing the veil of corporate fiction of petitioner
petitioner corporation where they (respondents) pawned their corporation, as it was not an issue raised and litigated before the
assorted pieces of jewelry and ascribed to both the failure to RTC.
observe due diligence commensurate with the business which
resulted in the loss of their pawned jewelry. Petitioner Sicam had alleged in his Answer filed with the trial court
that he was not the real party-in-interest because since April 20,
Markedly, respondents, in their Opposition to petitioners Motion to 1987, the pawnshop business initiated by him was incorporated and
Dismiss Amended Complaint, insofar as petitioner Sicam is known as Agencia de R.C. Sicam. In the pre-trial brief filed by
concerned, averred as follows: petitioner Sicam, he submitted that as far as he was concerned, the
basic issue was whether he is the real party in interest against whom
Roberto C. Sicam was named the defendant in the original the complaint should be directed.20 In fact, he subsequently moved
complaint because the pawnshop tickets involved in this case for the dismissal of the complaint as to him but was not favorably
did not show that the R.C. Sicam Pawnshop was a acted upon by the trial court. Moreover, the issue was squarely
corporation. In paragraph 1 of his Answer, he admitted the passed upon, although erroneously, by the trial court in its Decision
allegations in paragraph 1 and 2 of the Complaint. He merely in this manner:
added "that defendant is not now the real party in interest in
this case." x x x The defendant Roberto Sicam, Jr likewise denies liability
as far as he is concerned for the reason that he cannot be
It was defendant Sicam's omission to correct the pawnshop made personally liable for a claim arising from a corporate
tickets used in the subject transactions in this case which was transaction.
the cause of the instant action. He cannot now ask for the
dismissal of the complaint against him simply on the mere This Court sustains the contention of the defendant Roberto
allegation that his pawnshop business is now incorporated. It C. Sicam, Jr. The amended complaint itself asserts that

"plaintiff pawned assorted jewelries in defendant's To constitute a fortuitous event, the following elements must
pawnshop." It has been held that " as a consequence of the concur: (a) the cause of the unforeseen and unexpected occurrence
separate juridical personality of a corporation, the corporate or of the failure of the debtor to comply with obligations must be
debt or credit is not the debt or credit of the stockholder, nor independent of human will; (b) it must be impossible to foresee the
is the stockholder's debt or credit that of a corporation.21 event that constitutes the caso fortuito or, if it can be foreseen, it
must be impossible to avoid; (c) the occurrence must be such as to
Clearly, in view of the alleged incorporation of the pawnshop, the render it impossible for the debtor to fulfill obligations in a normal
issue of whether petitioner Sicam is personally liable is inextricably manner; and, (d) the obligor must be free from any participation in
connected with the determination of the question whether the the aggravation of the injury or loss. 23
doctrine of piercing the corporate veil should or should not apply to
the case. The burden of proving that the loss was due to a fortuitous event
rests on him who invokes it.24 And, in order for a fortuitous event to
The next question is whether petitioners are liable for the loss of the exempt one from liability, it is necessary that one has committed no
pawned articles in their possession. negligence or misconduct that may have occasioned the loss. 25
Petitioners insist that they are not liable since robbery is a fortuitous It has been held that an act of God cannot be invoked to protect a
event and they are not negligent at all. person who has failed to take steps to forestall the possible adverse
consequences of such a loss. One's negligence may have concurred
We are not persuaded. with an act of God in producing damage and injury to another;
nonetheless, showing that the immediate or proximate cause of the
Article 1174 of the Civil Code provides: damage or injury was a fortuitous event would not exempt one from
liability. When the effect is found to be partly the result of a
Art. 1174. Except in cases expressly specified by the law, or person's participation -- whether by active intervention, neglect or
when it is otherwise declared by stipulation, or when the failure to act -- the whole occurrence is humanized and removed
nature of the obligation requires the assumption of risk, no from the rules applicable to acts of God. 26
person shall be responsible for those events which could not
be foreseen or which, though foreseen, were inevitable. Petitioner Sicam had testified that there was a security guard in their
pawnshop at the time of the robbery. He likewise testified that
Fortuitous events by definition are extraordinary events not when he started the pawnshop business in 1983, he thought of
foreseeable or avoidable. It is therefore, not enough that the event opening a vault with the nearby bank for the purpose of safekeeping
should not have been foreseen or anticipated, as is commonly the valuables but was discouraged by the Central Bank since pawned
believed but it must be one impossible to foresee or to avoid. The articles should only be stored in a vault inside the pawnshop. The
mere difficulty to foresee the happening is not impossibility to very measures which petitioners had allegedly adopted show that to
foresee the same. 22 them the possibility of robbery was not only foreseeable, but

actually foreseen and anticipated. Petitioner Sicams testimony, in possibility of fault or negligence on the part of private
effect, contradicts petitioners defense of fortuitous event. respondent.28
Moreover, petitioners failed to show that they were free from any Just like in Co, petitioners merely presented the police report of the
negligence by which the loss of the pawned jewelry may have been Paraaque Police Station on the robbery committed based on the
occasioned. report of petitioners' employees which is not sufficient to establish
robbery. Such report also does not prove that petitioners were not
Robbery per se, just like carnapping, is not a fortuitous event. It does at fault.
not foreclose the possibility of negligence on the part of herein
petitioners. In Co v. Court of Appeals,27 the Court held: On the contrary, by the very evidence of petitioners, the CA did not
err in finding that petitioners are guilty of concurrent or
It is not a defense for a repair shop of motor vehicles to contributory negligence as provided in Article 1170 of the Civil Code,
escape liability simply because the damage or loss of a thing to wit:
lawfully placed in its possession was due to carnapping.
Carnapping per se cannot be considered as a fortuitous Art. 1170. Those who in the performance of their obligations
event. The fact that a thing was unlawfully and forcefully are guilty of fraud, negligence, or delay, and those who in
taken from another's rightful possession, as in cases of any manner contravene the tenor thereof, are liable for
carnapping, does not automatically give rise to a fortuitous damages.29
event. To be considered as such, carnapping entails more
than the mere forceful taking of another's property. It must Article 2123 of the Civil Code provides that with regard to
be proved and established that the event was an act of God pawnshops and other establishments which are engaged in making
or was done solely by third parties and that neither the loans secured by pledges, the special laws and regulations
claimant nor the person alleged to be negligent has any concerning them shall be observed, and subsidiarily, the provisions
participation. In accordance with the Rules of Evidence, the on pledge, mortgage and antichresis.
burden of proving that the loss was due to a fortuitous
event rests on him who invokes it which in this case is The provision on pledge, particularly Article 2099 of the Civil Code,
the private respondent. However, other than the police provides that the creditor shall take care of the thing pledged with
report of the alleged carnapping incident, no other evidence the diligence of a good father of a family. This means that
was presented by private respondent to the effect that the petitioners must take care of the pawns the way a prudent person
incident was not due to its fault. A police report of an alleged would as to his own property.
crime, to which only private respondent is privy, does not
suffice to establish the carnapping. Neither does it prove that In this connection, Article 1173 of the Civil Code further provides:
there was no fault on the part of private respondent
notwithstanding the parties' agreement at the pre-trial that Art. 1173. The fault or negligence of the obligor consists in
the car was carnapped. Carnapping does not foreclose the the omission of that diligence which is required by the nature

of the obligation and corresponds with the circumstances of Q. I am asking you how were the robbers able to enter
the persons, of time and of the place. When negligence despite the fact that there was a security guard?
shows bad faith, the provisions of Articles 1171 and 2201,
paragraph 2 shall apply. A. At the time of the incident which happened about 1:00
and 2:00 o'clock in the afternoon and it happened on a
If the law or contract does not state the diligence which is to Saturday and everything was quiet in the area BF Homes
be observed in the performance, that which is expected of a Paraaque they pretended to pawn an article in the
good father of a family shall be required. pawnshop, so one of my employees allowed him to come in
and it was only when it was announced that it was a hold up.
We expounded in Cruz v. Gangan30 that negligence is the omission
to do something which a reasonable man, guided by those Q. Did you come to know how the vault was opened?
considerations which ordinarily regulate the conduct of human
affairs, would do; or the doing of something which a prudent and A. When the pawnshop is official (sic) open your honor the
reasonable man would not do.31 It is want of care required by the pawnshop is partly open. The combination is off.
circumstances.
Q. No one open (sic) the vault for the robbers?
A review of the records clearly shows that petitioners failed to
exercise reasonable care and caution that an ordinarily prudent A. No one your honor it was open at the time of the robbery.
person would have used in the same situation. Petitioners were
guilty of negligence in the operation of their pawnshop business. Q. It is clear now that at the time of the robbery the vault
Petitioner Sicam testified, thus: was open the reason why the robbers were able to get all the
items pawned to you inside the vault.
Court:
A. Yes sir.32
Q. Do you have security guards in your pawnshop?
revealing that there were no security measures adopted by
A. Yes, your honor. petitioners in the operation of the pawnshop. Evidently, no
sufficient precaution and vigilance were adopted by petitioners to
Q. Then how come that the robbers were able to enter the protect the pawnshop from unlawful intrusion. There was no clear
premises when according to you there was a security guard? showing that there was any security guard at all. Or if there was one,
that he had sufficient training in securing a pawnshop. Further,
A. Sir, if these robbers can rob a bank, how much more a there is no showing that the alleged security guard exercised all that
pawnshop. was necessary to prevent any untoward incident or to ensure that
no suspicious individuals were allowed to enter the premises. In
fact, it is even doubtful that there was a security guard, since it is

quite impossible that he would not have noticed that the robbers However, this Section was subsequently amended by CB Circular No.
were armed with caliber .45 pistols each, which were allegedly 764 which took effect on October 1, 1980, to wit:
poked at the employees.33 Significantly, the alleged security guard
was not presented at all to corroborate petitioner Sicam's claim; not Sec. 17 Insurance of Office Building and Pawns The office
one of petitioners' employees who were present during the robbery building/premises and pawns of a pawnshop must be insured
incident testified in court. against fire. (emphasis supplied).
Furthermore, petitioner Sicam's admission that the vault was open where the requirement that insurance against burglary was deleted.
at the time of robbery is clearly a proof of petitioners' failure to Obviously, the Central Bank considered it not feasible to require
observe the care, precaution and vigilance that the circumstances insurance of pawned articles against burglary.
justly demanded. Petitioner Sicam testified that once the pawnshop
was open, the combination was already off. Considering petitioner The robbery in the pawnshop happened in 1987, and considering
Sicam's testimony that the robbery took place on a Saturday the above-quoted amendment, there is no statutory duty imposed
afternoon and the area in BF Homes Paraaque at that time was on petitioners to insure the pawned jewelry in which case it was
quiet, there was more reason for petitioners to have exercised error for the CA to consider it as a factor in concluding that
reasonable foresight and diligence in protecting the pawned petitioners were negligent.
jewelries. Instead of taking the precaution to protect them, they let
open the vault, providing no difficulty for the robbers to cart away Nevertheless, the preponderance of evidence shows that petitioners
the pawned articles. failed to exercise the diligence required of them under the Civil
Code.
We, however, do not agree with the CA when it found petitioners
negligent for not taking steps to insure themselves against loss of The diligence with which the law requires the individual at all times
the pawned jewelries. to govern his conduct varies with the nature of the situation in
which he is placed and the importance of the act which he is to
Under Section 17 of Central Bank Circular No. 374, Rules and perform.34 Thus, the cases of Austria v. Court of Appeals,35
Regulations for Pawnshops, which took effect on July 13, 1973, and Hernandez v. Chairman, Commission on Audit36 and Cruz v. Gangan37
which was issued pursuant to Presidential Decree No. 114, cited by petitioners in their pleadings, where the victims of robbery
Pawnshop Regulation Act, it is provided that pawns pledged must be were exonerated from liability, find no application to the present
insured, to wit: case.
Sec. 17. Insurance of Office Building and Pawns- The place of In Austria, Maria Abad received from Guillermo Austria a pendant
business of a pawnshop and the pawns pledged to it must be with diamonds to be sold on commission basis, but which Abad
insured against fire and against burglary as well as for the failed to subsequently return because of a robbery committed upon
latter(sic), by an insurance company accredited by the her in 1961. The incident became the subject of a criminal case filed
Insurance Commissioner. against several persons. Austria filed an action against Abad and her

husband (Abads) for recovery of the pendant or its value, but the In Hernandez, Teodoro Hernandez was the OIC and special
Abads set up the defense that the robbery extinguished their disbursing officer of the Ternate Beach Project of the Philippine
obligation. The RTC ruled in favor of Austria, as the Abads failed to Tourism in Cavite. In the morning of July 1, 1983, a Friday, he went
prove robbery; or, if committed, that Maria Abad was guilty of to Manila to encash two checks covering the wages of the
negligence. The CA, however, reversed the RTC decision holding that employees and the operating expenses of the project. However for
the fact of robbery was duly established and declared the Abads not some reason, the processing of the check was delayed and was
responsible for the loss of the jewelry on account of a fortuitous completed at about 3 p.m. Nevertheless, he decided to encash the
event. We held that for the Abads to be relieved from the civil check because the project employees would be waiting for their pay
liability of returning the pendant under Art. 1174 of the Civil Code, it the following day; otherwise, the workers would have to wait until
would only be sufficient that the unforeseen event, the robbery, July 5, the earliest time, when the main office would open. At that
took place without any concurrent fault on the debtors part, and time, he had two choices: (1) return to Ternate, Cavite that same
this can be done by preponderance of evidence; that to be free from afternoon and arrive early evening; or (2) take the money with him
liability for reason of fortuitous event, the debtor must, in addition to his house in Marilao, Bulacan, spend the night there, and leave
to the casus itself, be free of any concurrent or contributory fault or for Ternate the following day. He chose the second option, thinking
negligence.38 it was the safer one. Thus, a little past 3 p.m., he took a passenger
jeep bound for Bulacan. While the jeep was on Epifanio de los
We found in Austria that under the circumstances prevailing at the Santos Avenue, the jeep was held up and the money kept by
time the Decision was promulgated in 1971, the City of Manila and Hernandez was taken, and the robbers jumped out of the jeep and
its suburbs had a high incidence of crimes against persons and ran. Hernandez chased the robbers and caught up with one robber
property that rendered travel after nightfall a matter to be who was subsequently charged with robbery and pleaded guilty. The
sedulously avoided without suitable precaution and protection; that other robber who held the stolen money escaped. The Commission
the conduct of Maria Abad in returning alone to her house in the on Audit found Hernandez negligent because he had not brought
evening carrying jewelry of considerable value would have been the cash proceeds of the checks to his office in Ternate, Cavite for
negligence per se and would not exempt her from responsibility in safekeeping, which is the normal procedure in the handling of funds.
the case of robbery. However we did not hold Abad liable for We held that Hernandez was not negligent in deciding to encash the
negligence since, the robbery happened ten years previously; i.e., check and bringing it home to Marilao, Bulacan instead of Ternate,
1961, when criminality had not reached the level of incidence Cavite due to the lateness of the hour for the following reasons: (1)
obtaining in 1971. he was moved by unselfish motive for his co-employees to collect
their wages and salaries the following day, a Saturday, a non-
In contrast, the robbery in this case took place in 1987 when working, because to encash the check on July 5, the next working
robbery was already prevalent and petitioners in fact had already day after July 1, would have caused discomfort to laborers who were
foreseen it as they wanted to deposit the pawn with a nearby bank dependent on their wages for sustenance; and (2) that choosing
for safekeeping. Moreover, unlike in Austria, where no negligence Marilao as a safer destination, being nearer, and in view of the
was committed, we found petitioners negligent in securing their comparative hazards in the trips to the two places, said decision
pawnshop as earlier discussed. seemed logical at that time. We further held that the fact that two

robbers attacked him in broad daylight in the jeep while it was on a hinder one from boarding the LRT coach as Cruz did considering that
busy highway and in the presence of other passengers could not be whether she rode a jeep or bus, the risk of theft would have also
said to be a result of his imprudence and negligence. been present; that because of her relatively low position and pay,
she was not expected to have her own vehicle or to ride a taxicab;
Unlike in Hernandez where the robbery happened in a public utility, she did not have a government assigned vehicle; that placing the
the robbery in this case took place in the pawnshop which is under cellphone in a bag away from covetous eyes and holding on to that
the control of petitioners. Petitioners had the means to screen the bag as she did is ordinarily sufficient care of a cellphone while
persons who were allowed entrance to the premises and to protect traveling on board the LRT; that the records did not show any
itself from unlawful intrusion. Petitioners had failed to exercise specific act of negligence on her part and negligence can never be
precautionary measures in ensuring that the robbers were presumed.
prevented from entering the pawnshop and for keeping the vault
open for the day, which paved the way for the robbers to easily cart Unlike in the Cruz case, the robbery in this case happened in
away the pawned articles. petitioners' pawnshop and they were negligent in not exercising the
precautions justly demanded of a pawnshop.
In Cruz, Dr. Filonila O. Cruz, Camanava District Director of
Technological Education and Skills Development Authority (TESDA), WHEREFORE, except for the insurance aspect, the Decision of the
boarded the Light Rail Transit (LRT) from Sen. Puyat Avenue to Court of Appeals dated March 31, 2003 and its Resolution dated
Monumento when her handbag was slashed and the contents were August 8, 2003, are AFFIRMED.
stolen by an unidentified person. Among those stolen were her
wallet and the government-issued cellular phone. She then reported Costs against petitioners.
the incident to the police authorities; however, the thief was not
located, and the cellphone was not recovered. She also reported the SO ORDERED.
loss to the Regional Director of TESDA, and she requested that she
be freed from accountability for the cellphone. The Resident Auditor Ynares-Santiago, Chairperson, Chico-Nazario, Nachura, JJ., concur
denied her request on the ground that she lacked the diligence
required in the custody of government property and was ordered to
pay the purchase value in the total amount of P4,238.00. The COA
found no sufficient justification to grant the request for relief from
accountability. We reversed the ruling and found that riding the LRT
cannot per se be denounced as a negligent act more so because 48. G.R. No. L-47379 May 16, 1988
Cruzs mode of transit was influenced by time and money
considerations; that she boarded the LRT to be able to arrive in NATIONAL POWER CORPORATION, petitioner,
vs.
Caloocan in time for her 3 pm meeting; that any prudent and
HONORABLE COURT OF APPEALS and ENGINEERING
rational person under similar circumstance can reasonably be
CONSTRUCTION, INC., respondents.
expected to do the same; that possession of a cellphone should not


G.R. No. L-47481 May 16, 1988 construct the proposed 2nd lpo-Bicti Tunnel, Intake and Outlet
Structures, and Appurtenant Structures, and Appurtenant
ENGINEERING CONSTRUCTION, INC., petitioner, Features, at Norzagaray, Bulacan, and to complete said works
vs. within eight hundred (800) calendar days from the date the
COUTRT OF APPEALS and NATIONAL POWER Contractor receives the formal notice to proceed (Exh. A).
CORPORATION, respondents.
The project involved two (2) major phases: the first phase
Raymundo A. Armovit for private respondent in L- comprising, the tunnel work covering a distance of seven (7)
47379. kilometers, passing through the mountain, from the Ipo river, a
part of Norzagaray, Bulacan, where the Ipo Dam of the defendant
The Solicitor General for petitioner. National Power Corporation is located, to Bicti; the other phase
consisting of the outworks at both ends of the tunnel.

By September 1967, the plaintiff corporation already had
GUTIERREZ, JR., J.: completed the first major phase of the work, namely, the tunnel
excavation work. Some portions of the outworks at the Bicti site
These consolidated petitions seek to set aside the decision of the were still under construction. As soon as the plaintiff corporation
respondent Court of Appeals which adjudged the National Power had finished the tunnel excavation work at the Bicti site, all the
Corporation liable for damages against Engineering Construction, equipment no longer needed there were transferred to the Ipo
Inc. The appellate court, however, reduced the amount of site where some projects were yet to be completed.
damages awarded by the trial court. Hence, both parties filed
their respective petitions: the National Power Corporation (NPC) The record shows that on November 4,1967, typhoon 'Welming'
in G.R. No. 47379, questioning the decision of the Court of hit Central Luzon, passing through defendant's Angat Hydro-
Appeals for holding it liable for damages and the Engineering electric Project and Dam at lpo, Norzagaray, Bulacan. Strong
Construction, Inc. (ECI) in G.R. No. 47481, questioning the same winds struck the project area, and heavy rains intermittently fell.
decision for reducing the consequential damages and attorney's Due to the heavy downpour, the water in the reservoir of the
fees and for eliminating the exemplary damages. Angat Dam was rising perilously at the rate of sixty (60)
centimeters per hour. To prevent an overflow of water from the
The facts are succinctly summarized by the respondent Court of dam, since the water level had reached the danger height of 212
Appeals, as follows: meters above sea level, the defendant corporation caused the
opening of the spillway gates." (pp. 45-46, L-47379, Rollo)
On August 4, 1964, plaintiff Engineering Construction, Inc., being
a successful bidder, executed a contract in Manila with the The appellate court sustained the findings of the trial court that
National Waterworks and Sewerage Authority (NAWASA), the evidence preponlderantly established the fact that due to the
whereby the former undertook to furnish all tools, labor, negligent manner with which the spillway gates of the Angat Dam
equipment, and materials (not furnished by Owner), and to were opened, an extraordinary large volume of water rushed out

of the gates, and hit the installations and construction works of evidence. We hold that the lower court did not commit any error
ECI at the lpo site with terrific impact, as a result of which the in awarding P 675,785.31 as actual or compensatory damages.
latter's stockpile of materials and supplies, camp facilities and
permanent structures and accessories either washed away, lost However, We cannot sustain the award of P333,200.00 as
or destroyed. consequential damages. This amount is broken down as follows:
P213,200.00 as and for the rentals of a crane to temporarily
The appellate court further found that: replace the one "destroyed beyond repair," and P120,000.00 as
one month bonus which the appellee failed to realize in
It cannot be pretended that there was no negligence or that the accordance with the contract which the appellee had with
appellant exercised extraordinary care in the opening of the NAWASA. Said rental of the crane allegedly covered the period of
spillway gates of the Angat Dam. Maintainers of the dam knew one year at the rate of P40.00 an hour for 16 hours a day. The
very well that it was far more safe to open them gradually. But evidence, however, shows that the appellee bought a crane also a
the spillway gates were opened only when typhoon Welming was crawler type, on November 10, 1967, six (6) days after the
already at its height, in a vain effort to race against time and incident in question (Exh N) And according to the lower court,
prevent the overflow of water from the dam as it 'was rising which finding was never assailed, the appellee resumed its
dangerously at the rate of sixty centimeters per hour. 'Action normal construction work on the Ipo- Bicti Project after a
could have been taken as early as November 3, 1967, when the stoppage of only one month. There is no evidence when the
water in the reservoir was still low. At that time, the gates of the appellee received the crane from the seller, Asian Enterprise
dam could have been opened in a regulated manner. Let it be Limited. But there was an agreement that the shipment of the
stressed that the appellant knew of the coming of the typhoon goods would be effected within 60 days from the opening of the
four days before it actually hit the project area. (p. 53, L-47379, letter of credit (Exh. N).<re||an1w> It appearing that the
Rollo) contract of sale was consummated, We must conclude or at least
assume that the crane was delivered to the appellee within 60
As to the award of damages, the appellate court held: days as stipulated. The appellee then could have availed of the
services of another crane for a period of only one month (after a
We come now to the award of damages. The appellee submitted a work stoppage of one month) at the rate of P 40.00 an hour for
list of estimated losses and damages to the tunnel project (Ipo 16 hours a day or a total of P 19,200.00 as rental.
side) caused by the instant flooding of the Angat River (Exh. J-1).
The damages were itemized in four categories, to wit: Camp But the value of the new crane cannot be included as part of
Facilities P55,700.00; Equipment, Parts and Plant actual damages because the old was reactivated after it was
P375,659.51; Materials P107,175.80; and Permanent Structures repaired. The cost of the repair was P 77,000.00 as shown in item
and accessories P137,250.00, with an aggregate total amount No. 1 under the Equipment, Parts and Plants category (Exh. J-1),
of P675,785.31. The list is supported by several vouchers which which amount of repair was already included in the actual or
were all submitted as Exhibits K to M-38 a, N to O, P to U-2 and V compensatory damages. (pp. 54-56, L-47379, Rollo)
to X- 60-a (Vide: Folders Nos. 1 to 4). The appellant did not
submit proofs to traverse the aforementioned documentary

The appellate court likewise rejected the award of unrealized Both petitions are without merit.
bonus from NAWASA in the amount of P120,000.00 (computed at
P4,000.00 a day in case construction is finished before the It is clear from the appellate court's decision that based on its
specified time, i.e., within 800 calendar days), considering that findings of fact and that of the trial court's, petitioner NPC was
the incident occurred after more than three (3) years or one undoubtedly negligent because it opened the spillway gates of
thousand one hundred seventy (1,170) days. The court also the Angat Dam only at the height of typhoon "Welming" when it
eliminated the award of exemplary damages as there was no knew very well that it was safer to have opened the same
gross negligence on the part of NPC and reduced the amount of gradually and earlier, as it was also undeniable that NPC knew of
attorney's fees from P50,000.00 to P30,000.00. the coming typhoon at least four days before it actually struck.
And even though the typhoon was an act of God or what we may
In these consolidated petitions, NPC assails the appellate court's call force majeure, NPC cannot escape liability because its
decision as being erroneous on the ground that the destruction negligence was the proximate cause of the loss and damage. As
and loss of the ECI's equipment and facilities were due to force we have ruled in Juan F. Nakpil & Sons v. Court of Appeals, (144
majeure. It argues that the rapid rise of the water level in the SCRA 596, 606-607):
reservoir of its Angat Dam due to heavy rains brought about by
the typhoon was an extraordinary occurrence that could not have Thus, if upon the happening of a fortuitous event or an act of God,
been foreseen, and thus, the subsequent release of water through there concurs a corresponding fraud, negligence, delay or
the spillway gates and its resultant effect, if any, on ECI's violation or contravention in any manner of the tenor of the
equipment and facilities may rightly be attributed to force obligation as provided for in Article 1170 of the Civil Code, which
majeure. results in loss or damage, the obligor cannot escape liability.

On the other hand, ECI assails the reduction of the consequential The principle embodied in the act of God doctrine strictly
damages from P333,200.00 to P19,000.00 on the grounds that requires that the act must be one occasioned exclusively by the
the appellate court had no basis in concluding that ECI acquired a violence of nature and human agencies are to be excluded from
new Crawler-type crane and therefore, it only can claim rentals creating or entering into the cause of the mischief. When the
for the temporary use of the leased crane for a period of one effect, the cause of which is to be considered, is found to be in
month; and that the award of P4,000.00 a day or P120,000.00 a part the result of the participation of man, whether it be from
month bonus is justified since the period limitation on ECI's active intervention or neglect, or failure to act, the whole
contract with NAWASA had dual effects, i.e., bonus for earlier occurrence is thereby humanized, as it was, and removed from
completion and liquidated damages for delayed performance; the rules applicable to the acts of God. (1 Corpus Juris, pp. 1174-
and in either case at the rate of P4,000.00 daily. Thus, since NPC's 1175).
negligence compelled work stoppage for a period of one month,
the said award of P120,000.00 is justified. ECI further assailes the Thus, it has been held that when the negligence of a person
reduction of attorney's fees and the total elimination of concurs with an act of God in producing a loss, such person is not
exemplary damages. exempt from liability by showing that the immediate cause of the
damage was the act of God. To be exempt from liability for loss

because of an act of God, he must be free from any previous would be delivered to it by Asian Enterprises within 60 days
negligence or misconduct by which the loss or damage may have from the opening of the letter of credit at the cost of P106,336.75.
been occasioned. (Fish & Elective Co. v. Phil. Motors, 55 Phil. 129; The offer was made by Asian Enterprises a few days after the
Tucker v. Milan 49 O.G. 4379; Limpangco & Sons v. Yangco flood. As compared to the amount of P106,336.75 for a brand
Steamship Co., 34 Phil. 594, 604; Lasam v. Smith, 45 Phil. 657). new crane and paying the alleged amount of P4,000.00 a day as
rental for the use of a temporary crane, which use petitioner ECI
Furthermore, the question of whether or not there was alleged to have lasted for a period of one year, thus, totalling
negligence on the part of NPC is a question of fact which properly P120,000.00, plus the fact that there was already a sales contract
falls within the jurisdiction of the Court of Appeals and will not between it and Asian Enterprises, there is no reason why ECI
be disturbed by this Court unless the same is clearly unfounded. should opt to rent a temporary crane for a period of one year.
Thus, in Tolentino v. Court of appeals, (150 SCRA 26, 36) we The appellate court also found that the damaged crane was
ruled: subsequently repaired and reactivated and the cost of repair was
P77,000.00. Therefore, it included the said amount in the award
Moreover, the findings of fact of the Court of Appeals are of of compensatory damages, but not the value of the new crane.
generally final and conclusive upon the Supreme Court We do not find anything erroneous in the decision of the
(Leonardo v. Court of Appeals, 120 SCRA 890 [1983]. In fact it is appellate court that the consequential damages should represent
settled that the Supreme Court is not supposed to weigh evidence only the service of the temporary crane for one month. A
but only to determine its substantially (Nuez v. Sandiganbayan, contrary ruling would result in the unjust enrichment of ECI.
100 SCRA 433 [1982] and will generally not disturb said findings
of fact when supported by substantial evidence (Aytona v. Court The P120,000.00 bonus was also properly eliminated as the same
of Appeals, 113 SCRA 575 [1985]; Collector of Customs of Manila was granted by the trial court on the premise that it represented
v. Intermediate Appellate Court, 137 SCRA 3 [1985]. On the other ECI's lost opportunity "to earn the one month bonus from
hand substantial evidence is defined as such relevant evidence as NAWASA ... ." As stated earlier, the loss or damage to ECI's
a reasonable mind might accept as adequate to support a equipment and facilities occurred long after the stipulated
conclusion (Philippine Metal Products, Inc. v. Court of Industrial deadline to finish the construction. No bonus, therefore, could
Relations, 90 SCRA 135 [1979]; Police Commission v. Lood, 127 have been possibly earned by ECI at that point in time. The
SCRA 757 [1984]; Canete v. WCC, 136 SCRA 302 [1985]) supposed liquidated damages for failure to finish the project
within the stipulated period or the opposite of the claim for
Therefore, the respondent Court of Appeals did not err in holding bonus is not clearly presented in the records of these petitions. It
the NPC liable for damages. is not shown that NAWASA imposed them.

Likewise, it did not err in reducing the consequential damages As to the question of exemplary damages, we sustain the
from P333,200.00 to P19,000.00. As shown by the records, while appellate court in eliminating the same since it found that there
there was no categorical statement or admission on the part of was no bad faith on the part of NPC and that neither can the
ECI that it bought a new crane to replace the damaged one, a latter's negligence be considered gross. In Dee Hua Liong
sales contract was presented to the effect that the new crane

Electrical Equipment Corp. v. Reyes, (145 SCRA 713, 719) we
ruled: Before the Court is a petition for review on certiorari under Rule
45 of the 1997 Rules .of Civil Procedure assailing the Decision1 of
Neither may private respondent recover exemplary damages the Court of Appeals in CA-G.R. SP No. 100450 which affirmed the
since he is not entitled to moral or compensatory damages, and Decision of the Office of the President in O.P. Case No. 06-F-216.
again because the petitioner is not shown to have acted in a
wanton, fraudulent, reckless or oppressive manner (Art. 2234, As culled from the records, the facts are as follow:
Civil Code; Yutuk v. Manila Electric Co., 2 SCRA 377; Francisco v.
Government Service Insurance System, 7 SCRA 577; Gutierrez v. Petitioner Fil-Estate Properties, Inc. is the owner and developer
Villegas, 8 SCRA 527; Air France v. Carrascoso, 18 SCRA 155; Pan of the Central Park Place Tower while co-petitioner Fil-Estate
Pacific (Phil.) v. Phil. Advertising Corp., 23 SCRA 977; Marchan v. Network, Inc. is its authorized marketing agent. Respondent
Mendoza, 24 SCRA 888). Spouses Conrado and Maria Victoria Ronquillo purchased from
petitioners an 82-square meter condominium unit at Central
We also affirm the reduction of attorney's fees from P50,000.00 Park Place Tower in Mandaluyong City for a pre-selling contract
to P30,000.00. There are no compelling reasons why we should price of FIVE MILLION ONE HUNDRED SEVENTY-FOUR
set aside the appellate court's finding that the latter amount THOUSAND ONLY (P5,174,000.00). On 29 August 1997,
suffices for the services rendered by ECI's counsel. respondents executed and signed a Reservation Application
Agreement wherein they deposited P200,000.00 as reservation
WHEREFORE, the petitions in G.R. No. 47379 and G.R. No. 47481 fee. As agreed upon, respondents paid the full downpayment of
are both DISMISSED for LACK OF MERIT. The decision appealed P1,552,200.00 and had been paying the P63,363.33 monthly
from is AFFIRMED. amortizations until September 1998.

Upon learning that construction works had stopped, respondents
likewise stopped paying their monthly amortization. Claiming to
have paid a total of P2,198,949.96 to petitioners, respondents
49. G.R. No. 185798 January 13, 2014 through two (2) successive letters, demanded a full refund of
their payment with interest. When their demands went
FIL-ESTATE PROPERTIES, INC. AND FIL-ESTATE unheeded, respondents were constrained to file a Complaint for
NETWORK INC., Petitioners, Refund and Damages before the Housing and Land Use
vs. Regulatory Board (HLURB). Respondents prayed for
SPOUSES CONRADO AND MARIA VICTORIA reimbursement/refund of P2,198,949.96 representing the total
RONQUILLO, Respondents. amortization payments, P200,000.00 as and by way of moral
damages, attorneys fees and other litigation expenses.
D E C I S I O N

PEREZ, J.:

On 21 October 2000, the HLURB issued an Order of Default damages. The Arbiter also stated that mere economic hardship is
against petitioners for failing to file their Answer within the not an excuse for contractual and legal delay.
reglementary period despite service of summons.2
Petitioners appealed the Arbiters Decision through a petition for
Petitioners filed a motion to lift order of default and attached review pursuant to Rule XII of the 1996 Rules of Procedure of
their position paper attributing the delay in construction to the HLURB. On 17 February 2005, the Board of Commissioners of the
1997 Asian financial crisis. Petitioners denied committing fraud HLURB denied4 the petition and affirmed the Arbiters Decision.
or misrepresentation which could entitle respondents to an The HLURB reiterated that the depreciation of the peso as a
award of moral damages. result of the Asian financial crisis is not a fortuitous event which
will exempt petitioners from the performance of their contractual
On 13 June 2002, the HLURB, through Arbiter Atty. Joselito F. obligation.
Melchor, rendered judgment ordering petitioners to jointly and
severally pay respondents the following amount: Petitioners filed a motion for reconsideration but it was denied5
on 8 May 2006. Thereafter, petitioners filed a Notice of Appeal
a) The amount of TWO MILLION ONE HUNDRED NINETY-EIGHT with the Office of the President. On 18 April 2007, petitioners
THOUSAND NINE HUNDRED FORTY NINE PESOS & 96/100 appeal was dismissed6 by the Office of the President for lack of
(P2,198,949.96) with interest thereon at twelve percent (12%) merit. Petitioners moved for a reconsideration but their motion
per annum to be computed from the time of the complainants was denied7 on 26 July 2007.
demand for refund on October 08, 1998 until fully paid,
Petitioners sought relief from the Court of Appeals through a
b) ONE HUNDRED THOUSAND PESOS (P100,000.00) as moral petition for review under Rule 43 containing the same arguments
damages, they raised before the HLURB and the Office of the President:

c) FIFTY THOUSAND PESOS (P50,000.00) as attorneys fees, I.

d) The costs of suit, and THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN
AFFIRMING THE DECISION OF THE HONORABLE HOUSING AND
e) An administrative fine of TEN THOUSAND PESOS (P10,000.00) LAND USE REGULATORY BOARD AND ORDERING PETITIONERS-
payable to this Office fifteen (15) days upon receipt of this APPELLANTS TO REFUND RESPONDENTS-APPELLEES THE SUM
decision, for violation of Section 20 in relation to Section 38 of PD OF P2,198,949.96 WITH 12% INTEREST FROM 8 OCTOBER 1998
957.3 UNTIL FULLY PAID, CONSIDERING THAT THE COMPLAINT
STATES NO CAUSE OF ACTION AGAINST PETITIONERS-
The Arbiter considered petitioners failure to develop the APPELLANTS.
condominium project as a substantial breach of their obligation
which entitles respondents to seek for rescission with payment of II.


THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN
AFFIRMING THE DECISION OF THE OFFICE BELOW ORDERING Petitioners sought reconsideration but it was denied in a
PETITIONERS-APPELLANTS TO PAY RESPONDENTS-APPELLEES Resolution10 dated 11 December 2008 by the Court of Appeals.
THE SUM OF P100,000.00 AS MORAL DAMAGES AND P50,000.00
AS ATTORNEYS FEES CONSIDERING THE ABSENCE OF ANY Aggrieved, petitioners filed the instant petition advancing
FACTUAL OR LEGAL BASIS THEREFOR. substantially the same grounds for review:

III. A.

THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN THE HONORABLE COURT OF APPEALS ERRED WHEN IT
AFFIRMING THE DECISION OF THE HOUSING AND LAND USE AFFIRMED IN TOTO THE DECISION OF THE OFFICE OF THE
REGULATORY BOARD ORDERING PETITIONERS-APPELLANTS PRESIDENT WHICH SUSTAINED RESCISSION AND REFUND IN
TO PAY P10,000.00 AS ADMINISTRATIVE FINE IN THE ABSENCE FAVOR OF THE RESPONDENTS DESPITE LACK OF CAUSE OF
OF ANY FACTUAL OR LEGAL BASIS TO SUPPORT SUCH ACTION.
FINDING.8
B.
On 30 July 2008, the Court of Appeals denied the petition for
review for lack of merit. The appellate court echoed the HLURB GRANTING FOR THE SAKE OF ARGUMENT THAT THE
Arbiters ruling that "a buyer for a condominium/subdivision PETITIONERS ARE LIABLE UNDER THE PREMISES, THE
unit/lot unit which has not been developed in accordance with HONORABLE COURT OF APPEALS ERRED WHEN IT AFFIRMED
the approved condominium/subdivision plan within the time THE HUGE AMOUNT OF INTEREST OF TWELVE PERCENT (12%).
limit for complying with said developmental requirement may
opt for reimbursement under Section 20 in relation to Section 23 C.
of Presidential Decree (P.D.) 957 x x x."9 The appellate court
supported the HLURB Arbiters conclusion, which was affirmed THE HONORABLE COURT OF APPEALS LIKEWISE ERRED WHEN
by the HLURB Board of Commission and the Office of the IT AFFIRMED IN TOTO THE DECISION OF THE OFFICE OF THE
President, that petitioners failure to develop the condominium PRESIDENT INCLUDING THE PAYMENT OF P100,000.00 AS
project is tantamount to a substantial breach which warrants a MORAL DAMAGES, P50,000.00 AS ATTORNEYS FEES AND
refund of the total amount paid, including interest. The appellate P10,000.00 AS ADMINISTRATIVE FINE IN THE ABSENCE OF ANY
court pointed out that petitioners failed to prove that the Asian FACTUAL OR LEGAL BASIS TO SUPPORT SUCH CONCLUSIONS.11
financial crisis constitutes a fortuitous event which could excuse
them from the performance of their contractual and statutory Petitioners insist that the complaint states no cause of action
obligations. The appellate court also affirmed the award of moral because they allegedly have not committed any act of
damages in light of petitioners unjustified refusal to satisfy misrepresentation amounting to bad faith which could entitle
respondents claim and the legality of the administrative fine, as respondents to a refund. Petitioners claim that there was a mere
provided in Section 20 of Presidential Decree No. 957. delay in the completion of the project and that they only resorted

to "suspension and reformatting as a testament to their second, as a result of the breach committed by petitioners,
commitment to their buyers." Petitioners attribute the delay to respondents are entitled to rescind the contract and to be
the 1997 Asian financial crisis that befell the real estate industry. refunded the amount of amortizations paid including interest and
Invoking Article 1174 of the New Civil Code, petitioners maintain damages; and third, petitioners are likewise obligated to pay
that they cannot be held liable for a fortuitous event. attorneys fees and the administrative fine.

Petitioners contest the payment of a huge amount of interest on This petition did not present any justification for us to deviate
account of suspension of development on a project. They liken from the rulings of the HLURB, the Office of the President and the
their situation to a bank which this Court, in Overseas Bank v. Court of Appeals.
Court of Appeals,12 adjudged as not liable to pay interest on
deposits during the period that its operations are ordered Indeed, the non-performance of petitioners obligation entitles
suspended by the Monetary Board of the Central Bank. respondents to rescission under Article 1191 of the New Civil
Code which states:
Lastly, petitioners aver that they should not be ordered to pay
moral damages because they never intended to cause delay, and Article 1191. The power to rescind obligations is implied in
again blamed the Asian economic crisis as the direct, proximate reciprocal ones, in case one of the obligors should not comply
and only cause of their failure to complete the project. Petitioners with what is incumbent upon him.
submit that moral damages should not be awarded unless so
stipulated except under the instances enumerated in Article 2208 The injured party may choose between the fulfillment and the
of the New Civil Code. Lastly, petitioners refuse to pay the rescission of the obligation, with payment of damages in either
administrative fine because the delay in the project was caused case. He may also seek rescission, even after he has chosen
not by their own deceptive intent to defraud their buyers, but fulfillment, if the latter should become impossible.
due to unforeseen circumstances beyond their control.
More in point is Section 23 of Presidential Decree No. 957, the
Three issues are presented for our resolution: 1) whether or not rule governing the sale of condominiums, which provides:
the Asian financial crisis constitute a fortuitous event which
would justify delay by petitioners in the performance of their Section 23. Non-Forfeiture of Payments.1wphi1 No installment
contractual obligation; 2) assuming that petitioners are liable, payment made by a buyer in a subdivision or condominium
whether or not 12% interest was correctly imposed on the project for the lot or unit he contracted to buy shall be forfeited
judgment award, and 3) whether the award of moral damages, in favor of the owner or developer when the buyer, after due
attorneys fees and administrative fine was proper. notice to the owner or developer, desists from further payment
due to the failure of the owner or developer to develop the
It is apparent that these issues were repeatedly raised by subdivision or condominium project according to the approved
petitioners in all the legal fora. The rulings were consistent that plans and within the time limit for complying with the same. Such
first, the Asian financial crisis is not a fortuitous event that would buyer may, at his option, be reimbursed the total amount paid
excuse petitioners from performing their contractual obligation; including amortization interests but excluding delinquency

interests, with interest thereon at the legal rate. (Emphasis master in projections on commodities and currency movements
supplied). and business risks. The fluctuating movement of the Philippine
peso in the foreign exchange market is an everyday occurrence,
Conformably with these provisions of law, respondents are and fluctuations in currency exchange rates happen everyday,
entitled to rescind the contract and demand reimbursement for thus, not an instance of caso fortuito.16
the payments they had made to petitioners.
The aforementioned decision becomes a precedent to future
Notably, the issues had already been settled by the Court in the cases in which the facts are substantially the same, as in this case.
case of Fil-Estate Properties, Inc. v. Spouses Go13 promulgated The principle of stare decisis, which means adherence to judicial
on 17 August 2007, where the Court stated that the Asian precedents, applies.
financial crisis is not an instance of caso fortuito. Bearing the
same factual milieu as the instant case, G.R. No. 165164 involves In said case, the Court ordered the refund of the total
the same company, Fil-Estate, albeit about a different amortizations paid by respondents plus 6% legal interest
condominium property. The company likewise reneged on its computed from the date of demand. The Court also awarded
obligation to respondents therein by failing to develop the attorneys fees. We follow that ruling in the case before us.
condominium project despite substantial payment of the contract
price. Fil-Estate advanced the same argument that the 1997 The resulting modification of the award of legal interest is, also,
Asian financial crisis is a fortuitous event which justifies the in line with our recent ruling in Nacar v. Gallery Frames,17
delay of the construction project. First off, the Court classified the embodying the amendment introduced by the Bangko Sentral ng
issue as a question of fact which may not be raised in a petition Pilipinas Monetary Board in BSP-MB Circular No. 799 which
for review considering that there was no variance in the factual pegged the interest rate at 6% regardless of the source of
findings of the HLURB, the Office of the President and the Court obligation.
of Appeals. Second, the Court cited the previous rulings of Asian
Construction and Development Corporation v. Philippine We likewise affirm the award of attorneys fees because
Commercial International Bank14 and Mondragon Leisure and respondents were forced to litigate for 14 years and incur
Resorts Corporation v. Court of Appeals15 holding that the 1997 expenses to protect their rights and interest by reason of the
Asian financial crisis did not constitute a valid justification to unjustified act on the part of petitioners.18 The imposition of
renege on obligations. The Court expounded: P10,000.00 administrative fine is correct pursuant to Section 38
of Presidential Decree No. 957 which reads:
Also, we cannot generalize that the Asian financial crisis in 1997
was unforeseeable and beyond the control of a business Section 38. Administrative Fines. The Authority may prescribe
corporation. It is unfortunate that petitioner apparently met with and impose fines not exceeding ten thousand pesos for violations
considerable difficulty e.g. increase cost of materials and labor, of the provisions of this Decree or of any rule or regulation
even before the scheduled commencement of its real estate thereunder. Fines shall be payable to the Authority and
project as early as 1995. However, a real estate enterprise enforceable through writs of execution in accordance with the
engaged in the pre-selling of condominium units is concededly a provisions of the Rules of Court.

CASTRO, J.:
Finally, we sustain the award of moral damages. In order that
moral damages may be awarded in breach of contract cases, the Petition for certiorari by the Universal Food Corporation against
defendant must have acted in bad faith, must be found guilty of the decision of the Court of Appeals of February 13, 1968 in CA-
gross negligence amounting to bad faith, or must have acted in G.R. 31430-R (Magdalo V. Francisco, Sr. and Victoriano V.
wanton disregard of contractual obligations.19 The Arbiter found Francisco, plaintiffs-appellants vs. Universal Food Corporation,
petitioners to have acted in bad faith when they breached their defendant-appellee), the dispositive portion of which reads as
contract, when they failed to address respondents grievances follows: "WHEREFORE the appealed decision is hereby reversed;
and when they adamantly refused to refund respondents' the BILL OF ASSIGNMENT marked Exhibit A is hereby rescinded,
payment. and defendant is hereby ordered to return to plaintiff Magdalo V.
Francisco, Sr., his Mafran sauce trademark and formula subject-
In fine, we find no reversible error on the merits in the impugned matter of Exhibit A, and to pay him his monthly salary of P300.00
Court of Appeals' Decision and Resolution. from December 1, 1960, until the return to him of said trademark
and formula, plus attorney's fees in the amount of P500.00, with
WHEREFORE, the petition is PARTLY GRANTED. The appealed costs against defendant." 1
Decision is AFFIRMED with the MODIFICATION that the legal
interest to be paid is SIX PERCENT (6%) on the amount due On February 14, 1961 Magdalo V. Francisco, Sr. and Victoriano V.
computed from the time of respondents' demand for refund on 8 Francisco filed with the Court of First Instance of Manila, against,
October 1998. the Universal Food Corporation, an action for rescission of a
contract entitled "Bill of Assignment." The plaintiffs prayed the
court to adjudge the defendant as without any right to the use of
the Mafran trademark and formula, and order the latter to
restore to them the said right of user; to order the defendant to
50. G.R. No. L-29155 May 13, 1970 pay Magdalo V. Francisco, Sr. his unpaid salary from December 1,
1960, as well as damages in the sum of P40,000, and to pay the
UNIVERSAL FOOD CORPORATION, petitioner, costs of suit. 1
vs.
THE COURT OF APPEALS, MAGDALO V. FRANCISCO, On February 28, the defendant filed its answer containing
SR., and VICTORIANO N. FRANCISCO, respondents. admissions and denials. Paragraph 3 thereof "admits the
allegations contained in paragraph 3 of plaintiffs' complaint." The
Wigberto E. Taada for petitioner. answer further alleged that the defendant had complied with all
the terms and conditions of the Bill of Assignment and,
Teofilo Mendoza for respondents. consequently, the plaintiffs are not entitled to rescission thereof;
that the plaintiff Magdalo V. Francisco, Sr. was not dismissed
from the service as permanent chief chemist of the corporation as
he is still its chief chemist; and, by way of special defenses, that

the aforesaid plaintiff is estopped from questioning 1) the series of negotiations, formed with others defendant Universal
contents and due execution of the Bill of Assignment, 2) the Food Corporation eventually leading to the execution on May 11,
corporate acts of the petitioner, particularly the resolution 1960 of the aforequoted "Bill of Assignment" (Exhibit A or 1).
adopted by its board of directors at the special meeting held on
October 14, 1960, to suspend operations to avoid further losses Conformably with the terms and conditions of Exh. A, plaintiff
due to increase in the prices of raw materials, since the same Magdalo V. Francisco, Sr. was appointed Chief Chemist with a
plaintiff was present when that resolution was adopted and even salary of P300.00 a month, and plaintiff Victoriano V. Francisco
took part in the consideration thereof, 3) the actuations of its was appointed auditor and superintendent with a salary of
president and general manager in enforcing and implementing P250.00 a month. Since the start of the operation of defendant
the said resolution, 4) the fact that the same plaintiff was corporation, plaintiff Magdalo V. Francisco, Sr., when preparing
negligent in the performance of his duties as chief chemist of the the secret materials inside the laboratory, never allowed anyone,
corporation, and 5) the further fact that the said plaintiff was not even his own son, or the President and General Manager
delinquent in the payment of his subscribed shares of stock with Tirso T. Reyes, of defendant, to enter the laboratory in order to
the corporation. The defendant corporation prayed for the keep the formula secret to himself. However, said plaintiff
dismissal of the complaint, and asked for P750 as attorney's fees expressed a willingness to give the formula to defendant
and P5,000 in exemplary or corrective damages. provided that the same should be placed or kept inside a safe to
be opened only when he is already incapacitated to perform his
On June 25, 1962 the lower court dismissed the plaintiffs' duties as Chief Chemist, but defendant never acquired a safe for
complaint as well as the defendant's claim for damages and that purpose. On July 26, 1960, President and General Manager
attorney's fees, with costs against the former, who promptly Tirso T. Reyes wrote plaintiff requesting him to permit one or
appealed to the Court of Appeals. On February 13, 1969 the two members of his family to observe the preparation of the
appellate court rendered the judgment now the subject of the 'Mafran Sauce' (Exhibit C), but said request was denied by
present recourse. plaintiff. In spite of such denial, Tirso T. Reyes did not compel or
force plaintiff to accede to said request. Thereafter, however, due
The Court of Appeals arrived at the following "uncontroverted" to the alleged scarcity and high prices of raw materials, on
findings of fact: November 28, 1960, Secretary-Treasurer Ciriaco L. de Guzman of
defendant issued a Memorandum (Exhibit B), duly approved by
That as far back as 1938, plaintiff Magdalo V. Francisco, Sr. the President and General Manager Tirso T. Reyes that only
discovered or invented a formula for the manufacture of a food Supervisor Ricardo Francisco should be retained in the factory
seasoning (sauce) derived from banana fruits popularly known and that the salary of plaintiff Magdalo V. Francisco, Sr., should be
as MAFRAN sauce; that the manufacture of this product was used stopped for the time being until the corporation should resume
in commercial scale in 1942, and in the same year plaintiff its operation. Some five (5) days later, that is, on December 3,
registered his trademark in his name as owner and inventor with 1960, President and General Manager Tirso T. Reyes, issued a
the Bureau of Patents; that due to lack of sufficient capital to memorandom to Victoriano Francisco ordering him to report to
finance the expansion of the business, in 1960, said plaintiff the factory and produce "Mafran Sauce" at the rate of not less
secured the financial assistance of Tirso T. Reyes who, after a than 100 cases a day so as to cope with the orders of the

corporation's various distributors and dealers, and with obligations, neither party incurs in delay if the other does not
instructions to take only the necessary daily employees without comply or is not ready to comply in a proper manner with what is
employing permanent employees (Exhibit B). Again, on incumbent upon him; that in this case the trial court found that
December 6, 1961, another memorandum was issued by the the respondents not only have failed to show that the petitioner
same President and General Manager instructing the Assistant has been guilty of default in performing its contractual
Chief Chemist Ricardo Francisco, to recall all daily employees obligations, "but the record sufficiently reveals the fact that it
who are connected in the production of Mafran Sauce and also was the plaintiff Magdalo V. Francisco who had been remiss in
some additional daily employees for the production of Porky the compliance of his contractual obligation to cede and transfer
Pops (Exhibit B-1). On December 29, 1960, another to the defendant the formula for Mafran sauce;" that even the
memorandum was issued by the President and General Manager respondent Court of Appeals found that as "observed by the
instructing Ricardo Francisco, as Chief Chemist, and Porfirio lower court, 'the record is replete with the various attempt made
Zarraga, as Acting Superintendent, to produce Mafran Sauce and by the defendant (herein petitioner) to secure the said formula
Porky Pops in full swing starting January 2, 1961 with further from Magdalo V. Francisco to no avail; and that upon the
instructions to hire daily laborers in order to cope with the full foregoing findings, the respondent Court of Appeals unjustly
blast protection (Exhibit S-2). Plaintiff Magdalo V. Francisco, Sr. concluded that the private respondents are entitled to rescind
received his salary as Chief Chemist in the amount of P300.00 a the Bill of Assignment.
month only until his services were terminated on November 30,
1960. On January 9 and 16, 1961, defendant, acting thru its The threshold question is whether by virtue of the terms of the
President and General Manager, authorized Porfirio Zarraga and Bill of Assignment the respondent Magdalo V. Francisco, Sr.
Paula de Bacula to look for a buyer of the corporation including ceded and transferred to the petitioner corporation the formula
its trademarks, formula and assets at a price of not less than for Mafran sauce. 2
P300,000.00 (Exhibits D and D-1). Due to these successive
memoranda, without plaintiff Magdalo V. Francisco, Sr. being The Bill of Assignment sets forth the following terms and
recalled back to work, the latter filed the present action on conditions:
February 14, 1961. About a month afterwards, in a letter dated
March 20, 1961, defendant, thru its President and General THAT the Party of the First Part [Magdalo V. Francisco, Sr.] is the
Manager, requested said plaintiff to report for duty (Exhibit 3), sole and exclusive owner of the MAFRAN trade-mark and the
but the latter declined the request because the present action formula for MAFRAN SAUCE;
was already filed in court (Exhibit J).
THAT for and in consideration of the royalty of TWO (2%) PER
1. The petitioner's first contention is that the respondents CENTUM of the net annual profit which the PARTY OF THE
are not entitled to rescission. It is argued that under article 1191 Second Part [Universal Food Corporation] may realize by and/or
of the new Civil Code, the right to rescind a reciprocal obligation out of its production of MAFRAN SAUCE and other food products
is not absolute and can be demanded only if one is ready, willing and from other business which the Party of the Second Part may
and able to comply with his own obligation and the other is not; engage in as defined in its Articles of Incorporation, and which its
that under article 1169 of the same Code, in reciprocal Board of Directors shall determine and declare, said Party of the

First Part hereby assign, transfer, and convey all its property furthermore should the Auditor be appointed from the Party
rights and interest over said Mafran trademark and formula for representing the majority shares of the Party of the Second Part,
MAFRAN SAUCE unto the Party of the Second Part; then the Treasurer shall be appointed from the Party of the First
Part;
THAT the payment for the royalty of TWO (2%) PER CENTUM of
the annual net profit which the Party of the Second Part obligates (b) THAT in case of death or other disabilities they should
itself to pay unto the Party of the First Part as founder and as become incapacitated to discharge the duties of their respective
owner of the MAFRAN trademark and formula for MAFRAN position, then, their shares or assigns and who may have
SAUCE, shall be paid at every end of the Fiscal Year after the necessary qualifications shall be preferred to succeed them;
proper accounting and inventories has been undertaken by the
Party of the Second Part and after a competent auditor (c) That the Party of the First Part shall always be entitled to
designated by the Board of Directors shall have duly examined at least two (2) membership in the Board of Directors of the
and audited its books of accounts and shall have certified as to Party of the Second Part;
the correctness of its Financial Statement;
(d) THAT in the manufacture of MAFRAN SAUCE and other
THAT it is hereby understood that the Party of the First Part, to food products by the Party of the Second Part, the Chief Chemist
improve the quality of the products of the Party of the First Part shall have and shall exercise absolute control and supervision
and to increase its production, shall endeavor or undertake such over the laboratory assistants and personnel and in the purchase
research, study, experiments and testing, to invent or cause to and safekeeping of the Chemicals and other mixtures used in the
invent additional formula or formulas, the property rights and preparation of said products;
interest thereon shall likewise be assigned, transferred, and
conveyed unto the Party of the Second Part in consideration of THAT this assignment, transfer and conveyance is absolute and
the foregoing premises, covenants and stipulations: irrevocable in no case shall the PARTY OF THE First Part ask,
demand or sue for the surrender of its rights and interest over
THAT in the operation and management of the Party of the First said MAFRAN trademark and mafran formula, except when a
Part, the Party of the First Part shall be entitled to the following dissolution of the Party of the Second Part, voluntary or
Participation: otherwise, eventually arises, in which case then the property
rights and interests over said trademark and formula shall
(a) THAT Dr. MAGDALO V. FRANCISCO shall be appointed automatically revert the Party of the First Part.
Second Vice-President and Chief Chemist of the Party of the
Second Part, which appointments are permanent in character Certain provisions of the Bill of Assignment would seem to
and Mr. VICTORIANO V. FRANCISCO shall be appointed Auditor support the petitioner's position that the respondent patentee,
thereof and in the event that the Treasurer or any officer who Magdalo V. Francisco, Sr. ceded and transferred to the petitioner
may have the custody of the funds, assets and other properties of corporation the formula for Mafran sauce. Thus, the last part of
the Party of the Second Part comes from the Party of the First the second paragraph recites that the respondent patentee
Part, then the Auditor shall not be appointed from the latter; "assign, transfer and convey all its property rights and interest

over said Mafran trademark and formula for MAFRAN SAUCE of the chemicals and other mixtures used in the preparation of
unto the Party of the Second Part," and the last paragraph states the said product. All these provisions of the Bill of Assignment
that such "assignment, transfer and conveyance is absolute and clearly show that the intention of the respondent patentee at the
irrevocable (and) in no case shall the PARTY OF THE First Part time of its execution was to part, not with the formula for Mafran
ask, demand or sue for the surrender of its rights and interest sauce, but only its use, to preserve the monopoly and to
over said MAFRAN trademark and mafran formula." effectively prohibit anyone from availing of the invention. 6

However, a perceptive analysis of the entire instrument and the Thirdly, pursuant to the last paragraph of the Bill, should
language employed therein 3 would lead one to the conclusion dissolution of the Petitioner corporation eventually take place,
that what was actually ceded and transferred was only the use of "the property rights and interests over said trademark and
the Mafran sauce formula. This was the precise intention of the formula shall automatically revert to the respondent patentee.
parties, 4 as we shall presently show. This must be so, because there could be no reversion of the
trademark and formula in this case, if, as contended by the
Firstly, one of the principal considerations of the Bill of petitioner, the respondent patentee assigned, ceded and
Assignment is the payment of "royalty of TWO (2%) PER transferred the trademark and formula and not merely the
CENTUM of the net annual profit" which the petitioner right to use it for then such assignment passes the property in
corporation may realize by and/or out of its production of such patent right to the petitioner corporation to which it is
Mafran sauce and other food products, etc. The word "royalty," ceded, which, on the corporation becoming insolvent, will
when employed in connection with a license under a patent, become part of the property in the hands of the receiver thereof.
means the compensation paid for the use of a patented invention. 7

'Royalty,' when used in connection with a license under a patent, Fourthly, it is alleged in paragraph 3 of the respondents'
means the compensation paid by the licensee to the licensor for complaint that what was ceded and transferred by virtue of the
the use of the licensor's patented invention." (Hazeltine Bill of Assignment is the "use of the formula" (and not the
Corporation vs. Zenith Radio Corporation, 100 F. 2d 10, 16.) 5 formula itself). This incontrovertible fact is admitted without
equivocation in paragraph 3 of the petitioner's answer. Hence, it
Secondly, in order to preserve the secrecy of the Mafran formula does "not require proof and cannot be contradicted." 8 The last
and to prevent its unauthorized proliferation, it is provided in part of paragraph 3 of the complaint and paragraph 3 of the
paragraph 5-(a) of the Bill that the respondent patentee was to answer are reproduced below for ready reference:
be appointed "chief chemist ... permanent in character," and that
in case of his "death or other disabilities," then his "heirs or 3. ... and due to these privileges, the plaintiff in return
assigns who may have necessary qualifications shall be preferred assigned to said corporation his interest and rights over the said
to succeed" him as such chief chemist. It is further provided in trademark and formula so that the defendant corporation could
paragraph 5-(d) that the same respondent shall have and shall use the formula in the preparation and manufacture of the
exercise absolute control and supervision over the laboratory mafran sauce, and the trade name for the marketing of said
assistants and personnel and over the purchase and safekeeping project, as appearing in said contract ....

as chief chemist of the corporation. The fact, continues the
3. Defendant admits the allegations contained in paragraph petitioner, is that at a special meeting of the board of directors of
3 of plaintiff's complaint. the corporation held on October 14, 1960, when the board
decided to suspend operations of the factory for two to four
Fifthly, the facts of the case compellingly demonstrate continued months and to retain only a skeletal force to avoid further losses,
possession of the Mafran sauce formula by the respondent the two private respondents were present, and the respondent
patentee. patentee was even designated as the acting superintendent, and
assigned the mission of explaining to the personnel of the factory
Finally, our conclusion is fortified by the admonition of the Civil why the corporation was stopping operations temporarily and
Code that a conveyance should be interpreted to effect "the least laying off personnel. The petitioner further submits that exhibit B
transmission of right," 9 and is there a better example of least indicates that the salary of the respondent patentee would not be
transmission of rights than allowing or permitting only the use, paid only during the time that the petitioner corporation was
without transfer of ownership, of the formula for Mafran sauce. idle, and that he could draw his salary as soon as the corporation
resumed operations. The clear import of this exhibit was
The foregoing reasons support the conclusion of the Court of allegedly entirely disregarded by the respondent Court of
Appeals 10 that what was actually ceded and transferred by the Appeals, which concluded that since the petitioner resumed
respondent patentee Magdalo V. Francisco, Sr. in favor of the partial production of Mafran sauce without notifying the said
petitioner corporation was only the use of the formula. Properly respondent formally, the latter had been dismissed as chief
speaking, the Bill of Assignment vested in the petitioner chemist, without considering that the petitioner had to resume
corporation no title to the formula. Without basis, therefore, is partial operations only to fill its pending orders, and that the
the observation of the lower court that the respondent patentee respondents were duly notified of that decision, that is, that
"had been remiss in the compliance of his contractual obligation exhibit B-1 was addressed to Ricardo Francisco, and this was
to cede and transfer to the defendant the formula for Mafran made known to the respondent Victoriano V. Francisco. Besides,
sauce." the records will show that the respondent patentee had
knowledge of the resumption of production by the corporation,
2. The next fundamental question for resolution is whether but in spite of such knowledge he did not report for work.
the respondent Magdalo V. Francisco, Sr. was dismissed from his
position as chief chemist of the corporation without justifiable The petitioner further submits that if the respondent patentee
cause, and in violation of paragraph 5-(a) of the Bill of really had unqualified interest in propagating the product he
Assignment which in part provides that his appointment is claimed he so dearly loved, certainly he would not have waited
"permanent in character." for a formal notification but would have immediately reported
for work, considering that he was then and still is a member of
The petitioner submits that there is nothing in the successive the corporation's board of directors, and insofar as the petitioner
memoranda issued by the corporate officers of the petitioner, is concerned, he is still its chief chemist; and because Ricardo
marked exhibits B, B-1 and B-2, from which can be implied that Francisco is a son of the respondent patentee to whom had been
the respondent patentee was being dismissed from his position entrusted the performance of the duties of chief chemist, while

the respondent Victoriano V. Francisco is his brother, the to the factory and to produce Mafran sauce at the rate of no less
respondent patentee could not feign ignorance of the resumption than 100 cases a day to cope with the orders of the various
of operations. distributors and dealers of the corporation, and instructing him
to take only the necessary daily employees without employing
The petitioner finally submits that although exhibit B-2 is permanent ones. Then on December 6, the same president and
addressed to Ricardo Francisco, and is dated December 29, 1960, general manager issued yet another memorandum (exh. B-2),
the records will show that the petitioner was set to resume full instructing Ricardo Francisco, as assistant chief chemist, to recall
capacity production only sometime in March or April, 1961, and all daily employees connected with the production of Mafran
the respondent patentee cannot deny that in the very same sauce and to hire additional daily employees for the production
month when the petitioner was set to resume full production, he of Porky Pops. Twenty-three days afterwards, or on December
received a copy of the resolution of its board of directors, 29, the same president and general manager issued still another
directing him to report immediately for duty; that exhibit H, of a memorandum (exh. S-2), directing "Ricardo Francisco, as Chief
later vintage as it is dated February 1, 1961, clearly shows that Chemist" and Porfirio Zarraga, as acting superintendent, to
Ricardo Francisco was merely the acting chemist, and this was produce Mafran sauce and, Porky Pops in full swing, starting
the situation on February 1, 1961, thirteen days before the filing January 2, 1961, with the further instruction to hire daily
of the present action for rescission. The designation of Ricardo laborers in order to cope with the full blast production. And
Francisco as the chief chemist carried no weight because the finally, at the hearing held on October 24, 1961, the same
president and general manager of the corporation had no power president and general manager admitted that "I consider that the
to make the designation without the consent of the corporation's two months we paid him (referring to respondent Magdalo V.
board of directors. The fact of the matter is that although the Francisco, Sr.) is the separation pay."
respondent Magdalo V. Francisco, Sr. was not mentioned in
exhibit H as chief chemist, this same exhibit clearly indicates that The facts narrated in the preceding paragraph were the
Ricardo Francisco was merely the acting chemist as he was the prevailing milieu on February 14, 1961 when the complaint for
one assisting his father. rescission of the Bill of Assignment was filed. They clearly prove
that the petitioner, acting through its corporate officers, 11
In our view, the foregoing submissions cannot outweigh the schemed and maneuvered to ease out, separate and dismiss the
uncontroverted facts. On November 28, 1960 the secretary- said respondent from the service as permanent chief chemist, in
treasurer of the corporation issued a memorandum (exh. B), duly flagrant violation of paragraph 5-(a) and (b) of the Bill of
approved by its president and general manager, directing that Assignment. The fact that a month after the institution of the
only Ricardo Francisco be retained in the factory and that the action for rescission, the petitioner corporation, thru its
salary of respondent patentee, as chief chemist, be stopped for president and general manager, requested the respondent
the time being until the corporation resumed operations. This patentee to report for duty (exh. 3), is of no consequence. As the
measure was taken allegedly because of the scarcity and high Court of Appeals correctly observed, such request was a "recall to
prices of raw materials. Five days later, however, or on December placate said plaintiff."
3, the president and general manager issued a memorandum
(exh. B-1) ordering the respondent Victoria V. Francisco to report

3. We now come to the question of rescission of the Bill of In this case before us, there is no controversy that the provisions
Assignment. In this connection, we quote for ready reference the of the Bill of Assignment are reciprocal in nature. The petitioner
following articles of the new Civil Code governing rescission of corporation violated the Bill of Assignment, specifically
contracts: paragraph 5-(a) and (b), by terminating the services of the
respondent patentee Magdalo V. Francisco, Sr., without lawful
ART. 1191. The power to rescind obligations is implied in and justifiable cause.
reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him. Upon the factual milieu, is rescission of the Bill of Assignment
proper?
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in The general rule is that rescission of a contract will not be
either case. He may also seek rescission even after he has chosen permitted for a slight or casual breach, but only for such
fulfillment, if the latter should become impossible. substantial and fundamental breach as would defeat the very
object of the parties in making the agreement. 12 The question of
The court shall decree the rescission claimed, unless there be just whether a breach of a contract is substantial depends upon the
cause authorizing the fixing of a period. attendant circumstances. 13 The petitioner contends that
rescission of the Bill of Assignment should be denied, because
This is understood to be without prejudice to the rights of third under article 1383, rescission is a subsidiary remedy which
persons who have acquired the thing, in accordance with articles cannot be instituted except when the party suffering damage has
1385 and 1388 of the Mortgage Law. no other legal means to obtain reparation for the same. However,
in this case the dismissal of the respondent patentee Magdalo V.
ART. 1383. The action for rescission is subsidiary; it cannot be Francisco, Sr. as the permanent chief chemist of the corporation
instituted except when the party suffering damage has no other is a fundamental and substantial breach of the Bill of Assignment.
legal means to obtain reparation for the same. He was dismissed without any fault or negligence on his part.
Thus, apart from the legal principle that the option to demand
ART. 1384. Rescission shall be only to the extent necessary to performance or ask for rescission of a contract belongs to the
cover the damages caused. injured party, 14 the fact remains that the respondents-appellees
had no alternative but to file the present action for rescission and
At the moment, we shall concern ourselves with the first two damages. It is to be emphasized that the respondent patentee
paragraphs of article 1191. The power to rescind obligations is would not have agreed to the other terms of the Bill of
implied in reciprocal ones, in case one of the obligors should not Assignment were it not for the basic commitment of the
comply with what is incumbent upon him. The injured party may petitioner corporation to appoint him as its Second Vice-
choose between fulfillment and rescission of the obligation, with President and Chief Chemist on a permanent basis; that in the
payment of damages in either case. manufacture of Mafran sauce and other food products he would
have "absolute control and supervision over the laboratory
assistants and personnel and in the purchase and safeguarding of

said products;" and that only by all these measures could the had not rendered; and that if the said respondent is entitled to be
respondent patentee preserve effectively the secrecy of the paid any back salary, the same should be computed only from
formula, prevent its proliferation, enjoy its monopoly, and, in the December 1, 1960 to March 31, 1961, for on March 20, 1961 the
process afford and secure for himself a lifetime job and steady petitioner had already formally called him back to work.
income. The salient provisions of the Bill of Assignment, namely,
the transfer to the corporation of only the use of the formula; the The above contention is without merit. Reading once more the
appointment of the respondent patentee as Second Vice- Bill of Assignment in its entirety and the particular provisions in
President and chief chemist on a permanent status; the obligation their proper setting, we hold that the contract placed the use of
of the said respondent patentee to continue research on the the formula for Mafran sauce with the petitioner, subject to
patent to improve the quality of the products of the corporation; defined limitations. One of the considerations for the transfer of
the need of absolute control and supervision over the laboratory the use thereof was the undertaking on the part of the petitioner
assistants and personnel and in the purchase and safekeeping of corporation to employ the respondent patentee as the Second
the chemicals and other mixtures used in the preparation of said Vice-President and Chief Chemist on a permanent status, at a
product all these provisions of the Bill of Assignment are so monthly salary of P300, unless "death or other disabilities
interdependent that violation of one would result in virtual supervened. Under these circumstances, the petitioner
nullification of the rest. corporation could not escape liability to pay the private
respondent patentee his agreed monthly salary, as long as the
4. The petitioner further contends that it was error for the use, as well as the right to use, the formula for Mafran sauce
Court of Appeals to hold that the respondent patentee is entitled remained with the corporation.
to payment of his monthly salary of P300 from December 1,
1960, until the return to him of the Mafran trademark and 5. The petitioner finally contends that the Court of Appeals
formula, arguing that under articles 1191, the right to specific erred in ordering the corporation to return to the respondents
performance is not conjunctive with the right to rescind a the trademark and formula for Mafran sauce, when both the
reciprocal contract; that a plaintiff cannot ask for both remedies; decision of the appellate court and that of the lower court state
that the appellate court awarded the respondents both remedies that the corporation is not aware nor is in possession of the
as it held that the respondents are entitled to rescind the Bill of formula for Mafran sauce, and the respondent patentee
Assignment and also that the respondent patentee is entitled to admittedly never gave the same to the corporation. According to
his salary aforesaid; that this is a gross error of law, when it is the petitioner these findings would render it impossible to carry
considered that such holding would make the petitioner liable to out the order to return the formula to the respondent patentee.
pay respondent patentee's salary from December 1, 1960 to The petitioner's predicament is understandable. Article 1385 of
"kingdom come," as the said holding requires the petitioner to the new Civil Code provides that rescission creates the obligation
make payment until it returns the formula which, the appellate to return the things which were the object of the contract. But
court itself found, the corporation never had; that, moreover, the that as it may, it is a logical inference from the appellate court's
fact is that the said respondent patentee refused to go back to decision that what was meant to be returned to the respondent
work, notwithstanding the call for him to return which patentee is not the formula itself, but only its use and the right to
negates his right to be paid his back salaries for services which he such use. Thus, the respondents in their complaint for rescission

specifically and particularly pray, among others, that the
petitioner corporation be adjudged as "without any right to use LAUREL, J.:
said trademark and formula."
On January 2, 1928, the Magdalena Estate, Inc., sold to Louis J.
ACCORDINGLY, conformably with the observations we have Myrick lots Nos. 28 and 29 of Block 1, Parcel 9 of the San Juan
above made, the judgment of the Court of Appeals is modified to Subdivision, San Juan Rizal, their contract of sale No. SJ-639
read as follows: "Wherefore the appealed decision is reversed. (Exhibits B and 1) providing that the price of P7,953 shall be
The Bill of Assignment (Exhibit A) is hereby rescinded, and the payable in 120 equal monthly installments of P96.39 each on the
defendant corporation is ordered to return and restore to the second day of every month beginning the date of execution of the
plaintiff Magdalo V. Francisco, Sr. the right to the use of his agreement. Simultaneously, the vendee executed and delivered to
Mafran sauce trademark and formula, subject-matter of the Bill of the vendor a promissory note (Exhibits C and 2) for the whole
Assignment, and to this end the defendant corporation and all its purchase price, wherein it was stipulated that "si cualquier pago
assigns and successors are hereby permanently enjoined, o pagos de este pagare quedasen en mora por mas de dos meses,
effective immediately, from using in any manner the said Mafran entonces todos el saldo no pagado del mismo con cualesquiera
sauce trademark and formula. The defendant corporation shall intereses que hubiese devengado, vercera y sera exigible
also pay to Magdalo V. Francisco, Sr. his monthly salary of P300 inmediatamente y devengara intereses al mismo tipo de 9 por
from December 1, 1960, until the date of finality of this judgment, ciento al ao hasta su completo pago, y en tal caso me
inclusive, the total amount due to him to earn legal interest from comprometo, ademas, a pagar al tenedor de este pagare el 10 por
the date of the finality of this judgment until it shall have been ciento de la cantidad en concepto de honorarios de abogado."
fully paid, plus attorney's fees in the amount of P500, with costs
against the defendant corporation." As thus modified, the said In pursuance of said agreement, the vendee made several
judgment is affirmed, with costs against the petitioner monthly payments amounting to P2,596.08, the last being on
corporation. October 4, 1930, although the first installment due and unpaid
was that of May 2, 1930. By reason of this default, the vendor,
through its president, K.H. Hemady, on December 14, 1932,
notified the vendee that, in view of his inability to comply with
the terms of their contract, said agreement had been cancelled as
51. G.R. No. L-47774 March 14, 1941 of that date, thereby relieving him of any further obligation
thereunder, and that all amounts paid by him had been forfeited
MAGDALENA ESTATE, INC., petitioner-appellant, in favor of the vendor, who assumes the absolute right over the
vs. lots in question. To this communication, the vendee did not reply,
LOUIS J. MYRICK, respondent-appellee. and it appears likewise that the vendor thereafter did not require
him to make any further disbursements on account of the
Felipe Ysmael and Eusebio C. Encarnacion for purchase price.
petitioner.
Andres C. Aguilar for respondent.

On July 22, 1936, Louis J. Myrick, respondent herein, commenced deemed to have produced a cancellation, even if it ever was
the present action in the Court of First Instance of Albay, praying intended. Petitioner contends that the letter in dispute is a mere
for an entry of judgment against the Magdalena Estate, Inc. for notification and, to this end, introduced in evidence the
the sum of P2,596.08 with legal interest thereon from the filing of disposition of Mr. K.H. Hemady, president of the Magdalena
the complaint until its payment, and for costs of the suit. Said Estate, Inc. wherein he stated that the word "cancelled" in the
defendant, the herein petitioner, on September 7, 1936, filed his letter of December 14, 1932, "es un error de mi interpretacion sin
answer consisting in a general denial and a cross-complaint and ninguna intencion de cancelar," and the testimony of Sebastian
counterclaim, alleging that contract SJ-639 was still in full force San Andres, one of its employees, that the lots were never offered
and effect and that, therefore, the plaintiff should be condemned for sale after the mailing of the letter aforementioned. Upon the
to pay the balance plus interest and attorneys' fees. After due other hand, the Court of Appeals, in its decision of August 23,
trial, the Court of First Instance of Albay, on January 31, 1939, 1940, makes the finding that "notwithstanding the deposition of
rendered its decision ordering the defendant to pay the plaintiff K.H. Hemady, president of the defendant corporation, to the
the sum of P2,596.08 with legal interest from December 14, 1932 effect that the contract was not cancelled nor was his intention to
until paid and costs, and dismissing defendant's counterclaim. do so when he wrote the letter of December 14, 1932, marked
From this judgment, the Magdalena Estate, Inc. appealed to the Exhibit 6 and D (pp. 6-7, deposition Exhibit 1-a), faith and credit
Court of Appeals, where the cause was docketed as CA-G.R. No. cannot be given to such testimony in view of the clear terms of
5037, and which, on August 23, 1940, confirmed the decision of the letter which evince his unequivocal intent to resolve the
the lower court, with the only modification that the payment of contract. His testimony is an afterthought. The intent to resolve
interest was to be computed from the date of the filing of the the contract is expressed unmistakably not only in the letter of
complaint instead of from the date of the cancellation of the December 14, 1932, already referred to (Exhibit 6 and D), but is
contract. A motion for reconsideration was presented, which was reiterated in the letters which the president of the defendant
denied on September 6, 1940. Hence, the present petition for a corporation states that plaintiff lost his rights for the land for
writ of certiorari. being behind more than two years, and of April 10, 1035 (Exhibit
G), where defendant's president makes the following statements:
Petitioner-appellant assigns several errors which we proceed to "Confirming the verbal arrangement had between you and our
discuss in the course of this opinion. Mr. K.H. Hemady regarding the account of Mr. Louis J. Myrick
under contract No. SJ-639, already cancelled."
Petitioner holds that contract SJ-639 has not been rendered
inefficacious by its letter to the respondent, dated December 14, This conclusion of fact of the Court of Appeals is final and should
1932, and submits the following propositions: (1) That the not be disturbed. (Guico vs. Mayuga and Heirs of Mayuga, 63
intention of the author of a written instrument shall always Phil., 328; Mamuyac vs. Abena, XXXVIII Off. Gaz. 84.) Where the
prevail over the literal sense of its wording; (2) that a bilateral terms of a writing are clear, positive and unambiguous, the
contract may be resolved or cancelled only by the prior mutual intention of the parties should be gleaned from the language
agreement of the parties, which is approved by the judgment of therein employed, which is conclusive in the absence of mistake
the proper court; and (3) that the letter of December 14, 1932 (13 C.J. 524; City of Manila vs. Rizal Park Co., 52 Phil. 515). The
was not assented to by the respondent, and therefore, cannot be proposition that the intention of the writer, once ascertained,

shall prevail over the literal sense of the words employed is not of the Scotch law, to "approbate and reprobate." (Bigelow on
absolute and should be deemed secondary to and limited by the Estoppel, page 673; Toppan v. Cleveland, Co. & C.R. Co., Fed. Cas.
primary rule that, when the text of the instrument is explicit and 14,099.)
leaves no doubt as to its intention, the court may not read into it
any other which would contradict its plain import. Besides, we The contract of sale, contract SJ-639, contains no provision
have met with some circumstances of record which demonstrate authorizing the vendor, in the event of failure of the vendee to
the unequivocal determination of the petitioner to cancel their continue in the payment of the stipulated monthly installments,
contract. They are: (1) the act of the petitioner in immediately to retain the amounts paid to him on account of the purchase
taking possession of the lots in question and offering to resell price. The claim, therefore, of the petitioner that it has the right
them to Judge M.V. del Rosario, as demonstrated by his letter to forfeit said sums in its favor is untenable. Under article 1124 of
marked Exhibit G, shortly after December 14, 1932; (2) his failure the Civil Code, however, he may choose between demanding the
to demand from the respondent the balance of the account after fulfillment of the contract or its resolution. These remedies are
the mailing of the disputed letter; and (3) the letters of January alternative and not cumulative, and the petitioner in this case,
10, 1933 (Exhibit F-2) and April 10, 1935 (Exhibit G) reiterate, in having to cancel the contract, cannot avail himself of the other
clear terms, the intention to cancel first announced by petitioner remedy of exacting performance. (Osorio & Tirona vs. Bennet &
since December 14, 1932. Provincial Board of Cavite, 41 Phil., 301; Yap Unki vs. Chua Jamco,
14 Phil., 602.) As a consequence of the resolution, the parties
It is next argued that contract SJ-639, being a bilateral agreement, should be restored, as far as practicable, to their original
in the absence of a stipulation permitting its cancellation, may situation (Po Pauco vs. Siguenza, supra) which can be
not be resolved by the mere act of the petitioner. The fact that the approximated only by ordering, as we do now, the return of the
contracting parties herein did not provide for resolution is now things which were the object of the contract, with their fruits and
of no moment, for the reason that the obligations arising from the of the price, with its interest (article 1295, Civil Code), computed
contract of sale being reciprocal, such obligations are governed from the date of the institution of the action. (Verceluz vs. Edao,
by article 1124 of the Civil Code which declares that the power to 46 Phil. 801.)
resolve, in the event that one of the obligors should not perform
his part, is implied. (Mateos vs. Lopez, 6 Phil., 206; Cortez vs. The writ prayed for is hereby denied, with costs against the
Bibao & Beramo, 41 Phil. 298; Cui. vs. Sun Chan, 41 Phil., 523; Po petitioner. So ordered.
Pauco vs. Siguenza, 49 Phil., 404.) Upon the other hand, where, as
in this case, the petitioner cancelled the contract, advised the
respondent that he has been relieved of his obligations
thereunder, and led said respondent to believe it so and act upon
such belief, the petitioner may not be allowed, in the language of 52. G.R. No. L-28602 September 29, 1970
section 333 of the Code of Civil Procedure (now section 68 (a) of
Rule 123 of the New Rules of Court), in any litigation the course UNIVERSITY OF THE PHILIPPINES, petitioner,
of litigation or in dealings in nais, be permitted to repudiate his vs.
representations, or occupy inconsistent positions, or, in the letter

WALFRIDO DE LOS ANGELES, in his capacity as JUDGE That the above-mentioned Land Grant was segregated from the
of the COURT OF FIRST INSTANCE IN QUEZON CITY, et public domain and given as an endowment to UP, an institution of
al., respondents. higher learning, to be operated and developed for the purpose of
raising additional income for its support, pursuant to Act 3608;
Office of the Solicitor General Antonio P. Barredo,
Solicitor Augusto M. Amores and Special Counsel That on or about 2 November 1960, UP and ALUMCO entered
Perfecto V. Fernandez for petitioner. into a logging agreement under which the latter was granted
exclusive authority, for a period starting from the date of the
Norberto J. Quisumbing for private respondents. agreement to 31 December 1965, extendible for a further period
of five (5) years by mutual agreement, to cut, collect and remove
timber from the Land Grant, in consideration of payment to UP of
REYES, J.B.L., J.: royalties, forest fees, etc.; that ALUMCO cut and removed timber
therefrom but, as of 8 December 1964, it had incurred an unpaid
Three (3) orders of the Court of First Instance of Rizal (Quezon account of P219,362.94, which, despite repeated demands, it had
City), issued in its Civil Case No. 9435, are sought to be annulled failed to pay; that after it had received notice that UP would
in this petition for certiorari and prohibition, filed by herein rescind or terminate the logging agreement, ALUMCO executed
petitioner University of the Philippines (or UP) against the above- an instrument, entitled "Acknowledgment of Debt and Proposed
named respondent judge and the Associated Lumber Manner of Payments," dated 9 December 1964, which was
Manufacturing Company, Inc. (or ALUMCO). The first order, approved by the president of UP, and which stipulated the
dated 25 February 1966, enjoined UP from awarding logging following:
rights over its timber concession (or Land Grant), situated at the
Lubayat areas in the provinces of Laguna and Quezon; the second 3. In the event that the payments called for in Nos. 1 and 2 of
order, dated 14 January 1967, adjudged UP in contempt of court, this paragraph are not sufficient to liquidate the foregoing
and directed Sta. Clara Lumber Company, Inc. to refrain from indebtedness of the DEBTOR in favor of the CREDITOR, the
exercising logging rights or conducting logging operations on the balance outstanding after the said payments have been applied
concession; and the third order, dated 12 December 1967, denied shall be paid by the DEBTOR in full no later than June 30, 1965;
reconsideration of the order of contempt.
xxx xxx xxx
As prayed for in the petition, a writ of preliminary injunction
against the enforcement or implementation of the three (3) 5. In the event that the DEBTOR fails to comply with any of
questioned orders was issued by this Court, per its resolution on its promises or undertakings in this document, the DEBTOR
9 February 1968. agrees without reservation that the CREDITOR shall have the
right and the power to consider the Logging Agreement dated
The petition alleged the following: December 2, 1960 as rescinded without the necessity of any
judicial suit, and the CREDITOR shall be entitled as a matter of

right to Fifty Thousand Pesos (P50,000.00) by way of and for the first of the questioned orders, enjoining UP from awarding
liquidated damages; logging rights over the concession to any other party.

ALUMCO continued its logging operations, but again incurred an That UP received the order of 25 February 1966 after it had
unpaid account, for the period from 9 December 1964 to 15 July concluded its contract with Sta. Clara Lumber Company, Inc., and
1965, in the amount of P61,133.74, in addition to the said company had started logging operations.
indebtedness that it had previously acknowledged.
That, on motion dated 12 April 1966 by ALUMCO and one Jose
That on 19 July 1965, petitioner UP informed respondent Rico, the court, in an order dated 14 January 1967, declared
ALUMCO that it had, as of that date, considered as rescinded and petitioner UP in contempt of court and, in the same order,
of no further legal effect the logging agreement that they had directed Sta. Clara Lumber Company, Inc., to refrain from
entered in 1960; and on 7 September 1965, UP filed a complaint exercising logging rights or conducting logging operations in the
against ALUMCO, which was docketed as Civil Case No. 9435 of concession.
the Court of First Instance of Rizal (Quezon City), for the
collection or payment of the herein before stated sums of money The UP moved for reconsideration of the aforesaid order, but the
and alleging the facts hereinbefore specified, together with other motion was denied on 12 December 1967.
allegations; it prayed for and obtained an order, dated 30
September 1965, for preliminary attachment and preliminary Except that it denied knowledge of the purpose of the Land Grant,
injunction restraining ALUMCO from continuing its logging which purpose, anyway, is embodied in Act 3608 and, therefore,
operations in the Land Grant. conclusively known, respondent ALUMCO did not deny the
foregoing allegations in the petition. In its answer, respondent
That before the issuance of the aforesaid preliminary injunction corrected itself by stating that the period of the logging
UP had taken steps to have another concessionaire take over the agreement is five (5) years - not seven (7) years, as it had alleged
logging operation, by advertising an invitation to bid; that in its second amended answer to the complaint in Civil Case No.
bidding was conducted, and the concession was awarded to Sta. 9435. It reiterated, however, its defenses in the court below,
Clara Lumber Company, Inc.; the logging contract was signed on which maybe boiled down to: blaming its former general
16 February 1966. manager, Cesar Guy, in not turning over management of
ALUMCO, thereby rendering it unable to pay the sum of
That, meantime, ALUMCO had filed several motions to discharge P219,382.94; that it failed to pursue the manner of payments, as
the writs of attachment and preliminary injunction but were stipulated in the "Acknowledgment of Debt and Proposed
denied by the court; Manner of Payments" because the logs that it had cut turned out
to be rotten and could not be sold to Sta. Clara Lumber Company,
That on 12 November 1965, ALUMCO filed a petition to enjoin Inc., under its contract "to buy and sell" with said firm, and which
petitioner University from conducting the bidding; on 27 contract was referred and annexed to the "Acknowledgment of
November 1965, it filed a second petition for preliminary Debt and Proposed Manner of Payments"; that UP's unilateral
injunction; and, on 25 February 1966, respondent judge issued rescission of the logging contract, without a court order, was

invalid; that petitioner's supervisor refused to allow respondent
to cut new logs unless the logs previously cut during the Of course, it must be understood that the act of party in treating a
management of Cesar Guy be first sold; that respondent was contract as cancelled or resolved on account of infractions by the
permitted to cut logs in the middle of June 1965 but petitioner's other contracting party must be made known to the other and is
supervisor stopped all logging operations on 15 July 1965; that it always provisional, being ever subject to scrutiny and review by
had made several offers to petitioner for respondent to resume the proper court. If the other party denies that rescission is
logging operations but respondent received no reply. justified, it is free to resort to judicial action in its own behalf, and
bring the matter to court. Then, should the court, after due
The basic issue in this case is whether petitioner U.P. can treat its hearing, decide that the resolution of the contract was not
contract with ALUMCO rescinded, and may disregard the same warranted, the responsible party will be sentenced to damages;
before any judicial pronouncement to that effect. Respondent in the contrary case, the resolution will be affirmed, and the
ALUMCO contended, and the lower court, in issuing the consequent indemnity awarded to the party prejudiced.
injunction order of 25 February 1966, apparently sustained it
(although the order expresses no specific findings in this regard), In other words, the party who deems the contract violated may
that it is only after a final court decree declaring the contract consider it resolved or rescinded, and act accordingly, without
rescinded for violation of its terms that U.P. could disregard previous court action, but it proceeds at its own risk. For it is only
ALUMCO's rights under the contract and treat the agreement as the final judgment of the corresponding court that will
breached and of no force or effect. conclusively and finally settle whether the action taken was or
was not correct in law. But the law definitely does not require
We find that position untenable. that the contracting party who believes itself injured must first
file suit and wait for a judgment before taking extrajudicial steps
In the first place, UP and ALUMCO had expressly stipulated in the to protect its interest. Otherwise, the party injured by the other's
"Acknowledgment of Debt and Proposed Manner of Payments" breach will have to passively sit and watch its damages
that, upon default by the debtor ALUMCO, the creditor (UP) has accumulate during the pendency of the suit until the final
"the right and the power to consider, the Logging Agreement judgment of rescission is rendered when the law itself requires
dated 2 December 1960 as rescinded without the necessity of any that he should exercise due diligence to minimize its own
judicial suit." As to such special stipulation, and in connection damages (Civil Code, Article 2203).
with Article 1191 of the Civil Code, this Court stated in Froilan vs.
Pan Oriental Shipping Co., et al., L-11897, 31 October 1964, 12 We see no conflict between this ruling and the previous
SCRA 276: jurisprudence of this Court invoked by respondent declaring that
judicial action is necessary for the resolution of a reciprocal
there is nothing in the law that prohibits the parties from obligation, 1 since in every case where the extrajudicial
entering into agreement that violation of the terms of the resolution is contested only the final award of the court of
contract would cause cancellation thereof, even without court competent jurisdiction can conclusively settle whether the
intervention. In other words, it is not always necessary for the resolution was proper or not. It is in this sense that judicial action
injured party to resort to court for rescission of the contract. will be necessary, as without it, the extrajudicial resolution will

remain contestable and subject to judicial invalidation, unless declaracion de resolucion hecha por una de las partes se impugna
attack thereon should become barred by acquiescence, estoppel por la otra, queda aquella sometida el examen y sancion de los
or prescription. Tribunale, que habran de declarar, en definitiva, bien hecha la
resolucion o por el contrario, no ajustada a Derecho. (Sent. TS of
Fears have been expressed that a stipulation providing for a Spain, 16 November 1956; Jurisp. Aranzadi, 3, 447).
unilateral rescission in case of breach of contract may render
nugatory the general rule requiring judicial action (v. Footnote, La resolucion de los contratos sinalagmaticos, fundada en el
Padilla, Civil Law, Civil Code Anno., 1967 ed. Vol. IV, page 140) incumplimiento por una de las partes de su respectiva
but, as already observed, in case of abuse or error by the prestacion, puedetener lugar con eficacia" 1. o Por la declaracion
rescinder the other party is not barred from questioning in court de voluntad de la otra hecha extraprocesalmente, si no es
such abuse or error, the practical effect of the stipulation being impugnada en juicio luego con exito. y 2. 0 Por la demanda de la
merely to transfer to the defaulter the initiative of instituting suit, perjudicada, cuando no opta por el cumplimientocon la
instead of the rescinder. indemnizacion de danos y perjuicios realmente causados,
siempre quese acredite, ademas, una actitud o conducta
In fact, even without express provision conferring the power of persistente y rebelde de laadversa o la satisfaccion de lo pactado,
cancellation upon one contracting party, the Supreme Court of a un hecho obstativo que de un modoabsoluto, definitivo o
Spain, in construing the effect of Article 1124 of the Spanish Civil irreformable lo impida, segun el art. 1.124, interpretado por la
Code (of which Article 1191 of our own Civil; Code is practically a jurisprudencia de esta Sala, contenida en las Ss. de 12 mayo 1955
reproduction), has repeatedly held that, a resolution of reciprocal y 16 Nov. 1956, entre otras, inspiradas por el principio del
or synallagmatic contracts may be made extrajudicially unless Derecho intermedio, recogido del Canonico, por el cual fragenti
successfully impugned in court. fidem, fides non est servanda. (Ss. de 4 Nov. 1958 y 22 Jun. 1959.)
(Emphasis supplied).
El articulo 1124 del Codigo Civil establece la facultad de resolver
las obligaciones reciprocas para el caso de que uno de los In the light of the foregoing principles, and considering that the
obligados no cumpliese lo que le incumbe, facultad que, segun complaint of petitioner University made out a prima facie case of
jurisprudencia de este Tribunal, surge immediatamente breach of contract and defaults in payment by respondent
despuesque la otra parte incumplio su deber, sin necesidad de ALUMCO, to the extent that the court below issued a writ of
una declaracion previa de los Tribunales. (Sent. of the Tr. Sup. of preliminary injunction stopping ALUMCO's logging operations,
Spain, of 10 April 1929; 106 Jur. Civ. 897). and repeatedly denied its motions to lift the injunction; that it is
not denied that the respondent company had profited from its
Segun reiterada doctrina de esta Sala, el Art. 1124 regula la operations previous to the agreement of 5 December 1964
resolucioncomo una "facultad" atribuida a la parte perjudicada ("Acknowledgment of Debt and Proposed Manner of Payment");
por el incumplimiento del contrato, la cual tiene derecho do that the excuses offered in the second amended answer, such as
opcion entre exigir el cumplimientoo la resolucion de lo the misconduct of its former manager Cesar Guy, and the rotten
convenido, que puede ejercitarse, ya en la via judicial, ya fuera de condition of the logs in private respondent's pond, which said
ella, por declaracion del acreedor, a reserva, claro es, que si la respondent was in a better position to know when it executed the

acknowledgment of indebtedness, do not constitute on their face MELENCIO-HERRERA, J.:
sufficient excuse for non-payment; and considering that
whatever prejudice may be suffered by respondent ALUMCO is In this action for mandamus and Prohibition, petitioner seeks to
susceptibility of compensation in damages, it becomes plain that compel respondent Judge to assume appellate, not original
the acts of the court a quo in enjoining petitioner's measures to jurisdiction over an Ejectment case appealed from the Municipal
protect its interest without first receiving evidence on the issues Court of Pasig (CC No. 1190 entitled Jose C. Zulueta vs. Lamberto
tendered by the parties, and in subsequently refusing to dissolve Avellana), and to issue a Writ of Execution in said case.
the injunction, were in grave abuse of discretion, correctible by
certiorari, since appeal was not available or adequate. Such The antecedental facts follow:
injunction, therefore, must be set aside.
Petitioner Jose C. Zulueta is the registered owner of a residential
For the reason that the order finding the petitioner UP in house and lot situated within the Antonio Subdivision, Pasig,
contempt of court has open appealed to the Court of Appeals, and Rizal.
the case is pending therein, this Court abstains from making any
pronouncement thereon. On November 6, 1964, petitioner Zulueta and private respondent
Lamberto Avellana, a movie director, entered into a "Contract to
WHEREFORE, the writ of certiorari applied for is granted, and the Sell" the aforementioned property for P75,000.00 payable in
order of the respondent court of 25 February 1966, granting the twenty years with respondent buyer assuming to pay a down
Associated Lumber Company's petition for injunction, is hereby payment of P5,000.00 and a monthly installment of P630.00
set aside. Let the records be remanded for further proceedings payable in advance before the 5th day of the corresponding
conformably to this opinion. month, starting with December, 1964.

It was further stipulated:

12) That upon failure of the BUYER to fulfill any of the
53. G.R. No. L-29360 January 30, 1982 conditions herein stipulated, BUYER automatically and
irrevocably authorizes OWNER to recover extra-judicially,
JOSE C. ZULUETA, petitioner, physical possession of the land, building and other improvements
vs. which are the subject of this contract, and to take possession also
HON. HERMINIO MARIANO, in his capacity as extra-judicially whatever personal properties may be found
Presiding Judge of Branch X of the Court of First within the aforesaid premises from the date of said failure to
Instance of Rizal; and LAMBERTO AVELLANA, answer for whatever unfulfilled monetary obligations BUYER
respondents. may have with OWNER; and this contract shall be considered as
without force and effect also from said date; all payments made
by the BUYER to OWNER shall be deemed as rental payments
without prejudice to OWNER's right to collect from BUYER

whatever other monthly installments and other money his political campaign in 1964 when petitioner ran for
obligations which may have been paid until BUYER vacates the Congressman, as well as the cost of one 16 millimeter projector
aforesaid premises; upon his failure to comply with any of the petitioner borrowed from respondent and which had never been
herein conditions BUYER forfeits all money claims against returned, which amounts, according to their understanding,
OWNER and shall pay a monthly rental equivalent to his monthly would be applied as down payment for the property and to
installment under Condition 1 of this Contract from the date of whatever obligations respondent had with petitioner. The latter
the said failure to the date of recovery of physical possession by strongly denied such an understanding. Respondent's total
OWNER of the land, building and other improvements which are counterclaim against petitioner was in the amount of P42,629.99
the subject of this Contract; BUYER shall not remove his personal representing petitioner's pleaded indebtedness to private
properties without the previous written consent of OWNER, who, respondent, claim for moral damages, and attorney's fees.
should he take possession of such properties following the
aforesaid failure of BUYER, shall return the same to BUYER only The counterclaim was dismissed by the Municipal Court for being
after the latter shall have fulfilled all money claims against him by in an amount beyond its jurisdiction. However, as a special
OWNER; in all cases herein, demand is waived; defense, private respondent sought to offset the sum of
P31,269.00 against his obligations to petitioner.
Respondent Avellana occupied the property from December,
1964, but title remained with petitioner Zulueta. Deciding the case on May 10, 1967, the Municipal Court found
that respondent Avellana had failed to comply with his financial
Upon the allegation that respondent Avellana had failed to obligations under the contract and ordered him to vacate the
comply with the monthly amortizations stipulated in the premises and deliver possession thereof to petitioner; to pay
contract, despite demands to pay and to vacate the premises, and petitioner the sum of P21,093.88 representing arrearages as of
that thereby the contract was converted into one of lease, April, 1967, and P630.00 as monthly rental from and after May,
petitioner, on June 22, 1966, commenced an Ejectment suit 1967 until delivery of possession of that premises to petitioner.
against respondent before the Municipal Court of Pasig (CC No. That conclusion was premised on title finding that breach of any
1190), praying that judgment be rendered ordering respondent of the conditions by private respondent converted the agreement
1) to vacate the premises; 2) to pay petitioner the sum of into a lease contractual and upon the following considerations:
P11,751.30 representing respondent's balance owing as of May,
1966; 3) to pay petitioner the sum of P 630.00 every month after The question involved herein is that of possession, that who of
May, 1966, and costs. the contending parties has the better right to possession of the
properly in question. The issue in this case being that of
Respondent controverted by contending that the Municipal Court possession, the claim of defendant against plaintiff or P 31,269.00
had no jurisdiction over the nature of the action as it involved the indebtedness, has no place as a defense here. It should be the
interpretation and/or rescission of the contract; that prior to the subject- matter of a separate action against, plaintiff Jose C.
execution of the contract to sell, petitioner was already indebted Zulueta. As it is, said indebtedness is only a claim still debatable
to him in the sum of P31,269.00 representing the cost of two and controversial and not a final judgment. 'It is our considered
movies respondent made for petitioner and used by the latter in opinion that to admit and to allow such a defense would be

tantamount to prejuding the claim on its merits prematurely in his right pursuant to the contract which should be the basis of the
favor of defendant. This court can not do without violating some action in the lower court.
rules of law. This is not the proper court and this is not the
proper case in which to ventilate the claim. Petitioner's Motion for Reconsideration was denied by
respondent Judge as follows:
Respondent Avellana appealed to the Court of First Instance of
Rizal presided by respondent Judge. Thereat, petitioner The plaintiff having filed a motion for reconsideration of this
summoned for execution alleging private respondent's failure to Court's Order dismissing the appeal, the Court, while standing
deposit in accordance the monthly rentals, which the latter pat on its Order dismissing this case for lack of jurisdiction of the
denied. Respondent Judge held resolution thereof in abeyance. lower court over the subject matter, hereby takes cognizance of
the case and will try the case as if it has been filed originally in
On February 19, 1968, respondent Avellana filed a Motion to this Court.
Dismiss Appeal alleging that, inasmuch as the defense set up in
his Answer was that he had not breached his contract with WHEREFORE, let this case be set for pre-trial on July 12, 1968 at
petitioner, the case necessarily involved the interpretation 8:30 a.m. with notice to an parties.
and/or rescission of the contract and, therefore, beyond the
jurisdiction of the Municipal Court. Petitioner opposed claiming Petitioner then availed of the instant recourse.
that the Complaint had set out a clear case of unlawful detainer
considering that judicial action for the rescission of the contract Was the action before the Municipal Court of Pasig essentially for
was unnecessary due to the automatic rescission clause therein detainer and, therefore, within its exclusive original jurisdiction,
and the fact that petitioner had cancelled said contract so that or one for rescission or annulment of a contract, which should be
respondent's right to remain in the premises had ceased. litigated before a Court of First Instance?

On March 21, 1968, respondent Judge dismissed the case on the Upon a review of the attendant circumstances, we uphold the
ground of lack of jurisdiction of the Municipal Court, explaining: ruling of respondent Judge that the Municipal Court of Pasig was
bereft of jurisdiction to take cognizance of the case filed before it.
The decision of the lower court declared said Contract to Sell to In his Complaint, petitioner had alleged violation by respondent
have been converted into a contract of lease. It is the contention Avellana of the stipulations of their agreement to sell and thus
of the defendant that the lower court had no jurisdiction to unilaterally considered the contract rescinded. Respondent
entertain the case as the same involves the interpretation of Avellana denied any breach on his part and argued that the
contract as to whether or not the same has been converted to principal issue was one of interpretation and/or rescission of the
lease contract. Although the contract to sell object of this case contract as well as of set-off. Under those circumstances, proof of
states that the same may be converted into a lease contract upon violation is a condition precedent to resolution or rescission. It is
the failure of the defendant to pay the amortization of the only when the violation has been established that the contract
property in question, there is no showing that before filing this can be declared resolved or rescinded. Upon such rescission, in
case in the lower court, the plaintiff has exercised or has pursued turn, hinges a pronouncement that possession of the realty has

become unlawful. Thus, the basic issue is not possession but one Section 11. Lack of jurisdiction A case tried by an inferior court
of rescission or annulment of a contract. which is beyond the without jurisdiction over the subject matter shall be dismiss on
jurisdiction of the Municipal Court to hear and determine. appeal by the Court of First Instance. But instead of dismissing
the case, the Court of First Instance may try the case on the
A violation by a party of any of the stipulations of a contract on merits, if the parties therein file their pleadings and go to trial
agreement to sell real property would entitle the other party to without any objection to such jurisdiction.
resolved or rescind it. An allegation of such violation in a detainer
suit may be proved by competent evidence. And if proved a There was no other recourse left for respondent Judge, therefore,
justice of the peace court might make a finding to that effect, but except to dismiss the appeal.
it certainly cannot declare and hold that the contract is resolved
or rescinded. It is beyond its power so to do. And as the illegality If an inferior court tries a case without jurisdiction over the
of the possession of realty by a party to a contract to sell is subject-matter on appeal, the only authority of the CFI is to
premised upon the resolution of the contract, it follows that an declare the inferior court to have acted without jurisdiction and
allegation and proof of such violation, a condition precedent to dismiss the case, unless the parties agree to the exercise by the
such resolution or rescission, to render unlawful the possession CFI of its original jurisdiction to try the case on the merits. 4
of the land or building erected thereon by the party who has
violated the contract, cannot be taken cognizance of by a justice The foregoing premises considered, petitioner's prayer for a Writ
of the peace court. ... 1 of Execution of the judgment of the Municipal Court of Pasig must
perforce be denied.
True, the contract between the parties provided for extrajudicial
rescission. This has legal effect, however, where the other party WHEREFORE, the Writ of mandamus is denied, but the Writ of
does not oppose it. 2 Where it is objected to, a judicial Prohibition is granted and respondent Court hereby permanently
determination of the issue is still necessary. enjoined from taking cognizance of Civil Case No. 10595 in the
exercise of its original jurisdiction. No costs.
A stipulation entitling one party to take possession of the land
and building if the other party violates the contract does not ex
proprio vigore confer upon the former the right to take
possession thereof if objected to without judicial intervention
and' determination. 3 54. G.R. No. L-56076 September 21, 1983

But while respondent Judge correctly ruled that the Municipal PALAY, INC. and ALBERT ONSTOTT, petitioner,
Court had no jurisdiction over the case and correctly dismissed vs.
the appeal, he erred in assuming original jurisdiction, in the face JACOBO C. CLAVE, Presidential Executive Assistant
of the objection interposed by petitioner. Section 11, Rule 40, NATIONAL HOUSING AUTHORITY and NAZARIO
leaves no room for doubt on this point: DUMPIT respondents.


Santos, Calcetas-Santos & Geronimo Law Office for made on December 5, 1967 for installments up to September
petitioner. 1967.

Wilfredo E. Dizon for private respondent. On May 10, 1973, or almost six (6) years later, private
respondent wrote petitioner offering to update all his overdue
accounts with interest, and seeking its written consent to the
assignment of his rights to a certain Lourdes Dizon. He followed
MELENCIO-HERRERA, J.: this up with another letter dated June 20, 1973 reiterating the
same request. Replying petitioners informed respondent that his
The Resolution, dated May 2, 1980, issued by Presidential Contract to Sell had long been rescinded pursuant to paragraph 6
Executive Assistant Jacobo Clave in O.P. Case No. 1459, directing of the contract, and that the lot had already been resold.
petitioners Palay, Inc. and Alberto Onstott jointly and severally,
to refund to private respondent, Nazario Dumpit, the amount of Questioning the validity of the rescission of the contract,
P13,722.50 with 12% interest per annum, as resolved by the respondent filed a letter complaint with the National Housing
National Housing Authority in its Resolution of July 10, 1979 in Authority (NHA) for reconveyance with an altenative prayer for
Case No. 2167, as well as the Resolution of October 28, 1980 refund (Case No. 2167). In a Resolution, dated July 10, 1979, the
denying petitioners' Motion for Reconsideration of said NHA, finding the rescission void in the absence of either judicial
Resolution of May 2, 1980, are being assailed in this petition. or notarial demand, ordered Palay, Inc. and Alberto Onstott in his
capacity as President of the corporation, jointly and severally, to
On March 28, 1965, petitioner Palay, Inc., through its President, refund immediately to Nazario Dumpit the amount of P13,722.50
Albert Onstott executed in favor of private respondent, Nazario with 12% interest from the filing of the complaint on November
Dumpit, a Contract to Sell a parcel of Land (Lot No. 8, Block IV) of 8, 1974. Petitioners' Motion for Reconsideration of said
the Crestview Heights Subdivision in Antipolo, Rizal, with an area Resolution was denied by the NHA in its Order dated October 23,
of 1,165 square meters, - covered by TCT No. 90454, and owned 1979. 1
by said corporation. The sale price was P23,300.00 with 9%
interest per annum, payable with a downpayment of P4,660.00 On appeal to the Office of the President, upon the allegation that
and monthly installments of P246.42 until fully paid. Paragraph 6 the NHA Resolution was contrary to law (O.P. Case No. 1459),
of the contract provided for automatic extrajudicial rescission respondent Presidential Executive Assistant, on May 2, 1980,
upon default in payment of any monthly installment after the affirmed the Resolution of the NHA. Reconsideration sought by
lapse of 90 days from the expiration of the grace period of one petitioners was denied for lack of merit. Thus, the present
month, without need of notice and with forfeiture of all petition wherein the following issues are raised:
installments paid.
I
Respondent Dumpit paid the downpayment and several
installments amounting to P13,722.50. The last payment was

Whether notice or demand is not mandatory under the BUYER shall be granted a month of grace within which to make
circumstances and, therefore, may be dispensed with by the payment of the t in arrears together with the one
stipulation in a contract to sell. corresponding to the said month of grace. -It shall be understood,
however, that should the month of grace herein granted to the
II BUYER expire, without the payment & corresponding to both
months having been satisfied, an interest of ten (10%) per cent
Whether petitioners may be held liable for the refund of the per annum shall be charged on the amounts the BUYER should
installment payments made by respondent Nazario M. Dumpit. have paid; it is understood further, that should a period of
NINETY (90) DAYS elapse to begin from the expiration of the
III month of grace hereinbefore mentioned, and the BUYER shall not
have paid all the amounts that the BUYER should have paid with
Whether the doctrine of piercing the veil of corporate fiction has the corresponding interest up to the date, the SELLER shall have
application to the case at bar. the right to declare this contract cancelled and of no effect
without notice, and as a consequence thereof, the SELLER may
IV dispose of the lot/lots covered by this Contract in favor of other
persons, as if this contract had never been entered into. In case of
Whether respondent Presidential Executive Assistant committed such cancellation of this Contract, all the amounts which may
grave abuse of discretion in upholding the decision of respondent have been paid by the BUYER in accordance with the agreement,
NHA holding petitioners solidarily liable for the refund of the together with all the improvements made on the premises, shall
installment payments made by respondent Nazario M. Dumpit be considered as rents paid for the use and occupation of the
thereby denying substantial justice to the petitioners, above mentioned premises and for liquidated damages suffered
particularly petitioner Onstott by virtue of the failure of the BUYER to fulfill his part of this
agreement : and the BUYER hereby renounces his right to
We issued a Temporary Restraining Order on Feb 11, 1981 demand or reclaim the return of the same and further obligates
enjoining the enforcement of the questioned Resolutions and of peacefully to vacate the premises and deliver the same to the
the Writ of Execution that had been issued on December 2, 1980. SELLER.
On October 28, 1981, we dismissed the petition but upon
petitioners' motion, reconsidered the dismissal and gave due Well settled is the rule, as held in previous jurisprudence, 2 that
course to the petition on March 15, 1982. judicial action for the rescission of a contract is not necessary
where the contract provides that it may be revoked and cancelled
On the first issue, petitioners maintain that it was justified in for violation of any of its terms and conditions. However, even in
cancelling the contract to sell without prior notice or demand the cited cases, there was at least a written notice sent to the
upon respondent in view of paragraph 6 thereof which provides- defaulter informing him of the rescission. As stressed in
University of the Philippines vs. Walfrido de los Angeles 3 the act
6. That in case the BUYER falls to satisfy any monthly of a party in treating a contract as cancelled should be made
installment or any other payments herein agreed upon, the known to the other. We quote the pertinent excerpt:

proper or not. It is in this sense that judicial action win be
Of course, it must be understood that the act of a party in treating necessary, as without it, the extrajudicial resolution will remain
a contract as cancelled or resolved in account of infractions by contestable and subject to judicial invalidation unless attack
the other contracting party must be made known to the other and thereon should become barred by acquiescense, estoppel or
is always provisional being ever subject to scrutiny and review prescription.
by the proper court. If the other party denies that rescission is
justified it is free to resort to judicial action in its own behalf, and Fears have been expressed that a stipulation providing for a
bring the matter to court. Then, should the court, after due unilateral rescission in case of breach of contract may render
hearing, decide that the resolution of the contract was not nugatory the general rule requiring judicial action (v. Footnote,
warranted, the responsible party will be sentenced to damages; Padilla Civil Law, Civil Code Anno., 1967 ed. Vol. IV, page 140)
in the contrary case, the resolution will be affirmed, and the but, as already observed, in case of abuse or error by the
consequent indemnity awarded to the party prejudiced. rescinder the other party is not barred from questioning in court
such abuse or error, the practical effect of the stipulation being
In other words, the party who deems the contract violated may merely to transfer to the defaulter the initiative of instituting suit,
consider it resolved or rescinded, and act accordingly, without instead of the rescinder (Emphasis supplied).
previous court action, but it proceeds at its own risk. For it is only
the final judgment of the corresponding court that will Of similar import is the ruling in Nera vs. Vacante 4, reading:
conclusively and finally settle whether the action taken was or
was not correct in law. But the law definitely does not require A stipulation entitling one party to take possession of the land
that the contracting party who believes itself injured must first and building if the other party violates the contract does not ex
file suit and wait for a judgment before taking extrajudicial steps propio vigore confer upon the former the right to take possession
to protect its interest. Otherwise, the party injured by the other's thereof if objected to without judicial intervention and
breach will have to passively sit and watch its damages determination.
accumulate during the pendency of the suit until the final
judgment of rescission is rendered when the law itself requires This was reiterated in Zulueta vs. Mariano 5 where we held that
that he should exercise due diligence to minimize its own extrajudicial rescission has legal effect where the other party
damages (Civil Code, Article 2203). does not oppose it. 6 Where it is objected to, a judicial
determination of the issue is still necessary.
We see no conflict between this ruling and the previous
jurisprudence of this Court invoked by respondent declaring that In other words, resolution of reciprocal contracts may be made
judicial action is necessary for the resolution of a reciprocal extrajudicially unless successfully impugned in Court. If the
obligation (Ocejo Perez & Co., vs. International Banking Corp., 37 debtor impugns the declaration, it shall be subject to judicial
Phil. 631; Republic vs. Hospital de San Juan De Dios, et al., 84 Phil determination. 7
820) since in every case where the extrajudicial resolution is
contested only the final award of the court of competent In this case, private respondent has denied that rescission is
jurisdiction can conclusively settle whether the resolution was justified and has resorted to judicial action. It is now for the Court

to determine whether resolution of the contract by petitioners public policy to protect buyers of real estate on installment
was warranted. payments against onerous and oppressive conditions. Waiver of
notice is one such onerous and oppressive condition to buyers of
We hold that resolution by petitioners of the contract was real estate on installment payments.
ineffective and inoperative against private respondent for lack of
notice of resolution, as held in the U.P. vs. Angeles case, supra Regarding the second issue on refund of the installment
payments made by private respondent. Article 1385 of the Civil
Petitioner relies on Torralba vs. De los Angeles 8 where it was Code provides:
held that "there was no contract to rescind in court because from
the moment the petitioner defaulted in the timely payment of the ART. 1385. Rescission creates the obligation to return the
installments, the contract between the parties was deemed ipso things which were the object of the contract, together with their
facto rescinded." However, it should be noted that even in that fruits, and the price with its interest; consequently, it can be
case notice in writing was made to the vendee of the cancellation carried out only when he who demands rescission can return
and annulment of the contract although the contract entitled the whatever he may be obliged to restore.
seller to immediate repossessing of the land upon default by the
buyer. Neither sham rescission take place when the things which are the
object of the contract are legally in the possession of third
The indispensability of notice of cancellation to the buyer was to persons who did not act in bad faith.
be later underscored in Republic Act No. 6551 entitled "An Act to
Provide Protection to Buyers of Real Estate on Installment In this case, indemnity for damages may be demanded from the
Payments." which took effect on September 14, 1972, when it person causing the loss.
specifically provided:
As a consequence of the resolution by petitioners, rights to the lot
Sec. 3(b) ... the actual cancellation of the contract shall take should be restored to private respondent or the same should be
place after thirty days from receipt by the buyer of the notice of replaced by another acceptable lot. However, considering that
cancellation or the demand for rescission of the contract by a the property had already been sold to a third person and there is
notarial act and upon full payment of the cash surrender value to no evidence on record that other lots are still available, private
the buyer. (Emphasis supplied). respondent is entitled to the refund of installments paid plus
interest at the legal rate of 12% computed from the date of the
The contention that private respondent had waived his right to institution of the action. 10 It would be most inequitable if
be notified under paragraph 6 of the contract is neither petitioners were to be allowed to retain private respondent's
meritorious because it was a contract of adhesion, a standard payments and at the same time appropriate the proceeds of the
form of petitioner corporation, and private respondent had no second sale to another.
freedom to stipulate. A waiver must be certain and unequivocal,
and intelligently made; such waiver follows only where liberty of We come now to the third and fourth issues regarding the
choice has been fully accorded. 9 Moreover, it is a matter of personal liability of petitioner Onstott who was made jointly and

severally liable with petitioner corporation for refund to private amount of P13,722.50, with interest at twelve (12%) percent per
respondent of the total amount the latter had paid to petitioner annum from November 8, 1974, the date of the filing of the
company. It is basic that a corporation is invested by law with a Complaint. The temporary Restraining Order heretofore issued is
personality separate and distinct from those of the persons hereby lifted.
composing it as wen as from that of any other legal entity to
which it may be related. 11 As a general rule, a corporation may
not be made to answer for acts or liabilities of its stockholders or
those of the legal entities to which it may be connected and vice
versa. However, the veil of corporate fiction may be pierced when 55. G.R. No. L-42283 March 18, 1985
it is used as a shield to further an end subversive of justice 12 ; or
for purposes that could not have been intended by the law that BUENAVENTURA ANGELES, ET AL., plaintiffs-
created it 13 ; or to defeat public convenience, justify wrong, appellees,
protect fraud, or defend crime. 14 ; or to perpetuate fraud or vs.
confuse legitimate issues 15 ; or to circumvent the law or URSULA TORRES CALASANZ, ET AL., defendants-
perpetuate deception 16 ; or as an alter ego, adjunct or business appellants.
conduit for the sole benefit of the stockholders. 17

We find no badges of fraud on petitioners' part. They had literally
relied, albeit mistakenly, on paragraph 6 (supra) of its contract GUTIERREZ, JR., J.:
with private respondent when it rescinded the contract to sell
extrajudicially and had sold it to a third person. This is an appeal from the decision of the Court of First Instance
of Rizal, Seventh Judicial District, Branch X, declaring the contract
In this case, petitioner Onstott was made liable because he was to sell as not having been validly cancelled and ordering the
then the President of the corporation and he a to be the defendants-appellants to execute a final deed of sale in favor of
controlling stockholder. No sufficient proof exists on record that the plaintiffs-appellees, to pay P500.00 attorney's fees and costs.
said petitioner used the corporation to defraud private
respondent. He cannot, therefore, be made personally liable just The facts being undisputed, the Court of Appeals certified the
because he "appears to be the controlling stockholder". Mere case to us since only pure questions of law have been raised for
ownership by a single stockholder or by another corporation is appellate review.
not of itself sufficient ground for disregarding the separate
corporate personality. 18 In this respect then, a modification of On December 19, 1957, defendants-appellants Ursula Torres
the Resolution under review is called for. Calasanz and Tomas Calasanz and plaintiffs-appellees
Buenaventura Angeles and Teofila Juani entered into a contract
WHEREFORE, the questioned Resolution of respondent public to sell a piece of land located in Cainta, Rizal for the amount of
official, dated May 2, 1980, is hereby modified. Petitioner Palay, P3,920.00 plus 7% interest per annum.
Inc. is directed to refund to respondent Nazario M. Dumpit the

The plaintiffs-appellees made a downpayment of P392.00 upon
the execution of the contract. They promised to pay the balance The lower court rendered judgment in favor of the plaintiffs-
in monthly installments of P 41.20 until fully paid, the appellees. The dispositive portion of the decision reads:
installments being due and payable on the 19th day of each
month. The plaintiffs-appellees paid the monthly installments WHEREFORE, based on the foregoing considerations, the Court
until July 1966, when their aggregate payment already amounted hereby renders judgment in favor of the plaintiffs and against the
to P4,533.38. On numerous occasions, the defendants-appellants defendants declaring that the contract subject matter of the
accepted and received delayed installment payments from the instant case was NOT VALIDLY cancelled by the defendants.
plaintiffs-appellees. Consequently, the defendants are ordered to execute a final Deed
of Sale in favor of the plaintiffs and to pay the sum of P500.00 by
On December 7, 1966, the defendants-appellants wrote the way of attorney's fees. Costs against the defendants.
plaintiffs-appellees a letter requesting the remittance of past due
accounts. A motion for reconsideration filed by the defendants-appellants
was denied.
On January 28, 1967, the defendants-appellants cancelled the
said contract because the plaintiffs-appellees failed to meet As earlier stated, the then Court of Appeals certified the case to
subsequent payments. The plaintiffs' letter with their plea for us considering that the appeal involves pure questions of law.
reconsideration of the said cancellation was denied by the
defendants-appellants. The defendants-appellants assigned the following alleged errors
of the lower court:
The plaintiffs-appellees filed Civil Case No. 8943 with the Court of
First Instance of Rizal, Seventh Judicial District, Branch X to First Assignment of Error
compel the defendants-appellants to execute in their favor the
final deed of sale alleging inter alia that after computing all THE LOWER COURT ERRED IN NOT HOLDING THE CONTRACT
subsequent payments for the land in question, they found out TO SELL (ANNEX "A" OF COMPLIANCE) AS HAVING BEEN
that they have already paid the total amount of P4,533.38 LEGALLY AND VALIDLY CANCELLED.
including interests, realty taxes and incidental expenses for the
registration and transfer of the land. Second Assignment of Error

The defendants-appellants alleged in their answer that the EVEN ASSUMING ARGUENDO THAT THE SAID CONTRACT TO
complaint states no cause of action and that the plaintiffs- SELL HAS NOT BEEN LEGALLY AND VALIDLY CANCELLED, THE
appellees violated paragraph six (6) of the contract to sell when LOWER COURT ERRED IN ORDERING DEFENDANTS TO
they failed and refused to pay and/or offer to pay the monthly EXECUTE A FINAL DEED OF SALE IN FAVOR OF THE PLAINTIFF.
installments corresponding to the month of August, 1966 for
more than five (5) months, thereby constraining the defendants- Third Assignment of Error
appellants to cancel the said contract.

THE LOWER COURT ERRED IN ORDERING DEFENDANTS TO PAY and the party of the SECOND PART hereby renounces all his right
PLAINTIFFS THE SUM OF P500.00 AS ATTORNEY'S FEES. to demand or reclaim the return of the same and obliges himself
to peacefully vacate the premises and deliver the same to the
The main issue to be resolved is whether or not the contract to party of the FIRST PART. (Emphasis supplied by appellant)
sell has been automatically and validly cancelled by the
defendants-appellants. xxx xxx xxx

The defendants-appellants submit that the contract was validly The defendants-appellants argue that the plaintiffs-appellees
cancelled pursuant to paragraph six of the contract which failed to pay the August, 1966 installment despite demands for
provides: more than four (4) months. The defendants-appellants point to
Jocson v. Capitol Subdivision (G.R. No. L-6573, February 28,
xxx xxx xxx 1955) where this Court upheld the right of the subdivision owner
to automatically cancel a contract to sell on the strength of a
SIXTH.In case the party of the SECOND PART fails to satisfy any provision or stipulation similar to paragraph 6 of the contract in
monthly installments, or any other payments herein agreed upon, this case. The defendants-appellants also argue that even in the
he is granted a month of grace within which to make the retarded absence of the aforequoted provision, they had the right to cancel
payment, together with the one corresponding to the said month the contract to sell under Article 1191 of the Civil Code of the
of grace; it is understood, however, that should the month of Philippines.
grace herein granted to the party of the SECOND PART expired;
without the payments corresponding to both months having been The plaintiffs-appellees on the other hand contend that the
satisfied, an interest of 10% per annum will be charged on the Jocson ruling does not apply. They state that paragraph 6 of the
amounts he should have paid; it is understood further, that contract to sell is contrary to law insofar as it provides that in
should a period of 90 days elapse, to begin from the expiration of case of specified breaches of its terms, the sellers have the right
the month of grace herein mentioned, and the party of SECOND to declare the contract cancelled and of no effect, because it
PART has not paid all the amounts he should have paid with the granted the sellers an absolute and automatic right of rescission.
corresponding interest up to that date, the party of the FIRST
PART has the right to declare this contract cancelled and of no Article 1191 of the Civil Code on the rescission of reciprocal
effect, and as consequence thereof, the party of the FIRST PART obligations provides:
may dispose of the parcel of land covered by this contract in
favor of other persons, as if this contract had never been entered The power to rescind obligations is implied in reciprocal ones, in
into. In case of such cancellation of the contract, all the amounts case one of the obligors should not comply with what is
paid in accordance with this agreement together with all the incumbent upon him.
improvements made on the premises, shall be considered as
rents paid for the use and occupation of the above mentioned The injured party may choose between the fulfillment and the
premises, and as payment for the damages suffered by failure of rescission of the obligation, with the payment of damages in
the party of the SECOND PART to fulfill his part of the agreement;

either case. He may also seek rescission, even after he has chosen by the proper court. If the other party denies that rescission is
fulfillment, if the latter should become impossible. justified, it is free to resort to judicial action in its own behalf, and
bring the matter to court. Then, should the court, after due
xxx xxx xxx hearing, decide that the resolution of the contract was not
warranted, the responsible party will be sentenced to damages;
Article 1191 is explicit. In reciprocal obligations, either party the in the contrary case, the resolution will be affirmed, and the
right to rescind the contract upon the failure of the other to consequent indemnity awarded to the party prejudiced.
perform the obligation assumed thereunder. Moreover, there is
nothing in the law that prohibits the parties from entering into an In other words, the party who deems the contract violated many
agreement that violation of the terms of the contract would cause consider it resolved or rescinded, and act accordingly, without
its cancellation even without court intervention (Froilan v. Pan previous court action, but it proceeds at its own risk. For it is only
Oriental Shipping, Co., et al., 12 SCRA 276) the final judgment of the corresponding court that will
conclusively and finally settle whether the action taken was or
Well settled is, however, the rule that a judicial action for the was not correct in law. ... .
rescission of a contract is not necessary where the contract
provides that it may be revoked and cancelled for violation of any We see no conflict between this ruling and the previous
of its terms and conditions' (Lopez v. Commissioner of Customs, jurisprudence of this Court invoked by respondent declaring that
37 SCRA 327, and cases cited therein) judicial action is necessary for the resolution of a reciprocal
obligation; (Ocejo, Perez & Co. v. International Banking Corp., 37
Resort to judicial action for rescission is obviously not Phil. 631; Republic v. Hospital de San Juan de Dios, et al., 84 Phil.
contemplated . . . The validity of the stipulation can not be 820) since in every case where the extrajudicial resolution is
seriously disputed. It is in the nature of a facultative resolutory contested only the final award of the court of competent
condition which in many cases has been upheld by this Court. jurisdiction can conclusively settle whether the resolution was
(Ponce Enrile v. Court of Appeals, 29 SCRA 504). proper or not. It is in this sense that judicial action will be
necessary, as without it, the extrajudicial resolution will remain
The rule that it is not always necessary for the injured party to contestable and subject to judicial invalidation, unless attack
resort to court for rescission of the contract when the contract thereon should become barred by acquiescence, estoppel or
itself provides that it may be rescinded for violation of its terms prescription.
and conditions, was qualified by this Court in University of the
Philippines v. De los Angeles, (35 SCRA 102) where we explained The right to rescind the contract for non-performance of one of
that: its stipulations, therefore, is not absolute. In Universal Food Corp.
v. Court of Appeals (33 SCRA 1) the Court stated that
Of course, it must be understood that the act of a party in treating
a contract as cancelled or resolved on account of infractions by The general rule is that rescission of a contract will not be
the other contracting party must be made known to the other and permitted for a slight or casual breach, but only for such
is always provisional, being ever subject to scrutiny and review substantial and fundamental breach as would defeat the very

object of the parties in making the agreement. (Song Fo & Co. v. appellees. (See J.M. Tuazon and Co., Inc. v. Javier, 31 SCRA 829) It
Hawaiian-Philippine Co., 47 Phil. 821, 827) The question of would unjustly enrich the defendants-appellants.
whether a breach of a contract is substantial depends upon the
attendant circumstances. (Corpus v. Hon. Alikpala, et al., L-23707 Article 1234 of the Civil Code which provides that:
& L-23720, Jan. 17, 1968). ... .
If the obligation has been substantially performed in good faith,
The defendants-appellants state that the plaintiffs-appellees the obligor may recover as though there had been a strict and
violated Section two of the contract to sell which provides: complete fulfillment, less damages suffered by the obligee.

SECOND.That in consideration of the agreement of sale of the also militates against the unilateral act of the defendants-
above described property, the party of the SECOND PART appellants in cancelling the contract.
obligates himself to pay to the party of the FIRST PART the Sum
of THREE THOUSAND NINE HUNDRED TWENTY ONLY We agree with the observation of the lower court to the effect
(P3,920.00), Philippine Currency, plus interest at the rate of 7% that:
per annum, as follows:
Although the primary object of selling subdivided lots is business,
(a) The amount of THREE HUNDRED NINETY TWO only yet, it cannot be denied that this subdivision is likewise
(P392.00) when this contract is signed; and purposely done to afford those landless, low income group
people of realizing their dream of a little parcel of land which
(b) The sum of FORTY ONE AND 20/100 ONLY (P4l.20) on or they can really call their own.
before the 19th day of each month, from this date until the total
payment of the price above stipulated, including interest. The defendants-appellants cannot rely on paragraph 9 of the
contract which provides:
because they failed to pay the August installment, despite
demand, for more than four (4) months. NINTH.-That whatever consideration of the party of the FIRST
PART may concede to the party of the SECOND PART, as not
The breach of the contract adverted to by the defendants- exacting a strict compliance with the conditions of paragraph 6 of
appellants is so slight and casual when we consider that apart this contract, as well as any other condonation that the party of
from the initial downpayment of P392.00 the plaintiffs-appellees the FIRST PART may give to the party of the SECOND PART with
had already paid the monthly installments for a period of almost regards to the obligations of the latter, should not be interpreted
nine (9) years. In other words, in only a short time, the entire as a renunciation on the part of the party of the FIRST PART of
obligation would have been paid. Furthermore, although the any right granted it by this contract, in case of default or non-
principal obligation was only P 3,920.00 excluding the 7 percent compliance by the party of the SECOND PART.
interests, the plaintiffs- appellees had already paid an aggregate
amount of P 4,533.38. To sanction the rescission made by the
defendants-appellants will work injustice to the plaintiffs-

The defendants-appellants argue that paragraph nine clearly remaining balance. The defendants-appellants rely on paragraph
allows the seller to waive the observance of paragraph 6 not 2 of the contract which provides:
merely once, but for as many times as he wishes.
SECOND.That in consideration of the agreement of sale of the
The defendants-appellants' contention is without merit. We agree above described property, the party of the SECOND PART
with the plaintiffs-appellees that when the defendants- obligates himself to pay to the party of the FIRST PART the Sum
appellants, instead of availing of their alleged right to rescind, of THREE THOUSAND NINE HUNDRED TWENTY ONLY (P
have accepted and received delayed payments of installments, 3,920.00), Philippine Currency, plus interest at the rate of 7% per
though the plaintiffs-appellees have been in arrears beyond the annum ... . (Emphasis supplied)
grace period mentioned in paragraph 6 of the contract, the
defendants-appellants have waived and are now estopped from The plaintiffs-appellees on the other hand are firm in their
exercising their alleged right of rescission. In De Guzman v. Guieb submission that since they have already paid the defendants-
(48 SCRA 68), we held that: appellants a total sum of P4,533.38, the defendants-appellants
must now be compelled to execute the final deed of sale pursuant
xxx xxx xxx to paragraph 12 of the contract which provides:

But defendants do not deny that in spite of the long arrearages, TWELFTH.That once the payment of the sum of P3,920.00, the
neither they nor their predecessor, Teodoro de Guzman, even total price of the sale is completed, the party to the FIRST PART
took steps to cancel the option or to eject the appellees from the will execute in favor of the party of the SECOND PART, the
home-lot in question. On the contrary, it is admitted that the necessary deed or deeds to transfer to the latter the title of the
delayed payments were received without protest or qualification. parcel of land sold, free from all hens and encumbrances other
... Under these circumstances, We cannot but agree with the than those expressly provided in this contract; it is understood,
lower court that at the time appellees exercised their option, however, that au the expenses which may be incurred in the said
appellants had already forfeited their right to invoke the above- transfer of title shall be paid by the party of the SECOND PART, as
quoted provision regarding the nullifying effect of the non- above stated.
payment of six months rentals by appellees by their having
accepted without qualification on July 21, 1964 the full payment Closely related to the second assignment of error is the
by appellees of all their arrearages. submission of the plaintiffs-appellees that the contract herein is a
contract of adhesion.
The defendants-appellants contend in the second assignment of
error that the ledger of payments show a balance of P671,67 due We agree with the plaintiffs-appellees. The contract to sell
from the plaintiffs-appellees. They submit that while it is true entered into by the parties has some characteristics of a contract
that the total monthly installments paid by the plaintiffs- of adhesion. The defendants-appellants drafted and prepared the
appellees may have exceeded P3,920.00, a substantial portion of contract. The plaintiffs-appellees, eager to acquire a lot upon
the said payments were applied to the interests since the which they could build a home, affixed their signatures and
contract specifically provides for a 7% interest per annum on the assented to the terms and conditions of the contract. They had no

opportunity to question nor change any of the terms of the payment of the few remaining installments but not uphold the
agreement. It was offered to them on a "take it or leave it" basis. cancellation of the contract. Upon payment of the balance of
In Sweet Lines, Inc. v. Teves (83 SCRA 36 1), we held that: P671.67 without any interest thereon, the defendants-appellants
must immediately execute the final deed of sale in favor of the
xxx xxx xxx plaintiffs-appellees and execute the necessary transfer
documents as provided in paragraph 12 of the contract. The
... (W)hile generally, stipulations in a contract come about after attorney's fees are justified.
deliberate drafting by the parties thereto. . . . there are certain
contracts almost all the provisions of which have been drafted WHEREFORE, the instant petition is DENIED for lack of merit.
only by one party, usually a corporation. Such contracts are called The decision appealed from is AFFIRMED with the modification
contracts of adhesion, because the only participation of the party that the plaintiffs-appellees should pay the balance of SIX
is the signing of his signature or his "adhesion" thereto. HUNDRED SEVENTY ONE PESOS AND SIXTY-SEVEN CENTAVOS
Insurance contracts, bills of lading, contracts of sale of lots on the (P671.67) without any interests. Costs against the defendants-
installment plan fall into this category. (Paras, Civil Code of the appellants.
Philippines, Seventh ed., Vol. 1, p. 80.) (Emphasis supplied)

While it is true that paragraph 2 of the contract obligated the
plaintiffs-appellees to pay the defendants-appellants the sum of
P3,920.00 plus 7% interest per annum, it is likewise true that 56. G.R. No. L-22590 March 20, 1987
under paragraph 12 the seller is obligated to transfer the title to
the buyer upon payment of the P3,920.00 price sale. SOLOMON BOYSAW and ALFREDO M. YULO, JR.,
plaintiffs-appellants,
The contract to sell, being a contract of adhesion, must be vs.
construed against the party causing it. We agree with the INTERPHIL PROMOTIONS, INC., LOPE SARREAL, SR.,
observation of the plaintiffs-appellees to the effect that "the and MANUEL NIETO, JR., defendants-appellees.
terms of a contract must be interpreted against the party who
drafted the same, especially where such interpretation will help Felipe Torres and Associates for plaintiffs-appellants.
effect justice to buyers who, after having invested a big amount of
money, are now sought to be deprived of the same thru the V.E. Del Rosario & Associates for defendant-appellee
prayed application of a contract clever in its phraseology, M. Nieto, Jr.
condemnable in its lopsidedness and injurious in its effect which,
in essence, and in its entirety is most unfair to the buyers." A.R. Naravasa & Pol Tiglao, Jr. for defendant-appellee
Interphil Promotions, Inc.
Thus, since the principal obligation under the contract is only
P3,920.00 and the plaintiffs-appellees have already paid an R E S O L U T I O N
aggregate amount of P4,533.38, the courts should only order the

On May 3, 1961, a supplemental agreement on certain details not
covered by the principal contract was entered into by Ketchum
FERNAN, J.: and Interphil. Thereafter, Interphil signed Gabriel "Flash" Elorde
to a similar agreement, that is, to engage Boysaw in a title fight at
This is an appeal interposed by Solomon Boysaw and Alfredo the Rizal Memorial Stadium on September 30, 1961.
Yulo, Jr., from the decision dated July 25, 1963 and other rulings
and orders of the then Court of First Instance [CFI] of Rizal, On June 19, 1961, Boysaw fought and defeated Louis Avila in a
Quezon City, Branch V in Civil Case No. Q-5063, entitled "Solomon ten-round non-title bout held in Las Vegas, Nevada, U.S.A. [pp. 26-
Boysaw and Alfredo M. Yulo, Jr., Plaintiffs versus Interphil 27, t.s.n., session of March 14, 1963].
Promotions, Inc., Lope Sarreal, Sr. and Manuel Nieto, Jr.,
Defendants," which, among others, ordered them to jointly and On July 2, 1961, Ketchum on his own behalf and on behalf of his
severally pay defendant-appellee Manuel Nieto, Jr., the total sum associate Frank Ruskay, assigned to J. Amado Araneta the
of P25,000.00, broken down into P20,000.00 as moral damages managerial rights over Solomon Boysaw.
and P5,000.00 as attorney's fees; the defendants-appellees
Interphil Promotions, Inc. and Lope Sarreal, Sr., P250,000.00 as Presumably in preparation for his engagement with Interphil,
unrealized profits, P33,369.72 as actual damages and P5,000.00 Solomon Boysaw arrived in the Philippines on July 31, 1961.
as attorney's fees; and defendant-appellee Lope Sarreal, Sr., the
additional amount of P20,000.00 as moral damages aside from On September 1, 1961, J. Amado Araneta assigned to Alfredo J.
costs. Yulo, Jr. the managerial rights over Boysaw that he earlier
acquired from Ketchum and Ruskay. The next day, September 2,
The antecedent facts of the case are as follows: 1961, Boysaw wrote Lope Sarreal, Sr. informing him of his arrival
and presence in the Philippines.
On May 1, 1961, Solomon Boysaw and his then Manager, Willie
Ketchum, signed with Interphil Promotions, Inc. represented by On September 5, 1961, Alfredo Yulo, Jr. wrote to Sarreal
Lope Sarreal, Sr., a contract to engage Gabriel "Flash" Elorde in a informing him of his acquisition of the managerial rights over
boxing contest for the junior lightweight championship of the Boysaw and indicating his and Boysaw's readiness to comply
world. with the boxing contract of May 1, 1961. On the same date, on
behalf of Interphil Sarreal wrote a letter to the Games and
It was stipulated that the bout would be held at the Rizal Amusement Board [GAB] expressing concern over reports that
Memorial Stadium in Manila on September 30, 1961 or not later there had been a switch of managers in the case of Boysaw, of
than thirty [30] days thereafter should a postponement be which he had not been formally notified, and requesting that
mutually agreed upon, and that Boysaw would not, prior to the Boysaw be called to an inquiry to clarify the situation.
date of the boxing contest, engage in any other such contest
without the written consent of Interphil Promotions, Inc. The GAB called a series of conferences of the parties concerned
culminating in the issuance of its decision to schedule the Elorde-
Boysaw fight for November 4, 1961. The USA National Boxing

Association which has supervisory control of all world title fights The case dragged into 1963 when sometime in the early part of
approved the date set by the GAB said year, plaintiff Boysaw left the country without informing the
court and, as alleged, his counsel. He was still abroad when, on
Yulo, Jr. refused to accept the change in the fight date, May 13, 1963, he was scheduled to take the witness stand. Thus,
maintaining his refusal even after Sarreal on September 26, 1961, the lower court reset the trial for June 20, 1963. Since Boysaw
offered to advance the fight date to October 28, 1961 which was was still abroad on the later date, another postponement was
within the 30-day period of allowable postponements provided granted by the lower court for July 23, 1963 upon assurance of
in the principal boxing contract of May 1, 1961. Boysaw's counsel that should Boysaw fail to appear on said date,
plaintiff's case would be deemed submitted on the evidence thus
Early in October 1961, Yulo, Jr. exchanged communications with far presented.
one Mamerto Besa, a local boxing promoter, for a possible
promotion of the projected Elorde-Boysaw title bout. In one of On or about July 16, 1963, plaintiffs represented by a new
such communications dated October 6, 1961, Yulo informed Besa counsel, filed an urgent motion for postponement of the July 23,
that he was willing to approve the fight date of November 4,1961 1963 trial, pleading anew Boysaw's inability to return to the
provided the same was promoted by Besa. country on time. The motion was denied; so was the motion for
reconsideration filed by plaintiffs on July 22, 1963.
While an Elorde-Boysaw fight was eventually staged, the fight
contemplated in the May 1, 1961 boxing contract never The trial proceeded as scheduled on July 23, 1963 with plaintiff's
materialized. case being deemed submitted after the plaintiffs declined to
submit documentary evidence when they had no other witnesses
As a result of the foregoing occurrences, on October 12, 1961, to present. When defendant's counsel was about to present their
Boysaw and Yulo, Jr. sued Interphil, Sarreal, Sr. and Manuel Nieto, case, plaintiff's counsel after asking the court's permission, took
Jr. in the CFI of Rizal [Quezon City Branch] for damages allegedly no further part in the proceedings.
occasioned by the refusal of Interphil and Sarreal, aided and
abetted by Nieto, Jr., then GAB Chairman, to honor their After the lower court rendered its judgment dismissing the
commitments under the boxing contract of May 1,1961. plaintiffs' complaint, the plaintiffs moved for a new trial. The
motion was denied, hence, this appeal taken directly to this Court
On the first scheduled date of trial, plaintiff moved to disqualify by reason of the amount involved.
Solicitor Jorge Coquia of the Solicitor General's Office and Atty.
Romeo Edu of the GAB Legal Department from appearing for From the errors assigned by the plaintiffs, as having been
defendant Nieto, Jr. on the ground that the latter had been sued in committed by the lower court, the following principal issues can
his personal capacity and, therefore, was not entitled to be be deduced:
represented by government counsel. The motion was denied
insofar as Solicitor General Coquia was concerned, but was 1. Whether or not there was a violation of the fight contract
granted as regards the disqualification of Atty. Edu. of May 1, 1961; and if there was, who was guilty of such violation.


2. Whether or not there was legal ground for the The power to rescind obligations is implied, in reciprocal ones, in
postponement of the fight date from September 1, 1961, as case one of the obligors should not comply with what is
stipulated in the May 1, 1961 boxing contract, to November incumbent upon him. [Part 1, Art. 1191, Civil Code].
4,1961,
There is no doubt that the contract in question gave rise to
3. Whether or not the lower court erred in the refusing a reciprocal obligations. "Reciprocal obligations are those which
postponement of the July 23, 1963 trial. arise from the same cause, and in which each party is a debtor
and a creditor of the other, such that the obligation of one is
4. Whether or not the lower court erred in denying the dependent upon the obligation of the other. They are to be
appellant's motion for a new trial. performed simultaneously, so that the performance of one is
conditioned upon the simultaneous fulfillment of the other"
5. Whether or not the lower court, on the basis of the [Tolentino, Civil Code of the Philippines, Vol. IV, p. 175.1
evidence adduced, erred in awarding the appellees damages of
the character and amount stated in the decision. The power to rescind is given to the injured party. "Where the
plaintiff is the party who did not perform the undertaking which
On the issue pertaining to the violation of the May 1, 1961 fight he was bound by the terms of the agreement to perform 4 he is
contract, the evidence established that the contract was violated not entitled to insist upon the performance of the contract by the
by appellant Boysaw himself when, without the approval or defendant, or recover damages by reason of his own breach "
consent of Interphil, he fought Louis Avila on June 19, 1961 in Las [Seva vs. Alfredo Berwin 48 Phil. 581, Emphasis supplied].
Vegas Nevada. Appellant Yulo admitted this fact during the trial.
[pp. 26-27, t.s.n., March 14, 1963]. Another violation of the contract in question was the assignment
and transfer, first to J. Amado Araneta, and subsequently, to
While the contract imposed no penalty for such violation, this appellant Yulo, Jr., of the managerial rights over Boysaw without
does not grant any of the parties the unbridled liberty to breach it the knowledge or consent of Interphil.
with impunity. Our law on contracts recognizes the principle that
actionable injury inheres in every contractual breach. Thus: The assignments, from Ketchum to Araneta, and from Araneta to
Yulo, were in fact novations of the original contract which, to be
Those who in the performance of their obligations are guilty of valid, should have been consented to by Interphil.
fraud, negligence or delay, and those who in any manner
contravene the terms thereof, are liable for damages. [Art. 1170, Novation which consists in substituting a new debtor in the place
Civil Code]. of the original one, may be made even without the knowledge or
against the will of the latter, but not without the consent of the
Also: creditor. [Art. 1293, Civil Code, emphasis supplied].

That appellant Yulo, Jr., through a letter, advised Interphil on
September 5, 1961 of his acquisition of the managerial rights

over Boysaw cannot change the fact that such acquisition, and the justification to renegotiate the original contract, particularly the
prior acquisition of such rights by Araneta were done without the fight date is undeniable from the facts aforestated. Under the
consent of Interphil. There is no showing that Interphil, upon circumstances, the appellees' desire to postpone the fight date
receipt of Yulo's letter, acceded to the "substitution" by Yulo of could neither be unlawful nor unreasonable.
the original principal obligor, who is Ketchum. The logical
presumption can only be that, with Interphil's letter to the GAB We uphold the appellees' contention that since all the rights on
expressing concern over reported managerial changes and the matter rested with the appellees, and appellants' claims, if
requesting for clarification on the matter, the appellees were not any, to the enforcement of the contract hung entirely upon the
reliably informed of the changes of managers. Not being reliably former's pleasure and sufferance, the GAB did not act arbitrarily
informed, appellees cannot be deemed to have consented to such in acceding to the appellee's request to reset the fight date to
changes. November 4, 1961. It must be noted that appellant Yulo had
earlier agreed to abide by the GAB ruling.
Under the law when a contract is unlawfully novated by an
applicable and unilateral substitution of the obligor by another, In a show of accommodation, the appellees offered to advance
the aggrieved creditor is not bound to deal with the substitute. the November 4, 1961 fight to October 28, 1961 just to place it
within the 30- day limit of allowable postponements stipulated in
The consent of the creditor to the change of debtors, whether in the original boxing contract.
expromision or delegacion is an, indispensable requirement . . .
Substitution of one debtor for another may delay or prevent the The refusal of appellants to accept a postponement without any
fulfillment of the obligation by reason of the inability or other reason but the implementation of the terms of the original
insolvency of the new debtor, hence, the creditor should agree to boxing contract entirely overlooks the fact that by virtue of the
accept the substitution in order that it may be binding on him. violations they have committed of the terms thereof, they have
forfeited any right to its enforcement.
Thus, in a contract where x is the creditor and y is the debtor, if y
enters into a contract with z, under which he transfers to z all his On the validity of the fight postponement, the violations of the
rights under the first contract, together with the obligations terms of the original contract by appellants vested the appellees
thereunder, but such transfer is not consented to or approved by with the right to rescind and repudiate such contract altogether.
x, there is no novation. X can still bring his action against y for That they sought to seek an adjustment of one particular
performance of their contract or damages in case of breach. covenant of the contract, is under the circumstances, within the
[Tolentino, Civil Code of the Philippines, Vol. IV, p. 3611. appellee's rights.

From the evidence, it is clear that the appellees, instead of While the appellants concede to the GAB's authority to regulate
availing themselves of the options given to them by law of boxing contests, including the setting of dates thereof, [pp. 44-49,
rescission or refusal to recognize the substitute obligor Yulo, t.s.n., Jan. 17, 1963], it is their contention that only Manuel Nieto,
really wanted to postpone the fight date owing to an injury that Jr. made the decision for postponement, thereby arrogating to
Elorde sustained in a recent bout. That the appellees had the himself the prerogatives of the whole GAB Board.

We find the argument without merit because it confuses the
The records do not support appellants' contention. Appellant evidence of the clearances and the testimony of Boysaw. We
Yulo himself admitted that it was the GAB Board that set the uphold the lower court's ruling that:
questioned fight date. [pp. 32-42, t.s.n., Jan. 17, 1963]. Also, it
must be stated that one of the strongest presumptions of law is The said documents [clearances] are not evidence to offset the
that official duty has been regularly performed. In this case, the evidence adduced during the hearing of the defendants. In fact,
absence of evidence to the contrary, warrants the full application the clearances are not even material to the issues raised. It is the
of said presumption that the decision to set the Elorde-Boysaw opinion of the Court that the 'newly discovered evidence'
fight on November 4, 1961 was a GAB Board decision and not of contemplated in Rule 37 of the Rules of Court, is such kind of
Manuel Nieto, Jr. alone. evidence which has reference to the merits of the case, of such a
nature and kind, that if it were presented, it would alter the result
Anent the lower court's refusal to postpone the July 23, 1963 of the judgment. As admitted by the counsel in their pleadings,
trial, suffice it to say that the same issue had been raised before such clearances might have impelled the Court to grant the
Us by appellants in a petition for certiorari and prohibition postponement prayed for by them had they been presented on
docketed as G.R. No. L-21506. The dismissal by the Court of said time. The question of the denial of the postponement sought for
petition had laid this issue to rest, and appellants cannot now by counsel for plaintiffs is a moot issue . . . The denial of the
hope to resurrect the said issue in this appeal. petition for certiorari and prohibition filed by them, had he effect
of sustaining such ruling of the court . . . [pp. 296-297, Record on
On the denial of appellant's motion for a new trial, we find that Appeal].
the lower court did not commit any reversible error.
The testimony of Boysaw cannot be considered newly discovered
The alleged newly discovered evidence, upon which the motion evidence for as appellees rightly contend, such evidence has been
for new trial was made to rest, consists merely of clearances in existence waiting only to be elicited from him by questioning.
which Boysaw secured from the clerk of court prior to his
departure for abroad. Such evidence cannot alter the result of the We cite with approval appellee's contention that "the two
case even if admitted for they can only prove that Boysaw did not qualities that ought to concur or dwell on each and every of
leave the country without notice to the court or his counsel. evidence that is invoked as a ground for new trial in order to
warrant the reopening . . . inhered separately on two unrelated
The argument of appellants is that if the clearances were species of proof" which "creates a legal monstrosity that deserves
admitted to support the motion for a new trial, the lower court no recognition."
would have allowed the postponement of the trial, it being
convinced that Boysaw did not leave without notice to the court On the issue pertaining to the award of excessive damages, it
or to his counsel. Boysaw's testimony upon his return would, must be noted that because the appellants wilfully refused to
then, have altered the results of the case. participate in the final hearing and refused to present
documentary evidence after they no longer had witnesses to
present, they, by their own acts prevented themselves from

objecting to or presenting proof contrary to those adduced for 2) Quasi-delict causing physical injuries;
the appellees.
3) Seduction, abduction, rape or other lascivious acts;
On the actual damages awarded to appellees, the appellants
contend that a conclusion or finding based upon the 4) Adultery or concubinage;
uncorroborated testimony of a lone witness cannot be sufficient.
We hold that in civil cases, there is no rule requiring more than 5) Illegal or arbitrary detention or arrest;
one witness or declaring that the testimony of a single witness
will not suffice to establish facts, especially where such testimony 6) Illegal search;
has not been contradicted or rebutted. Thus, we find no reason to
disturb the award of P250,000.00 as and for unrealized profits to 7) Libel, slander or any other form of defamation;
the appellees.
8) Malicious prosecution;
On the award of actual damages to Interphil and Sarreal, the
records bear sufficient evidence presented by appellees of actual 9) Acts mentioned in Art. 309.
damages which were neither objected to nor rebutted by
appellants, again because they adamantly refused to participate 10) Acts and actions referred to in Arts., 21, 26, 27, 28, 29, 30,
in the court proceedings. 32, 34 and 35.

The award of attorney's fees in the amount of P5,000.00 in favor The award of moral damages in the instant case is not based on
of defendant-appellee Manuel Nieto, Jr. and another P5,000.00 in any of the cases enumerated in Art. 2219 of the Civil Code. The
favor of defendants-appellees Interphil Promotions, Inc. and Lope action herein brought by plaintiffs-appellants is based on a
Sarreal, Sr., jointly, cannot also be regarded as excessive perceived breach committed by the defendants-appellees of the
considering the extent and nature of defensecounsels' services contract of May 1, 1961, and cannot, as such, be arbitrarily
which involved legal work for sixteen [16] months. considered as a case of malicious prosecution.

However, in the matter of moral damages, we are inclined to Moral damages cannot be imposed on a party litigant although
uphold the appellant's contention that the award is not such litigant exercises it erroneously because if the action has
sanctioned by law and well- settled authorities. Art. 2219 of the been erroneously filed, such litigant may be penalized for costs.
Civil Code provides:
The grant of moral damages is not subject to the whims and
Art. 2219. Moral damages may be recovered in the following caprices of judges or courts. The court's discretion in granting or
analogous cases: refusing it is governed by reason and justice. In order that a
person may be made liable to the payment of moral damages, the
1) A criminal offense resulting in physical injuries; law requires that his act be wrongful. The adverse result of an
action does not per se make the act wrongful and subject the

actor to the payment of moral damages. The law could not have WHEREFORE, judgment is rendered in favor of the plaintiffs and
meant to impose a penalty on the right to litigate; such right is so against the defendant, ordering the defendant Manufacturers
precious that moral damages may not be charged on those who Bank & Trust Company:
may exercise it erroneously. For these the law taxes costs.
[Barreto vs. Arevalo, et. al. No. L-7748, Aug. 27, 1956, 52 O.G., No. 1. To deliver to the plaintiffs the parcel of land described in
13, p. 5818.] Contract to Sell No. VV-18-(a) in the total area of 5,936 square
meters and to execute in their favor the necessary deed of
WHEREFORE, except for the award of moral damages which is absolute sale therefor;
herein deleted, the decision of the lower court is hereby affirmed.
2. To pay the sum of P556,160.00 less the amount due on the
contract (i.e., the unpaid installments from December, 1966 until
the contract would have been fully paid together with interest
thereon up to March 25, 1974) with legal interest on said balance
57. G.R. No. L-67881 from April 22, 1974 until the same is fully paid;

PILIPINAS BANK as Successor-In-Interest Of And/Or In 3. P50,000.00 by way of moral damages;
substitution to, The MANUFACTURERS BANK AND
TRUST COMPANY, petitioner-appellant 4. P50,000.00 by way of exemplary damages;
vs.
INTERMEDIATE APPELLATE COURT (Fourth Civil 5. Ten per cent (10%) of the judgment by way of attorney's
Cases Division), and JOSE W. DIOKNO and CARMEN I. fees; and
DIOKNO, respondents-appellees.
6. Costs of suit.

PARAS, J.: SO ORDERED. (Rollo, pp. 14-15)

This is an appeal by certiorari from the Decision 1 of the The following are the undisputed facts of the case:
respondent court dated May 31, 1984 in CA-G.R. CV No. 67205
entitled "Jose W. Diokno and Carmen I. Diokno, plaintiffs- 1. On April 18, 1961, Hacienda Benito, Inc. (petitioner's
appellees, vs. The Manufacturers Bank and Trust Company, predecessor-in-interest) as vendor, and private respondents, as
defendant-appellant" which affirmed the decision 2 of the Court vendees executed Contract to Sell No. VV-18 (a) (Exh. A) over a
of First Instance of Rizal (Pasig Branch XXI) in Civil Case No. parcel of land with an area of 5,936 square meters of the Victoria
19660, the dispositive portion of which reads: Valley Subdivision in Antipolo, Rizal, subject to the following
terms and conditions, among others, relevant to this petition:


(a) The total contract price for the entire 5,936 square-meter-
lot was P47,488.00; 4. In partial compliance with the aforesaid Statements of
Account, private respondents paid on September 3, 1965 the sum
(b) Of the total sum, an amount of Pl2,182.00 was applied of Pl,397.00 which answers for the installments for the months of
thereto so as to reduce the balance on the principal to June 1965 to August 1965;
P35,306.00;
5. On March 17, 1967, petitioner sent private respondents a
(c) The aforesaid balance, together with the stipulated simple demand letter showing a delinquency in their monthly
interest of 6% per annum, was to be paid over a period of 8-1/2 amortizations for 19 months (Exh. 9);
years starting on May 1, 1961 at a monthly installment of
P446.10 until fully paid-although this monthly installment was 6. On April 17, 1967, petitioner again sent private
later adjusted to the higher amount of P797.86, starting on April respondents a demand letter showing total arrearages of 20
1, 1965; months as of April 1965, but this time advising that unless they
up-date their installment payments, petitioner shall be
(d) Upon complete payment by the vendee of the total price of constrained to avail of the automatic rescission clause (Exh. 10);
the lot the vendor shall execute a deed of sale in favor of the
vendee; 7. On May 17, 1967, private respondents made a partial
payment of P2,000.00 with the request for an extension of 60
(e) The contract shall be considered automatically rescinded days from May 17, 1967 within which to up-date their account
and cancelled and of no further force and effect upon failure of (Exh. 10-a);
the vendee to pay when due, three or more consecutive
installments as stipulated therein or to comply with any of the 8. On July 17, 1967, private respondents wrote a letter to
terms and conditions thereof, in which case the vendor shall have petitioner asking another extension of sixty (60) days to pay all
right to resell the said parcel of land to any person interested, their arrearages and update their payments under Contract No.
forfeiting payments made by the vendee as liquidated damages. VV-18 (a);

2. On July 27, 1965, petitioner sent to private respondents a 9. On September 18, 1967, private respondents paid
Statement of Account (Exh. F-1) requesting remittance of P5,000.00 as partial payment and requested an extension of
installment arrears showing partial payments for the month of another 30 days from September 18, 1967 within which to
April 1965 and May 1965 and complete default for June, July and update their account (Exh. 10-c);
August, 1965;
10. On October 19, 1967, however, private respondents failed
3. Likewise, on August 31, 1965, petitioner sent to private to update their arrearages and did not request for any further
respondents another Statement of Account with the additional extension of time within which to update their account;
entries of interests and the incoming installment for September,
1965;

11. After almost three (3) years, or on July 16, 1970, private VV-18(a) has been automatically rescinded or cancelled by virtue
respondents wrote a letter to petitioner requesting for a of private respondents' failure to pay the installments due in the
Statement of Account as of date in arrears and interests(Exh. 10- contract under the automatic rescission clause.
d), to which petitioner made a reply on July 22, 1970 (Exh. 11);
19. After trial, the lower court rendered a decision in private
12. On May 19, 1971, petitioner wrote a letter to private respondents' favor, holding that petitioner could not rescind the
respondents, reminding them of their balance which will be due contract to sell, because: (a) petitioner waived the automatic
on the 31st instant (Exh. J); rescission clause by accepting payment on September 1967, and
by sending letters advising private respondents of the balances
13. More than two (2) years from May 19, 1971 or on July 5, due, thus, looking forward to receiving payments thereon; (b) in
1973, private respondents wrote a letter to petitioner expressing any event, until May 18, 1977 (when petitioner made
their desire to fully settle their obligation, requesting for a arrangements for the acquisition of additional 870 square
complete statement of all the balance due including interests; meters) petitioner could not have delivered the entire area
contracted for, so, neither could private respondents be liable in
14. On March 14, 1974, private respondents wrote a letter default, citing Art. 1 189 of the New Civil Code. (Decision, pp. 141-
reiterating their request in their letter dated July 5, 1973, which 148, Amended Record on Appeal).
has not been complied with despite several follow-ups (Exh. O);
Said decision was affirmed on appeal.
15. On March 25, 1974, private respondent Carmen I. Diokno
went to see the Chairman of petitioner's Board of Directors on Hence, this Petition For Review on Certiorari, raising the main
the matter informing him that she had a buyer who was ready to issue of whether or not the Contract to Sell No. VV-18(a) was
purchase the property, rescinded or cancelled, under the automatic rescission clause
contained therein.
16. On March 27, 1974, petitioner wrote a letter to private
respondents, informing them that the contract to sell had been We find the petition meritless. While it is true that in the leading
rescinded/cancelled by a notarial act, to which letter was case of Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc.
annexed a "Demand for Rescission of Contract", notarized on and Myers Building Co., 43 SCRA 93 the Supreme Court reiterated
March 25, 1974 (Exh. 12); among other things that a contractual provision allowing
"automatic rescission" (without prior need of judicial rescission,
17. In view of the foregoing, private respondents filed resolution or cancellation) is VALID, the remedy of one who feels
Complaint for Specific Performance with Damages to compel aggrieved being to go to Court for the cancellation of the
petitioner to execute a deed of sale in their favor, and to deliver rescission itself, in case the rescission is found unjustified under
to them the title of the lot in question. the circumstances, still in the instant case there is a clear
WAIVER of the stipulated right of "automatic rescission," as
18. Petitioner filed an Answer with counterclaim for damages evidenced by the many extensions granted private respondents
in the form of attorney's fees, claiming that Contract to Sell No.

by the petitioner. In all these extensions, the petitioner never dismissed the petition of respondent Sulpicio M. Tolentino for
called attention to the proviso on "automatic rescission." injunction, specific performance or rescission, and damages with
preliminary injunction.
WHEREFORE the assailed decision is hereby AFFIRMED but the
actual damages are hereby reduced to P250,000.00 (the profit On April 28, 1965, Island Savings Bank, upon favorable
private respondents could have earned had the land been recommendation of its legal department, approved the loan
delivered to them at the time they were ready to pay all their application for P80,000.00 of Sulpicio M. Tolentino, who, as a
arrearages) minus whatever private respondents still owe the security for the loan, executed on the same day a real estate
petitioner (with the stipulated 6% annual interest up to March mortgage over his 100-hectare land located in Cubo, Las Nieves,
25, 1974) as a result of the contract. Agusan, and covered by TCT No. T-305, and which mortgage was
annotated on the said title the next day. The approved loan
application called for a lump sum P80,000.00 loan, repayable in
semi-annual installments for a period of 3 years, with 12%
annual interest. It was required that Sulpicio M. Tolentino shall
58. G.R. No. L-45710 October 3, 1985 use the loan proceeds solely as an additional capital to develop
his other property into a subdivision.
CENTRAL BANK OF THE PHILIPPINES and ACTING
DIRECTOR ANTONIO T. CASTRO, JR. OF THE On May 22, 1965, a mere P17,000.00 partial release of the
DEPARTMENT OF COMMERCIAL AND SAVINGS BANK, P80,000.00 loan was made by the Bank; and Sulpicio M.
in his capacity as statutory receiver of Island Savings Tolentino and his wife Edita Tolentino signed a promissory note
Bank, petitioners, for P17,000.00 at 12% annual interest, payable within 3 years
vs. from the date of execution of the contract at semi-annual
THE HONORABLE COURT OF APPEALS and SULPICIO installments of P3,459.00 (p. 64, rec.). An advance interest for the
M. TOLENTINO, respondents. P80,000.00 loan covering a 6-month period amounting to
P4,800.00 was deducted from the partial release of P17,000.00.
I.B. Regalado, Jr., Fabian S. Lombos and Marino E. But this pre-deducted interest was refunded to Sulpicio M.
Eslao for petitioners. Tolentino on July 23, 1965, after being informed by the Bank that
there was no fund yet available for the release of the P63,000.00
Antonio R. Tupaz for private respondent. balance (p. 47, rec.). The Bank, thru its vice-president and
treasurer, promised repeatedly the release of the P63,000.00
MAKASIAR, CJ.: balance (p. 113, rec.).

This is a petition for review on certiorari to set aside as null and On August 13, 1965, the Monetary Board of the Central Bank,
void the decision of the Court of Appeals, in C.A.-G.R. No. 52253-R after finding Island Savings Bank was suffering liquidity
dated February 11, 1977, modifying the decision dated February problems, issued Resolution No. 1049, which provides:
15, 1972 of the Court of First Instance of Agusan, which

In view of the chronic reserve deficiencies of the Island Savings April 28, 1965, and if said balance cannot be delivered, to rescind
Bank against its deposit liabilities, the Board, by unanimous vote, the real estate mortgage (pp. 32-43, rec.).
decided as follows:
On January 21, 1969, the trial court, upon the filing of a P5,000.00
1) To prohibit the bank from making new loans and surety bond, issued a temporary restraining order enjoining the
investments [except investments in government securities] Island Savings Bank from continuing with the foreclosure of the
excluding extensions or renewals of already approved loans, mortgage (pp. 86-87, rec.).
provided that such extensions or renewals shall be subject to
review by the Superintendent of Banks, who may impose such On January 29, 1969, the trial court admitted the answer in
limitations as may be necessary to insure correction of the bank's intervention praying for the dismissal of the petition of Sulpicio
deficiency as soon as possible; M. Tolentino and the setting aside of the restraining order, filed
by the Central Bank and by the Acting Superintendent of Banks
xxx xxx xxx (pp. 65-76, rec.).

(p. 46, rec.). On February 15, 1972, the trial court, after trial on the merits
rendered its decision, finding unmeritorious the petition of
On June 14, 1968, the Monetary Board, after finding thatIsland Sulpicio M. Tolentino, ordering him to pay Island Savings Bank
Savings Bank failed to put up the required capital to restore its the amount of PI 7 000.00 plus legal interest and legal charges
solvency, issued Resolution No. 967 which prohibited Island due thereon, and lifting the restraining order so that the sheriff
Savings Bank from doing business in the Philippines and may proceed with the foreclosure (pp. 135-136. rec.
instructed the Acting Superintendent of Banks to take charge of
the assets of Island Savings Bank (pp. 48-49, rec). On February 11, 1977, the Court of Appeals, on appeal by Sulpicio
M. Tolentino, modified the Court of First Instance decision by
On August 1, 1968, Island Savings Bank, in view of non-payment affirming the dismissal of Sulpicio M. Tolentino's petition for
of the P17,000.00 covered by the promissory note, filed an specific performance, but it ruled that Island Savings Bank can
application for the extra-judicial foreclosure of the real estate neither foreclose the real estate mortgage nor collect the
mortgage covering the 100-hectare land of Sulpicio M. Tolentino; P17,000.00 loan pp. 30-:31. rec.).
and the sheriff scheduled the auction for January 22, 1969.
Hence, this instant petition by the central Bank.
On January 20, 1969, Sulpicio M. Tolentino filed a petition with
the Court of First Instance of Agusan for injunction, specific The issues are:
performance or rescission and damages with preliminary
injunction, alleging that since Island Savings Bank failed to 1. Can the action of Sulpicio M. Tolentino for specific
deliver the P63,000.00 balance of the P80,000.00 loan, he is performance prosper?
entitled to specific performance by ordering Island Savings Bank
to deliver the P63,000.00 with interest of 12% per annum from

2. Is Sulpicio M. Tolentino liable to pay the P17,000.00 debt resolution merely prohibited the Bank from making new loans
covered by the promissory note? and investments, and nowhere did it prohibit island Savings Bank
from releasing the balance of loan agreements previously
3. If Sulpicio M. Tolentino's liability to pay the P17,000.00 contracted. Besides, the mere pecuniary inability to fulfill an
subsists, can his real estate mortgage be foreclosed to satisfy said engagement does not discharge the obligation of the contract, nor
amount? does it constitute any defense to a decree of specific performance
(Gutierrez Repide vs. Afzelius and Afzelius, 39 Phil. 190 [1918]).
When Island Savings Bank and Sulpicio M. Tolentino entered into And, the mere fact of insolvency of a debtor is never an excuse for
an P80,000.00 loan agreement on April 28, 1965, they undertook the non-fulfillment of an obligation but 'instead it is taken as a
reciprocal obligations. In reciprocal obligations, the obligation or breach of the contract by him (vol. 17A, 1974 ed., CJS p. 650)
promise of each party is the consideration for that of the other
(Penaco vs. Ruaya, 110 SCRA 46 [1981]; Vda. de Quirino vs, The fact that Sulpicio M. Tolentino demanded and accepted the
Pelarca 29 SCRA 1 [1969]); and when one party has performed or refund of the pre-deducted interest amounting to P4,800.00 for
is ready and willing to perform his part of the contract, the other the supposed P80,000.00 loan covering a 6-month period cannot
party who has not performed or is not ready and willing to be taken as a waiver of his right to collect the P63,000.00 balance.
perform incurs in delay (Art. 1169 of the Civil Code). The promise The act of Island Savings Bank, in asking the advance interest for
of Sulpicio M. Tolentino to pay was the consideration for the 6 months on the supposed P80,000.00 loan, was improper
obligation of Island Savings Bank to furnish the P80,000.00 loan. considering that only P17,000.00 out of the P80,000.00 loan was
When Sulpicio M. Tolentino executed a real estate mortgage on released. A person cannot be legally charged interest for a non-
April 28, 1965, he signified his willingness to pay the P80,000.00 existing debt. Thus, the receipt by Sulpicio M. 'Tolentino of the
loan. From such date, the obligation of Island Savings Bank to pre-deducted interest was an exercise of his right to it, which
furnish the P80,000.00 loan accrued. Thus, the Bank's delay in right exist independently of his right to demand the completion
furnishing the entire loan started on April 28, 1965, and lasted of the P80,000.00 loan. The exercise of one right does not affect,
for a period of 3 years or when the Monetary Board of the Central much less neutralize, the exercise of the other.
Bank issued Resolution No. 967 on June 14, 1968, which
prohibited Island Savings Bank from doing further business. Such The alleged discovery by Island Savings Bank of the over-
prohibition made it legally impossible for Island Savings Bank to valuation of the loan collateral cannot exempt it from complying
furnish the P63,000.00 balance of the P80,000.00 loan. The with its reciprocal obligation to furnish the entire P80,000.00
power of the Monetary Board to take over insolvent banks for the loan. 'This Court previously ruled that bank officials and
protection of the public is recognized by Section 29 of R.A. No. employees are expected to exercise caution and prudence in the
265, which took effect on June 15, 1948, the validity of which is discharge of their functions (Rural Bank of Caloocan, Inc. vs. C.A.,
not in question. 104 SCRA 151 [1981]). It is the obligation of the bank's officials
and employees that before they approve the loan application of
The Board Resolution No. 1049 issued on August 13,1965 cannot their customers, they must investigate the existence and
interrupt the default of Island Savings Bank in complying with its evaluation of the properties being offered as a loan security. The
obligation of releasing the P63,000.00 balance because said recent rush of events where collaterals for bank loans turn out to

be non-existent or grossly over-valued underscore the reciprocal obligation to pay the P17,000.00 loan when it falls due.
importance of this responsibility. The mere reliance by bank His failure to pay the overdue amortizations under the
officials and employees on their customer's representation promissory note made him a party in default, hence not entitled
regarding the loan collateral being offered as loan security is a to rescission (Article 1191 of the Civil Code). If there is a right to
patent non-performance of this responsibility. If ever bank rescind the promissory note, it shall belong to the aggrieved
officials and employees totally reIy on the representation of their party, that is, Island Savings Bank. If Tolentino had not signed a
customers as to the valuation of the loan collateral, the bank shall promissory note setting the date for payment of P17,000.00
bear the risk in case the collateral turn out to be over-valued. The within 3 years, he would be entitled to ask for rescission of the
representation made by the customer is immaterial to the bank's entire loan because he cannot possibly be in default as there was
responsibility to conduct its own investigation. Furthermore, the no date for him to perform his reciprocal obligation to pay.
lower court, on objections of' Sulpicio M. Tolentino, had enjoined
petitioners from presenting proof on the alleged over-valuation Since both parties were in default in the performance of their
because of their failure to raise the same in their pleadings (pp. respective reciprocal obligations, that is, Island Savings Bank
198-199, t.s.n. Sept. 15. 1971). The lower court's action is failed to comply with its obligation to furnish the entire loan and
sanctioned by the Rules of Court, Section 2, Rule 9, which states Sulpicio M. Tolentino failed to comply with his obligation to pay
that "defenses and objections not pleaded either in a motion to his P17,000.00 debt within 3 years as stipulated, they are both
dismiss or in the answer are deemed waived." Petitioners, thus, liable for damages.
cannot raise the same issue before the Supreme Court.
Article 1192 of the Civil Code provides that in case both parties
Since Island Savings Bank was in default in fulfilling its reciprocal have committed a breach of their reciprocal obligations, the
obligation under their loan agreement, Sulpicio M. Tolentino, liability of the first infractor shall be equitably tempered by the
under Article 1191 of the Civil Code, may choose between specific courts. WE rule that the liability of Island Savings Bank for
performance or rescission with damages in either case. But since damages in not furnishing the entire loan is offset by the liability
Island Savings Bank is now prohibited from doing further of Sulpicio M. Tolentino for damages, in the form of penalties and
business by Monetary Board Resolution No. 967, WE cannot surcharges, for not paying his overdue P17,000.00 debt. The
grant specific performance in favor of Sulpicio M, Tolentino. liability of Sulpicio M. Tolentino for interest on his PI 7,000.00
debt shall not be included in offsetting the liabilities of both
Rescission is the only alternative remedy left. WE rule, however, parties. Since Sulpicio M. Tolentino derived some benefit for his
that rescission is only for the P63,000.00 balance of the use of the P17,000.00, it is just that he should account for the
P80,000.00 loan, because the bank is in default only insofar as interest thereon.
such amount is concerned, as there is no doubt that the bank
failed to give the P63,000.00. As far as the partial release of WE hold, however, that the real estate mortgage of Sulpicio M.
P17,000.00, which Sulpicio M. Tolentino accepted and executed a Tolentino cannot be entirely foreclosed to satisfy his P 17,000.00
promissory note to cover it, the bank was deemed to have debt.
complied with its reciprocal obligation to furnish a P17,000.00
loan. The promissory note gave rise to Sulpicio M. Tolentino's

The consideration of the accessory contract of real estate hectares subsists as a security for the P17,000.00 debt. 21.25
mortgage is the same as that of the principal contract (Banco de hectares is more than sufficient to secure a P17,000.00 debt.
Oro vs. Bayuga, 93 SCRA 443 [1979]). For the debtor, the
consideration of his obligation to pay is the existence of a debt. The rule of indivisibility of a real estate mortgage provided for by
Thus, in the accessory contract of real estate mortgage, the Article 2089 of the Civil Code is inapplicable to the facts of this
consideration of the debtor in furnishing the mortgage is the case.
existence of a valid, voidable, or unenforceable debt (Art. 2086, in
relation to Art, 2052, of the Civil Code). Article 2089 provides:

The fact that when Sulpicio M. 'Tolentino executed his real estate A pledge or mortgage is indivisible even though the debt may be
mortgage, no consideration was then in existence, as there was divided among the successors in interest of the debtor or
no debt yet because Island Savings Bank had not made any creditor.
release on the loan, does not make the real estate mortgage void
for lack of consideration. It is not necessary that any Therefore, the debtor's heirs who has paid a part of the debt can
consideration should pass at the time of the execution of the not ask for the proportionate extinguishment of the pledge or
contract of real mortgage (Bonnevie vs. C.A., 125 SCRA 122 mortgage as long as the debt is not completely satisfied.
[1983]). lt may either be a prior or subsequent matter. But when
the consideration is subsequent to the mortgage, the mortgage Neither can the creditor's heir who have received his share of the
can take effect only when the debt secured by it is created as a debt return the pledge or cancel the mortgage, to the prejudice of
binding contract to pay (Parks vs, Sherman, Vol. 176 N.W. p. 583, other heirs who have not been paid.
cited in the 8th ed., Jones on Mortgage, Vol. 2, pp. 5-6). And, when
there is partial failure of consideration, the mortgage becomes The rule of indivisibility of the mortgage as outlined by Article
unenforceable to the extent of such failure (Dow. et al. vs. Poore, 2089 above-quoted presupposes several heirs of the debtor or
Vol. 172 N.E. p. 82, cited in Vol. 59, 1974 ed. CJS, p. 138). Where creditor which does not obtain in this case. Hence, the rule of
the indebtedness actually owing to the holder of the mortgage is indivisibility of a mortgage cannot apply
less than the sum named in the mortgage, the mortgage cannot
be enforced for more than the actual sum due (Metropolitan Life WHEREFORE, THE DECISION OF THE COURT OF APPEALS
Ins. Co. vs. Peterson, Vol. 19, F(2d) p. 88, cited in 5th ed., Wiltsie DATED FEBRUARY 11, 1977 IS HEREBY MODIFIED, AND
on Mortgage, Vol. 1, P. 180).
1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY
Since Island Savings Bank failed to furnish the P63,000.00 IN FAVOR OF HEREIN PETITIONERS THE SUM OF P17.000.00,
balance of the P8O,000.00 loan, the real estate mortgage of PLUS P41,210.00 REPRESENTING 12% INTEREST PER ANNUM
Sulpicio M. Tolentino became unenforceable to such extent. COVERING THE PERIOD FROM MAY 22, 1965 TO AUGUST 22,
P63,000.00 is 78.75% of P80,000.00, hence the real estate 1985, AND 12% INTEREST ON THE TOTAL AMOUNT COUNTED
mortgage covering 100 hectares is unenforceable to the extent of FROM AUGUST 22, 1985 UNTIL PAID;
78.75 hectares. The mortgage covering the remainder of 21.25

2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS November 29, 2000 Decision1 and August 2, 2001 Resolution2 of
REAL ESTATE MORTGAGE COVERING 21.25 HECTARES SHALL the Court of Appeals (CA) in CA-G.R. CV No. 54226.
BE FORECLOSED TO SATISFY HIS TOTAL INDEBTEDNESS; AND
The facts, as found by the CA, are as follows:
3. THE REAL ESTATE MORTGAGE COVERING 78.75
HECTARES IS HEREBY DECLARED UNEN FORCEABLE AND IS On December 29, 1981, the Plaintiffs (herein respondents) and
HEREBY ORDERED RELEASED IN FAVOR OF SULPICIO M. defendant (herein petitioner) Unlad Resources, through its
TOLENTINO. Chairman[,] Helena Z. Benitez[,] entered into a Memorandum of
Agreement wherein it is provided that [respondents], as
controlling stockholders of the Rural Bank [of Noveleta] shall
allow Unlad Resources to invest four million eight hundred
thousand pesos (P4,800,000.00) in the Rural Bank in the form of
additional equity. On the other hand, [petitioner] Unlad
Resources bound itself to invest the said amount of 4.8 million
pesos in the Rural Bank; upon signing, it was, likewise, agreed
that [petitioner] Unlad Resources shall subscribe to a minimum
of four hundred eighty thousand pesos (P480,000.00) (sic)
common or preferred non-voting shares of stock with a total par
59. G.R. No. 149338 July 28, 2008 value of four million eight hundred thousand pesos
(P4,800,000.00) and pay up immediately one million two
UNLAD RESOURCES DEVELOPMENT CORPORATION, hundred thousand pesos (P1,200,000.00) for said subscription;
UNLAD RURAL BANK OF NOVELETA, INC., UNLAD that the [respondents], upon the signing of the said agreement
COMMODITIES, INC., HELENA Z. BENITEZ, and shall transfer control and management over the Rural Bank to
CONRADO L. BENITEZ II, Petitioners, Unlad Resources. According to the [respondents], immediately
vs. after the signing of the agreement, they complied with their
RENATO P. DRAGON, TARCISIUS R. RODRIGUEZ, obligation and transferred control of the Rural Bank to Unlad
VICENTE D. CASAS, ROMULO M. VIRATA, FLAVIANO Resources and its nominees and the Bank was renamed the Unlad
PERDITO, TEOTIMO BENITEZ, ELENA BENITEZ, and Rural Bank of Noveleta, Inc. However, [respondents] claim that
ROLANDO SUAREZ, Respondents. despite repeated demands, Unlad Resources has failed and
refused to comply with their obligation under the said
D E C I S I O N Memorandum of Agreement when it did not invest four million
eight hundred thousand pesos (P4,800,000.00) in the Rural Bank
NACHURA, J.: in the form of additional equity and, likewise, it failed to
immediately infuse one million two hundred thousand pesos
Before this Court is a Petition for Review on Certiorari under (P1,200,000.00) as paid in capital upon signing of the
Rule 45 of the Rules of Civil Procedure seeking the reversal of the Memorandum of Agreement.

[petitioners] have failed and refused to subscribe to the said
On August 10, 1984, the Board of Directors of [petitioner] Unlad shares of stock and to pay the initial amount of one million two
Resources passed Resolution No. 84-041 authorizing the hundred thousand pesos (P1,200,000.00) for said subscription.3
President and the General Manager to lease a mango plantation
situated in Naic, Cavite. Pursuant to this Resolution, the Bank as On July 3, 1987, herein respondents filed before the Regional
[lessee] entered into a Contract of Lease with the [petitioner] Trial Court (RTC) of Makati City, Branch 61 a Complaint4 for
Helena Z. Benitez as [lessor]. The management of the mango rescission of the agreement and the return of control and
plantation was undertaken by Unlad Commodities, Inc., a management of the Rural Bank from petitioners to respondents,
subsidiary of Unlad Resources[,] under a Management Contract plus damages. After trial, the RTC rendered a Decision,5 the
Agreement. The Management Contract provides that Unlad dispositive portion of which provides:
Commodities, Inc. would receive eighty percent (80%) of the net
profits generated by the operation of the mango plantation while WHEREFORE, Premises Considered, judgment is hereby
the Banks share is twenty percent (20%). It was further agreed rendered, as follows:
that at the end of the lease period, the Rural Bank shall turn over
to the lessor all permanent improvements introduced by it on the 1. The Memorandum of Agreement dated 29 December 1991
plantation. (sic) is hereby declared rescinded and:

x x x x (a) Defendant Unlad Resources Development Corporation is
hereby ordered to immediately return control and management
On May 20, 1987, [petitioner] Unlad Rural Bank wrote over the Rural Bank of Noveleta, Inc. to Plaintiffs; and
[respondents] regarding [the] Central Banks approval to retire
its [Development Bank of the Philippines] preferred shares in the (b) Unlad Rural Bank of Noveleta, Inc. is hereby ordered to return
amount of P219,000.00 and giving notice for subscription to to Defendants the sum of One Million Three Thousand Seventy
proportionate shares. The [respondents] objected on the grounds Pesos (P1,003,070.00)
that there is already a sinking fund for the retirement of the said
DBP-held preferred shares provided for annually and that it 2. The Director for Rural Banks of the Bangko Sentral ng Pilipinas
could deprive the Rural Bank of a cheap source of fund. (sic) is hereby appointed as Receiver of the Rural Bank;

[Respondents] alleged compliance with all of their obligations 3. Unlad Rural Bank of Noveleta, Inc. is hereby enjoined from
under the Memorandum of Agreement in that they have placing the retired DBP-held preferred shares available for
transferred control and management over the Rural bank to the subscription and the same is hereby ordered to be placed under a
[petitioners] and are ready, willing and able to allow [petitioners] sinking fund;
to subscribe to a minimum of four hundred eighty thousand
(P480,000.00) (sic) common or preferred non-voting shares of 4. Defendant Unlad Resources Development Corporation is
stocks with a total par value of four million eight hundred hereby ordered to pay plaintiffs the following:
thousand pesos (P4,800,000.00) in the Rural Bank. However,

(a) actual compensatory damages amounting to Four Million Six judgment of the trial court, as affirmed by the CA, is null and void
Hundred One Thousand Seven Hundred Sixty- Five and 38/100 and may be impugned at any time.
Pesos (P4,601,765.38);
Petitioners further argue that the action instituted by
(b) moral damages in the amount of Five Hundred Thousand respondents had already prescribed, because Article 1389 of the
Pesos (P500,000.00); Civil Code provides that an action for rescission must be
commenced within four years. They claim that the trial court and
(c) exemplary and corrective damages in the amount of One the CA mistakenly applied Article 1144 of the Civil Code which
Hundred Thousand Pesos (P100,000.00); and treats of prescription of actions in general. They submit that
Article 1389, which deals specifically with actions for rescission,
(d) attorneys fees in the sum of (P100,000.00), plus cost of suit. is the applicable law.

SO ORDERED.6 Moreover, petitioners assert that they have fully complied with
their undertaking under the subject Memorandum of Agreement,
Herein petitioners appealed the ruling to the CA. Respondents but that the undertaking has become a "legal and factual
filed a Motion to Dismiss and, subsequently, a Supplemental impossibility" because the authorized capital stock of the Rural
Motion to Dismiss, which were both denied. Later, however, the Bank was increased from P1.7 million to only P5 million, and
CA, in a Decision dated November 29, 2000, dismissed the appeal could not accommodate the subscription by petitioners of P4.8
for lack of merit and affirmed the RTC Decision in all respects. million worth of shares. Such deficiency, petitioners contend, is
Petitioners motion for reconsideration was denied in CA with the knowledge and approval of respondent Renato P.
Resolution dated August 2, 2001. Dragon and his nominees to the Board of Directors.

Petitioners are now before this Court alleging that the CA Petitioners, without conceding the propriety of the judgment of
committed a grave and serious reversible error in issuing the rescission, also argue that the subject Memorandum of
assailed Decision. Petitioners question the jurisdiction of the trial Agreement could not just be ordered rescinded without the
court, something they have done from the beginning of the corresponding order for the restitution of the parties total
controversy, contending that the issues that respondents raised contributions and/or investments in the Rural Bank. Finally, they
before the trial court are intra-corporate in nature and are, assail the award for moral and exemplary damages, as well as the
therefore, beyond the jurisdiction of the trial court. They point award for attorneys fees, as bereft of factual and legal bases
out that respondents complaint charged them with given that, in the body of the Decision, it was merely stated that
mismanagement and alleged dissipation of the assets of the Rural respondents suffered moral damages without any discussion or
Bank. Since the complaint challenges corporate actions and explanation of, nor any justification for such award. Likewise, the
decisions of the Board of Directors and prays for the recovery of matter of attorneys fees was not at all discussed in the body of
the control and management of the Rural Bank, these matters fall the Decision. Petitioners claim that pursuant to the prevailing
outside the jurisdiction of the trial court. Thus, they posit that the rule, attorneys fees cannot be recovered in the absence of
stipulation.

Furthermore, when the Rural Bank informed respondents of the
On the other hand, respondents declare that immediately after Central Banks approval of its plan to retire its DBP-held
the signing of the Memorandum of Agreement, they complied preferred shares, giving notices for subscription to proportionate
with their obligation and transferred control of the Rural Bank to shares, respondents objected on the ground that there was
petitioner Unlad Resources and its nominees, but that, despite already a sinking fund for the retirement of said shares provided
repeated demands, petitioners have failed and refused to comply for annually, and that the retirement would deprive the
with their concomitant obligations under the Agreement. petitioner Rural Bank of a cheap source of fund. It was at that
point, respondents claim, that they instituted the aforementioned
Respondents narrate that shortly after taking over the Rural Complaint against petitioners before the RTC of Makati.
Bank, petitioners Conrado L. Benitez II and Jorge C. Cerbo, as
President and General Manager, respectively, entered into a The respondents also seek the outright dismissal of this Petition
Contract of Lease over the Naic, Cavite mango plantation, and for lack of verification as to petitioners Helena Z. Benitez and
that, as a consequence of this venture, the bank incurred Conrado L. Benitez II; lack of proper verification as to petitioners
expenses amounting to P475,371.57, equivalent to 25.76% of its Unlad Resources Development Corporation, Unlad Rural Bank of
capital and surplus. The respondents further assert that the Noveleta, Inc., and Unlad Commodities, Inc.; lack of proper
Central Bank found this undertaking not inherently connected verified statement of material dates; and lack of proper sworn
with bona fide rural banking operations, nor does it fall within certification of non-forum shopping.
the allied undertakings permitted under Section 26 of Central
Bank Circular No. 741 and Section 3379 of the Manual of They support the proposition that Tijam v. Sibonghanoy7 applies,
Regulations of the Central Bank. Thus, respondents contend that and that petitioners are indeed estopped from questioning the
this circumstance, coupled with the fact that petitioners Helena Z. jurisdiction of the trial court. They also share the lower courts
Benitez and Conrado L. Benitez II were also stockholders and view that it is Article 1144 of the Civil Code, and not Article 1389,
members of the Board of Directors of Unlad Resources, Unlad that is applicable to this case. Finally, respondents allege that the
Rural Bank, and Unlad Commodities at that time, is adequate failure of petitioner Unlad Resources to comply with its
proof that the Rural Banks management had every intention of undertaking under the Agreement, as uniformly found by the
diverting, dissipating, and/or wasting the banks assets for trial court and the CA, may no longer be assailed in the instant
petitioners own gain. Petition, and that the award of moral and exemplary damages
and attorneys fees is justified.
They likewise allege that because of the failure of petitioners to
comply with their obligations under the Memorandum of The Petition is bereft of merit. We uphold the Decision of the CA
Agreement, respondents, with the exception of Tarcisius affirming that of the RTC.
Rodriguez, lodged a complaint with the Securities and Exchange
Commission (SEC), seeking rescission of the Agreement, First, the subject of jurisdiction. The main issue in this case is the
damages, and the appointment of a management committee, but rescission of the Memorandum of Agreement. This is to be
the SEC dismissed the complaint for lack of jurisdiction. distinguished from respondents allegation of the alleged
mismanagement and dissipation of corporate assets by the

petitioners which is based on the prayer for receivership over the It is well to remember that the respondents had actually filed
bank. The two issues, albeit related, are obviously separate, as with the SEC a case against the petitioners which, however, was
they pertain to different acts of the parties involved. The issue of dismissed for lack of jurisdiction due to the pendency of the case
receivership does not arise from the parties obligations under before the RTC.10 The SECs Order dismissing the respondents
the Memorandum of Agreement, but rather from specific acts complaint is instructive:
attributed to petitioners as members of the Board of Directors of
the Bank. Clearly, the rescission of the Memorandum of From the foregoing allegations, it is apparent that the present
Agreement is a cause of action within the jurisdiction of the trial action involves two separate causes of action which are
courts, notwithstanding the fact that the parties involved are all interrelated, and the resolution of which hinges on the very
directors of the same corporation. document sought to be rescinded. The assertion that the
defendants failed to comply with their contractual undertaking
Still, the petitioners insist that the trial court had no jurisdiction and the claim for rescission of the contract by the plaintiffs has, in
over the complaint because the issues involved are intra- effect, put in issue the very status of the herein defendants as
corporate in nature. stockholders of the Rural Bank. The issue as to whether or not
the defendants are stockholders of the Rural Bank is a pivotal
This argument miserably fails to persuade. The law in force at the issue to be determined on the basis of the Memorandum of
time of the filing of the case was Presidential Decree (P.D.) 902-A, Agreement. It is a prejudicial question and a logical antecedent to
Section 5(b) of which vested the Securities and Exchange confer jurisdiction to this Commission.
Commission with original and exclusive jurisdiction to hear and
decide cases involving controversies arising out of intra- It is to be noted, however, that determination of the contractual
corporate relations.8 Interpreting this statutorily conferred undertaking of the parties under a contract lies with the Regional
jurisdiction on the SEC, this Court had occasion to state: Trial Courts and not with this Commission. x x x11

Nowhere in said decree do we find even so much as an Be that as it may, this point has been rendered moot by Republic
[intimation] that absolute jurisdiction and control is vested in the Act (R.A.) No. 8799, also known as the Securities Regulation
Securities and Exchange Commission in all matters affecting Code. This law, which took effect in 2000, has transferred
corporations. To uphold the respondents arguments would jurisdiction over such disputes to the RTC. Specifically, R.A. 8799
remove without legal imprimatur from the regular courts all provides:
conflicts over matters involving or affecting corporations,
regardless of the nature of the transactions which give rise to Sec. 5. Powers and Functions of the Commission
such disputes. The courts would then be divested of jurisdiction
not by reason of the nature of the dispute submitted to them for x x x x
adjudication, but solely for the reason that the dispute involves a
corporation. This cannot be done.9 5.2. The Commissions jurisdiction over all cases enumerated
under Section 5 of Presidential Decree No. 902-A is hereby
transferred to the Courts of general jurisdiction or the

appropriate Regional Trial Court: Provided, That the Supreme c) Controversies in the election or appointment of directors,
Court in the exercise of its authority may designate the Regional trustees, officers or managers of such corporations, partnerships
Trial Court branches that shall exercise jurisdiction over these or associations.
cases. The Commission shall retain jurisdiction over pending
cases involving intra-corporate disputes submitted for final Consequently, whether the cause of action stems from a
resolution which should be resolved within one (1) year from the contractual dispute or one that involves intra-corporate matters,
enactment of this Code. The Commission shall retain jurisdiction the RTC already has jurisdiction over this case. In this light, the
over pending suspension of payments/rehabilitation cases filed question of whether the doctrine of estoppel by laches applies, as
as of 30 June 2000 until finally disposed. enunciated by this Court in Tijam v. Sibonghanoy, no longer finds
relevance.
Section 5 of P.D. No. 902-A reads, thus:
Second, the issue of prescription. Petitioners further contend that
Sec. 5. In addition to the regulatory and adjudicative functions of the action for rescission has prescribed under Article 1398 of the
the Securities and Exchange Commission over corporations, Civil Code, which provides:
partnerships and other forms of associations registered with it as
expressly granted under existing laws and decrees, it shall have Article 1389. The action to claim rescission must be commenced
original and exclusive jurisdiction to hear and decide cases within four years x x x.
involving:
This is an erroneous proposition. Article 1389 specifically refers
a) Devices and schemes employed by or any acts of the board of to rescissible contracts as, clearly, this provision is under the
directors, business associates, its officers or partnership, chapter entitled "Rescissible Contracts."
amounting to fraud and misrepresentation which may be
detrimental to the interest of the public and/or of the In a previous case,12 this Court has held that Article 1389:
stockholder, partners, members of associations or organizations
registered with the Commission; applies to rescissible contracts, as enumerated and defined in
Articles 1380 and 1381. We must stress however, that the
b) Controversies arising out of intra-corporate or partnership "rescission" in Article 1381 is not akin to the term "rescission" in
relations, between and among stockholders, members, or Article 1191 and Article 1592. In Articles 1191 and 1592, the
associates; between any or all of them and the corporation, rescission is a principal action which seeks the resolution or
partnership or association of which they are stockholders, cancellation of the contract while in Article 1381, the action is a
members or associates, respectively; and between such subsidiary one limited to cases of rescission for lesion as
corporation, partnership or association and the state insofar as it enumerated in said article.
concerns their individual franchise or right to exist as such entity;
The prescriptive period applicable to rescission under Articles
1191 and 1592, is found in Article 1144, which provides that the

action upon a written contract should be brought within ten Based on the records of this case, the action was commenced on
years from the time the right of action accrues. July 3, 1987, while the Memorandum of Agreement was entered
into on December 29, 1981. Article 1144 specifically provides
Article 1381 sets out what are rescissible contracts, to wit: that the 10-year period is counted from "the time the right of
action accrues." The right of action accrues from the moment the
Article 1381. The following contracts are rescissible: breach of right or duty occurs.13 Thus, the original Complaint
was filed well within the prescriptive period.
(1) Those which are entered into by guardians whenever the
wards whom they represent suffer lesion by more than one- We now proceed to determine if the trial court, as affirmed by the
fourth of the value of the things which are the object thereof; CA, correctly ruled for the rescission of the subject Agreement.

(2) Those agreed upon in representation of absentees, if the Petitioners contend that they have fully complied with their
latter suffer the lesion stated in the preceding number; obligation under the Memorandum of Agreement. They allege
that due to respondents failure to increase the capital stock of
(3) Those undertaken in fraud of creditors when the latter cannot the corporation to an amount that will accommodate their
in any other manner collect the claims due them; undertaking, it had become impossible for them to perform their
end of the Agreement.
(4) Those which refer to things under litigation if they have been
entered into by the defendant without the knowledge and Again, petitioners contention is untenable. There is no question
approval of the litigants or of competent judicial authority; that petitioners herein failed to fulfill their obligation under the
Memorandum of Agreement. Even they admit the same, albeit
(5) All other contracts specially declared by law to be subject to laying the blame on respondents.
rescission.
It is true that respondents increased the Rural Banks authorized
The Memorandum of Agreement subject of this controversy does capital stock to only P5 million, which was not enough to
not fall under the above enumeration. Accordingly, the accommodate the P4.8 million worth of stocks that petitioners
prescriptive period that should apply to this case is that provided were to subscribe to and pay for. However, respondents failure
for in Article 1144, to wit: to fulfill their undertaking in the agreement would have given
rise to the scenario contemplated by Article 1191 of the Civil
Article 1144. The following actions must be brought within ten Code, which reads:
years from the time the right of action accrues:
Article 1191. The power to rescind reciprocal obligations is
(1) Upon a written contract; implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
x x x x


The injured party may choose between the fulfillment and the Neither shall rescission take place when the things which are the
rescission of the obligation, with the payment of damages in object of the contract are legally in the possession of third
either case. He may also seek rescission, even after he has chosen persons who did not act in bad faith.
fulfillment, if the latter should become impossible.
In this case, indemnity for damages may be demanded from the
The court shall decree the rescission claimed, unless there be just person causing the loss.
cause authorizing the fixing of a period.
This Court has consistently ruled that this provision applies to
This is understood to be without prejudice to the rights of third rescission under Article 1191:
persons who have acquired the thing, in accordance with Articles
1385 and 1388 and the Mortgage Law. [S]ince Article 1385 of the Civil Code expressly and clearly states
that "rescission creates the obligation to return the things which
Thus, petitioners should have exacted fulfillment from the were the object of the contract, together with their fruits, and the
respondents or asked for the rescission of the contract instead of price with its interest," the Court finds no justification to sustain
simply not performing their part of the Agreement. But in the petitioners position that said Article 1385 does not apply to
course of things, it was the respondents who availed of the rescission under Article 1191.15
remedy under Article 1191, opting for the rescission of the
Agreement in order to regain control of the Rural Bank. Rescission has the effect of "unmaking a contract, or its undoing
from the beginning, and not merely its termination."16 Hence,
Having determined that the rescission of the subject rescission creates the obligation to return the object of the
Memorandum of Agreement was in order, the trial court ordered contract. It can be carried out only when the one who demands
petitioner Unlad Resources to return to respondents the rescission can return whatever he may be obliged to restore. To
management and control of the Rural Bank and for the latter to rescind is to declare a contract void at its inception and to put an
return the sum of P1,003,070.00 to petitioners. end to it as though it never was. It is not merely to terminate it
and release the parties from further obligations to each other, but
Mutual restitution is required in cases involving rescission under to abrogate it from the beginning and restore the parties to their
Article 1191. This means bringing the parties back to their relative positions as if no contract has been made.17
original status prior to the inception of the contract.14 Article
1385 of the Civil Code provides, thus: Accordingly, when a decree for rescission is handed down, it is
the duty of the court to require both parties to surrender that
ART. 1385. Rescission creates the obligation to return the things which they have respectively received and to place each other as
which were the object of the contract, together with their fruits, far as practicable in his original situation. The rescission has the
and the price with its interest; consequently, it can be carried out effect of abrogating the contract in all parts.18
only when he who demands rescission can return whatever he
may be obligated to restore. Clearly, the petitioners failed to fulfill their end of the agreement,
and thus, there was just cause for rescission. With the contract

thus rescinded, the parties must be restored to the status quo x x x x
ante, that is, before they entered into the Memorandum of
Agreement. Q: Will you please kindly go through this computation and
explain the same to the Honorable Court?
Finally, we must resolve the question of the propriety of the
award for damages and attorneys fees. A: Number 1 is an Organ (sic) income from the sale of 60% (sic)
at only Three Hundred Ninety Nine Thousand Two hundred for
The trial courts Decision mentioned that the "evidence is clear Nineteen Thousand Nine Hundred Sixty shares which should
and convincing that Plaintiffs (herein respondents) suffered have been sold if it were sold to others for P50.00 each for a total
actual compensatory damages amounting to Four Million Six of Nine Hundred Ninety Eight Thousand but sold to them for
Hundred One Thousand Seven Hundred Sixty-Five and 38/100 Three Hundred Ninety nine (sic) Thousand two (sic) Hundred
Pesos (P4,601,765.38) moral damages and attorneys fees." only and of which only Three Hundred Twenty Four Thousand
Six Hundred was paid to me. Therefore, there was a difference of
Though not discussed in the body of the Decision, the records Six Hundred Seven Three (sic) Thousand Four Hundred
show that the amount of P4,601,765.38 pertains to actual losses (P673,400.00). On the basis of the commulative (sic) lost income
incurred by respondents as a result of petitioners non- every year from March 1982 from the amount of Seven Six
compliance with their undertaking under the Memorandum of Hundred (sic) Seventy Three Thousand four (sic) Hundred
Agreement. On this point, respondent Dragon presented (P673,400.) (sic) there would be a discommulative (sic) lost (sic)
testimonial and documentary evidence to prove the actual of One Million Ninety Three Thousand Nine Hundred Fifty Two
amount of damages, thus: Pesos and forty two (sic) centavos (P1,093,952.42). Please note
that the interest imputed is only at 12% per annum but it should
Atty. Cruz had (sic) been much higher. In 1984 to 1986 (sic) alone rates
went as higher (sic) as 40% per annum from the so called (sic)
Q: Was there any consequence to you Mr. Dragon due to any Jobo Bills and yet we only computed the imputed income or lost
breach of the agreement marked as Exhibit A? income at 12% per annum and then there is a 40% participation
on the unrealized earnings due to their failure to put in an
A: Yes sir I could have earned thru the shares of stock that I have, stabilized (sic) earnings. You will note that if they put in 4.8
or we have or we had by this time amounting to several millions million Pesos and it would be earning money, 40% of that will go
pesos (sic). They have only put in the whole amount that we have to us because 40% of the bank would be ours and 60% would be
agreed upon (sic). there (sic). But because they did put in the 4.8 million our 40%
did not earn up to that extent and computed again on the basis of
Q: In this connection did you cause computation of these losses 12% the amount (sic) on the commulative (sic) basis up to
that you incured (sic)? September 1990 is 2 million three hundred fifty two thousand
sixty five pesos and four centavos (sic). (P2,352,065.04). You will
A: Yes sir. note again that the average return of investment of any Cavite


based (sic) Rural Bank has been no less than 20% or about 30% the dispositive portion. Be that as it may, we have examined the
per annum. And we computed only the earnings at 12%. records of the case and found that the award must be sustained.

x x x x It should be remembered that there are two separate causes of
action in this case: one for rescission of the Memorandum of
There were loans granted fraudulently to members of the board Agreement and the other for receivership based on alleged
and some borrowers which were not all charged interest for mismanagement of the company by the plaintiffs. While the
several years and on this basis we computed a 40% shares (sic) award of actual compensatory damages was based on the breach
on the foregone income interest income (sic) on all these of duty under the Memorandum of Agreement, the award of
fraudulently granted loans, without interest being collected and moral damages appears to be based on petitioners
none a project (sic) among a plantation project (sic), which was mismanagement of the company when they became members of
funded by the bank but nothing was given back to the bank for the Board of Directors of the Rural Bank.
several hundred thousand of pesos (sic). And we arrived an (sic)
estimate of the foregone interest income a total of One Million Thus, the trial court said:
Two Hundred Five Thousand Eight Hundred Sixty None Pesos
and eighty one (sic) centavos and 40 percent share of this (sic) Under the Rural Banks management, a systematic diversion of
would be Four Hundred Eighty Two Thousand Three Hundred the banks assets was conceived whereby: (a) The Rural Banks
Forty Seven Pesos and Ninety Two Centavos. All in all our funds would be funneled in the development and improvements
estimate of the damages we have suffered is Four Million Six of the Benitez Mango Plantation in the guise of an investment in
Hundred one (sic) Thousand Seven Hundred Sixty Five Pesos and said plantation; (b) Of the net profits earned from the
thirty eight (sic) centavos (P4,601,765.38).19 plantations operations, the Rural Banks share therein, although
it shoulders all of the financial risks, would be a measly twenty
More importantly, petitioners never raised in issue before the CA percent (20%) thereof while UCI, without investing a single
this award of actual compensatory damages. They did not raise centavo, would earn eighty percent (80%) of the said profits.
the matter of damages in their Appellants Brief, while in their Thus, the bulk of the profits of the mango plantation was also
Motion for Reconsideration, they questioned only the award of sought to be diverted to an entity wherein Helena Z. Benitez and
moral and exemplary damages, not the award of actual damages. Conrado L. Benitez II are not only principal stockholders but also
Even in the present Petition for Review, what petitioners raised the Chairman of the Board of Directors and President,
was the propriety of the award of moral and exemplary damages respectively. Moreover, Defendant Helena Z. Benitez would be
and attorneys fees. entitled to receive, under the lease contract, rentals in the total
amount of Three Hundred Thousand Pesos (P300,000.00) or ten
On the grant of moral and exemplary damages and attorneys percent (10%) of gross profits, whichever is higher. (c) Finally, at
fees, we note that the trial courts Decision did not discuss the the end of the lease period, the Rural Bank was obliged to turn
basis for the award. No mention of these damages awarded or over to the lessor (Helena Z. Benitez) all permanent
their factual basis is made in the body of the Decision, only in improvements introduced by it on the plantation at no cost to Ms.
Benitez.

Banks assets, unjustly depriving Plaintiffs of their fair share in
Further, in its report dated March 13, 1985, the [Central Bank] the assets of the bank.
after conducting its general examination upon the Rural Bank
ordered the latter to "explain satisfactorily why the bank engage All the foregoing satisfactorily affirms the allegations of Plaintiffs
(sic) in an undertaking not inherently connected with [bona fide] to the effect that these contracts were but part of a device
rural banking operations nor within the allowed allied employed by Defendants to siphon [off] the Rural bank for their
undertakings," contrary to the provisions of Section 3379 of the personal gain.20
CB Manual of Regulations and Section 26 of CB Circular No. 741,
otherwise known as the "Circular on Rural Banks[.]" Moral damages include physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded feelings, moral
The aforestated CB report states that "total exposure to this shock, social humiliation, and similar injury. Though incapable of
project now amounts to P475,371.57 or 25.76% of its capital and precise pecuniary computation, moral damages may be
surplus[.]" Notwithstanding a finding by the CB of the recovered if they are the proximate result of the defendants
undertakings illegality, the defendants nevertheless persisted in wrongful act or omission.21 Article 2220 of the Civil Code further
pursuing the Mango Plantation Project and never acceded to the provides that moral damages may be recovered in case of a
call of [the] CB for it to desist from further implementing the said breach of contract where the defendant acted in bad faith.22
project. It was only after another letter from the CB was received
when defendant finally shelved the mango plantation project. To award moral damages, a court must be satisfied with proof of
the following requisites: (1) an injury whether physical, mental,
The result of the aforestated report, as well as the actuations of or psychological clearly sustained by the claimant; (2) a
the Defendants in not yielding to the order of the CB, adequately culpable act or omission factually established; (3) a wrongful act
establishes not only a violation of CB Rules (specifically Section or omission of the defendant as the proximate cause of the injury
26, Circular 741 and Section 3379 of the CB Manual of sustained by the claimant; and (4) the award of damages
Regulations, but also, that it has caused undue damage both to predicated on any of the cases stated in Article 2219.231avvphi1
the Rural bank as well as its stockholders.
Accordingly, based upon the findings of the trial court, it is clear
The initial CB report should have sufficiently apprised that respondents are entitled to moral damages. The acts
Defendants of the illegality of the undertaking. Defendants, attributed to the petitioners as directors of the Rural Bank
therefore have the duty to terminate the Mango Plantation manifestly prejudiced the respondents causing detriment to their
Project. They, however, [chose] to continue it, apparently to standing as directors and stockholders of the Rural Bank.
further their [own] interest in the scheme for their own personal
benefit and gain, an act which is clearly contrary to the fiduciary Exemplary damages cannot be recovered as a matter of right.24
nature of their relationship with the corporation in which they While these need not be proved, respondents must show that
are officers. Such persistence proves evident bad faith, or a they are entitled to moral, temperate or compensatory damages
breach of a known duty through some motive or ill-will, which before the court may consider the question of awarding
resulted in the further dissipation and wastage of the Rural exemplary damages.25 We find that respondents are indeed

entitled to moral damages; thus, the award for exemplary aside the Decision1 dated January 24, 2013 and Resolution2
damages is in order. dated April 30, 2013 of the Court of Appeals (CA) in CA-G.R. SP
No. 121175.
Anent the award for attorneys fees, Article 2208 of the Civil Code
states: The facts follow.

In the absence of stipulation, attorneys fees and expenses of Respondent Jayne Yu and petitioner Swire Realty Development
litigation, other than judicial costs, cannot be recovered, except: Corporation entered into a Contract to Sell on July 25, 1995
covering one residential condominium unit, specifically Unit
(1) When exemplary damages are awarded. 3007 of the Palace of Makati, located at P. Burgos comer Caceres
Sts., Makati City, with an area of 137.30 square meters for the
Hence, the award of exemplary damages is in itself sufficient total contract price of P7,519,371.80, payable in equal monthly
justification for the award of attorneys fees.26 installments until September 24, 1997. Respondent likewise
purchased a parking slot in the same condominium building for
WHEREFORE, the foregoing premises considered, the petition is P600,000.00.
hereby DENIED. The assailed Decision and Resolution of the
Court of Appeals in CA-G.R. CV No. 54226 are AFFIRMED. On September 24, 1997, respondent paid the full purchase price
of P7,519,371.80 for the unit while making a down payment of
SO ORDERED. P20,000.00 for the parking lot. However, notwithstanding full
payment of the contract price, petitioner failed to complete and
deliver the subject unit on time. This prompted respondent to file
a Complaint for Rescission of Contract with Damages before the
Housing and Land Use Regulatory Board (HLURB) Expanded
60. G.R. No. 207133 National Capital Region Field Office (ENCRFO).

SWIRE REALTY DEVELOPMENT CORPORATION, On October 19, 2004, the HLURB ENCRFO rendered a Decision3
Petitioner, dismissing respondents complaint. It ruled that rescission is not
vs. permitted for slight or casual breach of the contract but only for
JAYNE YU, Respondent. such breaches as are substantial and fundamental as to defeat the
object of the parties in making the agreement. It disposed of the
D E C I S I O N case as follows:

PERALTA, J.: WHEREFORE, PREMISES CONSIDERED, judgment is hereby
rendered ordering [petitioner] the following:
This is a Petition for Review on Certiorari under Rule 45 of the
1997 Rules of Civil Procedure which seeks to reverse and set

1.To finish the subject unit as pointed out in the inspection been delivered to [respondent] as of August 28, 2002, which is
Report beyond the period of development of December 1999 under the
license to sell. The delay in the completion of the project as well
2.To pay [respondent] the following: as of the delay in the delivery of the unit are breaches of statutory
and contractual obligations which entitles [respondent] to
a.the amount of P100,000 as compensatory damages for the rescind the contract, demand a refund and payment of damages.
minor irreversible defects in her unit [respondent], or, in the
alternative, conduct the necessary repairs on the subject unit to The delay in the completion of the project in accordance with the
conform to the intended specifications; license to sell also renders [petitioner] liable for the payment of
administrative fine.
b.moral damages of P20,000.00
Wherefore, the decision of the Office below is set aside and a new
c.Attorneys fees of P20,000.00 decision is rendered as follows:

On the other hand, [respondent] is hereby directed to 1.Declaring the contract to sell as rescinded and directing
immediately update her account insofar as the parking slot is [petitioner] to refund to [respondent] the amount of
concerned, without interest, surcharges or penalties charged P7,519,371.80 at 6% per annum from the time of extrajudicial
therein. demand on January 05, 2001: subject to computation and
payment of the correct filing fee;
All other claims and counterclaims are hereby dismissed for lack
of merit. 2.Directing [petitioner] to pay respondent attorneys fees in the
amount of P20,000.00;
IT IS SO ORDERED.4
3.Directing [petitioner] to pay an administrative fine of
Respondent then elevated the matter to the HLURB Board of P10,000.00 for violation of Section 20, in relation to Section 38 of
Commissioners. P.D. 957:

In a Decision5 dated March 30, 2006, the HLURB Board of SO ORDERED.6
Commissioners reversed and set aside the ruling of the HLURB
ENCRFO and ordered the rescission of the Contract to Sell, Petitioner moved for reconsideration, but the same was denied
ratiocinating: by the HLURB Board of Commissioners in a Resolution7 dated
June 14, 2007.
We find merit in the appeal. The report on the ocular inspection
conducted on the subject condominium project and subject unit Unfazed, petitioner appealed to the Office of the President (OP)
shows that the amenities under the approved plan have not yet on August 7, 2007.
been provided as of May 3, 2002, and that the subject unit has not

In a Decision8 dated November 21, 2007, the OP, through then until 27 July 2007 to file the Notice of Appeal before this Office.
Deputy Executive Secretary Manuel Gaite, dismissed petitioners However, [petitioner] filed its appeal only on 7 August 2007 or
appeal on the ground that it failed to promptly file its appeal eleven (11) days late.
before the OP. It held:
Thus, this Office need not delve on the merits of the appeal filed
Records show that [petitioner] received its copy of the 30 March as the records clearly show that the said appeal was filed out of
2006 HLURB Decision on 17 April 2006 and instead of filing an time.
appeal, it opted first to file a Motion for Reconsideration on 28
April 2006 or eleven (11) days thereafter. The said motion WHEREFORE, premises considered, [petitioner]s appeal is
interrupted the 15-day period to appeal. hereby DISMISSED, and the HLURB Decision dated 30 March
2006 and HLURB Resolution dated 14 June 2007 are hereby
On 23 July 2007, [petitioner] received the HLURB Resolution AFFIRMED.
dated 14 June 2007 denying the Motion for Reconsideration.
SO ORDERED.9
Based on the ruling in United Overseas Bank Philippines, Inc. v.
Ching (486 SCRA 655), the period to appeal decisions of the Immediately thereafter, petitioner filed a motion for
HLURB Board of Commissioners to the Office of the President is reconsideration against said decision.
15 days from receipt thereof pursuant to Section 15 of P.D. No.
957 and Section 2 of P.D. No. 1344 which are special laws that In a Resolution10 dated February 17, 2009, the OP, through then
provide an exception to Section 1 of Administrative Order No. 18. Executive Secretary Eduardo Ermita, granted petitioners motion
and set aside Deputy Executive Secretary Gaites decision. It held
Corollary thereto, par. 2, Section 1 of Administrative Order No. that after a careful and thorough evaluation and study of the
18, Series of 1987 provides that: records of the case, the OP was more inclined to agree with the
earlier decision of the HLURB ENCRFO as it was more in accord
The time during which a motion for reconsideration has been with facts, law and jurisprudence relevant to the case. Thus:
pending with the Ministry/Agency concerned shall be deducted
from the period of appeal. But where such a motion for WHEREFORE, premises considered, the instant Motion for
reconsideration has been filed during office hours of the last day Reconsideration is hereby GRANTED. The Decision and
of the period herein provided, the appeal must be made within Resolution of the HLURB Third Division Board of Commissioners,
the day following receipt of the denial of said motion by the dated March 30, 2006 and June 14, 2007, respectively, are hereby
appealing party (Underscoring supplied) SET ASIDE, and the HLURB ENCRFO Decision dated October 19,
2004 is hereby REINSTATED.
x x x x
SO ORDERED.11
Accordingly, the [petitioner] had only four (4) days from receipt
on 23 July 2007 of HLURB Resolution dated 14 June 2007, or

Respondent sought reconsideration of said resolution, however, In essence, the issues are: (1) whether petitioners appeal was
the same was denied by the OP in a Resolution12 dated August timely filed before the OP; and (2) whether rescission of the
18, 2011. contract is proper in the instant case.

Consequently, respondent filed an appeal to the CA. We shall resolve the issues in seriatim.

In a Decision dated January 24, 2013, the CA granted First, the period to appeal the decision of the HLURB Board of
respondents appeal and reversed and set aside the Order of the Commissioners to the Office of the President has long been
OP. The fallo of its decision reads: settled in the case of SGMC Realty Corporation v. Office of the
President,15 as reiterated in the cases of Maxima Realty
WHEREFORE, the Petition is hereby GRANTED. The assailed Management and Development Corporation v. Parkway Real
Resolution dated 17 February 2009 and Order dated 18 August Estate Development Corporation16 and United Overseas Bank
2011 of the Office of the President, in O.P. Case No. 07-H-283, are Philippines, Inc. v. Ching.17
hereby REVERSED and SET ASIDE. Accordingly, the Decision
dated 30 March 2006 and Resolution dated 14 June 2007 of the In the aforementioned cases, we ruled that the period to appeal
HLURB Board of Commissioners in HLURB Case No. REM-A- decisions of the HLURB Board of Commissioners is fifteen (15)
050127-0014, are REINSTATED. days from receipt thereof pursuant to Section 1518 of PD No.
95719 and Section 220 of PD No. 134421 which are special laws
SO ORDERED.13 that provide an exception to Section 1 of Administrative Order
No. 18. Thus, in the SGMC Realty Corporation v. Office of the
Petitioner moved for reconsideration, however, the CA denied President case, the Court explained:
the same in a Resolution dated April 30, 2013.
As pointed out by public respondent, the aforecited
Hence, the present petition wherein petitioner raises the administrative order allows aggrieved party to file its appeal with
following grounds to support its petition: the Office of the President within thirty (30) days from receipt of
the decision complained of. Nonetheless, such thirty-day period
THE COURT OF APPEALS GRAVELY ERRED IN IGNORING THE is subject to the qualification that there are no other statutory
LEGAL PRECEPTS THAT: periods of appeal applicable. If there are special laws governing
particular cases which provide for a shorter or longer
A.TECHNICAL RULES ARE NOT BINDING UPON reglementary period, the same shall prevail over the thirty-day
ADMINISTRATIVE AGENCIES; and period provided for in the administrative order. This is in line
with the rule in statutory construction that an administrative rule
B.RESCISSION WILL BE ORDERED ONLY WHERE THE BREACH or regulation, in order to be valid, must not contradict but
COMPLAINED OF IS SUBSTANTIAL AS TO DEFEAT THE OBJECT conform to the provisions of the enabling law.
OF THE PARTIES IN ENTERING INTO THE AGREEMENT.14


We note that indeed there are special laws that mandate a decision had become final and executory on account of the fact
shorter period of fifteen (15) days within which to appeal a case that petitioner did not promptly appeal with the OP.
to public respondent. First, Section 15 of Presidential Decree No.
957 provides that the decisions of the National Housing In like manner, we find no cogent reason to exempt petitioner
Authority (NHA) shall become final and executory after the lapse from the effects of its failure to comply with the rules.
of fifteen (15) days from the date of receipt of the decision.
Second, Section 2 of Presidential Decree No. 1344 states that In an avuncular case, we have held that while the dismissal of an
decisions of the National Housing Authority shall become final appeal on purely technical grounds is concededly frowned upon,
and executory after the lapse of fifteen (15) days from the date of it bears emphasizing that the procedural requirements of the
its receipt. The latter decree provides that the decisions of the rules on appeal are not
NHA is appealable only to the Office of the President. Further, we
note that the regulatory functions of NHA relating to housing and harmless and trivial technicalities that litigants can just discard
land development has been transferred to Human Settlements and disregard at will. Neither being a natural right nor a part of
Regulatory Commission, now known as HLURB. x x x22 due process, the rule is settled that the right to appeal is merely a
statutory privilege which may be exercised only in the manner
Records show that petitioner received a copy of the HLURB and in accordance with the provisions of the law.24
Board of Commissioners decision on April 17, 2006.
Correspondingly, it had fifteen days from April 17, 2006 within Time and again, we have held that rules of procedure exist for a
which to file its appeal or until May 2, 2006. However, on April noble purpose, and to disregard such rules, in the guise of liberal
28, 2006, or eleven days after receipt of the HLURB Board of construction, would be to defeat such purpose. Procedural rules
Commissioners decision, it filed a Motion for Reconsideration, are not to be disdained as mere technicalities. They may not be
instead of an appeal. ignored to suit the convenience of a party.25 The reason for the
liberal application of the rules before quasi- judicial agencies
Concomitantly, Section 1 of Administrative Order No. 1823 cannot be used to perpetuate injustice and hamper the just
provides that the time during which a motion for reconsideration resolution of the case. Neither is the rule on liberal construction a
has been pending with the ministry or agency concerned shall be license to disregard the rules of procedure.26
deducted from the period for appeal. Petitioner received the
HLURB Board Resolution denying its Motion for Reconsideration Thus, while there may be exceptions for the relaxation of
on July 23, 2007 and filed its appeal only on August 7, 2007. technical rules principally geared to attain the ends of justice,
Consequently therefore, petitioner had only four days from July petitioners fatuous belief that it had a fresh 15-day period to
23, 2007, or until July 27, 2007, within which to file its appeal to elevate an appeal with the OP is not the kind of exceptional
the OP as the filing of the motion for reconsideration merely circumstance that merits relaxation.
suspended the running of the 15-day period. However, records
reveal that petitioner only appealed to the OP on August 7, 2007, Second, Article 1191 of the Civil Code sanctions the right to
or eleven days late. Ergo, the HLURB Board of Commissioners rescind the obligation in the event that specific performance
becomes impossible, to wit:

Article 1191. The power to rescind obligations is implied in May 3, 2002:
reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him. 1.The unit of the [respondent] is Unit 3007, which was labeled as
P2-07, at the Palace of Makati, located at the corner of P. Burgos
The injured party may choose between the fulfillment and the Street and Caceres Street, Poblacion, Makati City. Based on the
rescission of the obligation, with the payment of damages in approved plans, the said unit is at the 26th Floor.
either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible. 2.During the time of inspection, the said unit appears to be
completed except for the installation of kitchen cabinets and
The court shall decree the rescission claimed, unless there be just fixtures.
cause authorizing the fixing of a period.
3.Complainant pinpointed to the undersigned the deficiencies as
This is understood to be without prejudice to the rights of third follows:
persons who have acquired the thing, in accordance with Articles
1385 and 1388 and the Mortgage Law. a.The delivered unit has high density fiber (HDF) floorings
instead of narra wood parquet.
Basic is the rule that the right of rescission of a party to an
obligation under Article 1191 of the Civil Code is predicated on a b.The [petitioners] have also installed baseboards as borders
breach of faith by the other party who violates the reciprocity instead of pink porrino granite boarders.
between them. The breach contemplated in the said provision is
the obligors failure to comply with an existing obligation. When c.Walls are newly painted by the respondent and the alleged
the obligor cannot comply with what is incumbent upon it, the obvious signs of cladding could not be determined.
obligee may seek rescission and, in the absence of any just cause
for the court to determine the period of compliance, the court d.Window opening at the master bedroom conforms to the
shall decree the rescission.27 approved plans. As a result it leaves a 3 inches (sic) gap between
the glass window and partitioning of the masters bedroom.
In the instant case, the CA aptly found that the completion date of
the condominium unit was November 1998 pursuant to License e.It was verified and confirmed that a square column replaced the
No. 97-12-3202 dated November 2, 1997 but was extended to round column, based on the approved plans.
December 1999 as per License to Sell No. 99-05-3401 dated May
8, 1999. However, at the time of the ocular inspection conducted f.At the time of inspection, amenities such as swimming pool and
by the HLURB ENCRFO, the unit was not yet completely finished change room are seen at the 31st floor only. These amenities are
as the kitchen cabinets and fixtures were not yet installed and the reflected on the 27th floor plan of the approved condominium
agreed amenities were not yet available. Said inspection report plans. Health spa for men and women, Shiatsu Massage Room,
states: Two-Level Sky Palace Restaurant and Hall for games and

entertainments, replete with billiard tables, a bar, indoor golf
with spectacular deck and karaoke rooms were not yet provided
by the [petitioner]. 61. G.R. No. 196251 July 9, 2014

g.The [masters] bedroom door bore sign of poor quality of OLIVAREZ REALTY CORPORATION and DR. PABLO R.
workmanship as seen below. OLIVAREZ, Petitioner,
vs.
h.The stairs have been installed in such manner acceptable to the BENJAMIN CASTILLO, Respondent.
undersigned.
D E C I S I O N
i.Bathrooms and powder room have been installed in such
manner acceptable to the undersigned.28 LEONEN, J.:

From the foregoing, it is evident that the report on the ocular Trial may be dispensed with and a summary judgment rendered
inspection conducted on the subject condominium project and if the case can be resolved judiciously by plain resort to the
subject unit shows that the amenities under the approved plan pleadings, affidavits, depositions, and other papers filed by the
have not yet been provided as of May 3, 2002, and that the parties.
subject unit has not been delivered to respondent as of August
28, 2002, which is beyond the period of development of This is a petition for review on certiorari1 of the Court of Appeals'
December 1999 under the license to sell. Incontrovertibly, decision2 dated July 20, 2010 and resolution3dated March 18,
petitioner had incurred delay in the performance of its obligation 2011 in CAG.R. CV No. 91244.
amounting to breach of contract as it failed to finish and deliver
the unit to respondent within the stipulated period. The delay in The facts as established from the pleadings of the parties are as
the completion of the project as well as of the delay in the follows:
delivery of the unit are breaches of statutory and contractual
obligations which entitle respondent to rescind the contract, Benjamin Castillo was the registered owner of a 346,918-
demand a refund and payment of damages. squaremeter parcel of land located in Laurel, Batangas, covered
by Transfer Certificate of Title No. T-19972.4 The Philippine
WHEREFORE, premises considered, the instant petition is Tourism Authority allegedly claimed ownership of the
DENIED. The Decision dated January 24, 2013 and Resolution sameparcel of land based on Transfer Certificate of Title No. T-
dated April 30, 2013 of the Court of Appeals in CA-G.R. SP No. 18493.5 On April 5, 2000, Castillo and Olivarez Realty
121175 are hereby AFFIRMED, with MODIFICATION that moral Corporation, represented by Dr. Pablo R. Olivarez, entered into a
damages be awarded in the amount of P20,000.00. contract of conditional sale6 over the property. Under the deed of
conditional sale, Castillo agreed to sell his property to Olivarez
Realty Corporation for P19,080,490.00. Olivarez Realty


Corporation agreed toa down payment of P5,000,000.00, to be described property be nullified and voided; with the full
paid according to the following schedule: assistance of [Castillo][.]10
Should the action against the Philippine Tourism Authority be

DATE AMOUNT
denied, Castillo agreed to reimburse all the amounts paid by
April 8, 2000 500,000.00 Olivarez Realty Corporation. Paragraph D of the deed of
conditional sale provides:
May 8, 2000 500,000.00
D. In the event that the Court denie[s] the petition against the
May 16, 2000 500,000.00 Philippine Tourism Authority, all sums received by [Castillo] shall
be reimbursed to [Olivarez Realty Corporation] without
1,000,000.0 interest[.]11
June 8, 2000
0
As to the "legitimate tenants" occupying the property, Olivarez
July 8, 2000 500,000.00
Realty Corporation undertook to pay them "disturbance
August 8, 2000 500,000.00 compensation," while Castillo undertook to clear the land of the
tenants within six months from the signing of the deed of
September 8, 2000 500,000.00 conditional sale. Should Castillo fail to clear the land within six
months, Olivarez Realty Corporation may suspend its monthly
October 8, 2000 500,000.00 down payment until the tenants vacate the property. Paragraphs
E and F of the deed of conditional sale provide: E. That [Olivarez
November 8, 2000 500,000.00 7
Realty Corporation] shall pay the disturbance compensation to

legitimate agricultural tenants and fishermen occupants which in
As to the balance of P14,080,490.00, Olivarez Realty Corporation no case shall exceed ONE MILLION FIVE HUNDRED THOUSAND
agreed to pay in 30 equal monthly installments every eighth day (P1,500,000.00) PESOS. Said amountshall not form part of the
of the month beginning in the month that the parties would purchase price. In excess of this amount, all claims shall be for the
receive a decision voiding the Philippine Tourism Authoritys account of [Castillo];
title to the property.8 Under the deed of conditional sale, Olivarez
RealtyCorporation shall file the action against the Philippine F. That [Castillo] shall clear the land of [the] legitimate tenants
Tourism Authority "with the full assistance of within a period of six (6) months upon signing of this Contract,
[Castillo]."9 Paragraph C of the deed of conditional sale provides: and in case [Castillo] fails, [Olivarez Realty Corporation] shall
have the right to suspend the monthly down payment until such
C. [Olivarez Realty Corporation] assumes the responsibility of time that the tenants [move] out of the land[.]12
taking necessary legal action thru Court to have the claim/title
TCT T-18493 of Philippine Tourism Authority over the above- The parties agreed thatOlivarez Realty Corporation may
immediately occupy the property upon signing of the deed of

conditional sale. Should the contract be cancelled, Olivarez conditional sale was a contract of adhesion, Castillo prayed for
RealtyCorporation agreed to return the propertys possession to rescission of contract under Article 1191 of the Civil Code of the
Castillo and forfeit all the improvements it may have introduced Philippines. He further prayed that Olivarez Realty Corporation
on the property. Paragraph I of the deed of conditional sale and Dr. Olivarez be made solidarily liable for moral damages,
states: exemplary damages, attorneys fees, and costs of suit.17
I. Immediately upon signing thisContract, [Olivarez Realty In their answer,18 Olivarez Realty Corporation and Dr. Olivarez
Corporation] shall be entitled to occupy, possess and develop the admitted that the corporation only paid P2,500,000.00 ofthe
subject property. In case this Contract is canceled [sic], any purchase price. In their defense, defendants alleged that Castillo
improvement introduced by [the corporation] on the property failed to "fully assist"19 the corporation in filing an action against
shall be forfeited in favor of [Castillo][.]13 the Philippine Tourism Authority. Neither did Castillo clear the
property of the tenants within six months from the signing of the
On September 2, 2004, Castillo filed a complaint14 against deed of conditional sale. Thus, according to defendants, the
Olivarez Realty Corporation and Dr. Olivarez with the Regional corporation had "all the legal right to withhold the subsequent
Trial Court of Tanauan City, Batangas. payments to [fully pay] the purchase price."20
Castillo alleged that Dr. Olivarez convinced him into selling his Olivarez Realty Corporation and Dr. Olivarez prayedthat Castillos
property to Olivarez Realty Corporation on the representation complaint be dismissed. By way of compulsory counterclaim,
that the corporation shall be responsible in clearing the property they prayed for P100,000.00 litigation expenses and P50,000.00
of the tenants and in paying them disturbance compensation. He attorneys fees.21
further alleged that Dr. Olivarez solely prepared the deed of
conditional sale and that he was made to sign the contract with Castillo replied to the counterclaim,22 arguing that Olivarez
its terms "not adequately explained [to him] in Tagalog."15 Realty Corporation and Dr. Olivarez had no right to litigation
expenses and attorneys fees. According to Castillo, the deed of
After the parties had signed the deed of conditional sale, Olivarez conditional sale clearly states that the corporation "assume[d]
Realty Corporation immediately took possession of the property. the responsibility of taking necessary legal action"23 against the
However, the corporation only paid 2,500,000.00 ofthe purchase Philippine Tourism Authority, yet the corporation did not file any
price. Contrary to the agreement, the corporation did not file any case. Also, the corporation did not pay the tenants disturbance
action against the Philippine Tourism Authority to void the compensation. For the corporations failure to fully pay the
latters title to the property. The corporation neither cleared the purchase price, Castillo claimed that hehad "all the right to pray
land of the tenants nor paid them disturbance compensation. for the rescission of the [contract],"24 and he "should not be held
Despite demand, Olivarez Realty Corporation refused to fully pay liable . . . for any alleged damages by way of litigation expenses
the purchase price.16 and attorneys fees."25
Arguing that Olivarez Realty Corporation committed substantial On January 10, 2005, Castillo filed a request for
breach of the contract of conditional sale and that the deed of admission,26 requesting Dr. Olivarez to admit under oath the

genuineness of the deed of conditional sale and Transfer On March 8, 2006, Castillo filed a motion for summary judgment
Certificate of Title No. T-19972. He likewise requested Dr. and/or judgment on the pleadings.30 He argued that Olivarez
Olivarez to admit the truth of the following factual allegations: Realty Corporation and Dr. Olivarez "substantially admitted the
material allegations of [his] complaint,"31specifically:
1. That Dr. Olivarez is the president of Olivarez Realty
Corporation; 1. That the corporation failed to fully pay the purchase
price for his property;32
2. That Dr. Olivarez offered to purchase the parcel of land
from Castillo and that he undertook to clear the property 2. That the corporation failed to file an action to void the
of the tenants and file the court action to void the Philippine Tourism Authoritys title to his property;33and
Philippine Tourism Authoritys title to the property;
3. That the corporation failed to clear the property of the
3. That Dr. Olivarez caused the preparation of the deed of tenants and pay them disturbance compensation.34
conditional sale;
Should judgment on the pleadings beimproper, Castillo argued
4. That Dr. Olivarez signed the deed of conditional sale for that summary judgment may still be rendered asthere is no
and on behalf of Olivarez Realty Corporation; genuine issue as to any material fact.35 He cited Philippine
National Bank v. Noahs Ark Sugar Refinery36 as authority.
5. That Dr. Olivarez and the corporation did not file any
action against the Philippine Tourism Authority; Castillo attached to his motion for summary judgment and/or
judgment on the pleadings his affidavit37 and the affidavit of a
6. That Dr. Olivarez and the corporation did not pay the Marissa Magsino38 attesting to the truth of the material
tenants disturbance compensation and failed to clear the allegations of his complaint.
property of the tenants; and
Olivarez Realty Corporation and Dr. Olivarez opposed39 the
7. That Dr. Olivarez and the corporation only motion for summary judgment and/or judgment on the
paid P2,500,000.00 of the agreed purchase price.27 pleadings, arguing that the motion was "devoid of merit."40 They
reiterated their claim that the corporation withheld further
On January 25, 2005, Dr. Olivarez and Olivarez Realty payments of the purchase price because "there ha[d] been no
Corporation filed their objections to the request for favorable decision voiding the title of the Philippine Tourism
admission,28 stating that they "reiterate[d] the allegations [and Authority."41 They added that Castillo sold the property to
denials] in their [answer]."29 another person and that the sale was allegedly litigated in
Quezon City.42
The trial court conducted pre-trial conference on December 17,
2005. Considering that a title adverse to that of Castillos existed,
Olivarez Realty Corporation and Dr. Olivarez argued that the case

should proceed to trial and Castillo be required to prove that his rescission of contract.53 Thus, Castillos complaint should be
title to the property is "not spurious or fake and that he had not dismissed.
sold his property to another person."43
Castillo replied54 to the memorandum, arguing that there was no
In reply to the opposition to the motion for summary judgment genuine issue requiring trial of the case. According to Castillo,
and/or judgment on the pleadings,44 Castillo maintained that "common sense dictates . . . that the legitimate tenants of the
Olivarez Realty Corporation was responsible for the filing of an [property] shall not vacate the premises without being paid any
action against the Philippine Tourism Authority. Thus, the disturbance compensation . . ."55 Thus, the payment of
corporation could not fault Castillo for not suing the disturbance compensation should occur first before clearing the
PhilippineTourism Authority.45 The corporation illegally property of the tenants.
withheld payments of the purchase price.
With respect to the other issuesraised in the supplemental
As to the claim that the case should proceed to trial because a memorandum, specifically, that Castillo sold the property to
title adverse to his title existed, Castillo argued that the another person, he argued that these issues should not be
Philippine Tourism Authoritys title covered another lot, not his entertained for not having been presented during pre-trial.56
property.46
In their comment on the reply memorandum,57 Olivarez Realty
During the hearing on August 3, 2006, Olivarez Realty Corporation and Dr. Olivarez reiterated their arguments that
Corporation and Dr. Olivarez prayed that they be given 30 days to certain provisions of the deed of conditional sale were
file a supplemental memorandum on Castillos motion for ambiguous and that the complaint prayed for irreconcilable
summary judgment and/or judgment on the pleadings.47 reliefs.58
The trial court granted the motion. Itgave Castillo 20 days to As to the additional issues raised in the supplemental
reply to the memorandum and the corporation and Dr. Olivarez memorandum, defendants argued that issues not raised and
15 days to respond to Castillos reply.48 evidence not identified and premarked during pre-trial may still
be raised and presented during trial for good cause shown.
In their supplemental memorandum,49 Olivarez Realty Olivarez Realty Corporation and Dr. Olivarez prayed that
Corporation and Dr. Olivarez argued that there was "an obvious Castillos complaint be dismissed for lack of merit.59
ambiguity"50 as to which should occur first the payment of
disturbance compensation to the tenants or the clearing of the Ruling of the trial court
property of the tenants.51 This ambiguity, according to
defendants, is a genuine issue and "oughtto be threshed out in a The trial court found that Olivarez Realty Corporation and Dr.
full blown trial."52 Olivarezs answer "substantially [admitted the material
allegations of Castillos] complaint and [did] not . . . raise any
Olivarez Realty Corporation and Dr. Olivarez added that Castillo genuine issue [as to any material fact]."60
prayed for irreconcilable reliefs of reformation of instrument and

Defendants admitted that Castillo owned the parcel of land Olivarez Realty Corporation and Dr. Olivarez appealed to the
covered by Transfer Certificate of Title No. T-19972. They Court of Appeals.67
likewise admitted the genuineness of the deed of conditional sale
and that the corporation only paid P2,500,000.00 of the agreed In its decision68 dated July 20, 2010, the Court of Appeals
purchase price.61 affirmed in totothe trial courts decision. According to the
appellate court, the trial court "did not err in its finding that there
According to the trial court, the corporation was responsible for is no genuine controversy as to the facts involved [in this
suing the Philippine Tourism Authority and for paying the case]."69 The trial court, therefore, correctly rendered summary
tenants disturbance compensation. Since defendant corporation judgment.70
neither filed any case nor paid the tenants disturbance
compensation, the trial court ruled that defendant corporation As to the trial courts award of damages, the appellatecourt ruled
had no right to withhold payments from Castillo.62 that a court may award damages through summary judgment "if
the parties contract categorically [stipulates] the respective
As to the alleged ambiguity of paragraphs E and F of the deed of obligations of the parties in case of default."71 As found by the
conditional sale, the trial court ruled that Castillo and his witness, trial court,paragraph I of the deed of conditional sale
Marissa Magsino, "clearly established"63 in their affidavits that categorically states that "in case [the deed of conditional sale] is
the deed of conditional sale was a contract of adhesion. The true cancelled, any improvementintroduced by [Olivarez Realty
agreement between the parties was that the corporation would Corporation] on the property shall be forfeited infavor of
both clear the land of the tenants and pay them disturbance [Castillo]."72 Considering that Olivarez Realty Corporation
compensation. illegally retained possession of the property, Castillo forewent
rentto the property and "lost business
With these findings, the trial court ruled that Olivarez Realty opportunities."73 The P2,500,000.00 down payment, according to
Corporation breached the contract ofconditional sale.1wphi1 In the appellate court, shouldbe forfeited in favor of Castillo. Moral
its decision64 dated April 23, 2007, the trial court ordered the and exemplary damages and costs ofsuit were properly awarded.
deed of conditional sale rescinded and the P2,500,000.00
forfeited in favor of Castillo "as damages under Article 1191 of On August 11, 2010, Olivarez RealtyCorporation and Dr. Olivarez
the Civil Code."65 filed their motion for reconsideration,74 arguing that the trial
court exceeded its authority in forfeiting the P2,500,000.00 down
The trial court declared Olivarez Realty Corporation and Dr. payment and awarding P500,000.00 in moral damages to Castillo.
Olivarez solidarily liable to Castillo for 500,000.00 as moral They argued that Castillo only prayed for a total of P500,000.00
damages, P50,000.00 as exemplary damages, and P50,000.00 as as actual and moral damages in his complaint.75 Appellants
costs of suit.66 prayed that the Court of Appeals "take a second hard look"76 at
the case and reconsider its decision.
Ruling of the Court of Appeals
In the resolution77 dated March 18, 2011, the Court of Appeals
denied the motion for reconsideration.

Proceedings before this court With the Court of Appeals decision in Torres,Olivarez Realty
Corporation and Dr. Olivarez argue that this case should likewise
Olivarez Realty Corporation and Dr. Olivarez filed their petition be remanded to the trial court for further proceedings under the
for review on certiorari78 with this court. Petitionersargue that equipoise rule.
the trial court and the Court of Appeals erred in awarding
damages to Castillo. Under Section 3, Rule 35 of the 1997 Rules Petitioners maintain that Castillo availed himself of the
ofCivil Procedure, summary judgment may be rendered except as irreconcilable reliefs of reformation of instrument and rescission
to the amountof damages. Thus, the Court of Appeals "violated of contract.83 Thus, the trial court should have dismissed the case
the procedural steps in rendering summary judgment."79 outright.
Petitioners reiterate that there are genuine issues ofmaterial fact Petitioners likewise argue that the trial court had no jurisdiction
to be resolved in this case. Thus, a full-blown trial is required, to decide the case as Castillo failed topay the correct docket
and the trial court prematurely decided the case through fees.84 Petitioners argue that Castillo should have paid docket
summary judgment. They cite Torres v. Olivarez Realty fees based on the propertys fair market value since Castillos
Corporation and Dr. Pablo Olivarez,80 a case decided by the Ninth complaint is a real action.85
Division of the Court of Appeals.
In his comment,86 Castillo maintains that there are no genuine
In Torres, Rosario Torres was the registeredowner of a parcel of issues as to any material fact inthis case. The trial court,
land covered by Transfer Certificate of Title No. T-19971. Under a therefore, correctly rendered summary judgment.
deed of conditional sale, she sold her property to OlivarezRealty
Corporation for P17,345,900.00. When the corporation failed to As to petitioners claim that the trial court had no jurisdiction to
fully pay the purchase price, she sued for rescission of decide the case, Castillo argues that he prayed for rescission of
contractwith damages. In their answer, the corporation and Dr. contract in his complaint. This action is incapable of pecuniary
Olivarez argued thatthey discontinued payment because Rosario estimation, and the Clerk of Court properly computed the docket
Torres failed to clear the land of the tenants. fees based on this prayer.87 Olivarez Realty Corporation and Dr.
Olivarez replied,88reiterating their arguments in the petition for
Similar to Castillo, Torres filed a motion for summary judgment, review on certiorari.
which the trial court granted. On appeal, the Court of Appeals set
aside the trial courts summary judgment and remanded the case The issues for our resolution are the following:
to the trial court for further proceedings.81 The Court of Appeals
ruled that the material allegations of the complaint "were directly I. Whether the trial court erred in rendering summary
disputed by [the corporation and Dr. Olivarez] in their judgment;
answer"82 when they argued that they refused to pay because
Torres failed to clear the land of the tenants. II. Whether proper docket fees were paid in this case.
The petition lacks merit.

I An issue of material fact exists if the answer or responsive
The trial court correctly rendered pleading filed specifically denies the material allegations of fact
summary judgment, as there were no set forth in the complaint or pleading. If the issue offact "requires
the presentation of evidence, it is a genuine issue of
genuine issues of material fact in this case fact."93 However, if the issue "could be resolved judiciously by
plain resort"94 to the pleadings, affidavits, depositions, and other
Trial "is the judicial examination and determination of the issues paperson file, the issue of fact raised is sham, and the trial court
between the parties to the action."89 During trial, parties "present may resolve the action through summary judgment.
their respective evidence of their claims and defenses."90 Parties
to an action have the right "to a plenary trial of the case"91 to A summary judgment is usually distinguished from a judgment
ensure that they were given a right to fully present evidence on on the pleadings. Under Rule 34 of the 1997 Rules of Civil
their respective claims. Procedure, trial may likewise be dispensed with and a case
decided through judgment on the pleadings if the answer filed
There are instances, however, whentrial may be dispensed with. fails to tender an issue or otherwise admits the material
Under Rule 35 of the 1997 Rules of Civil Procedure, a trial court allegations of the claimants pleading.95
may dispense with trial and proceed to decide a case if from the
pleadings, affidavits, depositions, and other papers on file, there Judgment on the pleadings is proper when the answer filed fails
is no genuine issue as to any material fact. In such a case, the to tender any issue, or otherwise admitsthe material allegations
judgment issued is called a summary judgment. in the complaint.96 On the other hand, in a summary judgment,
the answer filed tenders issues as specific denials and affirmative
A motion for summary judgment is filed either by the claimant or defenses are pleaded, but the issues raised are sham, fictitious, or
the defending party.92 The trial court then hears the motion for otherwise not genuine.97
summary judgment. If indeed there are no genuine issues of
material fact, the trial court shall issue summary judgment. In this case, Olivarez Realty Corporation admitted that it did not
Section 3, Rule 35 of the 1997 Rules of Civil Procedure provides: fully pay the purchase price as agreed upon inthe deed of
conditional sale. As to why it withheld payments from Castillo, it
SEC. 3. Motion and proceedings thereon. The motion shall be set up the following affirmative defenses: First, Castillo did not
served at least ten (10) days beforethe time specified for the filea case to void the Philippine Tourism Authoritys title to the
hearing. The adverse party may serve opposing affidavits, property; second,Castillo did not clear the land of the tenants;
depositions, or admission at least three (3) days before the third, Castillo allegedly sold the property to a third person, and
hearing. After the hearing, the judgment sought shall be rendered the subsequent sale is currently being litigated beforea Quezon
forthwith ifthe pleadings, supporting affidavits, depositions, and City court.
admissions on file, showthat, except as to the amount of damages,
there is no genuine issue as to any material fact and that the Considering that Olivarez RealtyCorporation and Dr. Olivarezs
moving party is entitled to a judgment as a matter of law. answer tendered an issue, Castillo properly availed himself of a
motion for summary judgment.

However, the issues tendered by Olivarez Realty Corporation and six months from the signing of the deed of conditional sale. The
Dr. Olivarezs answer are not genuine issues of material fact. obligations must be performed simultaneously. In this case, the
These are issues that can be resolved judiciously by plain resort parties should have coordinated to ensure that tenants on the
to the pleadings, affidavits, depositions, and other papers on file; property were paid disturbance compensation and were made to
otherwise, these issues are sham, fictitious, or patently vacate the property six months after the signingof the deed of
unsubstantial. conditional sale.
Petitioner corporation refused to fully pay the purchase price On one hand, pure obligations, or obligations whose performance
because no court case was filed to void the Philippine Tourism do not depend upon a future or uncertainevent, or upon a past
Authoritys title on the property. However, paragraph C of the event unknown to the parties, are demandable at once.102 On the
deed of conditional sale is clear that petitioner Olivarez Realty other hand, obligations with a resolutory period also take effect
Corporation is responsible for initiating court action against the at once but terminate upon arrival of the day certain.103
Philippine Tourism Authority:
Olivarez Realty Corporations obligation to pay disturbance
C. [Olivarez Realty Corporation] assumes the responsibility of compensation is a pure obligation. The performance of the
taking necessary legal action thru Court to have the claim/title obligation to pay disturbance compensation did not depend on
TCT T-18493 of Philippine Tourism Authority over the above- any condition. Moreover, the deed of conditional sale did not give
described property be nullified and voided; with the full the corporation a period to perform the obligation. As such, the
assistance of [Castillo].98 obligation to pay disturbance compensation was demandable at
once. Olivarez RealtyCorporation should have paid the tenants
Castillos alleged failureto "fully assist"99 the corporation in filing disturbance compensation upon execution of the deed of
the case is not a defense. As the trial court said, "how can conditional sale.
[Castillo] assist [the corporation] when [the latter] did not file the
action [in the first place?]"100 With respect to Castillos obligation to clear the land of the
tenants within six months from the signing of the contract, his
Neither can Olivarez Realty Corporation argue that it refused to obligation was an obligation with a resolutory period. The
fully pay the purchase price due to the Philippine Tourism obligation to clear the land of the tenants took effect at once,
Authoritys adverse claim on the property. The corporation knew specifically, upon the parties signing of the deed of conditional
of this adverse claim when it entered into a contract of sale. Castillo had until October 2, 2000, six months from April 5,
conditional sale. It even obligated itself under paragraph C of the 2000 when the parties signed the deed of conditional sale, to
deed of conditional sale to sue the Philippine Tourism Authority. clear the land of the tenants.
This defense, therefore, is sham.
Olivarez Realty Corporation, therefore, had no right to withhold
Contrary to petitioners claim, there is no "obvious payments of the purchase price. As the trial court ruled, Olivarez
ambiguity"101 as to which should occur first the payment of Realty Corporation "can only claim non-compliance [of the
the disturbance compensation or the clearing of the land within

obligation to clear the land of the tenants in] October 2000."104 It Corporation illegally withheld payments of the purchase price.
said: The trial court did not err in rendering summary judgment.
. . . it is clear that defendant [Olivarez Realty Corporation] should II

have paid the installments on the P5 million downpayment up to Castillo is entitled to cancel the contract
October 8, 2000, or a total of P4,500,000.00. That is the of conditional sale
agreement because the only time that defendant [corporation]
can claim non-compliance of the condition is after October, 2000 Since Olivarez Realty Corporation illegally withheld payments of
and so it has the clear obligation topay up to the October 2000 the purchase price, Castillo is entitled to cancel his contract with
the agreed installments. Since it paid only 2,500,000.00, then a petitioner corporation. However, we properly characterize the
violation of the contract has already been committed. . . .105 parties contract as a contract to sell, not a contract of conditional
sale.
The claim that Castillo sold the property to another is fictitious
and was made in bad faith to prevent the trial court from In both contracts to sell and contracts of conditional sale, title to
rendering summary judgment. Petitioners did not elaborate on the property remains with the seller until the buyer fully pays the
this defense and insisted on revealing the identity of the buyer purchase price.110 Both contracts are subject to the positive
only during trial.106 Even in their petition for review on suspensive condition of the buyers full payment of the purchase
certiorari, petitioners never disclosed the name of this alleged price.111
buyer. Thus, as the trial court ruled, this defense did not tender a
genuine issue of fact, with the defense "bereft of details."107 In a contract of conditional sale, the buyer automatically acquires
title to the property upon full payment of the purchase
Castillos alleged prayer for the irreconcilable reliefs of rescission price.112 This transfer of title is "by operation of law without any
of contract and reformation of instrument is not a ground to further act having to be performed by the seller."113 In a contract
dismiss his complaint. A plaintiff may allege two or more claims to sell, transfer of title to the prospective buyer is not
in the complaint alternatively or hypothetically, either in one automatic.114 "The prospective seller [must] convey title to the
cause of action or in separate causes of action per Section 2, Rule property [through] a deed of conditional sale."115
8 of the 1997 Rules of Civil Procedure.108 It is the filing of two
separatecases for each of the causes of action that is prohibited The distinction is important to determine the applicable laws and
since the subsequently filed case may be dismissed under Section remedies in case a party does not fulfill his or her obligations
4, Rule 2 of the 1997 Rules of Civil Procedure109 on splitting under the contract. In contracts of conditional sale, our laws on
causes of action. sales under the Civil Code of the Philippines apply. On the other
hand, contracts to sell are not governed by our law on
As demonstrated, there are no genuineissues of material fact in sales116 but by the Civil Code provisions on conditional
this case. These are issues that can be resolved judiciously by obligations.
plain resort to the pleadings, affidavits, depositions, and other
papers on file. As the trial court found, Olivarez Realty

Specifically, Article 1191 of the Civil Code on the right to rescind As for prospective sellers, thiscourt generally orders the
reciprocal obligations does not apply to contracts to sell.117 As reimbursement of the installments paidfor the property when
this court explained in Ong v. Court of Appeals,118 failure to fully setting aside contracts to sell.125 This is true especially ifthe
pay the purchase price in contracts to sell is not the breach of propertys possession has not been delivered to the prospective
contract under Article 1191.119 Failure to fully pay the purchase buyer prior to the transfer of title.
price is "merely an event which prevents the [sellers] obligation
to convey title from acquiring binding force."120 This is because In this case, however, Castillo delivered the possession of the
"there can be no rescission of an obligation that is still property to Olivarez Realty Corporation prior to the transfer of
nonexistent, the suspensive condition not having [happened]."121 title. We cannot order the reimbursement of the installments
paid.
In this case, Castillo reserved his title to the property and
undertook to execute a deed of absolute sale upon Olivarez In Gomez v. Court of Appeals,126 the City of Manila and Luisa
Realty Corporations full payment of the purchase price.122 Since Gomez entered into a contract to sell over a parcel of land. The
Castillo still has to execute a deed of absolute sale to Olivarez city delivered the propertys possession to Gomez. She fully paid
RealtyCorporation upon full payment of the purchase price, the the purchase price for the property but violated the terms of the
transfer of title is notautomatic. The contract in this case is a contract to sell by renting out the property to other persons. This
contract to sell. court set aside the contract to sell for her violation of the terms of
the contract to sell. It ordered the installments paid forfeited in
As this case involves a contract tosell, Article 1191 of the Civil favor of the City of Manila "as reasonable compensation for
Code of the Philippines does not apply. The contract to sell is [Gomezs] use of the [property]"127 for eight years.
instead cancelled, and the parties shall stand as if the obligation
to sell never existed.123 In this case, Olivarez Realty Corporation failed to fully pay the
purchase price for the property. It only paid P2,500,000.00 out of
Olivarez Realty Corporation shall return the possession of the the P19,080,490.00 agreed purchase price. Worse, petitioner
property to Castillo. Any improvement that Olivarez Realty corporation has been in possession of Castillos property for 14
Corporation may have introduced on the property shall be years since May 5, 2000 and has not paid for its use of the
forfeited in favor of Castillo per paragraph I of the deed of property.
conditional sale:
Similar to the ruling in Gomez, we order the P2,500,000.00
I. Immediately upon signing thisContract, [Olivarez Realty forfeited in favor of Castillo as reasonable compensation for
Corporation] shall be entitled to occupy, possess and develop the Olivarez Realty Corporations use of the property.
subject property. In case this Contract is cancelled, any
improvement introduced by [Olivarez Realty Corporation] on the III
property shall be forfeited in favor of [Castillo.]124 Olivarez Realty Corporation is liable for
moral and exemplary damages and
attorneys fees

We note that the trial court erred in rendering summary Authority. These are oppressive and malevolent acts, and we find
judgment on the amount of damages. Under Section 3, Rule 35 of Castillo entitled to P500,000.00 moral damages and P50,000.00
the 1997 Rules of Civil Procedure, summary judgment may be exemplary damages:
rendered, except as to the amount of damages.
Plaintiff Castillo is entitled to moral damages because of the
In this case, the trial court erred in forfeiting the P2,500,000.00 in evident bad faith exhibited by defendants in dealing with him
favor of Castillo as damages under Article 1191 of the Civil Code regarding the sale of his lot to defendant [Olivarez Realty
of the Philippines. As discussed, there is nobreach of contract Corporation]. He suffered much prejudice due to the failure of
under Article 1191 in this case. defendants to pay him the balance of purchase price which he
expected touse for his needs which caused him wounded feelings,
The trial court likewise erred inrendering summary judgment on sorrow, mental anxiety and sleepless nights for which defendants
the amount of moral and exemplary damages and attorneys fees. should pay P500,000.00 as moral damages more than six (6)
years had elapsed and defendants illegally and unfairly failed and
Nonetheless, we hold that Castillois entitled to moral damages, refused to pay their legal obligations to plaintiff, unjustly taking
exemplary damages, and attorneys fees. advantage of a poor uneducated man like plaintiff causing much
sorrow and financial difficulties. Moral damages in favor of
Moral damages may be awarded in case the claimant experienced plaintiff is clearly justified . . . [Castillo] is also entitled
physical suffering, mental anguish, fright, serious anxiety, to P50,000.00 as exemplary damages to serve as a deterrent to
besmirched reputation, wounded feelings, moral shock, social other parties to a contract to religiously comply with their
humiliation, and similar injury.128 prestations under the contract.131
As for exemplary damages, they are awarded in addition to moral We likewise agree that Castillo is entitled to attorneys fees in
damages by way of example or correction for the public addition to the exemplary damages.132 Considering that Olivarez
good.129 Specifically in contracts, exemplary damages may be Realty Corporation refused to satisfy Castillosplainly valid, just,
awarded if the defendant acted in a wanton, fraudulent,reckless, and demandable claim,133 the award of P50,000.00 as attorneys
oppressive, or malevolent manner.130 fees is in order. However, we find that Dr. Pablo R.Olivarez is not
solidarily liable with Olivarez Realty Corporation for the amount
Under the deed of conditional sale, Olivarez Realty Corporation of damages.
may only suspend the monthly down payment in case Castillo
fails to clear the land of the tenants six months from the signing Under Article 1207 of the Civil Code of the Philippines, there is
of the instrument. Yet, even before the sixth month arrived, solidary liability only when the obligation states it or when the
Olivarez Realty Corporation withheld payments for Castillos law or the nature of the obligation requires solidarity.134 In case
property. It evenused as a defense the fact that no case was filed of corporations, they are solely liable for their obligations.135 The
against the PhilippineTourism Authority when, under the deed of directors or trustees and officers are not liable with the
conditional sale, Olivarez Realty Corporation was clearly corporation even if it is through their acts that the corporation
responsible for initiating action against the Philippine Tourism

incurred the obligation. This is because a corporation is separate docket fees to be paid to the court."139Thus, according to
and distinct from the persons comprising it.136 petitioners, the case should be dismissed for lack of jurisdiction.
As an exception to the rule, directors or trustees and corporate Castillo countered that his action for rescission is an action
officers may be solidarily liable with the corporation for incapable of pecuniary estimation. Thus, the Clerk of Court of the
corporate obligations if they acted "in bad faith or with gross Regional Trial Court of Tanauan City did not err in assessing the
negligence in directing the corporate affairs."137 docket fees based on his prayer.
In this case, we find that Castillo failed to prove with We rule for Castillo. In De Leon v. Court of Appeals,140 this court
preponderant evidence that it was through Dr. Olivarezs bad held that an action for rescission of contract of sale of real
faith or gross negligence that Olivarez Realty Corporation failed property is an action incapable of pecuniary estimation. In De
to fully pay the purchase price for the property. Dr. Olivarezs Leon, the action involved a real property. Nevertheless, this court
alleged act of making Castillo sign the deed of conditional sale held that "it is the nature of the action as one for rescission of
without explaining to the latter the deeds terms in Tagalog is not contract which is controlling."141 Consequently, the docket fees to
reason to hold Dr. Olivarez solidarily liable with the corporation. be paid shall be for actions incapableof pecuniary estimation,
Castillo had a choice not to sign the deed of conditional sale. He regardless if the claimant may eventually recover the real
could have asked that the deed of conditional sale be written in property. This court said:
Tagalog. Thus, Olivarez Realty Corporation issolely liable for the
moral and exemplary damages and attorneys fees to Castillo. . . . the Court in Bautista v.Lim, held that an action for rescission
of contract is one which cannot be estimated and therefore the
IV docket fee for its filing should be the flat amount of P200.00 as
The trial court acquired jurisdiction over then fixed in the former Rule 141, 141, 5(10). Said this Court:
Castillos action as he paid the correct
docket fees We hold that Judge Dalisay did not err in considering Civil Case
No. V-144 as basically one for rescission or annulment of contract
Olivarez Realty Corporation and Dr. Olivarez claimed that the which is not susceptible of pecuniary estimation (1 Moran's
trial court had no jurisdiction to take cognizance of the case. In Comments on the Rules of Court, 1970 Ed, p. 55; Lapitan vs.
the reply/motion to dismiss the complaint138 they filed with the Scandia, Inc., L-24668, July 31, 1968, 24 SCRA 479, 781-483).
Court of Appeals, petitioners argued that Castillo failed to pay the
correct amount of docket fees. Stating that this action is a real Consequently, the fee for docketing it is P200, an amount already
action, petitioners argued that the docket fee Castillo paid should paid by plaintiff, now respondent Matilda Lim.1wphi1 (She
have been based on the fair market value of the property. In this should pay also the two pesos legal research fund fee, if she has
case, Castillo only paid 4,297.00, which is insufficient "if the real not paid it, as required in Section 4 of Republic Act No. 3870, the
nature of the action was admitted and the fair market value of the charter of the U.P. Law Center).
property was disclosed and made the basis of the amount of

Thus, although eventually the result may be the recovery of land, natureof Castillos action, therefore, is incapable of pecuniary
it is the nature of the action as one for rescission of contract estimation.
which is controlling. The Court of Appeals correctly applied these
cases to the present one. As it said: All told, there is no issue that the parties in this case entered into
a contract to sell a parcel of land and that Olivarez Realty
We would like to add the observations that since the action of Corporation failed to fully pay the installments agreed
petitioners [private respondents] against private respondents upon.Consequently, Castillo is entitled to cancel the contract to
[petitioners] is solely for annulment or rescission which is not sell.
susceptible of pecuniary estimation, the action should not be
confused and equated with the "value of the property" subject of WHEREFORE, the petition for review on certiorari is DENIED.
the transaction; that by the very nature of the case, the The Court of Appeals decision dated July 20, 2010 and in CA-G.R.
allegations, and specific prayer in the complaint, sans any prayer CV No. 91244 is AFFIRMEDwith MODIFICATION.
for recovery of money and/or value of the transaction, or for
actual or compensatory damages, the assessment and collection The deed of conditional sale dated April 5, 2000 is declared
of the legal fees should not be intertwined with the merits of the CANCELLED. Petitioner Olivarez Realty Corporation shall
case and/or what may be its end result; and that to sustain RETURN to respondent Benjamin Castillo the possession of the
private respondents' [petitioners'] position on what the property covered by Transfer Certificate of Title No. T-19972
respondent court may decide after all, then the assessment together with all the improvements that petitioner corporation
should be deferred and finally assessed only after the court had introduced on the property. The amount of P2,500,000.00 is
finally decided the case, which cannot be done because the rules FORFEITED in favor of respondent Benjamin Castillo as
require that filing fees should be based on what is alleged and reasonable compensation for the use of petitioner Olivarez Realty
prayed for in the face of the complaint and paid upon the filing of Corporation of the property.
the complaint.142
Petitioner Olivarez Realty Corporation shall PAY respondent
Although we discussed that there isno rescission of contract to Benjamin Castillo P500,000.00 as moral damages, P50,000.00 as
speak of in contracts of conditional sale, we hold that an action to exemplary damages, and P50,000.00 as attorney's fees with
cancel a contract to sell, similar to an action for rescission of interest at 6% per annum from the time this decision becomes
contract of sale, is an action incapable of pecuniary estimation. final and executory until petitioner
Like any action incapable of pecuniary estimation, an action to
cancel a contract to sell "demands an inquiry into other corporation fully pays the amount of damages.144
factors"143 aside from the amount of money to be awarded to the
claimant. Specifically in this case, the trial court principally
determined whether Olivarez Realty Corporation failed to pay
installments of the propertys purchase price as the parties
agreed upon in the deed of conditional sale. The principal

62. G.R. No. L-24968 April 27, 1972 credit extended by the Prudential Bank and Trust Co., and arrived in
Davao City in July 1953; and that to secure its release without first
SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee, paying the draft, Saura, Inc. executed a trust receipt in favor of the
vs. said bank.
DEVELOPMENT BANK OF THE PHILIPPINES, defendant-
appellant. On January 7, 1954 RFC passed Resolution No. 145 approving the
loan application for P500,000.00, to be secured by a first mortgage
Mabanag, Eliger and Associates and Saura, Magno and on the factory building to be constructed, the land site thereof, and
Associates for plaintiff-appellee. the machinery and equipment to be installed. Among the other
terms spelled out in the resolution were the following:
Jesus A. Avancea and Hilario G. Orsolino for defendant-
appellant. 1. That the proceeds of the loan shall be utilized
exclusively for the following purposes:

For construction of factory building P250,000.00
MAKALINTAL, J.:p
For payment of the balance of purchase
In Civil Case No. 55908 of the Court of First Instance of Manila,
judgment was rendered on June 28, 1965 sentencing defendant price of machinery and equipment 240,900.00
Development Bank of the Philippines (DBP) to pay actual and
consequential damages to plaintiff Saura Import and Export Co., Inc. For working capital 9,100.00
in the amount of P383,343.68, plus interest at the legal rate from
the date the complaint was filed and attorney's fees in the amount T O T A L P500,000.00
of P5,000.00. The present appeal is from that judgment.
4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto
In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) Caolboy and Gregoria Estabillo and China Engineers, Ltd. shall sign
applied to the Rehabilitation Finance Corporation (RFC), before its the promissory notes jointly with the borrower-corporation;
conversion into DBP, for an industrial loan of P500,000.00, to be
used as follows: P250,000.00 for the construction of a factory 5. That release shall be made at the discretion of the Rehabilitation
building (for the manufacture of jute sacks); P240,900.00 to pay the Finance Corporation, subject to availability of funds, and as the
balance of the purchase price of the jute mill machinery and construction of the factory buildings progresses, to be certified to by
equipment; and P9,100.00 as additional working capital. an appraiser of this Corporation;"
Parenthetically, it may be mentioned that the jute mill machinery Saura, Inc. was officially notified of the resolution on January 9,
had already been purchased by Saura on the strength of a letter of 1954. The day before, however, evidently having otherwise been

informed of its approval, Saura, Inc. wrote a letter to RFC, Ltd., as one of the co-signers; and the corresponding deed of
requesting a modification of the terms laid down by it, namely: that mortgage, which was duly registered on the following April 17.
in lieu of having China Engineers, Ltd. (which was willing to assume
liability only to the extent of its stock subscription with Saura, Inc.) It appears, however, that despite the formal execution of the loan
sign as co-maker on the corresponding promissory notes, Saura, Inc. agreement the reexamination contemplated in Resolution No. 736
would put up a bond for P123,500.00, an amount equivalent to such proceeded. In a meeting of the RFC Board of Governors on June 10,
subscription; and that Maria S. Roca would be substituted for 1954, at which Ramon Saura, President of Saura, Inc., was present, it
Inocencia Arellano as one of the other co-makers, having acquired was decided to reduce the loan from P500,000.00 to P300,000.00.
the latter's shares in Saura, Inc. Resolution No. 3989 was approved as follows:
In view of such request RFC approved Resolution No. 736 on RESOLUTION No. 3989. Reducing the Loan Granted Saura Import &
February 4, 1954, designating of the members of its Board of Export Co., Inc. under Resolution No. 145, C.S., from P500,000.00 to
Governors, for certain reasons stated in the resolution, "to P300,000.00. Pursuant to Bd. Res. No. 736, c.s., authorizing the re-
reexamine all the aspects of this approved loan ... with special examination of all the various aspects of the loan granted the Saura
reference as to the advisability of financing this particular project Import & Export Co. under Resolution No. 145, c.s., for the purpose
based on present conditions obtaining in the operations of jute of financing the manufacture of jute sacks in Davao, with special
mills, and to submit his findings thereon at the next meeting of the reference as to the advisability of financing this particular project
Board." based on present conditions obtaining in the operation of jute mills,
and after having heard Ramon E. Saura and after extensive
On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. discussion on the subject the Board, upon recommendation of the
had again agreed to act as co-signer for the loan, and asked that the Chairman, RESOLVED that the loan granted the Saura Import &
necessary documents be prepared in accordance with the terms and Export Co. be REDUCED from P500,000 to P300,000 and that
conditions specified in Resolution No. 145. In connection with the releases up to P100,000 may be authorized as may be necessary
reexamination of the project to be financed with the loan applied from time to time to place the factory in actual operation:
for, as stated in Resolution No. 736, the parties named their PROVIDED that all terms and conditions of Resolution No. 145, c.s.,
respective committees of engineers and technical men to meet with not inconsistent herewith, shall remain in full force and effect."
each other and undertake the necessary studies, although in
appointing its own committee Saura, Inc. made the observation that On June 19, 1954 another hitch developed. F.R. Halling, who had
the same "should not be taken as an acquiescence on (its) part to signed the promissory note for China Engineers Ltd. jointly and
novate, or accept new conditions to, the agreement already) severally with the other RFC that his company no longer to of the
entered into," referring to its acceptance of the terms and loan and therefore considered the same as cancelled as far as it was
conditions mentioned in Resolution No. 145. concerned. A follow-up letter dated July 2 requested RFC that the
registration of the mortgage be withdrawn.
On April 13, 1954 the loan documents were executed: the
promissory note, with F.R. Halling, representing China Engineers,

In the meantime Saura, Inc. had written RFC requesting that the loan the loan) is to develop the manufacture of sacks on the basis of
of P500,000.00 be granted. The request was denied by RFC, which locally available raw materials." This point is important, and sheds
added in its letter-reply that it was "constrained to consider as light on the subsequent actuations of the parties. Saura, Inc. does
cancelled the loan of P300,000.00 ... in view of a notification ... from not deny that the factory he was building in Davao was for the
the China Engineers Ltd., expressing their desire to consider the loan manufacture of bags from local raw materials. The cover page of its
insofar as they are concerned." brochure (Exh. M) describes the project as a "Joint venture by and
between the Mindanao Industry Corporation and the Saura Import
On July 24, 1954 Saura, Inc. took exception to the cancellation of the and Export Co., Inc. to finance, manage and operate a Kenaf mill
loan and informed RFC that China Engineers, Ltd. "will at any time plant, to manufacture copra and corn bags, runners, floor mattings,
reinstate their signature as co-signer of the note if RFC releases to us carpets, draperies; out of 100% local raw materials, principal kenaf."
the P500,000.00 originally approved by you.". The explanatory note on page 1 of the same brochure states that,
the venture "is the first serious attempt in this country to use 100%
On December 17, 1954 RFC passed Resolution No. 9083, restoring locally grown raw materials notably kenaf which is presently grown
the loan to the original amount of P500,000.00, "it appearing that commercially in theIsland of Mindanao where the proposed jutemill
China Engineers, Ltd. is now willing to sign the promissory notes is located ..."
jointly with the borrower-corporation," but with the following
proviso: This fact, according to defendant DBP, is what moved RFC to
approve the loan application in the first place, and to require, in its
That in view of observations made of the shortage Resolution No. 9083, a certification from the Department of
and high cost of imported raw materials, the Agriculture and Natural Resources as to the availability of local raw
Department of Agriculture and Natural Resources materials to provide adequately for the requirements of the factory.
shall certify to the following: Saura, Inc. itself confirmed the defendant's stand impliedly in its
letter of January 21, 1955: (1) stating that according to a special
1. That the raw materials needed by the borrower- study made by the Bureau of Forestry "kenaf will not be available in
corporation to carry out its operation are available in sufficient quantity this year or probably even next year;" (2)
the immediate vicinity; and requesting "assurances (from RFC) that my company and associates
will be able to bring in sufficient jute materials as may be necessary
2. That there is prospect of increased production for the full operation of the jute mill;" and (3) asking that releases of
thereof to provide adequately for the requirements the loan be made as follows:
of the factory."
a) For the payment of the receipt for jute mill
The action thus taken was communicated to Saura, Inc. in a letter of machineries with the Prudential Bank &
RFC dated December 22, 1954, wherein it was explained that the
certification by the Department of Agriculture and Natural Trust Company P250,000.00
Resources was required "as the intention of the original approval (of

(For immediate release) status. We shall be able to act on your
request for revised purpose and
b) For the purchase of materials and equip- manner of releases upon re-appraisal
ment per attached list to enable the jute of the securities offered for the loan.
mill to operate 182,413.91
With respect to our requirement that
c) For raw materials and labor 67,586.09 the Department of Agriculture and
Natural Resources certify that the raw
1) P25,000.00 to be released on the materials needed are available in the
open- immediate vicinity and that there is
ing of the letter of credit for raw jute prospect of increased production
for $25,000.00. thereof to provide adequately the
requirements of the factory, we wish
2) P25,000.00 to be released upon to reiterate that the basis of the
arrival original approval is to develop the
of raw jute. manufacture of sacks on the basis of
the locally available raw materials.
3) P17,586.09 to be released as soon Your statement that you will have to
as the rely on the importation of jute and
mill is ready to operate. your request that we give you
assurance that your company will be
On January 25, 1955 RFC sent to Saura, Inc. the following reply: able to bring in sufficient jute materials
as may be necessary for the operation
Dear Sirs: of your factory, would not be in line
with our principle in approving the
This is with reference to your letter of loan.
January 21, 1955, regarding the
release of your loan under With the foregoing letter the negotiations came to a standstill.
consideration of P500,000. As stated in Saura, Inc. did not pursue the matter further. Instead, it requested
our letter of December 22, 1954, the RFC to cancel the mortgage, and so, on June 17, 1955 RFC executed
releases of the loan, if revived, are the corresponding deed of cancellation and delivered it to Ramon F.
proposed to be made from time to Saura himself as president of Saura, Inc.
time, subject to availability of funds
towards the end that the sack factory It appears that the cancellation was requested to make way for the
shall be placed in actual operating registration of a mortgage contract, executed on August 6, 1954,

over the same property in favor of the Prudential Bank and Trust There was undoubtedly offer and acceptance in this case: the
Co., under which contract Saura, Inc. had up to December 31 of the application of Saura, Inc. for a loan of P500,000.00 was approved by
same year within which to pay its obligation on the trust receipt resolution of the defendant, and the corresponding mortgage was
heretofore mentioned. It appears further that for failure to pay the executed and registered. But this fact alone falls short of resolving
said obligation the Prudential Bank and Trust Co. sued Saura, Inc. on the basic claim that the defendant failed to fulfill its obligation and
May 15, 1955. the plaintiff is therefore entitled to recover damages.
On January 9, 1964, ahnost 9 years after the mortgage in favor of It should be noted that RFC entertained the loan application of
RFC was cancelled at the request of Saura, Inc., the latter Saura, Inc. on the assumption that the factory to be constructed
commenced the present suit for damages, alleging failure of RFC (as would utilize locally grown raw materials, principally kenaf. There is
predecessor of the defendant DBP) to comply with its obligation to no serious dispute about this. It was in line with such assumption
release the proceeds of the loan applied for and approved, thereby that when RFC, by Resolution No. 9083 approved on December 17,
preventing the plaintiff from completing or paying contractual 1954, restored the loan to the original amount of P500,000.00. it
commitments it had entered into, in connection with its jute mill imposed two conditions, to wit: "(1) that the raw materials needed
project. by the borrower-corporation to carry out its operation are available
in the immediate vicinity; and (2) that there is prospect of increased
The trial court rendered judgment for the plaintiff, ruling that there production thereof to provide adequately for the requirements of
was a perfected contract between the parties and that the the factory." The imposition of those conditions was by no means a
defendant was guilty of breach thereof. The defendant pleaded deviation from the terms of the agreement, but rather a step in its
below, and reiterates in this appeal: (1) that the plaintiff's cause of implementation. There was nothing in said conditions that
action had prescribed, or that its claim had been waived or contradicted the terms laid down in RFC Resolution No. 145, passed
abandoned; (2) that there was no perfected contract; and (3) that on January 7, 1954, namely "that the proceeds of the loan shall
assuming there was, the plaintiff itself did not comply with the be utilized exclusively for the following purposes: for construction of
terms thereof. factory building P250,000.00; for payment of the balance of
purchase price of machinery and equipment P240,900.00; for
We hold that there was indeed a perfected consensual contract, as working capital P9,100.00." Evidently Saura, Inc. realized that it
recognized in Article 1934 of the Civil Code, which provides: could not meet the conditions required by RFC, and so wrote its
letter of January 21, 1955, stating that local jute "will not be able in
ART. 1954. An accepted promise to deliver sufficient quantity this year or probably next year," and asking that
something, by way of commodatum or simple loan is out of the loan agreed upon the sum of P67,586.09 be released "for
binding upon the parties, but the commodatum or raw materials and labor." This was a deviation from the terms laid
simple loan itself shall not be perferted until the down in Resolution No. 145 and embodied in the mortgage contract,
delivery of the object of the contract. implying as it did a diversion of part of the proceeds of the loan to
purposes other than those agreed upon.

When RFC turned down the request in its letter of January 25, 1955 Makasiar, J., took no part.
the negotiations which had been going on for the implementation of
the agreement reached an impasse. Saura, Inc. obviously was in no
position to comply with RFC's conditions. So instead of doing so and
insisting that the loan be released as agreed upon, Saura, Inc. asked
that the mortgage be cancelled, which was done on June 15, 1955.
The action thus taken by both parties was in the nature cf mutual 63. G.R. No. 175863 February 18, 2015
desistance what Manresa terms "mutuo disenso" 1 which is a
mode of extinguishing obligations. It is a concept that derives from NATIONAL POWER CORPORATION, Petitioner,
the principle that since mutual agreement can create a contract, vs.
mutual disagreement by the parties can cause its extinguishment. 2 LUCMAN M. IBRAHIM, ATTY. OMAR G. MARUHOM, ELIAS
G. MARUHOM, BUCAY G. MARUHOM, MAMOD G.
The subsequent conduct of Saura, Inc. confirms this desistance. It MARUHOM, FAROUK G. MARUHOM, HIDJARA G.
did not protest against any alleged breach of contract by RFC, or MARUHOM, ROCANIA G. MARUHOM, POTRISAM G.
even point out that the latter's stand was legally unjustified. Its MARUHOM, LUMBA G. MAR UH OM, SIN AB G. MARUHOM,
request for cancellation of the mortgage carried no reservation of ACMAD G. MARUHOM, SOLAYMAN G. MARUHOM,
whatever rights it believed it might have against RFC for the latter's MOHAMAD M. IBRAHIM, CAIRONESA M. IBRAHIM and
non-compliance. In 1962 it even applied with DBP for another loan MACAPANTON K. MANGONDATO Respondents.
to finance a rice and corn project, which application was
disapproved. It was only in 1964, nine years after the loan D E C I S I O N
agreement had been cancelled at its own request, that Saura, Inc.
brought this action for damages.All these circumstances PEREZ, J.:
demonstrate beyond doubt that the said agreement had been
extinguished by mutual desistance and that on the initiative of At bench is a petition for review on certiorari1 assailing the Decision2
the plaintiff-appellee itself. dated 24 June 2005 and Resolution3 dated 5 December 2006 of the
Court of Appeals in CA-G.R. CV No. 68061. The facts:
With this view we take of the case, we find it unnecessary to
consider and resolve the other issues raised in the respective briefs The Subject Land
of the parties.
In 1978, petitioner took possession of a 21,995 square meter parcel
WHEREFORE, the judgment appealed from is reversed and the of land in Marawi City (subject land) for the purpose of building
complaint dismissed, with costs against the plaintiff-appellee. thereon a hydroelectric power plant pursuant to its Agus 1 project.
The subject land, while in truth a portion of a private estate
Reyes, J.B.L., Actg. C.J., Zaldivar, Castro, Fernando, Teehankee, registered under Transfer Certificate of Title (TCT) No. 378-A4 in the
Barredo and Antonio, JJ., concur. name of herein respondent Macapanton K. Mangondato

(Mangondato),5 was occupied by petitioner under the mistaken have bought previously from other heirs. This is now the subject of
belief that such land is part of the vast tract of public land reserved this case.8
for its use by the government under Proclamation No. 1354, s.
1974.6 Petitioner, at first, rejected Mangondatos claim of ownership over
the subject land; the former then adamant in its belief that the said
Mangondato first discovered petitioners occupation of the subject land is public land covered by Proclamation No. 1354, s. 1974. But,
land in 1979the year that petitioner started its construction of the after more than a decade, petitioner finally acquiesced to the fact
Agus 1plant. Shortly after such discovery, Mangondato began that the subject land is private land covered by TCT No. 378-A and
demanding compensation for the subject land from petitioner. consequently acknowledged Mangondatos right, as registered
owner, to receive compensation therefor.
In support of his demand for compensation, Mangondato sent to
petitioner a letter7 dated 28 September 1981 wherein the former Thus, during the early 1990s, petitioner and Mangondato partook in
detailed the origins of his ownership over the lands covered by TCT a series of communications aimed at settling the amount of
No. 378-A, including the subject land. The relevant portions of the compensation that the former ought to pay the latter in exchange
letter read: for the subject land. Ultimately, however, the communications failed
to yield a genuine consensus between petitioner and Mangondato
Now let me trace the basis of the title to the land adverted to for as to the fair market value of the subject land. Civil Case No. 605-92
particularity. The land titled in my name was originally consisting of and Civil Case No. 610-92
seven (7) hectares. This piece of land was particularly set aside by
the Patriarch Maruhom, a fact recognized by all royal datus of With an agreement basically out of reach, Mangondato filed a
Guimba, to belong to his eldest son, Datu Magayo-ong Maruhom. complaint for reconveyance against petitioner before the Regional
This is the very foundation of the right and ownership over the land Trial Court (RTC) of Marawi City in July 1992. In his complaint,
in question which was titled in my name because as the son-in-law Mangondato asked for, among others, the recovery of the subject
of Hadji Ali Maruhom the eldest son of, and only lawyer among the land and the payment by petitioner of a monthly rental from 1978
descendants of Datu Magayo-ong Maruhom, the authority and right until the return of such land. Mangondatos complaint was docketed
to apply for the title to the land was given to me by said heirs after as Civil Case No. 605-92.
mutual agreement among themselves besides the fact that I have
already bought a substantial portion of the original seven (7) For its part, petitioner filed an expropriation complaint9 before the
hectares. RTC on 27 July 1992. Petitioners complaint was docketed as Civil
Case No. 610-92.
The original title of this seven (7) hectares has been subdivided into
several TCTs for the other children of Datu Magayo-ong Maruhom Later, Civil Case No. 605-92 and Civil Case No. 610-92 were
with whom I have executed a quit claim. Presently, only three (3) consolidated before Branch 8 of the Marawi City RTC.
hectares is left to me out of the original seven (7) hectares
representing those portion [sic] belonging to my wife and those I

On 21 August 1992, Branch 8 of the Marawi City RTC rendered a In their complaint, the Ibrahims and Maruhoms disputed
Decision10 in Civil Case No. 605-92 and Civil Case No. 610-92. The Mangondatos ownership of the lands covered by TCT No. 378-A,
decision upheld petitioners right to expropriate the subject land: it including the subject land. The Ibrahims and Maruhoms asseverate
denied Mangondatos claim for reconveyance and decreed the that they are the real owners of the lands covered by TCT No. 378-A;
subject land condemned in favor of the petitioner, effective July of they being the lawful heirs of the late Datu Magayo-ong Maruhom,
1992, subject to payment by the latter of just compensation in the who was the original proprietor of the said lands.14 They also
amount of P21,995,000.00. Anent petitioners occupation of the claimed that Mangondato actually holds no claim or right over the
subject land from 1978to July of 1992, on the other hand, the lands covered by TCT No. 378-A except that of a trustee who merely
decision required the former to pay rentals therefor at the rate of holds the said lands in trust for them.15 The Ibrahims and Maruhoms
P15,000.00 per month with12% interest per annum. The decisions submit that since they are the real owners of the lands covered by
fallo reads: TCT No. 378-A, they should be the ones entitled to any rental fees or
expropriation indemnity that may be found due for the subject land.
WHEREFORE, the prayer in the recovery case for [petitioners]
surrender of the property is denied but[petitioner] is ordered to pay Hence, the Ibrahims and Maruhoms prayed for the following reliefs
monthly rentals in the amount of P15,000.00 from 1978 up to July in their complaint:16
1992 with 12% interest per annum xxx and the property is
condemned in favor of [petitioner] effective July 1992 upon 1. That Mangondato be ordered to execute a Deed of
payment of the fair market value of the property at One Thousand Conveyance transferring to them the ownership of the lands
(P1,000.00) Pesos per square meter or a total of Twenty-One Million covered by TCT No. 378-A;
Nine Hundred Ninety-Five Thousand (P21,995,000.00) [P]esos.11
2. That petitioner be ordered to pay to them whatever
Disagreeing with the amount of just compensation that it was indemnity for the subject land it is later on adjudged to pay
adjudged to pay under the said decision, petitioner filed an appeal in Civil Case No. 605-92 and Civil Case No. 610-92;
with the Court of Appeals. This appeal was docketed in the Court of
Appeals as CA-G.R. CV No. 39353. 3. That Mangondato be ordered to pay to them any amount
that the former may have received from the petitioner by
Respondents Ibrahims and Maruhoms and Civil Case No. 967-93 way of indemnity for the subject land;
During the pendency of CA-G.R. CV No. 39353, or on 29 March 1993, 4. That petitioner and Mangondatobe ordered jointly and
herein respondents the Ibrahims and Maruhoms12 filed before the severally liable to pay attorneys fees in the sum of
RTC of Marawi City a complaint13 against Mangondato and P200,000.00.
petitioner. This complaint was docketed as Civil Case No. 967-93and
was raffled to Branch 10of the Marawi City RTC. In the same complaint, the Ibrahims and Maruhoms also prayed for
the issuance of a temporary restraining order (TRO) and a writ of
preliminary injunction to enjoin petitioner, during the pendency of

the suit, from making any payments to Mangondato concerning In view of the finality of this Courts decision in G.R. No. 113194,
expropriation indemnity for the subject land.17 Mangondato filed a motion for execution of the decision in Civil
Case No. 605-92 and Civil Case No. 610-92.24 Against this motion,
On 30 March 1993, Branch 10 of the Marawi City RTC granted the however, petitioner filed an opposition.25
prayer of the Ibrahims and Maruhoms for the issuance of a TRO.18
On 29 May 1993, after conducting an appropriate hearing for the In its opposition, petitioner adverted to the existence of the writ of
purpose, the same court likewise granted the prayer for the issuance preliminary injunction earlier issued in Civil Case No. 967-93 that
of a writ of preliminary injunction.19 enjoins it from making any payment of expropriation indemnity over
the subject land in favor of Mangondato.26 Petitioner, in sum, posits
In due course, trial then ensued in Civil Case No. 967-93. that such writ of preliminary injunction constitutes a legal
impediment that effectively bars any meaningful execution of the
The Decision of the Court of Appeals in CA-G.R. CV No. 39353 and decision in Civil Case No. 605-92 and Civil Case No. 610-92.
the Decision of this Court in G.R. No. 113194
Finding no merit in petitioners opposition, however, Branch 8 of the
On 21 December 1993, the Court of Appeals rendered a Decision in Marawi City RTC rendered a Resolution27 dated 4 June 1996 ordering
CA-G.R. CV No. 39353 denying the appeal of petitioner and affirming the issuance of a writ of execution in favor of Mangondato in Civil
in toto the 21 August 1992 Decision in Civil Case No. 605-92 and Civil Case No. 605-92 and Civil Case No. 610-92. Likewise, in the same
Case No. 610-92. Undeterred, petitioner next filed a petition for resolution, the trial court ordered the issuance of a notice of
review on certiorari with this Court that was docketed herein as G.R. garnishment against several of petitioners bank accounts28 for the
No. 113194.20 amount of P21,801,951.00the figure representing the total
amount of judgment debt due from petitioner in Civil Case No. 605-
On 11 March 1996, we rendered our Decision in G.R. No. 113194 92 and Civil Case No. 610-92 less the amount then already settled by
wherein we upheld the Court of Appeals denial of petitioners the latter. The dispositive portion of the resolution reads:
appeal.21 In the same decision, we likewise sustained the appellate
courts affirmance of the decision in Civil Case No. 605-92 and Civil WHEREFORE, let a Writ of Execution and the corresponding order or
Case No. 610-92 subject only to a reduction of the rate of interest on notice of garnishment be immediately issued against [petitioner]
the monthly rental fees from 12% to 6% per annum.22 and in favor of [Mangondato] for the amount of Twenty One Million
Eight Hundred One Thousand and Nine Hundred Fifty One
Our decision in G.R. No. 113194 eventually became final and (P21,801,951.00) Pesos.
executory on 13 May 1996.23
x x x.29
Execution of the 21 August 1992 Decision in Civil Case No. 605-92
and Civil Case No. 610-92, as Modified Pursuant to the above resolution, a notice of garnishment30 dated 5
June 1996 for the amount of P21,801,951.00 was promptly served
upon the Philippine National Bank (PNB)the authorized depositary

of petitioner. Consequently, the amount thereby garnished was paid In addition, Mangondato and petitioner were also decreed solidarily
to Mangondato in full satisfaction of petitioners judgment debt in liable to the Ibrahims and Maruhoms for attorneys fees in the
Civil Case No. 605-92 and Civil Case No. 610-92. amount of P200,000.00.34
Decision in Civil Case No. 967-93 The pertinent dispositions in the decision read:
Upon the other hand, on 16 April 1998, Branch 10 of the Marawi WHEREFORE, premises considered, judgment is hereby rendered in
City RTC decided Civil Case No. 967-93.31 In its decision, Branch 10 of favor of [the Ibrahims and Maruhoms] and against [Mangondato
the Marawi City RTC made the following relevant findings:32 and petitioner] as follows:
1. The Ibrahims and Maruhomsnot Mangondatoare the 1. x x x

true owners of the lands covered by TCT No. 378-A, which
includes the subject land. 2. Ordering [Mangondato and petitioner] to pay jointly and
severally [the Ibrahims and Maruhoms] all forms of
2. The subject land, however, could no longer be reconveyed expropriation indemnity as adjudged for [the subject land]
to the Ibrahims and Maruhoms since the same was already consisting of 21,995 square meters in the amount of
expropriated and paid for by the petitioner under Civil Case P21,801,051.00 plus other forms of indemnity such as rentals
No. 605-92 and Civil Case No. 610-92. and interests;
3. Be that as it may, the Ibrahims and Maruhoms, as true 3. Ordering [Mangondato and petitioner] to pay [the
owners of the subject land, are the rightful recipients of Ibrahims and Maruhoms] jointly and severally the sum of
whatever rental fees and indemnity that may be due for the P200,000.00 as attorneys fees;
subject land as a result of its expropriation.
4. x x x
Consistent with the foregoing findings, Branch 10 of the Marawi City
RTC thus required payment of all the rental fees and expropriation 5. x x x
indemnity due for the subject land, as previously adjudged in Civil
Case No. 605-92 and Civil Case No. 610-92, to the Ibrahims and 6. x x x
Maruhoms.
SO ORDERED.35
Notable in the trial courts decision, however, was that it held both
Mangondato and the petitioner solidarily liable to the Ibrahims and Petitioners Appeal to the Court of Appeals and the Execution
Maruhoms for the rental fees and expropriation indemnity adjudged
in Civil Case No. 605-92 and Civil Case No. 610-92.33 Pending Appeal of the Decision in Civil Case No. 967-93

Petitioner appealed the decision in Civil Case No. 967-93 with the the affirmative. The two tribunals postulated that, notwithstanding
Court of Appeals: contesting mainly the holding in the said decision petitioners previous payment to Mangondato of the rental fees and
that it ought to be solidarily liable with Mangondato to pay to the expropriation indemnity as a consequence of the execution of the
Ibrahims and Maruhoms the rental fees and expropriation decision in Civil Case No. 605-92 and 610-92, petitioner may still be
indemnity adjudged due for the subject land. This appeal was held liable to the Ibrahims and Maruhoms for such fees and
docketed as CA-G.R. CV No. 68061. indemnity because its previous payment to Mangondato was tainted
with "bad faith."40 As proof of such bad faith, both courts cite the
While the foregoing appeal was still pending decision by the Court of following considerations:41
Appeals, however, the Ibrahims and Maruhoms were able to secure
with the court a quo a writ of execution pending appeal36 of the 1. Petitioner "allowed" payment to Mangondato despite its
decision in Civil Case No. 967-93. The enforcement of such writ led prior knowledge, which dates back as early as 28 September
to the garnishment of Mangondatos moneys in the possession of 1981, by virtue of Mangondatos letter of even date, that the
the Social Security System (SSS) in the amount of P2,700,000.00 on subject land was owned by a certain Datu Magayo-ong
18 September 1998.37 Eventually, the amount thereby garnished Maruhom and not by Mangondato; and
was paid to the Ibrahims and Mangondato in partial satisfaction of
the decision in Civil Case No. 967-93. 2. Petitioner "allowed" such payment despite the issuance of
a TRO and a writ of preliminary injunction in Civil Case No.
On 24 June 2005, the Court of Appeals rendered its Decision38 in CA- 967-93 that precisely enjoins it from doing so.
G.R. CV No. 68061 denying petitioners appeal. The appellate court
denied petitioners appeal and affirmed the decision in Civil Case No. For the two tribunals, the bad faith on the part of petitioner
967-93, subject to the right of petitioner to deduct the amount of rendered its previous payment to Mangondato invalid insofar as the
P2,700,000.00 from its liability as a consequence of the partial Ibrahims and Maruhoms are concerned. Hence, both courts
execution of the decision in Civil Case No. 967-93.39 concluded that petitioner may still be held liable to the Ibrahims and
Maruhoms for the rental fees and expropriation indemnity
Hence, the present appeal by petitioner. previously paid to Mangondato.42
The Present Appeal Petitioner, however, argues otherwise. It submits that a finding of
bad faith against it would have no basis in fact and law, given that it
The present appeal poses the question of whether it is correct, in merely complied with the final and executory decision in Civil Case
view of the facts and circumstances in this case, to hold petitioner No. 605-92 and Civil Case No. 610-92 when it paid the rental fees
liable in favor of the Ibrahims and Maruhoms for the rental fees and and expropriation indemnity due the subject to Mangondato.43
expropriation indemnity adjudged due for the subject land. Petitioner thus insists that it should be absolved from any liability to
pay the rental fees and expropriation indemnity to the Ibrahims and
In their respective decisions, both Branch 10 of the Marawi City RTC Maruhoms and prays for the dismissal of Civil Case No. 967-93
and the Court of Appeals had answered the foregoing question in against it.

OUR RULING In the 1967 case of Board of Liquidators v. Heirs of M. Kalaw,50 on
the other hand, we enunciated one of the more oft-repeated
We grant the appeal. formulations of bad faith in our case law:
No Bad Faith On The Part of Petitioner "xxx bad faith does not simply connote bad judgment or negligence;
it imports a dishonest purpose or some moral obliquity and
Petitioner is correct. No "bad faith" may be taken against it in paying conscious doing of wrong. It means breach of a known duty thru
Mangondato the rental fees and expropriation indemnity due the some motive or interest of ill will; it partakes of the nature of
subject land. fraud."51
Our case law is not new to the concept of bad faith. Decisions of this As a testament to its enduring quality, the foregoing
Court, both old and new, had been teeming with various pronouncement in Board of Liquidators had been reiterated in a
pronouncements that illuminate the concept amidst differing legal slew of later cases,52 more recently, in the 2009 case of Nazareno, et
contexts. In any attempt to understand the basics of bad faith, it is al. v. City of Dumaguete53 and the 2012 case of Aliling v. Feliciano.54
mandatory to take a look at some of these pronouncements:
Still, in 1995, the case of Far East Bank and Trust Company v. Court
In Lopez, et al. v. Pan American World Airways,44 a 1966 landmark of Appeals55 contributed the following description of bad faith in our
tort case, we defined the concept of bad faith as: jurisprudence:
"a breach of a known duty through some motive of interest or ill "Malice or bad faith implies a conscious and intentional design to do
will."45 a wrongful act for a dishonest purpose or moral obliquity;xxx."56
Just months after the promulgation of Lopez, however, came the The description of bad faith in Far East Bank and Trust Companythen
case of Air France v. Carrascoso, et al.,46 In Air France, we went on to be repeated in subsequent cases such as 1995s Ortega
expounded on Lopezs definition by describing bad faith as: v. Court of Appeals,57 1997s Laureano Investment and Development
Corporation v. Court of Appeals,58 2010s Lambert Pawnbrokers v.
"xxx a state of mind affirmatively operating with furtive design or Binamira59 and 2013s California Clothing, Inc., v. Quiones,60 to
with some motive of self-interest or will or for ulterior purpose."47 name a few.
Air Frances articulation of the meaning of bad faith was, in turn, Verily, the clear denominator in all of the foregoing judicial
echoed in a number subsequent cases,48 one of which, is the 2009 pronouncements is that the essence of bad faith consists in the
case of Balbuena, et al. v. Sabay, et al.49 deliberate commission of a wrong. Indeed, the concept has often
been equated with malicious or fraudulent motives, yet
distinguished from the mere unintentional wrongs resulting from
mere simple negligence or oversight.61

A finding of bad faith, thus, usually assumes the presence of two (2) Contrary then to the view of Branch 10 of the Marawi City RTC and
elements: first, that the actor knew or should have known that a of the Court of Appeals, it was not the petitioner that "allowed" the
particular course of action is wrong or illegal, and second, that payment of the rental fees and expropriation indemnity to
despite such actual or imputable knowledge, the actor, voluntarily, Mangondato. Indeed, given the circumstances, the more accurate
consciously and out of his own free will, proceeds with such course rumination would be that it was the trial court in Civil Case No. 605-
of action. Only with the concurrence of these two elements can we 92 and Civil Case No. 610-92 that ordered or allowed the payment to
begin to consider that the wrong committed had been done Mangondato and that petitioner merely complied with the order or
deliberately and, thus, in bad faith. allowance by the trial court. Since petitioner was only acting under
the lawful orders of a court in paying Mangondato, we find that no
In this case, both Branch 10 of the Marawi City RTC and the Court of bad faith can be taken against it, even assuming that petitioner may
Appeals held that petitioner was in bad faith when it paid to have had prior knowledge about the claims of the Ibrahims and
Mangondato the rental fees and expropriation indemnity due the Maruhoms upon the subject land and the TRO issued in Civil Case
subject land. The two tribunals, in substance, fault petitioner when No. 967-93.
it "allowed" such payment to take place despite the latters alleged
knowledge of the existing claim of the Ibrahims and Maruhoms Sans Bad Faith, Petitioner
upon the subject land and the issuance ofa TRO in Civil Case No. Cannot Be Held Liable to the
967-93. Hence, the two tribunals claim that petitioners payment to Ibrahims and Maruhoms
Mangondato is ineffective as to the Ibrahims and Maruhoms, whom
they found to be the real owners of the subject land. Without the existence of bad faith, the ruling of the RTC and of the
Court of Appeals apropos petitioners remaining liability to the
We do not agree. Ibrahims and Maruhoms becomes devoid of legal basis. In fact,
petitioners previous payment to Mangondato of the rental fees and
Branch 10 of the Marawi City RTC and the Court of Appeals erred in expropriation indemnity due the subject land pursuant to the final
their finding of bad faith because they have overlooked the utter judgment in Civil Case No. 605-92 and Civil Case No. 610-92 may be
significance of one important fact: that petitioners payment to considered to have extinguished the formers obligation regardless
Mangondato of the rental fees and expropriation indemnity of who between Mangondato, on one hand, and the Ibrahims and
adjudged due for the subject land in Civil Case No. 605-92 and Civil Maruhoms, on the other, turns out to be the real owner of the
Case No. 610-92, was required by the final and executory decision in subject land.62 Either way, petitioner cannot be made liable to the
the said two cases and was compelled thru a writ of garnishment Ibrahims and Maruhoms:
issued by the court that rendered such decision. In other words, the
payment to Mangondato was not a product of a deliberate choice First. If Mangondato is the real owner of the subject land, then the
on the part of the petitioner but was made only in compliance to the obligation by petitioner to pay for the rental fees and expropriation
lawful orders of a court with jurisdiction. indemnity due the subject land is already deemed extinguished by
the latters previous payment under the final judgment in Civil Case
No. 605-92 and Civil Case No. 610-92. This would be a simple case of

an obligation being extinguished through payment by the debtor to of credit" with respect to the rental fees and expropriation
its creditor.63 Under this scenario, the Ibrahims and Maruhoms indemnity adjudged due for the subject land in the two cases, if the
would not even be entitled to receive anything from anyone for the Ibrahims and Maruhoms turn out to be the real owners of the
subject land. Hence, petitioner cannot be held liable to the Ibrahims subject land. Hence, petitioners payment to Mangondato of the
and Maruhoms. fees and indemnity due for the subject land as a consequence of the
execution of Civil Case No. 605-92 and Civil Case No. 610-92 could
Second. We, however, can reach the same conclusion even if the still validly extinguish its obligation to pay for the same even as
Ibrahims and Maruhoms turn out to be the real owners of the against the Ibrahims and Maruhoms.
subject land.
Effect of Extinguishment of
Should the Ibrahims and Maruhoms turn out to be the real owners Petitioners Obligation
of the subject land, petitioners previous payment to Mangondato
pursuant to Civil Case No. 605-92 and Civil Case No. 610-92given The extinguishment of petitioners obligation to pay for the rental
the absence of bad faith on petitioners part as previously fees and expropriation indemnity due the subject land carries with it
discussedmay nonetheless be considered as akin to a payment certain legal effects:
made in "good faith "to a person in "possession of credit" per Article
1242 of the Civil Code that, just the same, extinguishes its obligation First. If Mangondato turns out to be the real owner of the subject
to pay for the rental fees and expropriation indemnity due for the land, the Ibrahims and Maruhoms would not be entitled to recover
subject land. Article 1242 of the Civil Code reads: anything from anyone for the subject land.1wphi1 Consequently,
the partial execution of the decision in Civil Case No. 967-93 that
"Payment made in good faith to any person in possession of the had led to the garnishment of Mangondatos moneys in the
credit shall release the debtor." Article 1242 of the Civil Code is an possession of the Social Security System (SSS) in the amount of
exception to the rule that a valid payment of an obligation can only P2,700,000.00 in favor of the Ibrahims and Maruhoms, becomes
be made to the person to whom such obligation is rightfully improper and unjustified. In this event, therefore, the Ibrahims and
owed.64 It contemplates a situation where a debtor pays a Maruhoms may be ordered to return the amount so garnished to
"possessor of credit" i.e., someone who is not the real creditor but Mangondato.
appears, under the circumstances, to be the real creditor.65 In such
scenario, the law considers the payment to the "possessor of credit" Otherwise, i.e. if the Ibrahims and Maruhoms really are the true
as valid even as against the real creditor taking into account the owners of the subject land, they may only recover the rental fees
good faith of the debtor. and expropriation indemnity due the subject land against
Mangondato but only up to whatever payments the latter had
Borrowing the principles behind Article 1242 of the Civil Code, we previously received from petitioner pursuant to Civil Case No. 605-
find that Mangondatobeing the judgment creditor in Civil Case No. 92 and Civil Case No. 610-92.
605-92 and Civil Case No. 610-92 as well as the registered owner of
the subject land at the time66 may be considered as a "possessor

Second. At any rate, the extinguishment of petitioners obligation to
pay for the rental fees and expropriation indemnity due the subject
land negates whatever cause of action the Ibrahims and Maruhoms 64. G.R. No. 190755 November 24, 2010
might have had against the former in Civil Case No. 967-93. Hence,
regardless of who between Mangondato, on one hand, and the LAND BANK OF THE PHILIPPINES, Petitioner,
Ibrahims and Maruhoms, on the other, turns out to be the real vs.
owner of the subject land, the dismissal of Civil Case No. 967-93 ALFREDO ONG, Respondent.
insofar as petitioner isconcerned is called for.
D E C I S I O N
Re: Attorneys Fees
VELASCO, JR., J.:
The dismissal of Civil Case No. 967-93 as against petitioner
necessarily absolves the latter from paying attorneys fees to the This is an appeal from the October 20, 2009 Decision of the Court
of Appeals (CA) in CA-G.R. CR-CV No. 84445 entitled Alfredo Ong
Ibrahims and Maruhoms arising from that case.
v. Land Bank of the Philippines, which affirmed the Decision of
the Regional Trial Court (RTC), Branch 17 in Tabaco City.
WHEREFORE, premises considered, the instant petition is GRANTED.

The Decision dated 24 June2005 and Resolution dated 5 December
The Facts
2006 of the Court of Appeals in CA-G.R. CV No. 68061 is hereby SET
ASIDE. The Decision dated 16 April 1998 of the Regional Trial Court On March 18, 1996, spouses Johnson and Evangeline Sy secured a
in Civil Case No. 967-93 is MODIFIED in that petitioner is absolved loan from Land Bank Legazpi City in the amount of PhP 16
from any liability in that case in favor of the respondents Lucman M. million. The loan was secured by three (3) residential lots, five
Ibrahim, Atty. Omar G. Maruhom, Elias G. Maruhom, Bucay G. (5) cargo trucks, and a warehouse. Under the loan agreement,
Maruhom, Mamod G. Maruhom, Farouk G. Maruhom, Hidjara G. PhP 6 million of the loan would be short-term and would mature
Maruhom, Rocania G. Maruhom, Potrisam G. Maruhom, Lumba G. on February 28, 1997, while the balance of PhP 10 million would
Maruhom, Sinab G. Maruhom, Acmad G. Maruhom, Solayman G. be payable in seven (7) years. The Notice of Loan Approval dated
Maruhom, Mohamad M. Ibrahim and Caironesa M. Ibrahim. Civil February 22, 1996 contained an acceleration clause wherein any
Case No. 967-93 is DISMISSED as against petitioner. default in payment of amortizations or other charges would
accelerate the maturity of the loan.1
No costs.
Subsequently, however, the Spouses Sy found they could no
SO ORDERED. longer pay their loan. On December 9, 1996, they sold three (3) of
their mortgaged parcels of land for PhP 150,000 to Angelina
Gloria Ong, Evangelines mother, under a Deed of Sale with
Assumption of Mortgage. The relevant portion of the document2
is quoted as follows:

mortgage. They were also told that Alfredo should pay part of the
WHEREAS, we are no longer in a position to settle our obligation principal which was computed at PhP 750,000 and to update due
with the bank; or accrued interests on the promissory notes so that Atty. Hingco
could easily approve the assumption of mortgage. Two weeks
NOW THEREFORE, for and in consideration of the sum of ONE later, Alfredo issued a check for PhP 750,000 and personally gave
HUNDRED FIFTY THOUSAND PESOS (P150,000.00) Philippine it to Atty. Hingco. A receipt was issued for his payment. He also
Currency, we hereby these presents SELL, CEDE, TRANSFER and submitted the other documents required by Land Bank, such as
CONVEY, by way of sale unto ANGELINA GLORIA ONG, also of financial statements for 1994 and 1995. Atty. Hingco then
legal age, Filipino citizen, married to Alfredo Ong, and also a informed Alfredo that the certificate of title of the Spouses Sy
resident of Tabaco, Albay, Philippines, their heirs and assigns, the would be transferred in his name but this never materialized. No
above-mentioned debt with the said LAND BANK OF THE notice of transfer was sent to him.4
PHILIPPINES, and by reason hereof they can make the necessary
representation with the bank for the proper restructuring of the Alfredo later found out that his application for assumption of
loan with the said bank in their favor; mortgage was not approved by Land Bank. The bank learned
from its credit investigation report that the Ongs had a real estate
That as soon as our obligation has been duly settled, the bank is mortgage in the amount of PhP 18,300,000 with another bank
authorized to release the mortgage in favor of the vendees and that was past due. Alfredo claimed that this was fully paid later
for this purpose VENDEES can register this instrument with the on. Nonetheless, Land Bank foreclosed the mortgage of the
Register of Deeds for the issuance of the titles already in their Spouses Sy after several months. Alfredo only learned of the
names. foreclosure when he saw the subject mortgage properties
included in a Notice of Foreclosure of Mortgage and Auction Sale
IN WITNESS WHEREOF, we have hereunto affixed our signatures at the RTC in Tabaco, Albay. Alfredos other counsel, Atty.
this 9th day of December 1996 at Tabaco, Albay, Philippines. Madrilejos, subsequently talked to Land Banks lawyer and was
told that the PhP 750,000 he paid would be returned to him.5
(signed)
EVANGELINE O. SY On December 12, 1997, Alfredo initiated an action for recovery of
Vendor (signed) sum of money with damages against Land Bank in Civil Case No.
JOHNSON B. SY T-1941, as Alfredos payment was not returned by Land Bank.
Vendor Alfredo maintained that Land Banks foreclosure without
informing him of the denial of his assumption of the mortgage
Evangelines father, petitioner Alfredo Ong, later went to Land was done in bad faith. He argued that he was lured into believing
Bank to inform it about the sale and assumption of mortgage.3 that his payment of PhP 750,000 would cause Land Bank to
Atty. Edna Hingco, the Legazpi City Land Bank Branch Head, told approve his assumption of the loan of the Spouses Sy and the
Alfredo and his counsel Atty. Ireneo de Lumen that there was transfer of the mortgaged properties in his and his wifes name.6
nothing wrong with the agreement with the Spouses Sy but He also claimed incurring expenses for attorneys fees of PhP
provided them with requirements for the assumption of

150,000, filing fee of PhP 15,000, and PhP 250,000 in moral was filed in court. She said that Alfredo had made the payment of
damages.7 PhP 750,000 even before he applied for the assumption of
mortgage and that the bank received the said amount because
Testifying for Land Bank, Atty. Hingco claimed during trial that as the subject account was past due and demandable; and the Deed
branch manager she had no authority to approve loans and could of Assumption of Mortgage was not used as the basis for the
not assure anybody that their assumption of mortgage would be payment. 9
approved. She testified that the breakdown of Alfredos payment
was as follows: The Ruling of the Trial Court

The RTC held that the contract approving the assumption of
PhP 101,409.59 applied to principal mortgage was not perfected as a result of the credit investigation
216,246.56 accrued interests receivable conducted on Alfredo. It noted that Alfredo was not even
396,571.77 interests informed of the disapproval of the assumption of mortgage but
18,766.10 penalties was just told that the accounts of the spouses Sy had matured
16,805.98 accounts receivable and gone unpaid. It ruled that under the principle of equity and
Total: ---------------- justice, the bank should return the amount Alfredo had paid with
750,000.00 interest at 12% per annum computed from the filing of the
According to Atty. Hingco, the bank processes an assumption of complaint. The RTC further held that Alfredo was entitled to
mortgage as a new loan, since the new borrower is considered a attorneys fees and litigation expenses for being compelled to
new client. They used character, capacity, capital, collateral, and litigate.10
conditions in determining who can qualify to assume a loan.
Alfredos proposal to assume the loan, she explained, was The dispositive portion of the RTC Decision reads:
referred to a separate office, the Lending Center. 8
WHEREFORE, premises considered, a decision is rendered,
During cross-examination, Atty. Hingco testified that several ordering defendant bank to pay plaintiff, Alfredo Ong the amount
months after Alfredo made the tender of payment, she received of P750,000.00 with interest at 12% per annum computed from
word that the Lending Center rejected Alfredos loan application. Dec. 12, 1997 and attorneys fees and litigation expenses of
She stated that it was the Lending Center and not her that should P50,000.00.
have informed Alfredo about the denial of his and his wifes
assumption of mortgage. She added that although she told Costs against defendant bank.
Alfredo that the agreement between the spouses Sy and Alfredo
was valid between them and that the bank would accept SO ORDERED.11
payments from him, Alfredo did not pay any further amount so
the foreclosure of the loan collaterals ensued. She admitted that The Ruling of the Appellate Court
Alfredo demanded the return of the PhP 750,000 but said that
there was no written demand before the case against the bank

On appeal, Land Bank faulted the trial court for (1) holding that Whether the Court of Appeals misconstrued the evidence and the
the payment of PhP 750,000 made by Ong was one of the law when it affirmed the trial court decisions ordering Land
requirements for the approval of his proposal to assume the Bank to pay Ong the amount of Php750,000.00 with interest at
mortgage of the Sy spouses; (2) erroneously ordering Land Bank 12% annum.
to return the amount of PhP 750,000 to Ong on the ground of its
failure to effect novation; and (3) erroneously affirming the III
award of PhP 50,000 to Ong as attorneys fees and litigation
expenses. Whether the Court of Appeals committed reversible error when it
affirmed the award of Php50,000.00 to Ong as attorneys fees and
The CA affirmed the RTC Decision.12 It held that Alfredos expenses of litigation.
recourse is not against the Sy spouses. According to the appellate
court, the payment of PhP 750,000 was for the approval of his The Ruling of this Court
assumption of mortgage and not for payment of arrears incurred
by the Sy spouses. As such, it ruled that it would be incorrect to We affirm with modification the appealed decision.
consider Alfredo a third person with no interest in the fulfillment
of the obligation under Article 1236 of the Civil Code. Although Recourse is against Land Bank
Land Bank was not bound by the Deed between Alfredo and the
Spouses Sy, the appellate court found that Alfredo and Land Land Bank contends that Art. 1236 of the Civil Code backs their
Banks active preparations for Alfredos assumption of mortgage claim that Alfredo should have sought recourse against the
essentially novated the agreement. Spouses Sy instead of Land Bank. Art. 1236 provides:

On January 5, 2010, the CA denied Land Banks motion for The creditor is not bound to accept payment or performance by a
reconsideration for lack of merit. Hence, Land Bank appealed to third person who has no interest in the fulfillment of the
us. obligation, unless there is a stipulation to the contrary.

The Issues Whoever pays for another may demand from the debtor what he
has paid, except that if he paid without the knowledge or against
I the will of the debtor, he can recover only insofar as the payment
has been beneficial to the debtor.1avvphi1
Whether the Court of Appeals erred in holding that Art. 1236 of
the Civil Code does not apply and in finding that there is no We agree with Land Bank on this point as to the first part of
novation. paragraph 1 of Art. 1236. Land Bank was not bound to accept
Alfredos payment, since as far as the former was concerned, he
II did not have an interest in the payment of the loan of the Spouses
Sy. However, in the context of the second part of said paragraph,
Alfredo was not making payment to fulfill the obligation of the

Spouses Sy. Alfredo made a conditional payment so that the On the matter of novation, Spouses Benjamin and Agrifina Lim v.
properties subject of the Deed of Sale with Assumption of M.B. Finance Corporation14 provides the following discussion:
Mortgage would be titled in his name. It is clear from the records
that Land Bank required Alfredo to make payment before his Novation, in its broad concept, may either be extinctive or
assumption of mortgage would be approved. He was informed modificatory. It is extinctive when an old obligation is terminated
that the certificate of title would be transferred accordingly. He, by the creation of a new obligation that takes the place of the
thus, made payment not as a debtor but as a prospective former; it is merely modificatory when the old obligation subsists
mortgagor. But the trial court stated: to the extent it remains compatible with the amendatory
agreement. An extinctive novation results either by changing the
[T]he contract was not perfected or consummated because of the object or principal conditions (objective or real), or by
adverse finding in the credit investigation which led to the substituting the person of the debtor or subrogating a third
disapproval of the proposed assumption. There was no evidence person in the rights of the creditor (subjective or personal).
presented that plaintiff was informed of the disapproval. What he Under this mode, novation would have dual functions one to
received was a letter dated May 22, 1997 informing him that the extinguish an existing obligation, the other to substitute a new
account of spouses Sy had matured but there [were] no one in its place requiring a conflux of four essential requisites:
payments. This was sent even before the conduct of the credit (1) a previous valid obligation; (2) an agreement of all parties
investigation on June 20, 1997 which led to the disapproval of the concerned to a new contract; (3) the extinguishment of the old
proposed assumption of the loans of spouses Sy.13 obligation; and (4) the birth of a valid new obligation. x x x

Alfredo, as a third person, did not, therefore, have an interest in In order that an obligation may be extinguished by another which
the fulfillment of the obligation of the Spouses Sy, since his substitutes the same, it is imperative that it be so declared in
interest hinged on Land Banks approval of his application, which unequivocal terms, or that the old and the new obligations be on
was denied. The circumstances of the instant case show that the every point incompatible with each other. The test of
second paragraph of Art. 1236 does not apply. As Alfredo made incompatibility is whether or not the two obligations can stand
the payment for his own interest and not on behalf of the Spouses together, each one having its independent existence. x x x
Sy, recourse is not against the latter. And as Alfredo was not (Emphasis supplied.)
paying for another, he cannot demand from the debtors, the
Spouses Sy, what he has paid. Furthermore, Art. 1293 of the Civil Code states:

Novation of the loan agreement Novation which consists in substituting a new debtor in the place
of the original one, may be made even without the knowledge or
Land Bank also faults the CA for finding that novation applies to against the will of the latter, but not without the consent of the
the instant case. It reasons that a substitution of debtors was creditor. Payment by the new debtor gives him rights mentioned
made without its consent; thus, it was not bound to recognize the in articles 1236 and 1237.
substitution under the rules on novation.


We do not agree, then, with the CA in holding that there was a Alfredos recourse then, according to Land Bank, is to have his
novation in the contract between the parties. Not all the elements payment reimbursed by the Spouses Sy.
of novation were present. Novation must be expressly consented
to. Moreover, the conflicting intention and acts of the parties We rule that Land Bank is still liable for the return of the PhP
underscore the absence of any express disclosure or 750,000 based on the principle of unjust enrichment. Land Bank
circumstances with which to deduce a clear and unequivocal is correct in arguing that it has no obligation as creditor to
intent by the parties to novate the old agreement.15 Land Bank is recognize Alfredo as a person with interest in the fulfillment of
thus correct when it argues that there was no novation in the the obligation. But while Land Bank is not bound to accept the
following: substitution of debtors in the subject real estate mortgage, it is
estopped by its action of accepting Alfredos payment from
[W]hether or not Alfredo Ong has an interest in the obligation arguing that it does not have to recognize Alfredo as the new
and payment was made with the knowledge or consent of debtor. The elements of estoppel are:
Spouses Sy, he may still pay the obligation for the reason that
even before he paid the amount of P750,000.00 on January 31, First, the actor who usually must have knowledge, notice or
1997, the substitution of debtors was already perfected by and suspicion of the true facts, communicates something to another
between Spouses Sy and Spouses Ong as evidenced by a Deed of in a misleading way, either by words, conduct or silence; second,
Sale with Assumption of Mortgage executed by them on the other in fact relies, and relies reasonably or justifiably, upon
December 9, 1996. And since the substitution of debtors was that communication; third, the other would be harmed materially
made without the consent of Land Bank a requirement which is if the actor is later permitted to assert any claim inconsistent
indispensable in order to effect a novation of the obligation, it is with his earlier conduct; and fourth, the actor knows, expects or
therefore not bound to recognize the substitution of debtors. foresees that the other would act upon the information given or
Land Bank did not intervene in the contract between Spouses Sy that a reasonable person in the actors position would expect or
and Spouses Ong and did not expressly give its consent to this foresee such action.17
substitution.16
By accepting Alfredos payment and keeping silent on the status
Unjust enrichment of Alfredos application, Land Bank misled Alfredo to believe that
he had for all intents and purposes stepped into the shoes of the
Land Bank maintains that the trial court erroneously applied the Spouses Sy.
principle of equity and justice in ordering it to return the PhP
750,000 paid by Alfredo. Alfredo was allegedly in bad faith and in The defense of Land Bank Legazpi City Branch Manager Atty.
estoppel. Land Bank contends that it enjoyed the presumption of Hingco that it was the banks Lending Center that should have
regularity and was in good faith when it accepted Alfredos notified Alfredo of his assumption of mortgage disapproval is
tender of PhP 750,000. It reasons that it did not unduly enrich unavailing. The Lending Centers lack of notice of disapproval, the
itself at Alfredos expense during the foreclosure of the Tabaco Branchs silence on the disapproval, and the banks
mortgaged properties, since it tendered its bid by subtracting subsequent actions show a failure of the bank as a whole, first, to
PhP 750,000 from the Spouses Sys outstanding loan obligation. notify Alfredo that he is not a recognized debtor in the eyes of the

bank; and second, to apprise him of how and when he could the bank wrote to tell him that his daughters loan had not been
collect on the payment that the bank no longer had a right to paid.22 Land Bank made Alfredo believe that with the payment of
keep. PhP 750,000, he would be able to assume the mortgage of the
Spouses Sy. The act of receiving payment without returning it
We turn then on the principle upon which Land Bank must return when demanded is contrary to the adage of giving someone what
Alfredos payment. Unjust enrichment exists "when a person is due to him. The outcome of the application would have been
unjustly retains a benefit to the loss of another, or when a person different had Land Bank first conducted the credit investigation
retains money or property of another against the fundamental before accepting Alfredos payment. He would have been notified
principles of justice, equity and good conscience."18 There is that his assumption of mortgage had been disapproved; and he
unjust enrichment under Art. 22 of the Civil Code when (1) a would not have taken the futile action of paying PhP 750,000. The
person is unjustly benefited, and (2) such benefit is derived at the procedure Land Bank took in acting on Alfredos application
expense of or with damages to another.19 cannot be said to have been fair and proper.

Additionally, unjust enrichment has been applied to actions As to the claim that the trial court erred in applying equity to
called accion in rem verso. In order that the accion in rem verso Alfredos case, we hold that Alfredo had no other remedy to
may prosper, the following conditions must concur: (1) that the recover from Land Bank and the lower court properly exercised
defendant has been enriched; (2) that the plaintiff has suffered a its equity jurisdiction in resolving the collection suit. As we have
loss; (3) that the enrichment of the defendant is without just or held in one case:
legal ground; and (4) that the plaintiff has no other action based
on contract, quasi-contract, crime, or quasi-delict.20 The Equity, as the complement of legal jurisdiction, seeks to reach
principle of unjust enrichment essentially contemplates payment and complete justice where courts of law, through the
when there is no duty to pay, and the person who receives the inflexibility of their rules and want of power to adapt their
payment has no right to receive it.21 judgments to the special circumstances of cases, are incompetent
to do so. Equity regards the spirit and not the letter, the intent
The principle applies to the parties in the instant case, as, Alfredo, and not the form, the substance rather than the circumstance, as
having been deemed disqualified from assuming the loan, had no it is variously expressed by different courts.23
duty to pay petitioner bank and the latter had no right to receive
it. Another claim made by Land Bank is the presumption of
regularity it enjoys and that it was in good faith when it accepted
Moreover, the Civil Code likewise requires under Art. 19 that Alfredos tender of PhP 750,000.
"[e]very person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, The defense of good faith fails to convince given Land Banks
and observe honesty and good faith." Land Bank, however, did actions. Alfredo was not treated as a mere prospective borrower.
not even bother to inform Alfredo that it was no longer approving After he had paid PhP 750,000, he was made to sign bank
his assumption of the Spouses Sys mortgage. Yet it documents including a promissory note and real estate mortgage.
acknowledged his interest in the loan when the branch head of He was assured by Atty. Hingco that the titles to the properties

covered by the Spouses Sys real estate mortgage would be As to the applicable interest rate, we reiterate the guidelines
transferred in his name, and upon payment of the PhP 750,000, found in Eastern Shipping Lines, Inc. v. Court of Appeals:28
the account would be considered current and renewed in his
name.24 II. With regard particularly to an award of interest in the concept
of actual and compensatory damages, the rate of interest, as well
Land Bank posits as a defense that it did not unduly enrich itself as the accrual thereof, is imposed, as follows:
at Alfredos expense during the foreclosure of the mortgaged
properties, since it tendered its bid by subtracting PhP 750,000 1. When the obligation is breached, and it consists in the payment
from the Spouses Sys outstanding loan obligation. It is observed of a sum of money, i.e., a loan or forbearance of money, the
that this is the first time Land Bank is revealing this defense. interest due should be that which may have been stipulated in
However, issues, arguments, theories, and causes not raised writing. Furthermore, the interest due shall itself earn legal
below may no longer be posed on appeal.25 Land Banks interest from the time it is judicially demanded. In the absence of
contention, thus, cannot be entertained at this point.1avvphi1 stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand
Land Bank further questions the lower courts decision on the under and subject to the provisions of Article 1169 of the Civil
basis of the inconsistencies made by Alfredo on the witness Code.
stand. It argues that Alfredo was not a credible witness and his
testimony failed to overcome the presumption of regularity in the 2. When an obligation, not constituting a loan or forbearance of
performance of regular duties on the part of Land Bank. money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate
This claim, however, touches on factual findings by the trial of 6% per annum. No interest, however, shall be adjudged on
court, and we defer to these findings of the trial court as unliquidated claims or damages except when or until the demand
sustained by the appellate court. These are generally binding on can be established with reasonable certainty. Accordingly, where
us. While there are exceptions to this rule, Land Bank has not the demand is established with reasonable certainty, the interest
satisfactorily shown that any of them is applicable to this issue.26 shall begin to run from the time the claim is made judicially or
Hence, the rule that the trial court is in a unique position to extrajudicially (Art. 1169, Civil Code) but when such certainty
observe the demeanor of witnesses should be applied and cannot be so reasonably established at the time the demand is
respected27 in the instant case. made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification
In sum, we hold that Land Bank may not keep the PhP 750,000 of damages may be deemed to have been reasonably
paid by Alfredo as it had already foreclosed on the mortgaged ascertained). The actual base for the computation of legal interest
lands. shall, in any case, be on the amount finally adjudged.

Interest and attorneys fees 3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall be

12% per annum from such finality until its satisfaction, this payment of the interest agreed upon, and in the absence of
interim period being deemed to be by then an equivalent to a stipulation, the legal interest, which is six per cent per annum.
forbearance of credit.
The term "forbearance," within the context of usury law, has been
No evidence was presented by Alfredo that he had sent a written described as a contractual obligation of a lender or creditor to
demand to Land Bank before he filed the collection suit. Only the refrain, during a given period of time, from requiring the
verbal agreement between the lawyers of the parties on the borrower or debtor to repay the loan or debt then due and
return of the payment was mentioned.29 Consequently, the payable.
obligation of Land Bank to return the payment made by Alfredo
upon the formers denial of the latters application for Eastern Shipping Lines, Inc. synthesized the rules on the
assumption of mortgage must be reckoned from the date of imposition of interest, if proper, and the applicable rate, as
judicial demand on December 12, 1997, as correctly determined follows: The 12% per annum rate under CB Circular No. 416 shall
by the trial court and affirmed by the appellate court. apply only to loans or forbearance of money, goods, or credits, as
well as to judgments involving such loan or forbearance of
The next question is the propriety of the imposition of interest money, goods, or credit, while the 6% per annum under Art. 2209
and the proper imposable rate of applicable interest. The RTC of the Civil Code applies "when the transaction involves the
granted the rate of 12% per annum which was affirmed by the payment of indemnities in the concept of damage arising from
CA. From the above-quoted guidelines, however, the proper the breach or a delay in the performance of obligations in
imposable interest rate is 6% per annum pursuant to Art. 2209 of general," with the application of both rates reckoned "from the
the Civil Code. Sunga-Chan v. Court of Appeals is illuminating in time the complaint was filed until the [adjudged] amount is fully
this regard: paid." In either instance, the reckoning period for the
commencement of the running of the legal interest shall be
In Reformina v. Tomol, Jr., the Court held that the legal interest at subject to the condition "that the courts are vested with
12% per annum under Central Bank (CB) Circular No. 416 shall discretion, depending on the equities of each case, on the award
be adjudged only in cases involving the loan or forbearance of of interest."30 (Emphasis supplied.)
money. And for transactions involving payment of indemnities in
the concept of damages arising from default in the performance Based on our ruling above, forbearance of money refers to the
of obligations in general and/or for money judgment not contractual obligation of the lender or creditor to desist for a
involving a loan or forbearance of money, goods, or credit, the fixed period from requiring the borrower or debtor to repay the
governing provision is Art. 2209 of the Civil Code prescribing a loan or debt then due and for which 12% per annum is imposed
yearly 6% interest. Art. 2209 pertinently provides: as interest in the absence of a stipulated rate. In the instant case,
Alfredos conditional payment to Land Bank does not constitute
Art. 2209. If the obligation consists in the payment of a sum of forbearance of money, since there was no agreement or
money, and the debtor incurs in delay, the indemnity for obligation for Alfredo to pay Land Bank the amount of PhP
damages, there being no stipulation to the contrary, shall be the 750,000, and the obligation of Land Bank to return what Alfredo
has conditionally paid is still in dispute and has not yet been

determined. Thus, it cannot be said that Land Banks alleged WHEREFORE, the appeal is DENIED. The CA Decision in CA-G.R.
obligation has become a forbearance of money. CR-CV No. 84445 is AFFIRMED with MODIFICATION in that the
amount of PhP 750,000 will earn interest at 6% per annum
On the award of attorneys fees, attorneys fees and expenses of reckoned from December 12, 1997, and the total aggregate
litigation were awarded because Alfredo was compelled to monetary awards will in turn earn 12% per annum from the
litigate due to the unjust refusal of Land Bank to refund the finality of this Decision until fully paid.
amount he paid. There are instances when it is just and equitable
to award attorneys fees and expenses of litigation.31 Art. 2208 of
the Civil Code pertinently states:

In the absence of stipulation, attorneys fees and expenses of 65. [G.R. No. L-28569. February 27, 1970.]
litigation, other than judicial costs, cannot be recovered, except:
J. M. TUASON & Co. INC., Plaintiff-Appellant, v. LIGAYA
x x x x JAVIER, Defendant-Appellee.

(2) When the defendants act or omission has compelled the
plaintiff to litigate with third persons or to incur expenses to CONCEPCION, C.J.:
protect his interest.

Given that Alfredo was indeed compelled to litigate against Land This appeal, taken by plaintiff J.M. Tuason & Co., Inc., from a
Bank and incur expenses to protect his interest, we find that the decision of the Court of First Instance of Rizal, has been certified
award falls under the exception above and is, thus, proper given to Us by the Court of Appeals, only questions of law being raised
the circumstances. therein.

On a final note. The instant case would not have been litigated The record shows that, on September 7, 1954, a contract was
had Land Bank been more circumspect in dealing with Alfredo. entered into between the plaintiff, on the one hand, and
The bank chose to accept payment from Alfredo even before a defendant-appellee, Ligaya Javier, on the other, whereby plaintiff
credit investigation was underway, a procedure worsened by the agreed to sell, transfer and convey to the defendant a parcel of
failure to even inform him of his credit standings impact on his land known as Lot No. 28, Block No. 356, PSD 30328, of the Sta.
assumption of mortgage. It was, therefore, negligent to a certain Mesa Heights Subdivision, for the total sum of P3,691.20, with
degree in handling the transaction with Alfredo. It should be interest thereon at the rate of ten (10) per centum a year, payable
remembered that the business of a bank is affected with public as follows: P896.12 upon the execution of the contract and
interest and it should observe a higher standard of diligence P43.92 every month thereafter, for a period of ten (10) years. The
when dealing with the public.32 sixth paragraph of said contract provided
that:jgc:chanrobles.com.ph


". . . In case the party of the SECOND PART fails to satisfy any that their contract had been rescinded. Defendant having
monthly installments, or any other payments herein agreed upon, thereafter failed or refused to vacate said land, on July 9, 1964,
he is granted a month of grace within which to make the retarded plaintiff commenced the present action against her, in the Court
payment, together with the one corresponding to the said month of First Instance of Rizal. After alleging substantially the
of grace; it is understood, however, that should the month of foregoing fact, plaintiff prayed in its complaint that the
grace herein granted to the party of the SECOND PART expire aforementioned contract be declared validly rescinded and that
without the payments corresponding to both months having been the defendant and all persons claiming under her be ordered to
satisfied, an interest of 10% per annum will be charged on the deliver to the plaintiff the lot in question, with all the
amount he should have paid it is understood further, that should improvements thereon, and to pay a monthly rental of P40.00,
a period of 90 days elapse, to begin from the expiration of the from January 5, 1962, until the property shall have been
month of grace herein mentioned, and the party of the SECOND surrendered to the plaintiff, as well as all costs. Admitting that
PART has not paid all the amounts he should have paid with the she had defaulted in the payment of the stipulated monthly
corresponding interest up to that date, the party of the FIRST installments, from January 5, 1962, defendant alleged in her
PART has the right to declare this contract cancelled and of no answer that this fact "was due to unforeseen circumstances" ;
effect, and as consequence thereof, the party of the FIRST PART that she is "willing to pay all arrears in installments under the
may dispose of the parcel or parcels of land covered by this contract" and had "in fact offered the same to the plaintiff" ; and
contract in favor of other persons, as if this contract had never that said contract "can not be rescinded upon the unilateral act of
been entered into. In case of such cancellation of this contract, all the plaintiff." At a pre-trial conference held before said court, the
the amounts paid in accordance with this agreement together following facts were in the language of the decision appealed
with all the improvements made on the premises, shall be from agreed upon between the parties:jgc:chanrobles.com.ph
considered as rents paid for the use and occupation of the above
mentioned premises, and as payment for the damages suffered ". . . that since January 5, 1962, up to the present, the defendant
by failure of the party of the SECOND PART to fulfill his part of has failed to pay the monthly installments called for in the
the agreement; and the party of the SECOND PART hereby contract to sell; that in view of the failure of the defendant to pay
renounces all his right to demand or reclaim the return of the her installment payments since January 5, 1962, the plaintiff
same and obliges himself to peacefully vacate the premises and rescinded the contract pursuant to the provision thereof; that
deliver the same to the party of the FIRST PART."cralaw after the filing of the complaint, defendant in an attempt to arrive
virtua1aw library at a compromise agreement with the plaintiff, offered to pay all
the installment payments in arrears, the interest thereon from
Upon the execution of the contract and the payment of the first the time of default of payment, reasonable attorneys fees, and
installment of P396.12, the defendant was placed in possession of the costs of suit; that said offer was repeated by the defendant in
the land. Thereafter and until January 5, 1962, she paid the writing on December 1, 1964, and also during the pre-trial
stipulated monthly installments which, including the initial conference of this case, but said offer was turned down by the
payment of P396.12, aggregated P1,134.08. Subsequently, plaintiff."cralaw virtua1aw library
however, she defaulted in the payment of said installments, in
view of which, on May 22, 1964, plaintiff informed her by letter

The case having been submitted for decision upon the foregoing denied substantial justice, for, according to Art. 1234 of said
stipulation, said courts, applying Art. 1592 of our Civil Code, Code:jgc:chanrobles.com.ph
rendered its aforementioned decision, the dispositive part of
which reads:jgc:chanrobles.com.ph "If the obligation has been substantially performed in good faith,
the obligor may recover as though there had been a strict and
"WHEREFORE, judgment is hereby rendered, declaring that the complete fulfillment, less damages suffered by the
contract to sell has not yet been rescinded, and ordering the obligee."cralaw virtua1aw library
defendant to pay to the plaintiff within sixty (60) days from
receipt hereof all the installment payments in arrears together In this connection, it should be noted that, apart from the initial
with interest thereon at 10% per annum from January 5, 1962, installment of P396.12, paid upon the execution of the contract,
the date of default, attorneys fees in the sum of P1,000.00, and on September 7, 1954, the defendant religiously satisfied the
the costs of suit. Upon payment of same, the plaintiff in ordered monthly installments accruing thereafter, for a period of almost
to execute in favor of the defendant the necessary deed to eight (8) years, or up to January 5, 1962; that, although the
transfer to the defendant the title to the parcel of land in principal obligation under the contract was P3,691.20, the total
question, free from all liens and encumbrances except those payments made by the defendant up to January 5, 1962, including
provided for in the contract, all expenses which may be incurred stipulated interest, aggregated P4,134.08; that the defendant has
in said transfer of title to be paid by the defendant."cralaw offered to pay all of the installments overdue including the
virtua1aw library stipulated interest, apart from reasonable attorneys fees and the
costs; and that, accordingly, the trial court sentenced the
Hence, this appeal by plaintiff, based mainly upon the alleged defendant to pay all such installments, interest, fees and costs.
erroneous application to the case at bar of said Art. 1592, Thus, plaintiff will thereby recover everything due thereto,
pursuant to which: pursuant to its contract with the defendant, including such
damages as the former may have suffered in consequence of the
"In the sale of immovable property, even though it may have been latters default. Under these circumstances, We feel that, in the
stipulated that upon the failure to pay the price at the time interest of justice and equity, the decision appealed from may be
agreed upon the rescission of the contract shall of right take upheld upon the authority of Art. 1234 of the Civil Code. 1
place, the vendee may pay, even after the expiration of the
period, as long as no demand for rescission of the contract has WHEREFORE, said decision is hereby affirmed, with out special
been made upon him either judicially or by a notarial act. After pronouncement as to costs in this instance. It is so ordered.
the demand, the court may not grant him a new term."cralaw
virtua1aw library

Plaintiff maintains that this provision governs contracts of sale,
not contracts to sell, such as the one entered into by the parties in 66. G.R. No. L-26578 January 28, 1974
this case. Regardless, however, of the propriety of applying said
Art. 1592 thereto, We find that plaintiff herein has not been LEGARDA HERMANOS and JOSE LEGARDA, petitioners,

vs. It is undisputed that respondent faithfully paid for eight
FELIPE SALDAA and COURT OF APPEALS (FIFTH continuous years about 95 (of the stipulated 120) monthly
DIVISION) * respondents. installments totalling P3,582.06 up to the month of February,
1956, which as per petitioners' own statement of account, Exhibit
Manuel Y. Macias for petitioners. "1", was applied to respondent's account (without distinguishing
the two lots), as follows:
Mario E. Ongkiko for private respondent.
To interests P1,889.78

TEEHANKEE, J.:1wph1.t To principal 1,682.28

The Court, in affirming the decision under review of the Court of Total P3,582.06 1
Appeals, which holds that the respondent buyer of two small
residential lots on installment contracts on a ten-year basis who It is equally undisputed that after February, 1956 up to the filing
has faithfully paid for eight continuous years on the principal of respondent's complaint in the Manila court of first instance in
alone already more than the value of one lot, besides the larger 1961, respondent did not make further payments. The account
stipulated interests on both lots, is entitled to the conveyance of thus shows that he owed petitioners the sum of P1,317.72 on
one fully paid lot of his choice, rules that the judgment is fair and account of the balance of the purchase price (principal) of the
just and in accordance with law and equity. two lots (in the total sum of P3,000.00), although he had paid
more than the stipulated purchase price of P1,500.00 for one lot.
The action originated as a complaint for delivery of two parcels of
land in Sampaloc, Manila and for execution of the corresponding Almost five years later, on February 2, 1961 just before the filing
deed of conveyance after payment of the balance still due on their of the action, respondent wrote petitioners stating that his desire
purchase price. Private respondent as plaintiff had entered into to build a house on the lots was prevented by their failure to
two written contracts with petitioner Legarda Hermanos as introduce improvements on the subdivision as "there is still no
defendant subdivision owner, whereby the latter agreed to sell to road to these lots," and requesting information of the amount
him Lots Nos. 7 and 8 of block No. 5N of the subdivision with an owing to update his account as "I intend to continue paying the
area of 150 square meters each, for the sum of P1,500.00 per lot, balance due on said lots."
payable over the span of ten years divided into 120 equal
monthly installments of P19.83 with 10% interest per annum, to Petitioners replied in their letter of February 11, 1961 that as
commence on May 26, 1948, date of execution of the contracts. respondent had failed to complete total payment of the 120
Subsequently, Legarda Hermanos partitioned the subdivision installments by May, 1958 as stipulated in the contracts to sell,
among the brothers and sisters, and the two lots were among "pursuant to the provisions of both contracts all the amounts
those allotted to co-petitioner Jose Legarda who was then paid in accordance with the agreement together with the
included as co-defendant in the action. improvements on the premises have been considered as rents


paid and as payment for damages suffered by your failure," 2 and more than the value of the two lots. And even if the sum applied
"Said cancellation being in order, is hereby confirmed." to the principal alone were to be considered, which was of the
total of P1,682.28, the same was already more than the value of
From the adverse decision of July 17, 1963 of the trial court one lot, which is P1,500.00. The only balance due on both lots
sustaining petitioners' cancellation of the contracts and was P1,317.72, which was even less than the value of one lot. We
dismissing respondent's complaint, respondent appellate court will consider as fully paid by the plaintiff at least one of the two
on appeal rendered its judgment of July 27, 1966 reversing the lots, at the choice of the defendants. This is more in line with
lower court's judgment and ordering petitioners "to deliver to good conscience than a total denial to the plaintiff of a little token
the plaintiff possession of one of the two lots, at the choice of of what he has paid the defendant Legarda Hermanos. 4
defendants, and to execute the corresponding deed of
conveyance to the plaintiff for the said lot," 3 ruling as follows: Hence, the present petition for review, wherein petitioners insist
on their right of cancellation under the "plainly valid written
During the hearing, plaintiff testified that he suspended agreements which constitute the law between the parties" as
payments because the lots were not actually delivered to him, or against "the broad principles of equity and justice" applied by the
could not be, due to the fact that they were completely under appellate court. Respondent on the other hand while adhering to
water; and also because the defendants-owners failed to make the validity of the doctrine of the Caridad Estates cases 5 which
improvements on the premises, such as roads, filling of the recognizes the right of a vendor of land under a contract to sell to
submerged areas, etc., despite repeated promises of their cancel the contract upon default, with forfeiture of the
representative, the said Mr. Cenon. As regards the supposed installments paid as rentals, disputes its applicability herein
cancellation of the contracts, plaintiff averred that no demand contending that here petitioners-sellers were equally in default
has been made upon him regarding the unpaid installments, and as the lots were "completely under water" and "there is neither
for this reason he could not be declared in default so as to entitle evidence nor a finding that the petitioners in fact cancelled the
the defendants to cancel the said contracts. contracts previous to receipt of respondent's letter." 6

The issue, therefore, is: Under the above facts, may defendants be The Court finds that the appellate court's judgment finding that
compelled, or not, to allow plaintiff to complete payment of the of the total sum of P3,582.06 (including interests of P1,889.78)
purchase price of the two lots in dispute and thereafter to already paid by respondent (which was more than the value of
execute the final deeds of conveyance thereof in his favor? two lots), the sum applied by petitioners to the principal alone in
the amount of P1,682.28 was already more than the value of one
xxx xxx xxx lot of P1,500.00 and hence one of the two lots as chosen by
respondent would be considered as fully paid, is fair and just and
Whether or not plaintiffs explanation for his failure to pay the in accordance with law and equity.
remaining installments is true, considering the circumstances
obtaining in this case, we elect to apply the broad principles of As already stated, the monthly payments for eight years made by
equity and justice. In the case at bar, we find that the plaintiff has respondent were applied to his account without specifying or
paid the total sum of P3,582.06 including interests, which is even distinguishing between the two lots subject of the two

agreements under petitioners' own statement of account, Exhibit Art. 1234 of said Code: 'If the obligation has been substantially
"1". 7 Even considering respondent as having defaulted after performed in good faith, the obligor may recover as though there
February 1956, when he suspended payments after the 95th had been a strict and complete fulfillment, less damages suffered
installment, he had as of the already paid by way of principal by the obligee,'" and "that in the interest of justice and equity, the
(P1,682.28) more than the full value of one lot (P1,500.00). The decision appealed from may be upheld upon the authority of
judgment recognizing this fact and ordering the conveyance to Article 1234 of the Civil Code." 9
him of one lot of his choice while also recognizing petitioners'
right to retain the interests of P1,889.78 paid by him for eight ACCORDINGLY, the appealed judgment of the appellate court is
years on both lots, besides the cancellation of the contract for one hereby affirmed. Without pronouncement as to costs.
lot which thus reverts to petitioners, cannot be deemed to deny
substantial justice to petitioners nor to defeat their rights under
the letter and spirit of the contracts in question.

The Court's doctrine in the analogous case of J.M. Tuason & Co.
Inc. vs. Javier 8 is fully applicable to the present case, with the
respondent at bar being granted lesser benefits, since no
rescission of contract was therein permitted. There, where the 67. G.R. No. L-30597
therein buyer-appellee identically situated as herein respondent
buyer had likewise defaulted in completing the payments after GUILLERMO AZCONA and FE JALANDONI AZCONA,
having religiously paid the stipulated monthly installments for petitioners,
almost eight years and notwithstanding that the seller-appellant vs.
had duly notified the buyer of the rescission of the contract to JOSE JAMANDRE, Administrator of the Intestate Estate
sell, the Court upheld the lower court's judgment denying judicial of Cirilo Jamandre (Sp. Proc. 6921 of the Court of First
confirmation of the rescission and instead granting the buyer an Instance of Negros Occidental), and the HONORABLE
additional grace period of sixty days from notice of judgment to COURT OF APPEALS, respondents.
pay all the installment payments in arrears together with the
stipulated 10% interest per annum from the date of default, apart
from reasonable attorney's fees and costs, which payments, the CRUZ, J.:
Court observed, would have the plaintiff-seller "recover
everything due thereto, pursuant to its contract with the This involves the interpretation of a contract of lease which was
defendant, including such damages as the former may have found by the trial court to have been violated by both the plaintiff
suffered in consequence of the latter's default." and the defendant. On appeal, its decision was modified by the
respondent court in favor of the plaintiff, for which reason the
In affirming, the Court held that "Regardless, however, of the defendant has now come to us in a petition for certiorari.
propriety of applying said Art. 1592 thereto, We find that plaintiff
herein has not been denied substantial justice, for, according to

By the said contract, 1 Guillermo Azcona (hereinafter called the by the Philippine National Bank of the said contract; and 3) to
petitioner) leased 80 hectares of his 150-hectare pro indiviso pay the rentals. 6
share in Hacienda Sta. Fe in Escalante, Negros Occidental, to
Cirilo Jamandre (represented here by the administrator of his The parcelary plan was provided for in the contract as follows:
intestate estate, and hereinafter called the private respondent).
The agreed yearly rental was P7,200.00. The lease was for three That the LESSOR by these presents do hereby agree to lease in
agricultural years beginning 1960, extendible at the lessee's favor of the LESSEE a portion of the said lots above-described
option to two more agricultural years, up to 1965. with an extension of EIGHTY (80) hectares, more or less, which
portion is to be Identified by the parcelary plan duly marked and
The first annual rental was due on or before March 30, 1960, but to be initialed by both LESSOR and LESSEE, and which parcelary
because the petitioner did not deliver possession of the leased plan is known as Annex "A" of this contract and considered as an
property to the respondent, he "waived" payment, as he put it, of integral part hereof. 7
that rental. 2 The respondent actually entered the premises only
on October 26, 1960, after payment by him to the petitioner of According to the petitioners, the parcelary plan was never agreed
the sum of P7,000.00, which was acknowledged in the receipt upon or annexed to the contract, which thereby became null and
later offered as Exhibit "B". void under Article 1318 of the Civil Code for lack of a subject
matter. Moreover, the failure of the parties to approve and annex
On April 6, 1961, the petitioner, through his lawyer, notified the the said parcelary plan had the effect of a breach of the contract
respondent that the contract of lease was deemed cancelled, that justified its cancellation under its paragraph 8. 8
terminated, and of no further effect," pursuant to its paragraph 8,
for violation of the conditions specified in the said agreement. 3 In one breath, the petitioner is arguing that there was no contract
Earlier, in fact, the respondent had been ousted from the because there was no object and at the same time that there was
possession of 60 hectares of the leased premises and left with a contract except that it was violated.
only 20 hectares of the original area. 4
The correct view, as we see it, is that there was an agreed
The reaction of the respondent to these developments was to file subject-matter, to wit, the 80 hectares of the petitioner's share in
a complaint for damages against the petitioner, who retaliated the Sta. Fe hacienda, although it was not expressly defined
with a counterclaim. As previously stated, both the complaint and because the parcelary plan was not annexed and never approved
the counterclaim were dismissed by the trial court * on the by the parties. Despite this lack, however, there was an
finding that the parties were in pari delicto. 5 ascertainable object because the leased premises were
sufficiently Identified and delineated as the petitioner admitted
The specific reasons invoked by the petitioner for canceling the in his amended answer and in his direct testimony. 9
lease contract were the respondent's failure: 1) to attach thereto
the parcelary plan Identifying the exact area subject of the Thus, in his amended answer, he asserted that "the plaintiff . .
agreement, as stipulated in the contract; 2; to secure the approval .must delimit his work to the area previously designated and
delivered." Asked during the trial how many hectares the private

respondent actually occupied, the petitioner declared: "About 80 not clear that "the fault, if any, was due solely to one or the
hectares. The whole 80 hectares." 10 The petitioner cannot now other." 15
contradict these written and oral admissions." 11
At any rate, that issue and the omission of the parcelary plan
Moreover, it appears that the failure to attach the parcelary plan became immaterial when the parties agreed on the lease for the
to the contract is imputable to the petitioner himself because it succeeding agricultural year 1961-62, the respondent paying and
was he who was supposed to cause the preparation of the said the petitioner receiving therefrom the sum of P7,000.00, as
plan. As he testified on direct examination, "Our agreement was acknowledged in Exhibit "B," which is reproduced in full as
to sign our agreement, then I will have the parcelary plan follows:
prepared so that it will be a part of our contract." 12 That this
was never done is not the respondent's fault as he had no control Bacolod City
of the survey of the petitioner's land.
October 26, 1960
Apparently, the Court of Appeals ** found, the parties impliedly
decided to forego the annexing of the parcelary plan because they R E C E I P T
had already agreed on the area and limits of the leased premises.
13 The Identification of the 80 hectares being leased rendered RECEIVED from Mr. Cirilo Jamandre at the City of Bacolod,
the parcelary plan unnecessary, and its absence did not nullify Philippines, this 26th day of October, 1960, Philippine National
the agreement. Bank Check No. 180646-A (Manager's Check Binalbagan Branch)
for the amount of SEVEN THOUSAND PESOS (P7,000.00),
Coming next to the alleged default in the payment of the Philippine Currency as payment for the rental corresponding to
stipulated rentals, we observe first that when in Exhibit "B" the crop year 1961-62, by virtue of the contract of lease I have
petitioner declared that "I hereby waive payment for the rentals executed in his favor dated November 23, 1959, and ratified
corresponding to the crop year 1960-61 and which was due on under Notary Public Mr. Enrique F. Marino as Doc. No. 119, Page
March 30, 1960, " there was really nothing to waive because, as No. 25, Book No. XII, Series of 1959. It is hereby understood, that
he himself put it in the same document, possession of the leased this payment corresponds to the rentals due on or before January
property "was not actually delivered" to the respondent. 14 30, 1961, as per contract. It is further understood that I hereby
waive payment for the rentals corresponding to crop year 1960-
The petitioner claims that such possession was not delivered 61 and which was due on March 30, 1960, as possession of the
because the approval by the PNB of the lease contract had not property lease in favor of Mr. Cirilo Jamandre was not actually
"materialized" due to the respondent's neglect. Such approval, he delivered to him, but the same to be delivered only after receipt
submitted, was to have been obtained by the respondents, which of the amount as stated in this receipt. That Mr. Cirilo Jamandre is
seems logical to us, for it was the respondent who was hereby authorized to take immediate possession of the property
negotiating the loan from the PNB. As the respondent court saw under lease effective today, October 26, 1960.
it, however, "paragraph 6 (of the contract) does not state upon
whom fell the obligation to secure the approval" so that it was

WITNESS my hand at the City of Bacolod, Philippines, this 26th The words "as per contract" are especially significant as they
day of October, 1960. suggest that the parties were aware of the provisions of the
agreement, which was described in detail elsewhere in the
(SGD.) GUILLERMO AZCONA receipt. The rental stipulated therein was P7,200.00. The
payment being acknowledged in the receipt was P7,000.00 only.
SIGNED IN THE PRESENCE OF: Yet no mention was made in the receipt of the discrepancy and,
on the contrary, the payment was acknowledged "as per
(SGD.) JOSE T. JAMANDRE contract." We read this as meaning that the provisions of the
contract were being maintained and respected except only for
Citing the stipulation in the lease contract for an annual rental of the reduction of the agreed rental.
P7,200.00, the petitioner now submits that there was default in
the payment thereof by the respondent because he was P200.00 The respondent court held that the amount of P200.00 had been
short of such rental. That deficiency never having been repaired, condoned, but we do not think so. The petitioner is correct in
the petitioner concludes, the contract should be deemed arguing that the requisites of condonation under Article 1270 of
cancelled in accordance with its paragraph 8. 16 the Civil Code are not present. What we see here instead is a
mere reduction of the stipulated rental in consideration of the
For his part, the respondent argues that the receipt represented withdrawal from the leased premises of the 16 hectares where
an express reduction of the stipulated rental in consideration of the petitioner intended to graze his cattle. The signing of Exhibit
his allowing the use of 16 hectares of the leased area by the "B " by the petitioner and its acceptance by the respondent
petitioner as grazing land for his cattle. Having unqualifiedly manifested their agreement on the reduction, which modified the
accepted the amount of P7,000.00 as rental for the agricultural lease contract as to the agreed consideration while leaving the
year 1961-62, the petitioner should not now be heard to argue other stipulations intact.
that the payment was incomplete. 17
The petitioner says that having admittedly been drafted by
After a study of the receipt as signed by the petitioner and lawyer Jose Jamandre, the respondent's son, the receipt would
witnessed for the respondent, this Court has come to the have described the amount of P7,000.00 as "payment in full" of
conclusion, and so holds, that the amount of P7,000.00 paid to by the rental if that were really the case.
the respondent and received by the petitioner represented
payment in full of the rental for the agricultural year 1961-62. It seems to us that this meaning was adequately conveyed in the
acknowledgment made by the petitioner that this was "payment
The language is clear enough: "The amount of SEVEN THOUSAND for the rental corresponding to crop year 1961-62" and
PESOS (P7,000.00), Philippine Currency, as payment for the "corresponds to the rentals due on or before January 30, 1961, as
rental corresponding to crop year 1961-62 ... to the rental due on per contract." On the other hand, if this was not the intention, the
or before January 30, 1961, as per contract." The conclusion petitioner does not explain why he did not specify in the receipt
should be equally clear. that there was still a balance of P200.00 and, to be complete, the
date when it was to be paid by the respondent.

them. While the calculations offered by the petitioner are
It is noted that the receipt was meticulously worded, suggesting painstaking and even apparently exhaustive, we do not find any
that the parties were taking great pains, indeed, to provide grave abuse of discretion on the part of the respondent court to
against any possible misunderstanding, as if they were even then warrant its reversal on this matter. We also sustain the P5,000.00
already apprehensive of future litigation. Such a reservation-if attorney's fee.
there was one-would have been easily incorporated in the
receipt, as befitted the legal document it was intended to be. WHEREFORE, the decision of the respondent Court of Appeals is
AFFIRMED in full, with costs against the petitioners.
In any event, the relative insignificance of the alleged balance
seems to us a paltry justification for annulling the contract for its
supposed violation. If the petitioner is fussy enough to invoke it
now, it stands to reason that he would have fussed over it too in
the receipt he willingly signed after accepting, without 68. [G.R. No. L-52807. February 29, 1984.]
reservation and apparently without protest, only P7,000.00.
JOSE ARAAS and LUISA QUIJENCIO ARAAS,
The applicable provision is Article 1235 of the Civil Code, Petitioners, v. HON. EDUARDO C. TUTAAN, as Judge of
declaring that: the Court of First Instance of Quezon City, and
UNIVERSAL TEXTILE MILLS, INC., Respondents.
Art. 1235. When the obligee accepts the performance,
knowing its incompleteness or irregularity, and without Jose R. Francisco, for Petitioners.
expressing any protest or objection, the obligation is deemed
fully complied with. Reyes, Santayana, Tayao & Picazo Law Office for
Respondents.
The petitioner says that he could not demand payment of the
balance of P200.00 on October 26, 1960, date of the receipt TEEHANKEE, J.:
because the rental for the crop year 1961-62 was due on or
before January 30, 1961. 18 But this would not have prevented
him from reserving in the receipt his right to collect the balance In a decision rendered on May 3, 1971 by the now defunct Court
when it fell due. Moreover, there is no evidence in the record that of First Instance of Rizal, Branch V, at Quezon City, in Civil Case
when the due date arrived, he made any demand, written or No. Q-40689 thereof, entitled "Jose Araas, Et. Al. v. Juanito R.
verbal, for the payment of that amount. Castaeda, Et Al.," the said court declared that petitioner Luisa
Quijencio as plaintiff (assisted by her spouse co-petitioner Jose
As this Court is not a trier of facts, 19 we defer to the findings of Araas) was the owner of 400 shares of stock of respondent
the respondent court regarding the losses sustained by the Universal Textile Mills, Inc. (UTEX) as defendant issued "in the
respondent on the basis of the estimated yield of the properties names of its co-defendants Gene Manuel and B.R. Castaeda,
in question in the years he was supposed to possess and exploit including the stock dividends that accrued to said shares, and

ordering defendant Universal Textile Mills, Inc. to cancel said the two co-defendants Manuel and Castaeda, and after such new
certificates and issue new ones in the name of said plaintiff Luisa trial, it rendered under date of October 23, 1972 its decision
Quijencio Araas and to deliver to her all dividends appertaining against them which was substantially the same as its first
to same, whether in cash or in stocks." chanrobles law library : decision of May 3, 1971 which had already become final and
red executory as against UTEX, declaring petitioners-spouses the
owners of the questioned shares of stock in the names of
In a motion for clarification and/or motion for reconsideration, aforementioned co-defendants Castaeda and Manuel and
respondent UTEX manifested, inter alia, that" (I)f this Honorable ordering the cancellation of the certificates in their names and to
Court by the phrase to deliver to her all dividends appertaining issue new ones in the names of petitioners.chanrobles lawlibrary
to same, whether in cash or in stocks, meant dividends properly : rednad
pertaining to plaintiffs after the courts declaration of plaintiffs
ownership of said 400 shares of stock, then as defendant UTEX Co-defendants Castaeda and Manuel appealed this judgment of
has always maintained it would rightfully abide by whatever October 23, 1972 against them to the Court of Appeals (now
decision may be rendered by this Honorable Court since such Intermediate Appellate Court), which rendered on September 1,
would be the logical consequence after the declaration or ruling 1978 its judgment affirming in toto the trial courts judgment.
in respect to the rightful ownership of the said shares of stock." Said co-defendants sought to appeal the appellates courts
The motion for clarification was granted by the trial court which adverse judgment on a petition for review with this Court, which
ruled that its judgment against UTEX was to pay to Luisa rendered its Resolution of March 7, 1979 denying the petition for
Quijencio Araas the cash dividends which accrued to the stocks review for lack of merit and the judgment against the defendants
in question after the rendition of this decision excluding cash accordingly became final and executory.
dividends already paid to its co-defendants Gene Manuel and B.R.
Castaeda which accrued before its decision and could not be At petitioners instance, the lower court issued a writ of
claimed by the petitioners-spouses, as execution and a specific order of December 5, 1979 directing
follows:jgc:chanrobles.com.ph UTEX:jgc:chanrobles.com.ph

"This in mind, clarification of the dispositive portion of the "1. To effect the cancellation of the certificates of stock in
decision as aforequoted is indeed necessary, and thus made as to question in the names of B.R. Castaeda and Gene G. Manuel and
ordain the payment to plaintiff Luisa Quijencio Araas of cash the issuance of new ones in the names of the plaintiffs;
dividends which accrue to the stocks in question after the
rendition of this decision. Cash dividends already paid to "2. To pay the amount of P100,701.45 representing the cash
defendants which accrued before this decision may not, dividends that accrued to the same stocks from 1972 to 1979
therefore, be claimed by plaintiffs."cralaw virtua1aw library with interest thereon at the rate of 12% per annum from the date
of the service of the writ of execution on October 3, 1979 until
Apparently satisfied with the clarification, UTEX neither moved fully paid."cralaw virtua1aw library
for reconsideration of the order nor appealed from the judgment.
Subsequently, the trial court granted the motion for new trial of

Upon UTEX motion for partial reconsideration alleging that the Consequently, there is no legal nor equitable basis for respondent
cash dividends of the stocks corresponding to the period from judges position "that it would indeed be most unjust and
1972 to 1979 had already been paid and delivered by it to co- inequitable to require the defendant Universal Textile Mills, Inc.
defendants Castaeda and Manuel who then still appeared as the to pay twice cash dividends on particular shares of stocks." 1 If
registered owners of the said shares, the lower court issued its UTEX nevertheless chose to pay the wrong parties,
order of January 4, 1980 granting said motion of UTEX and notwithstanding its full knowledge and understanding of the final
partially reconsidered its order "to the effect that the defendant judgment, that it was liable to pay all dividends after the trial
Universal Textile Mills, Inc. is absolved from paying the cash courts judgment in 1971 to petitioners as the lawfully declared
dividend corresponding to the stocks in question to the plaintiffs owners of the questioned shares of stock (but which could not be
for the period 1972 to 1979."cralaw virtua1aw library enforced against it pending the outcome of the appeal filed by the
co-defendants Castaeda and Manuel in the Court of Appeals), it
Hence, the present action for certiorari to set aside respondent only had itself to blame therefor.
judges questioned order of January 4, 1980 as having been
issued without jurisdiction and for mandamus to compel The burden of recovering the supposed payment of the cash
respondent judge to perform his ministerial duty of ordering dividends made by UTEX to the wrong parties Castaeda and
execution of the final and executory judgment against UTEX Manuel squarely falls upon itself by its own action and cannot be
according to its terms. passed by it to petitioners as innocent parties. It is elementary
that payment made by a judgment debtor to a wrong party
The Court finds merit in the petition and accordingly grants the cannot extinguish the judgment obligation of such debtor to its
same. creditor. It is equally elementary that once a judgment becomes
final and executory, the court which rendered it cannot change or
The final and executory judgment against UTEX in favor of modify the same in any material aspect such as what respondent
petitioners, declared petitioners as the owners of the questioned judge has without authority attempted to do with his questioned
UTEX shares of stock as againsts its co-defendants Castaeda and order, which would relieve the judgment debtor UTEX of its
Manuel. It was further made clear upon UTEX own motion for acknowledged judgment obligation to pay to petitioners as the
clarification that all dividends accruing to the said shares of stock lawful owners of the questioned shares of stock, the cash
after the rendition of the decision of August 7, 1971 which for the dividends that accrued after the rendition of the judgment
period from 1972 to 1979 amounted to P100,701.45 were to be recognizing them as the lawful owners. (Miranda v. Tiangco, 96
paid by UTEX to petitioners, and UTEX, per the trial courts order Phil. 626 [1955]). Execution of a final and executory judgment
of clarification of June 16, 1971 above quoted had expressly according to its terms is a matter of right for the prevailing party
maintained "it would rightfully abide by whatever decision may and becomes the ministerial duty of the court (De los Angeles v.
be rendered by this Honorable Court since such would be the Victoriano, 109 Phil. 12).chanrobles virtualawlibrary
logical consequence after the declaration or ruling in respect to chanrobles.com:chanrobles.com.ph
the rightful ownership of the said shares of stock."
chanrobles.com.ph : virtual law library ACCORDINGLY, judgment is rendered setting aside the
questioned order of January 4, 1980 of respondent judge and a

writ of mandamus is hereby issued commanding said respondent of A. J. Luz and Associates, whereby the former was to render
judge to order the execution of his judgment against respondent engineering design services to the latter for fees, as stipulated in
Universal Textile Mills, Inc., pursuant to his first order of June 16, the agreement. The services included design computation and
1971 ordering it to pay the sum of P100,701.45, representing the sketches, contract drawing and technical specifications of all
cash dividends that accrued to petitioners UTEX shares of stock engineering phases of the project designed by O. A. Kalalo and
from 1972 to 1979, with interest thereon at the rate of 12% per Associates bill of quantities and cost estimate, and consultation
annum from the date of service of the writ of execution on and advice during construction relative to the work. The fees
October 3, 1979 until fully paid, as well as to pay petitioners any agreed upon were percentages of the architect's fee, to wit:
subsequent cash dividends that may have been issued by it structural engineering, 12-%; electrical engineering, 2-%.
thereafter, with interest from due date of payment until actual The agreement was subsequently supplemented by a
payment, and directing the sheriff to satisfy such judgment out of "clarification to letter-proposal" which provided, among other
the properties of respondent UTEX. With costs against things, that "the schedule of engineering fees in this agreement
respondent UTEX. This judgment is immediately executory. does not cover the following: ... D. Foundation soil exploration,
testing and evaluation; E. Projects that are principally
engineering works such as industrial plants, ..." and "O. A. Kalalo
and Associates reserve the right to increase fees on projects
,which cost less than P100,000 ...." 2 Pursuant to said agreement,
69. G.R. No. L-27782 July 31, 1970 appellee rendered engineering services to appellant in the
following projects:
OCTAVIO A. KALALO, plaintiff-appellee,
vs. (a) Fil-American Life Insurance Building at Legaspi City;
ALFREDO J. LUZ, defendant-appellant.
(b) Fil-American Life Insurance Building at Iloilo City;

ZALDIVAR, J.: (c) General Milling Corporation Flour Mill at Opon Cebu;

Appeal from the decision, dated, February 10, 1967, of the Court (d) Menzi Building at Ayala Blvd., Makati, Rizal;
of First Instance of Rizal (Branch V, Quezon City) in its Civil Case
No. Q-6561. (e) International Rice Research Institute, Research center Los
Baos, Laguna;
On November 17, 1959, plaintiff-appellee Octavio A. Kalalo
hereinafter referred to as appellee), a licensed civil engineer (f) Aurelia's Building at Mabini, Ermita, Manila;
doing business under the firm name of O. A. Kalalo and
Associates, entered into an agreement (Exhibit A ) 1 with (g) Far East Bank's Office at Fil-American Life Insurance
defendant-appellant Alfredo J . Luz (hereinafter referred to as Building at Isaac Peral Ermita, Manila;
appellant), a licensed architect, doing business under firm name

(h) Arthur Young's residence at Forbes Park, Makati, Rizal; In his answer, appellant admitted that appellee rendered
engineering services, as alleged in the first cause of action, but
(i) L & S Building at Dewey Blvd., Manila; and averred that some of appellee's services were not in accordance
with the agreement and appellee's claims were not justified by
(j) Stanvac Refinery Service Building at Limay, Bataan. the services actually rendered, and that the aggregate amount
actually due to appellee was only P80,336.29, of which
On December 1 1, '1961, appellee sent to appellant a statement of P69,475.21 had already been paid, thus leaving a balance of only
account (Exhibit "1"), 3 to which was attached an itemized P10,861.08. Appellant denied liability for any damage claimed by
statement of defendant-appellant's account (Exh. "1-A"), appellee to have suffered, as alleged in the second, third and
according to which the total engineering fee asked by appellee for fourth causes of action. Appellant also set up affirmative and
services rendered amounted to P116,565.00 from which sum special defenses, alleging that appellee had no cause of action,
was to be deducted the previous payments made in the amount that appellee was in estoppel because of certain acts,
of P57,000.00, thus leaving a balance due in the amount of representations, admissions and/or silence, which led appellant
P59,565.00. to believe certain facts to exist and to act upon said facts, that
appellee's claim regarding the Menzi project was premature
On May 18, 1962 appellant sent appellee a resume of fees due to because appellant had not yet been paid for said project, and that
the latter. Said fees, according to appellant. amounted to appellee's services were not complete or were performed in
P10,861.08 instead of the amount claimed by the appellee. On violation of the agreement and/or otherwise unsatisfactory.
June 14, 1962 appellant sent appellee a check for said amount, Appellant also set up a counterclaim for actual and moral
which appellee refused to accept as full payment of the balance of damages for such amount as the court may deem fair to assess,
the fees due him. and for attorney's fees of P10,000.00.

On August 10, 1962, appellee filed a complaint against appellant, Inasmuch as the pleadings showed that the appellee's right to
containing four causes of action. In the first cause of action, certain fees for services rendered was not denied, the only
appellee alleged that for services rendered in connection with the question being the assessment of the proper fees and the balance
different projects therein mentioned there was due him fees in due to appellee after deducting the admitted payments made by
sum s consisting of $28,000 (U.S.) and P100,204.46, excluding appellant, the trial court, upon agreement of the parties,
interests, of which sums only P69,323.21 had been paid, thus authorized the case to be heard before a Commissioner. The
leaving unpaid the $28,000.00 and the balance of P30,881.25. In Commissioner rendered a report which, in resume, states that
the second cause of action, appellee claimed P17,000.00 as the amount due to appellee was $28,000.00 (U.S.) as his fee in the
consequential and moral damages; in the third cause of action International Research Institute Project which was twenty
claimed P55,000.00 as moral damages, attorney's fees and percent (20%) of the $140,000.00 that was paid to appellant, and
expenses of litigation; and in the fourth cause of action he P51,539.91 for the other projects, less the sum of P69,475.46
claimed P25,000.00 as actual damages, and also for attorney's which was already paid by the appellant. The Commissioner also
fees and expenses of litigation. recommended the payment to appellee of the sum of P5,000.00
as attorney's fees.

P10,000.00, to issue the writ of attachment, and ordered the
At the hearing on the Report of the Commissioner, the respective Provincial Sheriff of Rizal to attach the estate, real and personal,
counsel of the parties manifested to the court that they had no of appellant Alfredo J. Luz within the province, to the value of not
objection to the findings of fact of the Commissioner contained in less than P140,000.00.
the Report, and they agreed that the said Report posed only two
legal issues, namely: (1) whether under the facts stated in the The appellant made the following assignments of errors:
Report, the doctrine of estoppel would apply; and (2) whether
the recommendation in the Report that the payment of the I. The lower court erred in not declaring and holding that
amount. due to the plaintiff in dollars was legally permissible, plaintiff-appellee's letter dated December 11, 1961 (Exhibit "1")
and if not, at what rate of exchange it should be paid in pesos. and the statement of account (Exhibit "1-A") therein enclosed,
After the parties had submitted their respective memorandum on had the effect, cumulatively or alternatively, of placing plaintiff-
said issues, the trial court rendered its decision dated February appellee in estoppel from thereafter modifying the
10, 1967, the dispositive portion of which reads as follows: representations made in said exhibits, or of making plaintiff-
appellee otherwise bound by said representations, or of being of
WHEREFORE, judgment is rendered in favor of plaintiff and decisive weight in determining the true intent of the parties as to
against the defendant, by ordering the defendant to pay plaintiff the nature and extent of the engineering services rendered
the sum of P51,539.91 and $28,000.00, the latter to be converted and/or the amount of fees due.
into the Philippine currency on the basis of the current rate of
exchange at the time of the payment of this judgment, as certified II. The lower court erred in declaring and holding that the
to by the Central Bank of the Philippines, from which shall be balance owing from defendant-appellant to plaintiff-appellee on
deducted the sum of P69,475.46, which the defendant had paid the IRRI Project should be paid on the basis of the rate of
the plaintiff, and the legal rate of interest thereon from the filing exchange of the U.S. dollar to the Philippine peso at the time of
of the complaint in the case until fully paid for; by ordering the payment of judgment. .
defendant to pay to plaintiff the further sum of P8,000.00 by way
of attorney's fees which the Court finds to be reasonable in the III. The lower court erred in not declaring and holding that the
premises, with costs against the defendant. The counterclaim of aggregate amount of the balance due from defendant-appellant to
the defendant is ordered dismissed. plaintiff-appellee is only P15,792.05.

From the decision, this appeal was brought, directly to this Court, IV. The lower court erred in awarding attorney's fees in the sum
raising only questions of law. of P8,000.00, despite the commissioner's finding, which plaintiff-
appellee has accepted and has not questioned, that said fee be
During the pendency of this appeal, appellee filed a petition for only P5,000.00; and
the issuance of a writ of attachment under Section 1 (f) of Rule 57
of the Rules of Court upon the ground that appellant is presently V. The lower court erred in not granting defendant-appellant
residing in Canada as a permanent resident thereof. On June 3, relief on his counter-claim.
1969, this Court resolved, upon appellee's posting a bond of

1. In support of his first assignment of error appellant argues that appellee and the fees due to the latter under the original
in Exhibit 1-A, which is a statement of accounts dated December agreement, Exhibit "A."
11, 1961, sent by appellee to appellant, appellee specified the
various projects for which he claimed engineering fees, the We find merit in the stand of appellee.
precise amount due on each particular engineering service
rendered on each of the various projects, and the total of his The statement of accounts (Exh. 1-A) could not estop appellee,
claims; that such a statement barred appellee from asserting any because appellant did not rely thereon as found by the
claim contrary to what was stated therein, or from taking any Commissioner, from whose Report we read:
position different from what he asserted therein with respect to
the nature of the engineering services rendered; and While it is true that plaintiff vacillated in his claim, yet, defendant
consequently the trial court could not award fees in excess of did not in anyway rely or believe in the different claims asserted
what was stated in said statement of accounts. Appellant argues by the plaintiff and instead insisted on a claim that plaintiff was
that for estoppel to apply it is not necessary, contrary to the only entitled to P10,861.08 as per a separate resume of fees he
ruling of the trial court, that the appellant should have actually sent to the plaintiff on May 18, 1962 (See Exhibit 6). 4
relied on the representation, but that it is sufficient that the
representations were intended to make the defendant act there The foregoing finding of the Commissioner, not disputed by
on; that assuming arguendo that Exhibit 1-A did not put appellee appellant, was adopted by the trial court in its decision. Under
in estoppel, the said Exhibit 1-A nevertheless constituted a article 1431 of the Civil Code, in order that estoppel may apply
formal admission that would be binding on appellee under the the person, to whom representations have been made and who
law on evidence, and would not only belie any inconsistent claim claims the estoppel in his favor must have relied or acted on such
but also would discredit any evidence adduced by appellee in representations. Said article provides:
support of any claim inconsistent with what appears therein;
that, moreover, Exhibit 1-A, being a statement of account, Art. 1431. Through estoppel an admission or representation is
establishes prima facie the accuracy and correctness of the items rendered conclusive upon the person making it, and cannot be
stated therein and its correctness can no longer be impeached denied or disproved as against the person relying thereon.
except for fraud or mistake; that Exhibit 1-A furthermore,
constitutes appellee's own interpretation of the contract between An essential element of estoppel is that the person invoking it has
him and appellant, and hence, is conclusive against him. been influenced and has relied on the representations or conduct
of the person sought to be estopped, and this element is wanting
On the other hand, appellee admits that Exhibit 1-A itemized the in the instant case. In Cristobal vs. Gomez, 5 this Court held that
services rendered by him in the various construction projects of no estoppel based on a document can be invoked by one who has
appellant and that the total engineering fees charged therein was not been mislead by the false statements contained therein. And
P116,565.00, but maintains that he was not in estoppel: first, in Republic of the Philippines vs. Garcia, et al., 6 this Court ruled
because when he prepared Exhibit 1-A he was laboring under an that there is no estoppel when the statement or action invoked as
innocent mistake, as found by the trial court; second, because its basis did not mislead the adverse party-Estoppel has been
appellant was not ignorant of the services actually rendered by characterized as harsh or odious and not favored in law. 7 When

misapplied, estoppel becomes a most effective weapon to resulting in his subsequent letters to the defendant demanding
accomplish an injustice, inasmuch as it shuts a man's mouth from payments of his fees pursuant to the contract Exhibit A." 1 2 This
speaking the truth and debars the truth in a particular case. 8 finding of the Commissioner was adopted by the trial court. 1 3 It
Estoppel cannot be sustained by mere argument or doubtful is established , therefore, that Exhibit 1-A was written by
inference: it must be clearly proved in all its essential elements appellee through ignorance or mistake. Anent this matter, it has
by clear, convincing and satisfactory evidence. 9 No party should been held that if an act, conduct or misrepresentation of the party
be precluded from making out his case according to its truth sought to be estopped is due to ignorance founded on innocent
unless by force of some positive principle of law, and, mistake, estoppel will not arise. 1 4 Regarding the essential
consequently, estoppel in pains must be applied strictly and elements of estoppel in relation to the party claiming the
should not be enforced unless substantiated in every particular. 1 estoppel, the first element does not obtain in the instant case, for
0 it cannot be said that appellant did not know, or at least did not
have the means of knowing, the services rendered to him by
The essential elements of estoppel in pais may be considered in appellee and the fees due thereon as provided in Exhibit A. The
relation to the party sought to be estopped, and in relation to the second element is also wanting, for, as adverted to, appellant did
party invoking the estoppel in his favor. As related to the party to not rely on Exhibit 1-A but consistently denied the accounts
be estopped, the essential elements are: (1) conduct amounting stated therein. Neither does the third element obtain, for
to false representation or concealment of material facts or at appellant did not act on the basis of the representations in
least calculated to convey the impression that the facts are Exhibit 1-A, and there was no change in his position, to his own
otherwise than, and inconsistent with, those which the party injury or prejudice.
subsequently attempts to assert; (2) intent, or at least
expectation that his conduct shall be acted upon by, or at least Appellant, however, insists that if Exhibit 1-A did not put
influence, the other party; and (3) knowledge, actual or appellee in estoppel, it at least constituted an admission binding
constructive, of the real facts. As related to the party claiming the upon the latter. In this connection, it cannot be gainsaid that
estoppel, the essential elements are (1) lack of knowledge and of Exhibit 1-A is not a judicial admission. Statements which are not
the means of knowledge of the truth as the facts in questions; (2) estoppels nor judicial admissions have no quality of
(reliance, in good faith, upon the conduct or statements of the conclusiveness, and an opponent. whose admissions have been
party to be estopped; (3) action or inaction based thereon of such offered against him may offer any evidence which serves as an
character as To change the position or status of the party explanation for his former assertion of what he now denies as a
claiming the estoppel, to his injury, detriment or prejudice. 1 1 fact. This may involve the showing of a mistake. Accordingly, in
Oas vs. Roa, 1 6 it was held that when a party to a suit has made
The first essential element in relation to the party sought to be an admission of any fact pertinent to the issue involved, the
estopped does not obtain in the instant case, for, as appears in admission can be received against him; but such an admission is
the Report of the Commissioner, appellee testified "that when he not conclusive against him, and he is entitled to present evidence
wrote Exhibit 1 and prepared Exhibit 1-A, he had not yet to overcome the effect of the admission. Appellee did explain, and
consulted the services of his counsel and it was only upon advice the trial court concluded, that Exhibit 1-A was based on either his
of counsel that the terms of the contract were interpreted to him

ignorance or innocent mistake and he, therefore, is not bound by other party should not be permitted to profit by such mistake
it. unless he can establish an estoppel by proving a material change
of position made in good faith. The rule as to practical
Appellant further contends that Exhibit 1-A being a statement of construction does not nullify the equitable rules with respect to
account, establishes prima facie the accuracy and correctness of performance by mistake." 1 8 In the instant case, it has been
the items stated therein. If prima facie, as contended by shown that Exhibit 1-A was written through mistake by appellee
appellant, then it is not absolutely conclusive upon the parties. An and that the latter is not estopped by it. Hence, even if said
account stated may be impeached for fraud, mistake or error. In Exhibit 1-A be considered as practical construction of the
American Decisions, Vol. 62, p. 95, cited as authority by appellant contract by appellee, he cannot be bound by such erroneous
himself. we read thus: interpretation. It has been held that if by mistake the parties
followed a practice in violation of the terms of the agreement, the
An account stated or settled is a mere admission that the account court should not perpetuate the error. 1 9
is correct. It is not an estoppel. The account is still open to
impeachment for mistakes or errors. Its effect is to establish, 2. In support of the second assignment of error, that the lower
prima facie, the accuracy of the items without other proof; and court erred in holding that the balance from appellant on the IRRI
the party seeking to impeach it is bound to show affirmatively the project should be paid on the basis of the rate of exchange of the
mistake or error alleged. The force of the admission and the U.S. dollar to the Philippine peso at the time of payment of the
strength of the evidence necessary to overcome it will depend judgment, appellant contends: first, that the official rate at the
upon the circumstances of the case. time appellant received his architect's fees for the IRRI project,
and correspondingly his obligation to appellee's fee on August
In the instant case, it is Our view that the ignorance mistake that 25, 1961, was P2.00 to $1.00, and cites in support thereof Section
attended the writing of Exhibit 1-A by appellee was sufficient to 1612 of the Revised Administrative Code, Section 48 of Republic
overcome the prima facie evidence of correctness and accuracy of Act 265 and Section 6 of Commonwealth Act No. 699; second,
said Exhibit 1-A. that the lower court's conclusion that the rate of exchange to be
applied in the conversion of the $28,000.00 is the current rate of
Appellant also urges that Exhibit 1-A constitutes appellee's own exchange at the time the judgment shall be satisfied was based
interpretation of the contract, and is, therefore, conclusive solely on a mere presumption of the trial court that the defendant
against him. Although the practical construction of the contract did not convert, there being no showing to that effect, the dollars
by one party, evidenced by his words or acts, can be used against into Philippine currency at the official rate, when the legal
him in behalf of the other party, 1 7 yet, if one of the parties presumption should be that the dollars were converted at the
carelessly makes a wrong interpretation of the words of his official rate of $1.00 to P2.00 because on August 25, 1961, when
contract, or performs more than the contract requires (as the IRRI project became due and payable, foreign exchange
reasonably interpreted independently of his performance), as controls were in full force and effect, and partial decontrol was
happened in the instant case, he should be entitled to a effected only afterwards, during the Macapagal administration;
restitutionary remedy, instead of being bound to continue to his third, that the other ground advanced by the lower court for its
erroneous interpretation or his erroneous performance and "the ruling, to wit, that appellant committed a breach of his obligation

to turn over to the appellee the engineering fees received in U.S. Percentage of Total to be surrendered at
dollars for the IRRI project, cannot be upheld, because there was
no such breach, as proven by the fact that appellee never claimed Preferred: Free Market Rate: Rate:
in Exhibit 1-A that he should be paid in dollars; and there was no
provision in the basic contract (Exh. "A") that he should be paid (a) Export Proceeds, U.S. Government Expenditures invisibles
in dollars; and, finally, even if there were such provision, it would other than those specifically mentioned below.
have no binding effect under the provision of Republic Act 529; ................................................ 25 75
that, moreover, it cannot really be said that no payment was
made on that account for appellant had already paid P57,000.00 (b) Foreign Investments, Gold Proceeds, Tourists and Inward
to appellee, and under Article 125 of the Civil Code, said payment Remittances of Veterans and Filipino Citizens; and Personal
could be said to have been applied to the fees due from the IRRI Expenses of Diplomatic Per personnel ................................. 100" 2 1
project, this project being the biggest and this debt being the
most onerous. The amount of $140,000.00 received by appellant foil the
International Rice Research Institute project is not within the
In refutation of appellant's argument in support of the second scope of sub-paragraph (a) of paragraph No. 1 of Circular No.
assignment of error, appellee argues that notwithstanding 121. Appellant has not shown that 25% of said amount had to be
Republic Act 529, appellant can be compelled to pay the appellee surrendered to the Central Bank at the preferred rate because it
in dollars in view of the fact that appellant received his fees in was either export proceeds, or U.S. Government expenditures, or
dollars, and appellee's fee is 20% of appellant's fees; and that if invisibles not included in sub-paragraph (b). Hence, it cannot be
said amount is be converted into Philippine Currency, the rate of said that the trial court erred in presuming that appellant
exchange should be that at the time of the execution of the converted said amount at the free market rate. It is hard to
judgment. 2 0 believe that a person possessing dollars would exchange his
dollars at the preferred rate of P2.00 to $1.00, when he is not
We have taken note of the fact that on August 25, 1961, the date obligated to do so, rather than at the free market rate which is
when appellant said his obligation to pay appellee's fees became much higher. A person is presumed to take ordinary care of his
due, there was two rates of exchange, to wit: the preferred rate of concerns, and that the ordinary course of business has been
P2.00 to $1.00, and the free market rate. It was so provided in followed. 2 2
Circular No. 121 of the Central Bank of the Philippines, dated
March 2, 1961. amending an earlier Circular No. 117, and in force Under the agreement, Exhibit A, appellee was entitled to 20% of
until January 21, 1962 when it was amended by Circular No. 133, $140,000.00, or the amount of $28,000.00. Appellee, however,
thus: cannot oblige the appellant to pay him in dollars, even if
appellant himself had received his fee for the IRRI project in
1. All foreign exchange receipts shall be surrendered to the dollars. This payment in dollars is prohibited by Republic Act 529
Central Bank of those authorized to deal in foreign exchange as which was enacted on June 16, 1950. Said act provides as follows:
follows:


SECTION 1. Every provision contained in, or made with respect prevailing rate of exchange when the obligation was incurred
to, any obligation which provision purports to give the obligee cannot be applied. Republic Act 529 does not provide for the rate
the right to require payment in gold or in a particular kind of coin of exchange for the payment of obligation incurred after the
or currency other than Philippine currency or in an amount of enactment of said Act. The logical Conclusion, therefore, is that
money of the Philippines measured thereby, be as it is hereby the rate of exchange should be that prevailing at the time of
declared against public policy, and null, void and of no effect, and payment. This view finds support in the ruling of this Court in the
no such provision shall be contained in, or made with respect to, case of Engel vs. Velasco & Co. 2 3 where this Court held that even
any obligation hereafter incurred. Every obligation heretofore or if the obligation assumed by the defendant was to pay the
here after incurred, whether or not any such provision as to plaintiff a sum of money expressed in American currency, the
payment is contained therein or made with respect thereto, shall indemnity to be allowed should be expressed in Philippine
be discharged upon payment in any coin or currency which at the currency at the rate of exchange at the time of judgment rather
time of payment is legal tender for public and private debts: than at the rate of exchange prevailing on the date of defendant's
Provided, That, ( a) if the obligation was incurred prior to the breach. This is also the ruling of American court as follows:
enactment of this Act and required payment in a particular kind
of coin or currency other than Philippine currency, it shall be The value in domestic money of a payment made in foreign
discharged in Philippine currency measured at the prevailing money is fixed with respect to the rate of exchange at the time of
rate of exchange at the time the obligation was incurred, (b) payment. (70 CJS p. 228)
except in case of a loan made in a foreign currency stipulated to
be payable in the same currency in which case the rate of According to the weight of authority the amount of recovery
exchange prevailing at the time of the stipulated date of payment depends upon the current rate of exchange, and not the par value
shall prevail. All coin and currency, including Central Bank notes, of the particular money involved. (48 C.J. 605-606)
heretofore or hereafter issued and declared by the Government
of the Philippines shall be legal tender for all debts, public and The value in domestic money of a payment made in foreign
private. money is fixed in reference to the rate of exchange at the time of
such payment. (48 C.J. 605)
Under the above-quoted provision of Republic Act 529, if the
obligation was incurred prior to the enactment of the Act and It is Our considered view, therefore, that appellant should pay the
require payment in a particular kind of coin or currency other appellee the equivalent in pesos of the $28,000.00 at the free
than the Philippine currency the same shall be discharged in market rate of exchange at the time of payment. And so the trial
Philippine currency measured at the prevailing rate of exchange court did not err when it held that herein appellant should pay
at the time the obligation was incurred. As We have adverted to, appellee $28,000.00 "to be converted into the Philippine
Republic Act 529 was enacted on June 16, 1950. In the case now currency on the basis of the current rate of exchange at the time
before Us the obligation of appellant to pay appellee the 20% of of payment of this judgment, as certified to by the Central Bank of
$140,000.00, or the sum of $28,000.00, accrued on August 25, the Philippines, ...." 2 4
1961, or after the enactment of Republic Act 529. It follows that
the provision of Republic Act 529 which requires payment at the

Appellant also contends that the P57,000.00 that he had paid to 3. In his third assignment of error, appellant contends that the
appellee should have been applied to the due to the latter on the lower court erred in not declaring that the aggregate amount due
IRRI project because such debt was the most onerous to from him to appellee is only P15,792.05. Appellant questions the
appellant. This contention is untenable. The Commissioner who propriety or correctness of most of the items of fees that were
was authorized by the trial court to receive evidence in this case, found by the Commissioner to be due to appellee for services
however, reports that the appellee had not been paid for the rendered. We believe that it is too late for the appellant to
account of the $28,000.00 which represents the fees of appellee question the propriety or correctness of those items in the
equivalent to 20% of the $140,000.00 that the appellant received present appeal. The record shows that after the Commissioner
as fee for the IRRI project. This is a finding of fact by the had submitted his report the lower court, on February 15, 1966,
Commissioner which was adopted by the trial court. The parties issued the following order:
in this case have agreed that they do not question the finding of
fact of the Commissioner. Thus, in the decision appealed from the When this case was called for hearing today on the report of the
lower court says: Commissioner, the counsels of the parties manifested that they
have no objection to the findings of facts in the report. However,
At the hearing on the Report of the Commissioner on February the report poses only legal issues, namely: (1) whether under the
15, 1966, the counsels for both parties manifested to the court facts stated in the report, the doctrine of estoppel will apply; and
that they have no objection to the findings of facts of the (2) whether the recommendation in the report that the alleged
Commissioner in his report; and agreed that the said report only payment of the defendant be made in dollars is permissible by
poses two (2)legal issues, namely: (1) whether under the facts law and, if not, in what rate it should be paid in pesos (Philippine
stated in the Report, the doctrine of estoppel will apply; and (2) Currency). For the purpose of resolving these issues the parties
whether the recommendation in the Report that the payment of prayed that they be allowed to file their respective memoranda
amount due to the plaintiff in dollars is permissible under the which will aid the court in the determination of said issues. 2 6
law, and, if not, at what rate of exchange should it be paid in
pesos (Philippine currency) .... 2 5 In consonance with the afore-quoted order of the trial court, the
appellant submitted his memorandum which opens with the
In the Commissioner's report, it is spetifically recommended that following statements:
the appellant be ordered to pay the plaintiff the sum of "$28,000.
00 or its equivalent as the fee of the plaintiff under Exhibit A on As previously manifested, this Memorandum shall be confined to:
the IRRI project." It is clear from this report of the Commissioner
that no payment for the account of this $28,000.00 had been (a) the finding in the Commissioner's Report that defendant's
made. Indeed, it is not shown in the record that the peso defense of estoppel will not lie (pp. 17-18, Report); and
equivalent of the $28,000.00 had been fixed or agreed upon by
the parties at the different times when the appellant had made (b) the recommendation in the Commissioner's Report that
partial payments to the appellee. defendant be ordered to pay plaintiff the sum of '$28,000.00
(U.S.) or its equivalent as the fee of the plaintiff under Exhibit 'A'
in the IRRI project.'

hearing of the Commissioner's Report the parties had expressly
More specifically this Memorandum proposes to demonstrate the manifested that they had no objection to the findings of facts
affirmative of three legal issues posed, namely: embodied therein.

First: Whether or not plaintiff's letter dated December 11, 1961 We, therefore hold that the third assignment of error of the
(Exhibit 'I') and/or Statement of Account (Exhibit '1-A') therein appellant has no merit.
enclosed has the effect of placing plaintiff in estoppel from
thereafter modifying the representations made in said letter and 4. In his fourth assignment of error, appellant questions the
Statement of Account or of making plaintiff otherwise bound award by the lower court of P8,000.00 for attorney's fees.
thereby; or of being decisive or great weight in determining the Appellant argues that the Commissioner, in his report, fixed the
true intent of the parties as to the amount of the engineering fees sum of P5,000.00 as "just and reasonable" attorney's fees, to
owing from defendant to plaintiff; which amount appellee did not interpose any objection, and by
not so objecting he is bound by said finding; and that, moreover,
Second: Whether or not defendant can be compelled to pay the lower court gave no reason in its decision for increasing the
whatever balance is owing to plaintiff on the IRRI (International amount to P8,000.00.
Rice and Research Institute) project in United States dollars; and
Appellee contends that while the parties had not objected to the
Third: Whether or not in case the ruling of this Honorable Court findings of the Commissioner, the assessment of attorney's fees is
be that defendant cannot be compelled to pay plaintiff in United always subject to the court's appraisal, and in increasing the
States dollars, the dollar-to-peso convertion rate for determining recommended fees from P5,000.00 to P8,000.00 the trial court
the peso equivalent of whatever balance is owing to plaintiff in must have taken into consideration certain circumstances which
connection with the IRRI project should be the 2 to 1 official rate warrant the award of P8,000.00 for attorney's fees.
and not any other rate. 2 7
We believe that the trial court committed no error in this
It is clear, therefore, that what was submitted by appellant to the connection. Section 12 of Rule 33 of the Rules of Court, on which
lower court for resolution did not include the question of the fourth assignment of error is presumably based, provides
correctness or propriety of the amounts due to appellee in that when the parties stipulate that a commissioner's findings of
connection with the different projects for which the appellee had fact shall be final, only questions of law arising from the facts
rendered engineering services. Only legal questions, as above mentioned in the report shall thereafter be considered.
enumerated, were submitted to the trial court for resolution. So Consequently, an agreement by the parties to abide by the
much so, that the lower court in another portion of its decision findings of fact of the commissioner is equivalent to an
said, as follows: agreement of facts binding upon them which the court cannot
disregard. The question, therefore, is whether or not the estimate
The objections to the Commissioner's Report embodied in of the reasonable fees stated in the report of the Commissioner is
defendant's memorandum of objections, dated March 18, 1966, a finding of fact.
cannot likewise be entertained by the Court because at the

The report of the Commissioner on this matter reads as follows: It is true, as appellant contends, that the trial court did not state
in the decision the reasons for increasing the attorney's fees. The
As regards attorney's fees, under the provisions of Art 2208, par trial court, however, had adopted the report of the
(11), the same may be awarded, and considering the number of Commissioner, and in adopting the report the trial court is
hearings held in this case, the nature of the case (taking into deemed to have adopted the reasons given by the Commissioner
account the technical nature of the case and the voluminous in awarding attorney's fees, as stated in the above-quoted
exhibits offered in evidence), as well as the way the case was portion of the report. Based on the reasons stated in the report,
handled by counsel, it is believed, subject to the Court's appraisal the trial court must have considered that the reasonable
of the matter, that the sum of P5,000.00 is just and reasonable as attorney's fees should be P8,000.00. Considering that the
attorney's fees." 2 8 judgment against the appellant would amount to more than
P100,000.00, We believe that the award of P8,000.00 for
It is thus seen that the estimate made by the Commissioner was attorney's fees is reasonable.
an expression of belief, or an opinion. An opinion is different
from a fact. The generally recognized distinction between a 5. In his fifth assignment of error appellant urges that he is
statement of "fact" and an expression of "opinion" is that entitled to relief on his counterclaim. In view of what We have
whatever is susceptible of exact knowledge is a matter of fact, stated in connection with the preceding four assignments of
while that not susceptible of exact knowledge is generally error, We do not consider it necessary to dwell any further on
regarded as an expression of opinion. 2 9 It has also been said this assignment of error.
that the word "fact," as employed in the legal sense includes
"those conclusions reached by the trior from shifting testimony, WHEREFORE, the decision appealed from is affirmed, with costs
weighing evidence, and passing on the credit of the witnesses, against the defendant-appellant. It is so ordered.
and it does not denote those inferences drawn by the trial court
from the facts ascertained and settled by it. 3 0 In the case at bar,
the estimate made by the Commissioner of the attorney's fees
was an inference from the facts ascertained by him, and is,
therefore, not a finding of facts. The trial court was, consequently, 70. G.R. No. L-49494 May 31, 1979
not bound by that estimate, in spite of the manifestation of the
parties that they had no objection to the findings of facts of the NELIA G. PONCE and VICENTE C. PONCE, petitioners,
Commissioner in his report. Moreover, under Section 11 of Rule vs.
33 of the Rules of Court, the court may adopt, modify, or reject THE HONORABLE COURT OF APPEALS, and JESUSA B.
the report of the commissioner, in whole or in part, and hence, it AFABLE, respondents.
was within the trial court's authority to increase the
recommended attorney's fees of P5,000.00 to P8,000.00. It is a MELENCIO-HERRERA, J.:
settled rule that the amount of attorney's fees is addressed to the
sound discretion of the court. 3 1 This is a Petition for Certiorari seeking to set aside the Resolution
of the Court of Appeals, dated June 8, 1978, reconsidering its

Decision dated December 17, 1977 and reversing the judgment of obligation therein mentioned would be assumed and paid
the Court of First Instance of Manila in favor of petitioners as well entirely by defendant Felisa L. Mendoza; that she had signed said
as the Resolutions, dated July 6, 1978 and November 27, 1978, document only as President of the Carmen Planas Memorial, Inc.,
denying petitioners' Motion for Reconsideration. and that she was not to incur any personal obligation as to the
payment thereof because the same would be repaid by defendant
The factual background of the case is as follows: Mendoza and/or Carmen Planas Memorial, Inc.

On June 3, 1969, private respondent Jesusa B. Afable, together In her Amended Answer, defendant Felisa L. Mendoza admitted
with Felisa L. Mendoza and Ma. Aurora C. Dio executed a the authenticity and due execution of the promissory note, but
promissory note in favor of petitioner Nelia G. Ponce in the sum averred that it was a recapitulation of a series of transactions
of P814,868.42, Philippine Currency, payable, without interest, between her and the plaintiffs, "with defendant Ma. Aurora C.
on or before July 31, 1969. It was further provided therein that Dio and Jesusa B. Afable coming only as accomodation parties."
should the indebtedness be not paid at maturity, it shall draw As affirmative defense, defendant Mendoza contended that the
interest at 12% per annum, without demand; that should it be promissory note was the result of usurious transactions, and, as
necessary to bring suit to enforce pay ment of the note, the counterclaim, she prayed that plaintiffs be ordered to account for
debtors shall pay a sum equivalent to 10% of the total amount all the interests paid.
due for attorney's fees; and, in the event of failure to pay the
indebtedness plus interest in accordance with its terms, the Plaintiffs filed their Answer to defendant Mendoza's
debtors shall execute a first mortgage in favor of the creditor counterclaim denying under oath the allegations of usury.
over their properties or of the Carmen Planas Memorial, Inc.
After petitioners had rested, the case was deemed submitted for
Upon the failure of the debtors to comply with the terms of the decision since respondent Afable and her co-debtors had
promissory note, petitioners (Nelia G. Ponce and her husband) repeatedly failed to appear before the trial Court for the
filed, on July 27, 1970, a Complaint against them with the Court of presentation of their evidence.
First Instance of Manila for the recovery of the principal sum of
P814,868.42, plus interest and damages. On March 9, 1972, the trial Court rendered judgment ordering
respondent Afable and her co-debtors, Felisa L. Mendoza and Ma.
Defendant Ma. Aurora C. Dio's Answer consisted more of a Aurora C. Dio , to pay petitioners, jointly and severally, the sum
general denial and the contention that she did not borrow any of P814,868.42, plus 12% interest per annum from July 31, 1969
amount from plaintiffs and that her signature on the promissory until full payment, and a sum equivalent to 10% of the total
note was obtained by plaintiffs on their assurance that the same amount due as attorney's fees and costs.
was for " formality only."
From said Decision, by respondent Afable appealed to the Court
Defendant Jesusa B. Afable, for her part, asserted in her Answer of Appeals. She argued that the contract under consideration
that the promissory note failed to express the true intent and involved the payment of US dollars and was, therefore, illegal;
agreement of the parties, the true agreement being that the and that under the in pari delicto rule, since both parties are

guilty of violating the law, neither one can recover. It is to be THE RESPONDENT COURT, OF APPEALS ERRED IN HOLDING
noted that said defense was not raised in her Answer. THAT REPUBLIC ACT 529, OTHERWISE KNOWN ASIAN ACT TO
ASSURE UNIFORM VALUE TO PHILIPPINE COINS AND
On December 13, 1977, the Court of Appeals* rendered judgment CURRENCY,' COVERS THE TRANSACTION OF THE PARTIES
affirming the decision of the trial Court. In a Resolution dated HEREIN.
February 27, 1978, the Court of Appeals,** denied respondent's
Motion for Reconsideration. However, in a Resolution dated June III
8, 1978, the Court of Appeals acting on the Second Motion for
Reconsideration filed by private respondent, set aside the THE RESPONDENT COURT OF APPEALS ERRED IN NOT FINDING
Decision of December 13, 1977, reversed the judgment of the THAT PRIVATE RESPONDENT JESUSA B. AFABLE COULD NOT
trial Court and dismissed the Complaint. The Court of Appeals FAVORABLY AVAIL HERSELF OF THE DEFENSE OF ALLEGED
opined that the intent of the parties was that the promissory note APPLICABILITY OF REPUBLIC ACT 529 AND THE DOCTRINE OF
was payable in US dollars, and, therefore, the transaction was IN PARI DELICTO AS THESE WERE NOT PLEADED NOR
illegal with neither party entitled to recover under the in pari ADOPTED BY HER IN THE TRIAL.
delicto rule.
IV
Their Motions for Reconsideration having been denied in the
Resolutions dated July 6, 1978 and November 27, 1978, THE RESPONDENT COURT OF APPEALS ERRED IN NOT FINDING
petitioners filed the instant Petition raising the following ASSUMING ARGUENDO THAT REPUBLIC ACT 529 COVERS THE
Assignments of Error. PARTIES TRANSACTION, THAT THE Doctrine OF IN PARI
DELICTO DOES NOT APPLY AND THE PARTIES AGREEMENT
I WAS NOT NULL AND VOID PURSUANT TO THE RULING IN
OCTAVIO A. KALALO VS. ALFREDO J. LUZ, NO.-27782, JULY 31,
THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING 1970.
THAT THE PROMISSORY NOTE EVIDENCING THE TRANSACTION
OF THE PARTIES IS PAYABLE IN U.S. DOLLARS THEREBY In the Resolution dated June 8, 1978, the Court of Appeals made
DETERMINING THE INTENT OF THE PARTIES OUTSIDE OF the following observations:
THEIR PROMISSORY NOTE DESPITE LACK OF SHOWING THAT
IT FAILED TO EXPRESS THE TRUE INTENT OR AGREEMENT OF We are convinced from the evidence that the amount awarded by
THE PARTIES AND ITS PAYABILITY IN PHILIPPINE PESOS the lower Court was indeed owed by the defendants to the
WHICH IS EXPRESSED, AMONG OTHERS, BY ITS CLEAR AND plaintiffs. However, the sole issue raised in this second motion for
PRECISE TERMS. reconconsideration is not the existence of the obligation itself but
the legality of the subject matter of the contract. If the subject
II matter is illegal and against public policy, the doctrine of pari
delicto applies.


xxx xxx xxx funds are Identifiable, as having emanated from the sources
enumerated above; (b) transactions affecting high priority
We are constrained to reverse our December 13, 1977 decision. economic projects for agricultural industrial and power
While it is true that the promissory note does not mention any development as may be determined by the National Economic
obligation to pay in dollars, plaintiff-appellee Ponce himself Council which are financed by or through foreign funds; (c)
admitted that there was an agreement that he would be paid in forward exchange transactions entered into between banks or
dollars by the defendants. The promissory note is payable in U.S. between banks and individuals or juridical persons; (d) import-
donors. The in. tent of the parties prevails over the bare words of export and other international banking financial investment and
the written contracts. industrial transactions. With the exception of the cases
enumerated in items (a) (b), (c) and (d) in the foregoing
xxx xxx xxx provision, in, which cases the terms of the parties' agreement
shag apply, every other domestic obligation heretofore or
The agreement is null and void and of no effect under Republic hereafter incurred whether or not any such provision as to
Act No. 529. Under the doctrine of pari delicto, no recovery can payment is contained therein or made with- respect thereto, shall
be made in favor of the plaintiffs for being themselves guilty of be discharged upon payment in any coin or currency which at the
violating the law. 1 time of payment is legal tender for public and private debts:
Provided, That if the obligation was incurred prior to the
We are constrained to disagree. enactment of this Act and required payment in a particular kind
of coin or currency other than Philippine currency, it shall be
Reproduced hereunder is Section 1 of Republic Act No. 529, discharge in Philippine currency measured at the prevailing rates
which was enacted on June 16, 1950: of exchange at the time the obligation was incurred, except in
case of a loan made in foreign currency stipulated to be payable
Section 1. Every provision contained in, or made with respect in the currency in which case the rate of exchange prevailing at
to, any domestic obligation to wit, any obligation contracted in the time of the stipulated date of payment shall prevail All coin
the Philippines which provision purports to give the obligee the and currency, including Central Bank notes, heretofore and
right to require payment in gold or in a particular kind of coin or hereafter issued and d by the Government of the Philippines shall
currency other than Philippine currency or in an amount of be legal tender for all debts, public and private. (As amended by
money of the Philippines measured thereby, be as it is hereby RA 4100, Section 1, approved June 19, 1964) (Empahsis
declared against public policy, and null voice and of no effect and supplied).
no such provision shall be contained in, or made with respect to,
any obligation hereafter incurred. The above prohibition shall It is to be noted that while an agreement to pay in dollars is
not apply to (a) transactions were the funds involved are the declared as null and void and of no effect, what the law
proceeds of loans or investments made directly or indirectly, specifically prohibits is payment in currency other than legal
through bona fide intermediaries or agents, by foreign tender. It does not defeat a creditor's claim for payment, as it
governments, their agencies and instrumentalities, and specifically provides that "every other domestic obligation ...
international financial and banking institutions so long as the whether or not any such provision as to payment is contained

therein or made with respect thereto, shall be discharged upon payment of an obligation in dollars, meaning that a creditor
payment in any coin or currency which at the time of payment is cannot oblige the debtor to pay him in dollars, even if the loan
legal tender for public and private debts." A contrary rule would were given in said currency. In such a case, the indemnity to be
allow a person to profit or enrich himself inequitably at another's allowed should be expressed in Philippine currency on the basis
expense. of the current rate of exchange at the time of payment. 4

As the Court of Appeals itself found, the promissory note in The foregoing premises considered, we deem it unnecessary to
question provided on its face for payment of the obligation in discuss the other errors assigned by petitioners.
Philippine currency, i.e., P814,868.42. So that, while the
agreement between the parties originally involved a dollar WHEREFORE, the Resolutions of the Court of Appeals dated June
transaction and that petitioners expected to be paid in the 8, 1978, July 6, 1978 and November 27, 1978 are hereby set
amount of US$194,016.29, petitioners are not now insisting on aside, and judgment is hereby rendered reinstating the Decision
their agreement with respondent Afable for the payment of the of the Court of First Instance of Manila.
obligation in dollars. On the contrary, they are suing on the basis
of the promissory note whereby the parties have already agreed No pronouncement as to costs.
to convert the dollar loan into Philippine currency at the rate of
P4.20 to $1.00. 2 It may likewise be pointed out that the
Promissory Note contains no provision "giving the obligee the
right to require payment in a particular kind of currency other
than Philippine currency, " which is what is specifically 71. G.R. No. L-41764 December 19, 1980
prohibited by RA No. 529.
NEW PACIFIC TIMBER & SUPPLY COMPANY, INC.,
At any rate, even if we were to disregard the promissory note petitioner,
providing for the payment of the obligation in Philippine vs.
currency and consider that the intention of the parties was really HON. ALBERTO V. SENERIS, RICARDO A. TONG and EX-
to provide for payment of the obligation would be made in OFFICIO SHERIFF HAKIM S. ABDULWAHID,
dollars, petitioners can still recover the amount of respondents.
US$194,016.29, which respondent Afable and her co-debtors do
not deny having received, in its peso equivalent. As held in
Eastboard Navigation, Ltd. vs. Juan Ysmael & Co. Inc., 102 Phil. 1 CONCEPCION JR., J.:
(1957), and Arrieta vs. National Rice & Corn Corp., 3 if there is
any agreement to pay an obligation in a currency other than A petition for certiorari with preliminary injunction to annul
Philippine legal tender, the same is nun and void as contrary to and/or modify the order of the Court of First Instance of
public policy, pursuant to Republic Act No. 529, and the most that Zamboanga City (Branch ii) dated August 28, 1975 denying
could be demanded is to pay said obligation in Philippine petitioner's Ex-Parte Motion for Issuance of Certificate Of
currency. In other words, what is prohibited by RA No. 529 is the Satisfaction Of Judgment.

Herein petitioner is the defendant in a complaint for collection of (1) Unit American Lathe 18 Cracker Wheeler
a sum of money filed by the private respondent. 1 On July 19,
1974, a compromise judgment was rendered by the respondent (1) Unit Rockford Shaper 24
Judge in accordance with an amicable settlement entered into by
the parties the terms and conditions of which, are as follows: and set the auction sale thereof on January 15, 1975. However,
prior to January 15, 1975, petitioner deposited with the Clerk of
(1) That defendant will pay to the plaintiff the amount of Fifty Court, Court of First Instance, Zamboanga City, in his capacity as
Four Thousand Five Hundred Pesos (P54,500.00) at 6% interest Ex-Officio Sheriff of Zamboanga City, the sum of P63,130.00 for
per annum to be reckoned from August 25, 1972; the payment of the judgment obligation, consisting of the
following:
(2) That defendant will pay to the plaintiff the amount of Six
Thousand Pesos (P6,000.00) as attorney's fees for which 1. P50.000.00 in Cashier's Check No. S-314361 dated January
P5,000.00 had been acknowledged received by the plaintiff under 3, 1975 of the Equitable Banking Corporation; and
Consolidated Bank and Trust Corporation Check No. 16-135022
amounting to P5,000.00 leaving a balance of One Thousand Pesos 2. P13,130.00 incash. 3
(P1,000.00);
In a letter dated January 14, 1975, to the Ex-Officio Sheriff, 4
(3) That the entire amount of P54,500.00 plus interest, plus private respondent through counsel, refused to accept the check
the balance of P1,000.00 for attorney's fees will be paid by as well as the cash deposit. In the 'same letter, private
defendant to the plaintiff within five months from today, July 19, respondent requested the scheduled auction sale on January 15,
1974; and 1975 to proceed if the petitioner cannot produce the cash.
However, the scheduled auction sale at 10:00 a.m. on January 15,
(4) Failure one the part of the defendant to comply with any 1975 was postponed to 3:00 o'clock p.m. of the same day due to
of the above-conditions, a writ of execution may be issued by this further attempts to settle the case. Again, the scheduled auction
Court for the satisfaction of the obligation. 2 sale that afternoon did not push through because of a last ditch
attempt to convince the private respondent to accept the check.
For failure of the petitioner to comply with his judgment The auction sale was then postponed on the following day,
obligation, the respondent Judge, upon motion of the private January 16, 1975 at 10:00 o'clock a.m. 5 At about 9:15 a.m., on
respondent, issued an order for the issuance of a writ of January 16, 1975, a certain Mr. Taedo representing the
execution on December 21, 1974. Accordingly, writ of execution petitioner appeared in the office of the Ex-Officio Sheriff and the
was issued for the amount of P63,130.00 pursuant to which, the latter reminded Mr. Taedo that the auction sale would proceed
Ex-Officio Sheriff levied upon the following personal properties at 10:00 o'clock. At 10:00 a.m., Mr. Taedo and Mr. Librado, both
of the petitioner, to wit: representing the petitioner requested the Ex-Officio Sheriff to
give them fifteen minutes within which to contract their lawyer
(1) Unit American Lathe 24 which request was granted. After Mr. Taedo and Mr. Librado

failed to return, counsel for private respondent insisted that the consisting of P50,000.00 in Cashier's Check and P13,130.00 in
sale must proceed and the Ex-Officio Sheriff proceeded with the cash which it deposited with the Ex-Officio Sheriff before the date
auction sale. 6 In the course of the proceedings, Deputy Sheriff of the scheduled auction sale. In upholding private respondent's
Castro sold the levied properties item by item to the private claim that he has the right to refuse payment by means of a
respondent as the highest bidder in the amount of P50,000.00. As check, the respondent Judge cited the following:
a result thereof, the Ex-Officio Sheriff declared a deficiency of
P13,130.00. 7 Thereafter, on January 16, 1975, the Ex-Officio Section 63 of the Central Bank Act:
Sheriff issued a "Sheriff's Certificate of Sale" in favor of the
private respondent, Ricardo Tong, married to Pascuala Tong for Sec. 63. Legal Character. Checks representing deposit money
the total amount of P50,000.00 only. 8 Subsequently, on January do not have legal tender power and their acceptance in payment
17, 1975, petitioner filed an ex-parte motion for issuance of of debts, both public and private, is at the option of the creditor,
certificate of satisfaction of judgment. This motion was denied by Provided, however, that a check which has been cleared and
the respondent Judge in his order dated August 28, 1975. In view credited to the account of the creditor shall be equivalent to a
thereof, petitioner now questions said order by way of the delivery to the creditor in cash in an amount equal to the amount
present petition alleging in the main that said respondent Judge credited to his account.
capriciously and whimsically abused his discretion in not
granting the motion for issuance of certificate of satisfaction of Article 1249 of the New Civil Code:
judgment for the following reasons: (1) that there was already a
full satisfaction of the judgment before the auction sale was Art. 1249. The payment of debts in money shall be made in the
conducted with the deposit made to the Ex-Officio Sheriff in the currency stipulated, and if it is not possible to deliver such
amount of P63,000.00 consisting of P50,000.00 in Cashier's currency, then in the currency which is legal tender in the
Check and P13,130.00 in cash; and (2) that the auction sale was Philippines.
invalid for lack of proper notice to the petitioner and its counsel
when the Ex-Officio Sheriff postponed the sale from June 15, The delivery of promissory notes payable to order, or bills of
1975 to January 16, 1976 contrary to Section 24, Rule 39 of the exchange or other mercantile documents shall produce the effect
Rules of Court. On November 10, 1975, the Court issued a of payment only when they have been cashed, or when through
temporary restraining order enjoining the respondent Ex-Officio the fault of the creditor they have been impaired.
Sheriff from delivering the personal properties subject of the
petition to Ricardo A. Tong in view of the issuance of the "Sheriff In the meantime, the action derived from the original obligation
Certificate of Sale." shall be held in abeyance.

We find the petition to be impressed with merit. Likewise, the respondent Judge sustained the contention of the
private respondent that he has the right to refuse payment of the
The main issue to be resolved in this instance is as to whether or amount of P13,130.00 in cash because the said amount is less
not the private respondent can validly refuse acceptance of the than the judgment obligation, citing the following Article of the
payment of the judgment obligation made by the petitioner New Civil Code:

funds to the creditors." 13 Hence, the exception to the rule
Art. 1248. Unless there is an express stipulation to that effect, the enunciated under Section 63 of the Central Bank Act to the effect
creditor cannot be compelled partially to receive the "that a check which has been cleared and credited to the account
presentations in which the obligation consists. Neither may the of the creditor shall be equivalent to a delivery to the creditor in
debtor be required to make partial payment. cash in an amount equal to the amount credited to his account"
shall apply in this case. Considering that the whole amount
However, when the debt is in part liquidated and in part deposited by the petitioner consisting of Cashier's Check of
unliquidated, the creditor may demand and the debtor may effect P50,000.00 and P13,130.00 in cash covers the judgment
the payment of the former without waiting for the liquidation of obligation of P63,000.00 as mentioned in the writ of execution,
the latter. then, We see no valid reason for the private respondent to have
refused acceptance of the payment of the obligation in his favor.
It is to be emphasized in this connection that the check deposited The auction sale, therefore, was uncalled for. Furthermore, it
by the petitioner in the amount of P50,000.00 is not an ordinary appears that on January 17, 1975, the Cashier's Check was even
check but a Cashier's Check of the Equitable Banking withdrawn by the petitioner and replaced with cash in the
Corporation, a bank of good standing and reputation. As testified corresponding amount of P50,000.00 on January 27, 1975
to by the Ex-Officio Sheriff with whom it has been deposited, it is pursuant to an agreement entered into by the parties at the
a certified crossed check. 9 It is a well-known and accepted instance of the respondent Judge. However, the private
practice in the business sector that a Cashier's Check is deemed respondent still refused to receive the same. Obviously, the
as cash. Moreover, since the said check had been certified by the private respondent is more interested in the levied properties
drawee bank, by the certification, the funds represented by the than in the mere satisfaction of the judgment obligation. Thus,
check are transferred from the credit of the maker to that of the petitioner's motion for the issuance of a certificate of satisfaction
payee or holder, and for all intents and purposes, the latter of judgment is clearly meritorious and the respondent Judge
becomes the depositor of the drawee bank, with rights and duties gravely abused his discretion in not granting the same under the
of one in such situation. 10 Where a check is certified by the bank circumstances.
on which it is drawn, the certification is equivalent to acceptance.
11 Said certification "implies that the check is drawn upon In view of the conclusion reached in this instance, We find no
sufficient funds in the hands of the drawee, that they have been more need to discuss the ground relied in the petition.
set apart for its satisfaction, and that they shall be so applied
whenever the check is presented for payment. It is an It is also contended by the private respondent that Appeal and
understanding that the check is good then, and shall continue not a special civil action for certiorari is the proper remedy in
good, and this agreement is as binding on the bank as its notes in this case, and that since the period to appeal from the decision of
circulation, a certificate of deposit payable to the order of the the respondent Judge has already expired, then, the present
depositor, or any other obligation it can assume. The object of petition has been filed out of time. The contention is untenable.
certifying a check, as regards both parties, is to enable the holder The decision of the respondent Judge in Civil Case No. 250 (166)
to use it as money." 12 When the holder procures the check to be has long become final and executory and so, the same is not being
certified, "the check operates as an assignment of a part of the questioned herein. The subject of the petition at bar as having

been issued in grave abuse of discretion is the order dated ROBES-FRANCISCO REALTY AND DEVELOPMENT
August 28, 1975 of the respondent Judge which was merely CORPORATION, Respondents.
issued in execution of the said decision. Thus, even granting that
appeal is open to the petitioner, the same is not an adequate and SARMIENTO, J.:
speedy remedy for the respondent Judge had already issued a
writ of execution. 14
This is a petition for review on certiorari which seeks the
WHEREFORE, in view of all the foregoing, judgment is hereby reversal and setting aside of the decision 1 of the Court of
rendered: Appeals, 2 the dispositive portion of which reads:chanrobles law
library : red
1. Declaring as null and void the order of the respondent Judge
dated August 28, 1975; WHEREFORE, the decision appealed from is hereby reversed and
set aside and another one entered for the plaintiff ordering the
2. Declaring as null and void the auction sale conducted on defendant-appellee Roman Catholic Bishop of Malolos, Inc. to
January 16, 1975 and the certificate of sale issued pursuant accept the balance of P124,000.00 being paid by plaintiff-
thereto; appellant and thereafter to execute in favor of Robes-Francisco
Realty Corporation a registerable Deed of Absolute Sale over
3. Ordering the private respondent to accept the sum of 20,655 square meters portion of that parcel of land situated in
P63,130.00 under deposit as payment of the judgment obligation San Jose del Monte, Bulacan described in OCT No. 575 (now
in his favor; Transfer Certificates of Title Nos. T-169493, 169494,169495 and
169496) of the Register of Deeds of Bulacan. In case of refusal of
4. Ordering the respondent Judge and respondent Ex-Officio the defendant to execute the Deed of Final Sale, the clerk of court
Sheriff to release the levied properties to the herein petitioner. is directed to execute the said document. Without
pronouncement as to damages and attorneys fees. Costs against
The temporary restraining order issued is hereby made the defendant-appellee. 3
permanent.
The case at bar arose from a complaint filed by the private
Costs against the private respondent. respondent, then plaintiff, against the petitioner, then defendant,
in the Court of First Instance (now Regional Trial Court) of
Bulacan, at Sta. Maria, Bulacan, 4 for specific performance with
damages, based on a contract 5 executed on July 7, 1971.

72. [G.R. No. 72110. November 16, 1990.] The property subject matter of the contract consists of a 20,655
sq.m.-portion, out of the 30,655 sq.m. total area, of a parcel of
ROMAN CATHOLIC BISHOP OF MALOLOS, INC., land covered by Original Certificate of Title No. 575 of the
Petitioner, v. INTERMEDIATE APPELLATE COURT, and Province of Bulacan, issued and registered in the name of the

petitioner which it sold to the private respondent for and in On July 29, 1975, the petitioner, through its counsel, Atty.
consideration of P123,930.00.chanrobles virtual lawlibrary Carmelo Fernandez, formally denied the said request of the
private respondent, but granted the latter a grace period of five
The crux of the instant controversy lies in the compliance or non- (5) days from the receipt of the denial 8 to pay the total balance
compliance by the private respondent with the provision for of P124,000.00, otherwise, the provisions of the contract
payment to the petitioner of the principal balance of P100,000.00 regarding cancellation, forfeiture, and reconveyance would be
and the accrued interest of P24,000.00 within the grace period. implemented.

A chronological narration of the antecedent facts is as On August 4, 1975, the private respondent, through its president,
follows:chanrob1es virtual 1aw library Atty. Francisco, wrote 9 the counsel of the petitioner requesting
an extension of 30 days from said date to fully settle its account.
On July 7, 1971, the subject contract over the land in question The counsel for the petitioner, Atty. Fernandez, received the said
was executed between the petitioner as vendor and the private letter on the same day. Upon consultation with the petitioner in
respondent through its then president, Mr. Carlos F. Robes, as Malolos, Bulacan, Atty. Fernandez, as instructed, wrote the
vendee, stipulating for a downpayment of P23,930.00 and the private respondent a letter 10 dated August 7, 1975 informing
balance of P100,000.00 plus 12% interest per annum to be paid the latter of the denial of the request for an extension of the grace
within four (4) years from execution of the contract, that is, on or period.
before July 7, 1975. The contract likewise provides for
cancellation, forfeiture of previous payments, and reconveyance Consequently, Atty. Francisco, the private respondents
of the land in question in case the private respondent would fail president, wrote a letter 11 dated August 22, 1975, directly
to complete payment within the said period. addressed to the petitioner, protesting the alleged refusal of the
latter to accept tender of payment purportedly made by the
On March 12, 1973, the private respondent, through its new former on August 5, 1975, the last day of the grace period. In the
president, Atty. Adalia Francisco, addressed a letter 6 to Father same letter of August 22, 1975, received on the following day by
Vasquez, parish priest of San Jose Del Monte, Bulacan, requesting the petitioner, the private respondent demanded the execution of
to be furnished with a copy of the subject contract and the a deed of absolute sale over the land in question and after which
supporting documents. it would pay its account in full, otherwise, judicial action would
be resorted to.chanrobles.com.ph : virtual law library
On July 17, 1975, admittedly after the expiration of the stipulated
period for payment, the same Atty. Francisco wrote the petitioner On August 27, 1975, the petitioners counsel, Atty. Fernandez,
a formal request 7 that her company be allowed to pay the wrote a reply 12 to the private respondent stating the refusal of
principal amount of P100,000.00 in three (3) equal installments his client to execute the deed of absolute sale due to its (private
of six (6) months each with the first installment and the accrued respondents) failure to pay its full obligation. Moreover, the
interest of P24,000.00 to be paid immediately upon approval of petitioner denied that the private respondent had made any
the said request. tender of payment whatsoever within the grace period. In view of
this alleged breach of contract, the petitioner cancelled the

contract and considered all previous payments forfeited and the entire obligation considering that the latter, through its
land as ipso facto reconveyed. president, Atty. Francisco, only had a savings account deposit of
P64,840.00, and although the latter had a money-market
From a perusal of the foregoing facts, we find that both the placement of P300,000.00, the same was to mature only after the
contending parties have conflicting versions on the main expiration of the 5-day grace period.
question of tender of payment.
Based on the above considerations, the trial court rendered a
The trial court, in its ratiocination, preferred not to give credence decision in favor of the petitioner, the dispositive portion of
to the evidence presented by the private Respondent. According which reads:chanrobles virtual lawlibrary
to the trial court:chanrob1es virtual 1aw library
WHEREFORE, finding plaintiff to have failed to make out its case,
. . . What made Atty. Francisco suddenly decide to pay plaintiffs the court hereby declares the subject contract cancelled and
obligation on August 5, 1975, go to defendants office at Malolos, plaintiffs downpayment of P23,930.00 forfeited in favor of
and there tender her payment, when her request of August 4, defendant, and hereby dismisses the complaint; and on the
1975 had not yet been acted upon until August 7, 1975? If Atty. counterclaim, the Court orders plaintiff to pay defendant.
Francisco had decided to pay the obligation and had available
funds for the purpose on August 5, 1975, then there would have (1) Attorneys fees of P10,000.00;
been no need for her to write defendant on August 4, 1975 to
request an extension of time. Indeed, Atty. Franciscos claim that (2) Litigation expenses of P2,000.00; and
she made a tender of payment on August 5, 1975 such alleged
act, considered in relation to the circumstances both antecedent (3) Judicial costs.
and subsequent thereto, being not in accord with the normal
pattern of human conduct is not worthy of credence. 13 SO ORDERED. 14

The trial court likewise noted the inconsistency in the testimony Not satisfied with the said decision, the private respondent
of Atty. Francisco, president of the private respondent, who appealed to the respondent Intermediate Appellate Court (now
earlier testified that a certain Mila Policarpio accompanied her on Court of Appeals) assigning as reversible errors, among others,
August 5, 1975 to the office of the petitioner. Another person, the findings of the trial court that the available funds of the
however, named Aurora Oracion, was presented to testify as the private respondent were insufficient and that the latter did not
secretary-companion of Atty. Francisco on that same occasion. effect a valid tender of payment and consignation.

Furthermore, the trial court considered as fatal the failure of Atty. The respondent court, in reversing the decision of the trial court,
Francisco to present in court the certified personal check essentially relies on the following findings:chanrob1es virtual
allegedly tendered as payment or, at least, its xerox copy, or even 1aw library
bank records thereof. Finally, the trial court found that the
private respondent had insufficient funds available to fulfill the

. . . We are convinced from the testimony of Atty. Adalia Francisco
and her witnesses that in behalf of the plaintiff-appellant they
have a total available sum of P364,840.00 at her and at the A. Is a finding that private respondent had sufficient
plaintiffs disposal on or before August 4, 1975 to answer for the available funds on or before the grace period for the payment of
obligation of the plaintiff-appellant. It was not correct for the trial its obligation proof that it (private respondent) did tender of (sic)
court to conclude that the plaintiff-appellant had only about payment for its said obligation within said period?
P64,840.00 in savings deposit on or before August 5, 1975, a sum
not enough to pay the outstanding account of P124,000.00. The x x x
plaintiff-appellant, through Atty. Francisco proved and the trial
court even acknowledged that Atty. Adalia Francisco had about
P300,000.00 in money market placement. The error of the trial B. Is it the legal obligation of the petitioner (as vendor) to
court has in concluding that the money market placement of execute a deed of absolute sale in favor of the private respondent
P300,000.00 was out of reach of Atty. Francisco. But as testified (as vendee) before the latter has actually paid the complete
to by Mr. Catalino Estrella, a representative of the Insular Bank of consideration of the sale where the contract between and
Asia and America, Atty. Francisco could withdraw anytime her executed by the parties stipulates
money market placement and place it at her disposal, thus
proving her financial capability of meeting more than the whole "That upon complete payment of the agreed consideration by the
of P124,000.00 then due per contract. This situation, We believe, herein VENDEE, the VENDOR shall cause the execution of a Deed
proves the truth that Atty. Francisco apprehensive that her of Absolute Sale in favor of the VENDEE."cralaw virtua1aw
request for a 30-day grace period would be denied, she tendered library
payment on August 4, 1975 which offer defendant through its
representative and counsel refused to receive. . .15 (Emphasis x x x.
supplied)
C. Is an offer of a check a valid tender of payment of an
In other words, the respondent court, finding that the private obligation under a contract which stipulates that the
respondent had sufficient available funds, ipso facto concluded consideration of the sale is in Philippine Currency? 17
that the latter had tendered payment. Is such conclusion
warranted by the facts proven? The petitioner submits that it is We find the petition impressed with merit.
not.cralawnad
With respect to the first issue, we agree with the petitioner that a
Hence, this petition. 16 finding that the private respondent had sufficient available funds
on or before the grace period for the payment of its obligation
The petitioner presents the following issues for does not constitute proof of tender of payment by the latter for
resolution:chanrob1es virtual 1aw library its obligation within the said period. Tender of payment involves
a positive and unconditional act by the obligor of offering legal
x x x tender currency as payment to the obligee for the formers

obligation and demanding that the latter accept the same. Thus, the subject contract clearly provides that the full payment by the
tender of payment cannot be presumed by a mere inference from private respondent is an a priori condition for the execution of
surrounding circumstances. At most, sufficiency of available the said documents by the petitioner.
funds is only affirmative of the capacity or ability of the obligor to
fulfill his part of the bargain. But whether or not the obligor That upon complete payment of the agreed consideration by the
avails himself of such funds to settle his outstanding account herein VENDEE, the VENDOR shall cause the execution of a Deed
remains to be proven by independent and credible evidence. of Absolute Sale in favor of the VENDEE. 21
Tender of payment presupposes not only that the obligor is able,
ready, and willing, but more so, in the act of performing his The private respondent is therefore in estoppel to claim
obligation. Ab posse ad actu non vale illatio. "A proof that an act otherwise as the latter did in the testimony in cross-examination
could have been done is no proof that it was actually of its president, Atty. Francisco, which reads:chanrob1es virtual
done."cralaw virtua1aw library 1aw library

The respondent court was therefore in error to have concluded Q Now, you mentioned, Atty. Francisco, that you wanted the
from the sheer proof of sufficient available funds on the part of defendant to execute the final deed of sale before you would
the private respondent to meet more than the total obligation given (sic) the personal certified check in payment of your
within the grace period, the alleged truth of tender of payment. balance, is that correct?
The same is a classic case of non-sequitur.chanrobles virtual
lawlibrary A Yes, sir. 22

On the contrary, the respondent court finds itself remiss in x x x
overlooking or taking lightly the more important findings of fact
made by the trial court which we have earlier mentioned and
which as a rule, are entitled to great weight on appeal and should Art. 1159 of the Civil Code of the Philippines provides that
be accorded full consideration and respect and should not be "obligations arising from contracts have the force of law between
disturbed unless for strong and cogent reasons. 18 the contracting parties and should be complied with in good
faith." And unless the stipulations in said contract are contrary to
While the Court is not a trier of facts, yet, when the findings of law, morals, good customs, public order, or public policy, the
fact of the Court of Appeals are at variance with those of the trial same are binding as between the parties.23
court, 19 or when the inference of the Court of Appeals from its
findings of fact is manifestly mistaken, 20 the Court has to review What the private respondent should have done if it was indeed
the evidence in order to arrive at the correct findings based on desirous of complying with its obligations would have been to
the record. pay the petitioner within the grace period and obtain a receipt of
such payment duly issued by the latter. Thereafter, or, allowing a
Apropos the second issue raised, although admittedly the reasonable time, the private respondent could have demanded
documents for the deed of absolute sale had not been prepared, from the petitioner the execution of the necessary documents. In

case the petitioner refused, the private respondent could have
had always resorted to judicial action for the legitimate In view of the foregoing, the petitioner in the legitimate exercise
enforcement of its right. For the failure of the private respondent of its rights pursuant to the subject contract, did validly order
to undertake this more judicious course of action, it alone shall therefore the cancellation of the said contract, the forfeiture of
suffer the consequences.chanrobles.com:cralaw:red the previous payment, and the reconveyance ipso facto of the
land in question.chanrobles lawlibrary : rednad
With regard to the third issue, granting arguendo that we would
rule affirmatively on the two preceding issues, the case of the WHEREFORE, the petition for review on certiorari is GRANTED
private respondent still can not succeed in view of the fact that and the DECISION of the respondent court promulgated on April
the latter used a certified personal check which is not legal 25, 1985 is hereby SET ASIDE and ANNULLED and the DECISION
tender nor the currency stipulated, and therefore, can not of the trial court dated May 25, 1981 is hereby REINSTATED.
constitute valid tender of payment. The first paragraph of Art. Costs against the private Respondent.
1249 of the Civil Code provides that "the payment of debts in
money shall be made in the currency stipulated, and if it is not
possible to deliver such currency, then in the currency which is
legal tender in the Philippines.
73. G.R. No. 100290 June 4, 1993
The Court en banc in the recent case of Philippine Airlines v.
Court of Appeals, 24 G.R. No. L-49188, stated thus:chanrob1es NORBERTO TIBAJIA, JR. and CARMEN TIBAJIA,
virtual 1aw library petitioners,
vs.
Since a negotiable instrument is only a substitute for money and THE HONORABLE COURT OF APPEALS and EDEN TAN,
not money, the delivery of such an instrument does not, by itself, respondents.
operate as payment (citing Sec. 189, Act 2031 on Negs. Insts.; Art.
1249, Civil Code; Bryan London Co. v. American Bank, 7 Phil. 255; PADILLA, J.:
Tan Sunco v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A check, whether
a managers check or ordinary check, is not legal tender, and an Petitioners, spouses Norberto Tibajia, Jr. and Carmen Tibajia, are
offer of a check in payment of a debt is not a valid tender of before this Court assailing the decision * of respondent appellate
payment and may be refused receipt by the obligee or creditor. court dated 24 April 1991 in CA-G.R. SP No. 24164 denying their
petition for certiorari prohibition, and injunction which sought to
Hence, where the tender of payment by the private respondent annul the order of Judge Eutropio Migrio of the Regional Trial
was not valid for failure to comply with the requisite payment in Court, Branch 151, Pasig, Metro Manila in Civil Case No. 54863
legal tender or currency stipulated within the grace period and as entitled "Eden Tan vs. Sps. Norberto and Carmen Tibajia."
such, was validly refused receipt by the petitioner, the
subsequent consignation did not operate to discharge the former Stated briefly, the relevant facts are as follows:
from its obligation to the latter.

Case No. 54863 was a suit for collection of a sum of money filed ground that payment in cashier's check is not payment in legal
by Eden Tan against the Tibajia spouses. A writ of attachment tender and that payment was made by a third party other than
was issued by the trial court on 17 August 1987 and on 17 the defendant. A motion for reconsideration was denied on 8
September 1987, the Deputy Sheriff filed a return stating that a February 1991. Thereafter, the spouses Tibajia filed a petition for
deposit made by the Tibajia spouses in the Regional Trial Court of certiorari, prohibition and injunction in the Court of Appeals. The
Kalookan City in the amount of Four Hundred Forty Two appellate court dismissed the petition on 24 April 1991 holding
Thousand Seven Hundred and Fifty Pesos (P442,750.00) in that payment by cashier's check is not payment in legal tender as
another case, had been garnished by him. On 10 March 1988, the required by Republic Act No. 529. The motion for reconsideration
Regional Trial Court, Branch 151 of Pasig, Metro Manila rendered was denied on 27 May 1991.
its decision in Civil Case No. 54863 in favor of the plaintiff Eden
Tan, ordering the Tibajia spouses to pay her an amount in excess In this petition for review, the Tibajia spouses raise the following
of Three Hundred Thousand Pesos (P300,000.00). On appeal, the issues:
Court of Appeals modified the decision by reducing the award of
moral and exemplary damages. The decision having become final, I WHETHER OR NOT THE BPI CASHIER'S CHECK NO.
Eden Tan filed the corresponding motion for execution and 014021 IN THE AMOUNT OF P262,750.00 TENDERED BY
thereafter, the garnished funds which by then were on deposit PETITIONERS FOR PAYMENT OF THE JUDGMENT DEBT, IS
with the cashier of the Regional Trial Court of Pasig, Metro "LEGAL TENDER".
Manila, were levied upon.
II WHETHER OR NOT THE PRIVATE RESPONDENT MAY
On 14 December 1990, the Tibajia spouses delivered to Deputy VALIDLY REFUSE THE TENDER OF PAYMENT PARTLY IN CHECK
Sheriff Eduardo Bolima the total money judgment in the AND PARTLY IN CASH MADE BY PETITIONERS, THRU AURORA
following form: VITO AND COUNSEL, FOR THE SATISFACTION OF THE
MONETARY OBLIGATION OF PETITIONERS-SPOUSES. 1
Cashier's Check P262,750.00
Cash 135,733.70 The only issue to be resolved in this case is whether or not
payment by means of check (even by cashier's check) is
Total P398,483.70 considered payment in legal tender as required by the Civil Code,
Republic Act No. 529, and the Central Bank Act.
Private respondent, Eden Tan, refused to accept the payment
made by the Tibajia spouses and instead insisted that the It is contended by the petitioners that the check, which was a
garnished funds deposited with the cashier of the Regional Trial cashier's check of the Bank of the Philippine Islands, undoubtedly
Court of Pasig, Metro Manila be withdrawn to satisfy the a bank of good standing and reputation, and which was a crossed
judgment obligation. On 15 January 1991, defendant spouses check marked "For Payee's Account Only" and payable to private
(petitioners) filed a motion to lift the writ of execution on the respondent Eden Tan, is considered legal tender, payment with
ground that the judgment debt had already been paid. On 29 which operates to discharge their monetary obligation. 2
January 1991, the motion was denied by the trial court on the Petitioners, to support their contention, cite the case of New

Pacific Timber and Supply Co., Inc. v. Seeris 3 where this Court be discharged upon payment in any coin or currency which at the
held through Mr. Justice Hermogenes Concepcion, Jr. that "It is a time of payment is legal tender for public and private debts.
well-known and accepted practice in the business sector that a
cashier's check is deemed as cash". c. Section 63 of Republic Act No. 265, as amended (Central
Bank Act) which provides:
The provisions of law applicable to the case at bar are the
following: Sec. 63. Legal character Checks representing deposit
money do not have legal tender power and their acceptance in
a. Article 1249 of the Civil Code which provides: the payment of debts, both public and private, is at the option of
the creditor: Provided, however, that a check which has been
Art. 1249. The payment of debts in money shall be made in cleared and credited to the account of the creditor shall be
the currency stipulated, and if it is not possible to deliver such equivalent to a delivery to the creditor of cash in an amount
currency, then in the currency which is legal tender in the equal to the amount credited to his account.
Philippines.
From the aforequoted provisions of law, it is clear that this
The delivery of promissory notes payable to order, or bills of petition must fail.
exchange or other mercantile documents shall produce the effect
of payment only when they have been cashed, or when through In the recent cases of Philippine Airlines, Inc. vs. Court of Appeals
the fault of the creditor they have been impaired. 4 and Roman Catholic Bishop of Malolos, Inc. vs. Intermediate
Appellate Court, 5 this Court held that
In the meantime, the action derived from the original obligation
shall be held in abeyance.; A check, whether a manager's check or ordinary check, is not
legal tender, and an offer of a check in payment of a debt is not a
b. Section 1 of Republic Act No. 529, as amended, which valid tender of payment and may be refused receipt by the
provides: obligee or creditor.

Sec. 1. Every provision contained in, or made with respect to, any The ruling in these two (2) cases merely applies the statutory
obligation which purports to give the obligee the right to require provisions which lay down the rule that a check is not legal
payment in gold or in any particular kind of coin or currency tender and that a creditor may validly refuse payment by check,
other than Philippine currency or in an amount of money of the whether it be a manager's, cashier's or personal check.
Philippines measured thereby, shall be as it is hereby declared
against public policy null and void, and of no effect, and no such Petitioners erroneously rely on one of the dissenting opinions in
provision shall be contained in, or made with respect to, any the Philippine Airlines case 6 to support their cause. The
obligation thereafter incurred. Every obligation heretofore and dissenting opinion however does not in any way support the
hereafter incurred, whether or not any such provision as to contention that a check is legal tender but, on the contrary, states
payment is contained therein or made with respect thereto, shall that "If the PAL checks in question had not been encashed by

Sheriff Reyes, there would be no payment by PAL and, Background Facts
consequently, no discharge or satisfaction of its judgment
obligation." 7 Moreover, the circumstances in the Philippine RRI Lending Corporation (respondent) is an entity engaged in the
Airlines case are quite different from those in the case at bar for business of lending money to its borrowers within Metro Manila. It
in that case the checks issued by the judgment debtor were made is duly represented by its General Manager, Mr. Dario J. Bernardez
payable to the sheriff, Emilio Z. Reyes, who encashed the checks (Bernardez).
but failed to deliver the proceeds of said encashment to the
judgment creditor. Sometime in September 1996, the petitioner and his younger
brother, Rolando A. Bognot (collectively referred to as the "Bognot
In the more recent case of Fortunado vs. Court of Appeals, 8 this siblings"), applied for and obtained a loan of Five Hundred Thousand
Court stressed that, "We are not, by this decision, sanctioning the Pesos (P500,000.00) from the respondent, payable on November 30,
use of a check for the payment of obligations over the objection of 1996.4 The loan was evidenced by a promissory note and was
the creditor." secured by a post dated check5 dated November 30, 1996.

WHEREFORE, the petition is DENIED. The appealed decision is
Evidence on record shows that the petitioner renewed the loan
hereby AFFIRMED, with costs against the petitioners.
several times on a monthly basis. He paid a renewal fee of

P54,600.00 for each renewal, issued a new post-dated checkas

security, and executed and/or renewed the promissory note
previouslyissued. The respondent on the other hand, cancelled and
74. G.R. No. 180144 September 24, 2014 returned to the petitioner the post-dated checks issued prior to
their renewal.
LEONARDO BOGNOT, Petitioner,
vs. Sometime in March 1997, the petitioner applied for another loan
RRI LENDING CORPORATION, represented by its General renewal. He again executed as principal and signed Promissory Note
Manager, DARIO J. BERNARDEZ, Respondent. No. 97-0356 payable on April 1, 1997; his co-maker was again
Rolando. As security for the loan, the petitioner also issued BPI
D E C I S I O N Check No. 0595236,7 post dated to April 1, 1997.8
BRION, J.: Subsequently, the loan was again renewed on a monthly basis (until
June 30, 1997), as shown by the Official Receipt No. 7979 dated May
Before the Court is the petition for review on certiorari1 filed by 5, 1997, and the Disclosure Statement dated May 30, 1997 duly
Leonardo Bognot (petitioner) assailing the March 28, 2007 decision2 signed by Bernardez. The petitioner purportedly paid the renewal
and the October 15, 2007 resolution3 of the Court of Appeals (CA) in fees and issued a post-dated check dated June 30, 1997 as security.
CA-G.R. CV No. 66915. As had been done in the past, the respondent superimposed the

date "June 30, 1997" on the upper right portion of Promissory Note In his Answer,10 the petitioner claimed that the complaint states no
No. 97-035 to make it appear that it would mature on the said date. cause of action because the respondents claim had been paid,
waived, abandoned or otherwise extinguished. He denied being a
Several days before the loans maturity, Rolandos wife, Julieta party to any loan application and/or renewal in May 1997. He also
Bognot (Mrs. Bognot), went to the respondents office and applied denied having issued the BPI check post-dated to June 30, 1997, as
for another renewal of the loan. She issued in favor of the well as the promissory note dated June 30, 1997, claiming that this
respondent Promissory Note No. 97-051, and International Bank note had been tampered. He claimed that the one (1) month loan
Exchange (IBE) Check No. 00012522, dated July 30, 1997, in the contracted by Rolando and his wife in November 1996 which was
amount of P54,600.00 as renewal fee. lastly renewed in March 1997 had already been fully paid and
extinguished in April 1997.11
On the excuse that she needs to bring home the loan documents for
the Bognot siblings signatures and replacement, Mrs. Bognot asked Trial on the merits thereafter ensued.
the respondents clerk to release to her the promissory note, the
disclosure statement, and the check dated July 30, 1997. Mrs. The Regional Trial Court Ruling
Bognot, however, never returned these documents nor issued a new
post-dated check. Consequently, the respondent sent the petitioner In a decision12 dated January 17, 2000,the RTC ruled in the
follow-up letters demanding payment of the loan, plus interest and respondents favor and ordered the Bognot siblings to pay the
penalty charges. These demands went unheeded. amount of the loan, plus interest and penalty charges. It considered
the wordings of the promissory note and found that the loan they
On November 27, 1997, the respondent, through Bernardez, filed a contracted was joint and solidary. It also noted that the petitioner
complaint for sum of money before the Regional Trial Court (RTC) signed the promissory note as a principal (and not merely as a
against the Bognot siblings. The respondent mainly alleged that the guarantor), while Rolando was the co-maker. It brushed the
loan renewal payable on June 30, 1997 which the Bognot siblings petitioners defense of full payment aside, ruling that the
applied for remained unpaid; that before June30, 1997, Mrs. Bognot respondent had successfully proven, by preponderance of evidence,
applied for another loan extension and issued IBE Check No. the nonpayment of the loan. The trial court said:
00012522 as payment for the renewal fee; that Mrs. Bognot
convinced the respondents clerk to release to her the promissory Records likewise reveal that while he claims that the obligation had
note and the other loan documents; that since Mrs. Bognot never been fully paid in his Answer, he did not, in order to protect his right
issued any replacement check, no loanextension took place and the filed (sic) a cross-claim against his co-defendant Rolando Bognot
loan, originally payable on June 30, 1997, became due on this date; despite the fact that the latter did not file any responsive pleading.
and despite repeated demands, the Bognot siblings failed to pay
their joint and solidary obligation. In fine, defendants are liable solidarily to plaintiff and must pay the
loan of P500,000.00 plus 5% interest monthly as well as 10%
Summons were served on the Bognotsiblings. However, only the monthly penalty charges from the filing of the complaint on
petitioner filed his answer. December 3, 1997 until fully paid. As plaintiff was constrained to

engage the services of counsel in order to protect his presumption provided by Article 1271 of the Civil Code,13 his
right,defendants are directed to pay the former jointly and severally obligation had been discharged by virtue of his possession of the
the amount of P50,000.00 as and by way of attorneys fee. post-dated check (stamped "CANCELLED") that evidenced his
indebtedness. He argued that it was Mrs. Bognot who subsequently
The petitioner appealed the decision to the Court of Appeals. assumed the obligation by renewing the loan, paying the fees and
charges, and issuing a check. Thus, there is an entirely new
The Court of Appeals Ruling obligation whose payment is her sole responsibility.
In its decision dated March 28, 2007, the CA affirmed the RTCs The petitioner also argued that as a result of the alteration of the
findings. It found the petitioners defense of payment untenable and promissory note without his consent (e.g., the superimposition of
unsupported by clear and convincing evidence. It observed that the the date "June 30, 1997" on the upper right portion of Promissory
petitioner did not present any evidence showing that the check Note No. 97-035 to make it appear that it would mature on this
dated June 30, 1997 had, in fact, been encashed by the respondent date), the respondent can no longer collect on the tampered note,
and the proceeds applied to the loan, or any official receipt let alone, hold him solidarily liable with Rolando for the payment of
evidencing the payment of the loan. It further stated that the only the loan. He maintained that even without the proof of payment,
document relied uponby the petitioner to substantiate his defense the material alteration of the promissory note is sufficient to
was the April 1, 1997 checkhe issued which was cancelled and extinguish his liability.
returned to him by the respondent.
Lastly, he claimed that he had been released from his indebtedness
The CA, however, noted the respondents established policy of by novation when Mrs. Bognot renewed the loan and assumed the
cancelling and returning the post-dated checks previously issued, as indebtedness.
well as the subsequent loan renewals applied for by the petitioner,
as manifested by the official receipts under his name. The CA thus The Case for the Respondents
ruled that the petitioner failed to discharge the burden of proving
payment. The respondent submits that the issues the petitioner raised hinge
on the appreciation of the adduced evidence and of the factual
The petitioner moved for the reconsideration of the decision, but lower courts findings that, as a rule, are notreviewable by this
the CA denied his motion in its resolution of October 15, 2007, Court.
hence, the present recourse to us pursuant toRule 45 of the Rules of
Court. The Issues
The Petition The case presents to us the following issues:
The petitioner submits that the CA erred in holding him solidarily 1. Whether the CA committed a reversible error in holding
liable with Rolando and his wife. Heclaimed that based on the legal the petitioner solidarily liable with Rolando;

2. Whether the petitioner is relieved from liability by reason Jurisprudence tells us that one who pleads payment has the burden
of the material alteration in the promissory note; and of proving it;17 the burden rests on the defendant to prove payment,
rather than on the plaintiff to prove non-payment.18 Indeed, once
3. Whether the parties obligation was extinguished by: (i) the existence of an indebtedness is duly established by evidence, the
payment; and (ii) novation by substitution of debtors. burden of showing with legal certainty that the obligation has been
discharged by payment rests on the debtor.19
Our Ruling
In the present case, the petitioner failed to satisfactorily prove that
We find the petition partly meritorious. his obligation had already been extinguished by payment. As the CA
correctly noted, the petitioner failed to present any evidence that
As a rule, the Courts jurisdiction in a Rule 45 petition is limited to the respondent had in fact encashed his check and applied the
the review of pure questions of law.14 Appreciation of evidence and proceeds to the payment of the loan. Neither did he present official
inquiry on the correctness of the appellate court's factual findings receipts evidencing payment, nor any proof that the check had been
are not the functions of this Court; we are not a trier of facts.15 dishonored.
A question of law exists when the doubt or dispute relates to the We note that the petitioner merely relied on the respondents
application of the law on given facts. On the other hand, a question cancellation and return to him of the check dated April 1, 1997. The
of fact exists when the doubt or dispute relates to the truth or falsity evidence shows that this check was issued to secure the
of the parties factual allegations.16 indebtedness. The acts imputed on the respondent, standing alone,
do not constitute sufficient evidence of payment.
As the respondent correctly pointedout, the petitioners allegations
are factual issuesthat are not proper for the petition he filed. In the Article 1249, paragraph 2 of the Civil Code provides:
absence of compelling reasons, the Court cannot re-examine, review
or re-evaluate the evidence and the lower courts factual x x x x
conclusions. This is especially true when the CA affirmed the lower
courts findings, as in this case. Since the CAs findings of facts The delivery of promissory notes payable to order, or bills of
affirmed those of the trial court, they are binding on this Court, exchange or other mercantile documents shall produce the effect of
rendering any further factual review unnecessary. payment only when they have been cashed, or when through the
fault of the creditor they have been impaired. (Emphasis supplied)
If only to lay the issues raised - both factual and legal to rest, we
shall proceed to discuss their merits and demerits. Also, we held in Bank of the Philippine Islands v. Spouses Royeca:20
No Evidence Was Presented to Establish the Fact of Payment Settled is the rule that payment must be made in legal tender. A
check is not legal tender and, therefore, cannot constitute a valid
tender of payment. Since a negotiable instrument is only a

substitute for money and not money, the delivery of such an Q: In the case of the renewal of the loan you admitted that a
instrument does not, by itself, operate as payment. Mere delivery of renewal fee is charged to the debtor which he or she must pay
checks does not discharge the obligation under a judgment. The before a renewal is allowed. I show you Exhibit "3" official receipt of
obligation is not extinguished and remains suspended until the plaintiff dated July 3, 1997, would this be your official receipt which
payment by commercial document is actually realized.(Emphasis you issued to your client which they make renewal of the loan?
supplied)
A: Yes, sir.
Although Article 1271 of the Civil Code provides for a legal
presumption of renunciation of action (in cases where a private x x x x x x x x x
document evidencing a credit was voluntarily returned by the
creditor to the debtor), this presumption is merely prima facieand is Q: And naturally when a loan has been renewed, the old one which
not conclusive; the presumption loses efficacy when faced with is replaced by the renewal has already been cancelled, is that
evidence to the contrary. correct?
Moreover, the cited provision merely raises a presumption, not of A: Yes, sir.
payment, but of the renunciation of the credit where more
convincing evidence would be required than what normally would Q: It is also true to say that all promissory notes and all postdated
be called for to prove payment.21 Thus, reliance by the petitioner on checks covered by the old loan which have been the subject of the
the legal presumption to prove payment is misplaced. renewal are deemed cancelled and replaced is that correct?
To reiterate, no cash payment was proven by the petitioner. The A: Yes, sir. xxx22
cancellation and return of the check dated April 1, 1997, simply
established his renewal of the loan not the fact of payment. Civil Case No. 97-0572
Furthermore, it has been established during trial, through repeated
acts, that the respondent cancelled and surrendered the post-dated TSN November 27, 1998, Page 27.
check previously issued whenever the loan is renewed. We trace
whatwould amount to a practice under the facts of this case, to the Q: What happened to the check that Mr. Bognot issued?
following testimonial exchanges:
Court: There are two Bognots. Who in particular?
Civil Case No. 97-0572
Q: Leonardo Bognot, Your Honor.
TSN December 14, 1998, Page 13.
A: Every month, they were renewed, he issued a new check, sir.
Atty. Almeda:
Q: Do you have a copy of the checks?

A: We returned the check upon renewing the loan.23 14. The superimposition was done without the knowledge, consent
or prior consultation with Leonardo Bognot which was denied by
In light of these exchanges, wefind that the petitioner failed to plaintiff."25 (Emphasis supplied)
discharge his burden ofproving payment.
Significantly, the respondent also admitted in the Pre-Trial Order
The Alteration of the Promissory Note that part of its company practice is to rubber stamp, or make a
superimposition through a rubber stamp, the old promissory note
Did Not Relieve the Petitioner From Liability which has been renewed to make it appear that there is a new loan
obligation. The petitioner did not rebut this statement. To our mind,
We now come to the issue of material alteration. The petitioner the failure to rebut is tantamount to an admission of the
raised as defense the alleged material alteration of Promissory Note respondents allegations:
No. 97-035 as basis to claim release from his loan. He alleged that
the respondents superimposition of the due date "June 30, 1997" "22. That it is the practice of plaintiff to just rubber stamp or make
on the promissory note without his consent effectively relieved him superimposition through a rubber stamp on old promissory note
of liability. which has been renewed to make it appear that there is a new loan
obligation to which the plaintiff admitted." (Emphasis Supplied).26
We find this defense untenable.
Even assuming that the note had indeed been tampered without the
Although the respondent did not dispute the fact of alteration, he petitioners consent, the latter cannot totally avoid payment of his
nevertheless denied that the alteration was done without the obligation to the respondent based on the contract of loan.
petitioners consent. The parties Pre-Trial Order dated November 3,
199824 states that: Based on the records, the Bognot Siblings had applied for and were
granted a loan of P500,000.00 by the respondent. The loan was
xxx There being no possibility of a possible compromise agreement, evidenced by a promissory note and secured by a post-dated check27
stipulations, admissions, and denials were made, to wit: dated November 30, 1996. In fact, the petitioner himself admitted
his loan application was evidenced by the Promissory Note dated
FOR DEFENDANT LEONARDO BOGNOT April 1, 1997.28 This loan was renewed several times by the
petitioner, after paying the renewal fees, as shown by the Official
13. That the promissory note subject of this case marked as Annex Receipt Nos. 79729 and 58730 dated May 5 and July 3, 1997,
"A" of the complaint was originally dated April 1, 1997 with a respectively. These official receipts were issued in the name of the
superimposed rubber stamp mark "June 30, 1997" to which the petitioner. Although the petitioner had insisted that the loan had
plaintiff admitted the superimposition. been extinguished, no other evidence was presented to prove
payment other than the cancelled and returnedpost-dated check.

Under this evidentiary situation, the petitioner cannot validly deny It is a settled principle of law thatno issue may be raised on appeal
his obligation and liability to the respondent solely on the ground unless it has been brought before the lower tribunal for its
that the Promissory Note in question was tampered. Notably, the consideration.34 Matters neither alleged in the pleadingsnor raised
existence of the obligation, as well as its subsequent renewals, have during the proceedings below cannot be ventilated for the first time
been duly established by: first, the petitioners application for the on appeal before the Supreme Court.35
loan; second, his admission that the loan had been obtained from
the respondent; third, the post-dated checks issued by the In any event, we find no merit in the defense of novation as we
petitioner to secure the loan; fourth, the testimony of Mr. Bernardez discuss at length below. Novation cannot be presumed and must be
on the grant, renewal and non-payment of the loan; fifth, proof of clearly and unequivocably proven.
non-payment of the loan; sixth, the loan renewals; and seventh, the
approval and receipt of the loan renewals. Novation is a mode of extinguishing an obligation by changing its
objects or principal obligations, by substituting a new debtor in
In Guinsatao v. Court of Appeals,31 this Court pointed out that while place of the old one, or by subrogating a third person to the rights of
a promissory note is evidence of an indebtedness, it is not the only the creditor.36
evidence, for the existence of the obligation can be proven by other
documentary evidence such as a written memorandum signed by Article 1293 of the Civil Code defines novation as follows:
the parties. In Pacheco v. Court of Appeals,32 this Court likewise
expressly recognized that a check constitutes anevidence of "Art. 1293. Novation which consists insubstituting a new debtor in
indebtedness and is a veritable proof of an obligation. It canbe used the place of the originalone, may be made even without the
in lieu of and for the same purpose as a promissory note and can knowledge or against the will of the latter, but not without the
therefore be presented to establish the existence of indebtedness.33 consent of the creditor. Payment by the new debtor gives him rights
mentioned in Articles 1236 and 1237."
In the present petition, we find that the totality of the evidence on
record sufficiently established the existence of the petitioners To give novation legal effect, the original debtor must be expressly
indebtedness (and liability) based on the contract ofloan. Even with released from the obligation, and the new debtor must assume the
the tampered promissory note, we hold that the petitioner can still original debtors place in the contractual relationship. Depending on
be held liable for the unpaid loan. who took the initiative, novation by substitution of debtor has two
forms substitution by expromision and substitution by delegacion.
The Petitioners BelatedClaim of Novation by Substitution May no The difference between these two was explained in Garcia v.
Longer be Entertained Llamas:37
It has not escaped the Courts attention that the petitioner raised "In expromision, the initiative for the change does not come from --
the argument that the obligation had been extinguished by and may even be made without the knowledge of -- the debtor,
novation. The petitioner never raised this issue before the lower since it consists of a third persons assumption of the obligation. As
courts. such, it logically requires the consent of the third person and the

creditor. In delegacion, the debtor offers, and the creditor accepts, a Since the petitioner failed to show thatthe respondent assented to
third person who consents to the substitution and assumes the the substitution, no valid novation took place with the effect of
obligation; thus, the consent of these three persons are necessary." releasing the petitioner from his obligation to the respondent.
In both cases, the original debtor must be released from the Moreover, in the absence of showing that Mrs. Bognot and the
obligation; otherwise, there can be no valid novation.38 respondent had agreed to release the petitioner, the respondent
Furthermore, novation by substitution of debtor must alwaysbe can still enforce the payment of the obligation against the original
made with the consent of the creditor.39 debtor. Mere acquiescence to the renewal of the loan, when there is
clearly no agreement to release the petitioner from his
The petitioner contends thatnovation took place through a responsibility, does not constitute novation.
substitution of debtors when Mrs. Bognot renewed the loan and
assumed the debt. He alleged that Mrs. Bognot assumed the The Nature of the Petitioners Liability
obligation by paying the renewal fees and charges, and by executing
a new promissory note. He further claimed that she issued her own On the nature of the petitioners liability, we rule however, that the
check40 to cover the renewal fees, which fact, according to the CA erred in holding the petitioner solidarily liable with Rolando.
petitioner, was done with the respondents consent.
A solidary obligation is one in which each of the debtors is liable for
Contrary to the petitioners contention, Mrs. Bognot did not the entire obligation, and each of the creditors is entitled to demand
substitute the petitioner as debtor. She merely attempted to renew the satisfaction of the whole obligation from any or all of the
the original loan by executing a new promissory note41 and check. debtors.42 There is solidary liability when the obligation expressly so
The purported one month renewal of the loan, however, did not states, when the law so provides, or when the nature of the
push through, as Mrs. Bognot did not return the documents or issue obligation so requires.43 Thus, when the obligor undertakes to be
a new post dated check. Since the loan was not renewed for another "jointly and severally" liable, the obligation is solidary,
month, the originaldue date, June 30,1997, continued to stand.
In this case, both the RTC and the CA found the petitioner solidarily
More importantly, the respondent never agreed to release the liable with Rolando based on Promissory Note No. 97-035 dated
petitioner from his obligation. That the respondent initially allowed June 30, 1997. Under the promissory note, the Bognot Siblings
Mrs. Bognot to bring home the promissory note, disclosure defined the parameters of their obligation as follows:
statement and the petitioners previous check dated June 30, 1997,
does not ipso factoresult in novation. Neither will this acquiescence "FOR VALUE RECEIVED, I/WE, jointly and severally, promise to pay to
constitute an implied acceptance of the substitution of the debtor. READY RESOURCES INVESTORS RRI LENDING CORPO. or Order, its
office at Paranaque, M.M. the principal sum of Five Hundred
In order to give novation legal effect, the creditor should consent to Thousand PESOS (P500,000.00), PhilippineCurrency, with interest
the substitution of a new debtor. Novation must be clearly and thereon at the rate of Five percent (5%) per month/annum, payable
unequivocally shown, and cannot be presumed. in One Installment (01) equal daily/weekly/semi-monthly/monthly

of PESOS Five Hundred Thousand Pesos (P500,000.00), first The 5% Monthly Interest Stipulated in the Promissory Note is
installment to become due on June 30, 1997. xxx"44 (Emphasis Ours). Unconscionable and Should be Equitably Reduced
Although the phrase "jointly and severally" in the promissory note Finally, on the issue of interest, while we agree with the CA that the
clearly and unmistakably provided for the solidary liability of the petitioner is liable to the respondentfor the unpaid loan, we find the
parties, we note and stress that the promissory note is merely a imposition of the 5% monthly interest to be excessive, iniquitous,
photocopyof the original, which was never produced. unconscionable and exorbitant, and hence, contrary to morals and
jurisprudence. Although parties to a loan agreement have wide
Under the best evidence rule, whenthe subject of inquiry is the latitude to stipulate on the applicable interest rate under Central
contents of a document, no evidence isadmissible other than the Bank Circular No. 905 s. 1982 (which suspended the Usury Law
original document itself except in the instances mentioned in ceiling on interest effective January 1, 1983), we stress that
Section 3, Rule 130 of the Revised Rules of Court.45 unconscionable interest rates may still be declared illegal.49
The records show that the respondenthad the custody of the In several cases, we haveruled that stipulations authorizing
original promissory note dated April 1, 1997, with a superimposed iniquitous or unconscionable interests are contrary to morals and
rubber stamp mark "June 30, 1997", and that it had been given are illegal. In Medel v. Court of Appeals,50 we annulled a stipulated
every opportunity to present it. The respondent even admitted 5.5% per month or 66% per annum interest on a P500,000.00 loan,
during pre-trial that it could not present the original promissory and a 6% per month or 72% per annum interest on a P60,000.00
note because it is in the custody of its cashier who is stranded in loan, respectively, for being excessive, iniquitous,
Bicol.46 Since the respondent never produced the original of the unconscionableand exorbitant.1wphi1
promissory note, much less offered to produce it, the photocopy of
the promissory note cannot be admitted as evidence. Other than the We reiterated this ruling in Chua v. Timan,51 where we held that the
promissory note in question, the respondent has not presented any stipulated interest rates of 3% per month and higher are excessive,
other evidence to support a finding of solidary liability. As we earlier iniquitous, unconscionable and exorbitant, and must therefore be
noted, both lower courts completely relied on the note when they reduced to 12% per annum.
found the Bognot siblingssolidarily liable.
Applying these cited rulings, we now accordingly hold that the
The well-entrenched rule is that solidary obligation cannot be stipulated interest rate of 5% per month, (or 60% per annum) in the
inferred lightly. It must be positively and clearly expressed and promissory note is excessive, unconscionable, contrary to morals
cannot be presumed.47 and is thus illegal. It is void ab initiofor violating Article 130652 of the
Civil Code.1wphi1 We accordingly find it equitable to reduce the
In view of the inadmissibility of the promissory note, and in the interest rate from 5% per month to 1% per month or 12% per
absence of evidence showing that the petitioner had bound himself annum in line with the prevailing jurisprudence.
solidarily with Rolando for the payment of the loan, we cannot but
conclude that the obligation to pay is only joint.48

WHEREFORE, premises considered, the Decision dated March 28, of First Instance of Rizal, Quezon City Branch, in its Civil Case No.
2007 of the Court of Appeals in CA-G.R. CV No. 66915 is hereby 1355, absolving the defendants from a complaint for the
AFFIRMED with MODIFICATION, as follows: abatement of the sub-station as a nuisance and for damages to his
health and business in the amount of P487,600.00.
1. The petitioner Leonardo A. Bognotand his brother,
Rolando A. Bognot are JOINTLY LIABLE to pay the sum of In 1948, appellant Velasco bought from the People's Homesite
P500,000.00 plus 12% interest per annum from December 3, and Housing Corporation three (3) adjoining lots situated at the
1997 until fully paid. corner of South D and South 6 Streets, Diliman, Quezon City.
These lots are within an area zoned out as a "first residence"
2. The rest of the Court of Appeals' dispositions are hereby district by the City Council of Quezon City. Subsequently, the
AFFIRMED. appellant sold two (2) lots to the Meralco, but retained the third
lot, which was farthest from the street-corner, whereon he built
Costs against petitioner Leonardo A. Bognot. his house.

SO ORDERED. In September, 1953, the appellee company started the
construction of the sub-station in question and finished it the
following November, without prior building permit or authority
from the Public Service Commission (Meralco vs. Public Service
Commission, 109 Phil. 603). The facility reduces high voltage
electricity to a current suitable for distribution to the company's
consumers, numbering not less than 8,500 residential homes,

75. G.R. No. L-18390 August 6, 1971 over 300 commercial establishments and about 30 industries
(T.s.n., 19 October 1959, page 1765). The substation has a rated
capacity of "2 transformers at 5000 Kva each or a total of 10,000
PEDRO J. VELASCO, plaintiff-appellant,
vs. Kva without fan cooling; or 6250 Kva each or a total of 12,500
MANILA ELECTRIC CO., WILLIAM SNYDER, its Kva with fan cooling" (Exhibit "A-3"). It was constructed at a
President; JOHN COTTON and HERMENEGILDO B. distance of 10 to 20 meters from the appellant's house (T.s.n., 16
REYES, its Vice-Presidents; and ANASTACIO A. AGAN, July 1956, page 62; 19 December 1956, page 343; 1 June 1959,
page 29). The company built a stone and cement wall at the sides
City Engineer of Quezon City, defendants-appellees.
along the streets but along the side adjoining the appellant's
property it put up a sawale wall but later changed it to an
REYES, J.B.L., J.: interlink wire fence.

The present case is direct appeal (prior to Republic Act 5440) by It is undisputed that a sound unceasingly emanates from the
the herein plaintiff-appellant, Pedro J. Velasco (petitioner in L- substation. Whether this sound constitutes an actionable
14035; respondent in L-13992) * from the decision of the Court nuisance or not is the principal issue in this case.

The general rule is that everyone is bound to bear the habitual or
Plaintiff-appellant Velasco contends that the sound constitutes an customary inconveniences that result from the proximity of
actionable nuisance under Article 694 of the Civil Code of the others, and so long as this level is not surpassed, he may not
Philippines, reading as follows: complain against them. But if the prejudice exceeds the
inconveniences that such proximity habitually brings, the
A nuisance is any act, omission, establishment, business neighbor who causes such disturbance is held responsible for the
condition of property or anything else which: resulting damage, 1 being guilty of causing nuisance.

(1) Injuries or endangers the health or safety of others; or While no previous adjudications on the specific issue have been
made in the Philippines, our law of nuisances is of American
(2) Annoys or offends the senses; origin, and a review of authorities clearly indicates the rule to be
that the causing or maintenance of disturbing noise or sound may
xxx xxx xxx constitute an actionable nuisance (V. Ed. Note, 23 ALR, 2d 1289).
The basic principles are laid down in Tortorella vs. Traiser & Co.,
because subjection to the sound since 1954 had disturbed the Inc., 90 ALR 1206:
concentration and sleep of said appellant, and impaired his
health and lowered the value of his property. Wherefore, he A noise may constitute an actionable nuisance, Rogers vs. Elliott,
sought a judicial decree for the abatement of the nuisance and 146 Mass, 349, 15 N.E. 768, 4 Am. St. Rep. 316, Stevens v.
asked that he be declared entitled to recover compensatory, Rockport Granite Co., 216 Mass. 486, 104 N.E. 371, Ann. Cas.
moral and other damages under Article 2202 of the Civil Code. 1915B, 1954, Stodder v. Rosen Talking Machine Co., 241 Mass.
245, 135 N. E. 251, 22 A. L. R. 1197, but it must be a noise which
ART. 2202. In crimes and quasi-delicts, the defendant shall be affects injuriously the health or comfort of ordinary people in the
liable for all damages which are the natural and probable vicinity to an unreasonable extent. Injury to a particular person
consequences of the act or omission complained of. It is not in a peculiar position or of specially sensitive characteristics will
necessary that such damages have been foreseen or could have not render the noise an actionable nuisance. Rogers v. Elliott, 146
reasonably been foreseen by the defendant. Mass. 349, 15 N. E. 768, 4 Am. St. Rep. 316. In the conditions of
present living noise seems inseparable from the conduct of many
After trial, as already observed, the court below dismissed the necessary occupations. Its presence is a nuisance in the popular
claim of the plaintiff, finding that the sound of substation was sense in which that word is used, but in the absence of statute
unavoidable and did not constitute nuisance; that it could not noise becomes actionable only when it passes the limits of
have caused the diseases of anxiety neurosis, pyelonephritis, reasonable adjustment to the conditions of the locality and of the
ureteritis, lumbago and anemia; and that the items of damage needs of the maker to the needs of the listener. What those limits
claimed by plaintiff were not adequate proved. Plaintiff then are cannot be fixed by any definite measure of quantity or
appealed to this Court. quality. They depend upon the circumstances of the particular
case. They may be affected, but are not controlled, by zoning
ordinances. Beane v. H. J. Porter, Inc., 280 Mass. 538, 182 N. E.

823, Marshal v. Holbrook, 276 Mass. 341, 177 N. E. 504, Strachan was shown to be of that character. The determinating factor
v. Beacon Oil Co., 251 Mass. 479, 146 N. E. 787. The delimitation when noise alone is the cause of complaint is not its intensity or
of designated areas to use for manufacturing, industry or general volume. It is that the noise is of such character as to produce
business is not a license to emit every noise profitably attending actual physical discomfort and annoyance to a person of ordinary
the conduct of any one of them. Bean v. H. J. Porter, Inc.. 280 sensibilities, rendering adjacent property less comfortable and
Mass. 538, 182 N. E. 823. The test is whether rights of property of valuable. If the noise does that it can well be said to be
health or of comfort are so injuriously affected by the noise in substantial and unreasonable in degree; and reasonableness is a
question that the sufferer is subjected to a loss which goes question of fact dependent upon all the circumstances and
beyond the reasonable limit imposed upon him by the condition conditions. 20 R. C. L. 445, 453; Wheat Culvert Company v.
of living, or of holding property, in a particular locality in fact Jenkins, supra. There can be no fixed standard as to what kind of
devoted to uses which involve the emission of noise although noise constitutes a nuisance. It is true some witnesses in this case
ordinary care is taken to confine it within reasonable bounds; or say they have been annoyed by the humming of these
in the vicinity of property of another owner who though creating transformers, but that fact is not conclusive as to the
a noise is acting with reasonable regard for the rights of those nonexistence of the cause of complaint, the test being the effect
affected by it. Stevens v. Rockport Granite Co., 216 Mass. 486, 104 which is had upon an ordinary person who is neither sensitive
NE 371, Ann. Cas. 1915B, 1054. nor immune to the annoyance concerning which the complaint is
made. In the absence of evidence that the complainant and his
With particular reference to noise emanating from electrical family are supersensitive to distracting noises, it is to be assumed
machinery and appliances, the court, in Kentucky & West Virginia that they are persons of ordinary and normal sensibilities.
Power Co. v. Anderson, 156 S. W. 2d 857, after a review of Roukovina v. Island Farm Creamery Company, 160 Minn. 335,
authorities, ruled as follows: 200 N. W. 350, 38 A. L. R. 1502.

There can be no doubt but that commercial and industrial xxx xxx xxx
activities which are lawful in themselves may become nuisances
if they are so offensive to the senses that they render the In Wheat Culvert Company vs. Jenkins, supra, we held an
enjoyment of life and property uncomfortable. It is no defense injunction was properly decreed to stop the noise from the
that skill and care have been exercised and the most improved operation of a metal culvert factory at night which interfered
methods and appliances employed to prevent such result. Wheat with the sleep of the occupants of an adjacent residence. It is true
Culvert Company v. Jenkins, 246 Ky. 319, 55 S. W. 2d 4; 46 C.J. the clanging, riveting and hammering of metal plates produces a
683, 705; 20 R. C. L. 438; Annotations, 23 A. L. R. 1407; 90 A. L. R. sound different in character from the steady hum or buzz of the
1207. Of course, the creation of trifling annoyance and electric machinery described in this case. In the Jenkins case the
inconvenience does not constitute an actionable nuisance, and noise was loud, discordant and intermittent. Here it is
the locality and surroundings are of importance. The fact that the interminable and monotonous. Therein lies the physical
cause of the complaint must be substantial has often led to annoyance and disturbance. Though the noise be harmonious
expressions in the opinions that to be a nuisance the noise must and slight and trivial in itself, the constant and monotonous
be deafening or loud or excessive and unreasonable. Usually it sound of a cricket on the earth, or the drip of a leaking faucet is

irritating, uncomfortable, distracting and disturbing to the OSCAR SANTOS, Chief Building Inspector, Department of
average man and woman. So it is that the intolerable, steady Engineering, Quezon City ____ "the sound (at the front door of
monotony of this ceaseless sound, loud enough to interfere with plaintiff Velasco's house) becomes noticeable only when I tried to
ordinary conversation in the dwelling, produces a result concentrate ........" (T.s.n., 16 July 1956, page 50)
generally deemed sufficient to constitute the cause of it an
actionable nuisance. Thus, it has been held the continuous and SERAFIN VILLARAZA, Building Inspector ____ "..... like a high pitch
monotonous playing of a phonograph for advertising purposes on note." (the trial court's description as to the imitation of noise
the street even though there were various records, singing, made by witness:"........ more of a hissing sound) (T.s.n., 16 July
speaking and instrumental, injuriously affected plaintiff's 1956, pages 59-60)
employees by a gradual wear on their nervous systems, and
otherwise, is a nuisance authorizing an injunction and damages. CONSTANCIO SORIA, City Electrician ____ "........ humming sound"
Frank F. Stodder, et al. v. Rosen Talking Machine Company, 241 ..... "of a running car". (T.s.n., 16 July 1956, page 87)
Mass. 245, 135 N. E. 251, 22 A. L. R. 1197.
JOSE R. ALVAREZ, Sanitary Engineer, Quezon City Health
The principles thus laid down make it readily apparent that Department ____ "..... substation emits a continuous rumbling
inquiry must be directed at the character and intensity of the sound which is audible within the premises and at about a radius
noise generated by the particular substation of the appellee. As of 70 meters." "I stayed there from 6:00 p.m. to about 1:00
can be anticipated, character and loudness of sound being of o'clock in the morning" ..... "increases with the approach of
subjective appreciation in ordinary witnesses, not much help can twilight." (T.s.n., 5 September 1956, pages 40-44)
be obtained from the testimonial evidence. That of plaintiff
Velasco is too plainly biased and emotional to be of much value. NORBERTO S. AMORANTO, Quezon City Mayor ____ (for 30
His exaggerations are readily apparent in paragraph V of his minutes in the street at a distance of 12 to 15 meters from sub-
amended complaint, signed by him as well as his counsel, station) "I felt no effect on myself." "..... no [piercing noise]"
wherein the noise complained of as (T.s.n., 18 September 1956, page 189)

fearful hazardous noise and clangor are produced by the said PACIFICO AUSTRIA, architect, appellant's neighbor: "..... like an
electric transformer of the MEC's substation, approximating a approaching airplane ..... around five kilometers away." (T.s.n., 19
noise of a reactivated about-to-explode volcano, perhaps like the November 1956, pages 276-277)
nerve wracking noise of the torture chamber in Germany's
Dachau or Buchenwald (Record on Appeal, page 6). ANGEL DEL ROSARIO, radiologist, appellant's neighbor: "..... as if
it is a running motor or a running dynamo, which disturbs the ear
The estimate of the other witnesses on the point of inquiry are and the hearing of a person." T.s.n., 4 December 1956, page 21)
vague and imprecise, and fail to give a definite idea of the
intensity of the sound complained of. Thus: ANTONIO D. PAGUIA, lawyer ____ "It may be likened to the sound
emitted by the whistle of a boat at a far distance but it is very
audible." (T.s.n., 19 December 1956, page 309)

respectively; on 7 September 1957, at 9:30 a.m., the sound level
RENE RODRIGUEZ, sugar planter and sugar broker, appellant's under the sampaloc tree was 74-76 decibels; and on 8 September
neighbor ____ "It sounds like a big motor running continuously." 1957 at 3:35 in the morning, the reading under the same tree was
(T.s.n., 19 December 1956, page 347) 70 decibels, while near the kitchen it was 79-80 decibels. Several
measurements were also taken inside and outside the house
SIMPLICIO BELISARIO, Army captain, ____ (on a visit to Velasco) (Exhibit "NN-7, b-f"). The ambient sound of the locality, or that
"I can compare the noise to an airplane C-47 being started - the sound level characteristic of it or that sound predominating
motor." [Did not notice the noise from the substation when minus the sound of the sub-station is from 28 to 32 decibels.
passing by, in a car, Velasco's house] (T.s.n., 7 January 1957, (T.s.n., 26 March 1958, pages 6-7)
pages 11-12)
Mamerto Buenafe, superintendent of the appellee's electrical
MANOLO CONSTANTINO, businessman, appellant's neighbor ____ laboratory, also took sound level samplings. On 19 December
"It disturbs our concentration of mind." (T.s.n., 10 January 1957, 1958, between 7:00 to 7:30 o'clock in the evening, at the
page 11) substation compound near the wire fence or property line, the
readings were 55 and 54 and still near the fence close to the
PEDRO PICA, businessman, appellant's neighbor: "..... We can sampaloc tree, it was 52 decibels; outside but close to the
hear it very well [at a distance of 100 to 150 meters]. (T.s.n., 10 concrete wall, the readings were 42 to 43 decibels; and near the
January 1957, page 41) transformers, it was 76 decibels (Exhibit "13").

CIRENEO PUNZALAN, lawyer ____ "..... a continuous droning, ..... Buenafe also took samplings at the North General Hospital on 4
like the sound of an airplane." (T.s.n., 17 January 1957, page 385) January 1959 between 9:05 to 9:45 in the evening. In the
different rooms and wards from the first to the fourth floors, the
JAIME C. ZAGUIRRE, Chief, Neuro-Psychiatry Section, V. Luna readings varied from 45 to 67 decibels.
Gen. Hospital ____ "..... comparatively the sound was really loud to
bother a man sleeping." (T.s.n., 17 January 1957, page 406) Technical charts submitted in evidence show the following
intensity levels in decibels of some familiar sounds: average
We are thus constrained to rely on quantitative measurements residence: 40; average office: 55; average automobile, 15 feet: 70;
shown by the record. Under instructions from the Director of noisiest spot at Niagara Falls: 92 (Exhibit "11- B"); average
Health, samplings of the sound intensity were taken by Dr. Jesus dwelling: 35; quiet office: 40; average office: 50; conversation:
Almonte using a sound level meter and other instruments. Within 60; pneumatic rock drill: 130 (Exhibit "12"); quiet home
the compound of the plaintiff-appellant, near the wire fence average living room: 40; home ventilation fan, outside sound of
serving as property line between him and the appellee, on 27 good home airconditioner or automobile at 50 feet: 70 (Exhibit
August 1957 at 11:45 a.m., the sound level under the sampaloc "15-A").
tree was 46-48 decibels, while behind Velasco's kitchen, the
meter registered 49-50; at the same places on 29 August 1957, at Thus the impartial and objective evidence points to the sound
6:00 a.m., the readings were 56-59 and 61-62 decibels, emitted by the appellee's substation transformers being of much

higher level than the ambient sound of the locality. The Appellee company argues that the plaintiff should not be heard to
measurements taken by Dr. Almonte, who is not connected with complain because the sound level at the North General Hospital,
either party, and is a physician to boot (unlike appellee's where silence is observed, is even higher than at his residence.
electrical superintendent Buenafe), appear more reliable. The This comparison lacks basis because it has not been established
conclusion must be that, contrary to the finding of the trial court, that the hospital is located in surroundings similar to the
the noise continuously emitted, day and night, constitutes an residential zone where the plaintiff lived or that the sound at the
actionable nuisance for which the appellant is entitled to relief, hospital is similarly monotonous and ceaseless as the sound
by requiring the appellee company to adopt the necessary emitted by the sub-station.
measures to deaden or reduce the sound at the plaintiff's house,
by replacing the interlink wire fence with a partition made of Constancio Soria testified that "The way the transformers are
sound absorbent material, since the relocation of the substation built, the humming sound cannot be avoided". On this testimony,
is manifestly impracticable and would be prejudicial to the the company emphasizes that the substation was constructed for
customers of the Electric Company who are being serviced from public convenience. Admitting that the sound cannot be
the substation. eliminated, there is no proof that it cannot be reduced. That the
sub-station is needed for the Meralco to be able to serve well its
Appellee company insists that as the plaintiff's own evidence customers is no reason, however, why it should be operated to
(Exhibit "NN-7[c]") the intensity of the sound (as measured by the detriment and discomfort of others. 2
Dr. Almonte) inside appellant's house is only 46 to 47 decibels at
the consultation room, and 43 to 45 decibels within the The fact that the Meralco had received no complaint although it
treatment room, the appellant had no ground to complain. This had been operating hereabouts for the past 50 years with
argument is not meritorious, because the noise at the bedrooms substations similar to the one in controversy is not a valid
was determined to be around 64-65 decibels, and the medical argument. The absence of suit neither lessens the company's
evidence is to the effect that the basic root of the appellant's liability under the law nor weakens the right of others against it
ailments was his inability to sleep due to the incessant noise with to demand their just due.
consequent irritation, thus weakening his constitution and
making him easy prey to pathogenic germs that could not As to the damages caused by the noise, appellant Velasco, himself
otherwise affect a person of normal health. a physician, claimed that the noise, as a precipitating factor, has
caused him anxiety neurosis, which, in turn, predisposed him to,
In Kentucky and West Virginia Co., Inc. vs. Anderson, 156 SW. or is concomitant with, the other ailments which he was suffering
857, the average of three readings along the plaintiff's fence was at the time of the trial, namely, pyelonephritis, ureteritis and
only 44 decibels but, because the sound from the sub-station was others; that these resulted in the loss of his professional income
interminable and monotonous, the court authorized an and reduced his life expectancy. The breakdown of his claims is
injunction and damages. In the present case, the three readings as follows:
along the property line are 52, 54 and 55 decibels. Plaintiff's case
is manifestly stronger. Loss of professional earnings P12,600
Damage to life expectancy 180,000

Moral damages 100,000 Considering, therefore, his actual earnings, the claimed moral
Loss due to frustration of sale of house 125,000 damages of P100,000.00 are utterly disproportionate. The
Exemplary damages 25,000 alleged losses for shortening of appellant's, life expectancy are
Attorneys' fees 45,000 not only inflated but speculative.

A host of expert witnesses and voluminous medical literature, As to the demand for exemplary or punitive damages, there
laboratory findings and statistics of income were introduced in appears no adequate basis for their award. While the appellee
support of the above claims. Manila Electric Company was convicted for erecting the
substation in question without permit from the Public Service
The medical evidence of plaintiff's doctors preponderates over Commission, We find reasonable its explanation that its officials
the expert evidence for defendant-appellee, not merely because and counsel had originally deemed that such permit was not
of its positive character but also because the physicians required as the installation was authorized by the terms of its
presented by plaintiff had actually treated him, while the defense franchise (as amended by Republic Act No. 150) requiring it to
experts had not done so. Thus the evidence of the latter was to a spend within 5 years not less than forty million pesos for
large extent conjectural. That appellant's physical ailments maintenance and additions to its electric system, including
should be due to infectious organisms does not alter the fact that needed power plants and substations. Neither the absence of
the loss of sleep, irritation and tension due to excessive noise such permit from the Public Service Commission nor the lack of
weakened his constitution and made him easy prey to the permit from the Quezon City authorities (a permit that was
infection. subsequently granted) is incompatible with the Company's good
faith, until the courts finally ruled that its interpretation of the
Regarding the amount of damages claimed by appellant, it is plain franchise was incorrect.
that the same are exaggerated. To begin with, the alleged loss of
earnings at the rate of P19,000 per annum is predicated on the There are, moreover, several factors that mitigate defendant's
Internal Revenue assessment, Exhibit "QQ-1", wherein appellant liability in damages. The first is that the noise from the substation
was found to have undeclared income of P8,338.20 in additional does not appear to be an exclusive causative factor of plaintiff-
to his declared gross income of P10,975.00 for 1954. There is no appellant's illnesses. This is proved by the circumstance that no
competent showing, however, that the source of such undeclared other person in Velasco's own household nor in his immediate
income was appellant's profession. In fact, the inference would be neighborhood was shown to have become sick despite the noise
to the contrary, for his gross income from the previous years complained of. There is also evidence that at the time the
1951 to 1953 [Exhibits "QQ-1 (d)" to "QQ-1 (f)"] was only plaintiff-appellant appears to have been largely indebted to
P8,085.00, P5,860.00 and P7,120.00, respectively, an average of various credit institutions, as a result of his unsuccessful
P7,000.00 per annum. Moreover, while his 1947 and 1948 gubernatorial campaign, and this court can take judicial
income was larger (P9,995.00 and P11,900.00), it appears that cognizance of the fact that financial worries can affect
P5,000 thereof was the appellant's annual salary from the unfavorably the debtor's disposition and mentality.
Quezon Memorial Foundation, which was not really connected
with the usual earnings derived from practice as a physician.

The other factor militating against full recovery by the petitioner P125,000.00. The testimony of Valencia proves that in the
Velasco in his passivity in the face of the damage caused to him dialogue between him and Velasco, part of the subject of their
by the noise of the substation. Realizing as a physician that the conversation was about the prior offer, but it does not
latter was disturbing or depriving him of sleep and affecting both corroborate or prove the reality of the offer for P125,000.00. The
his physical and mental well being, he did not take any steps to testimony of Velasco on this point, standing alone, is not credible
bring action to abate the nuisance or remove himself from the enough, what with his penchant for metaphor and exaggeration,
affected area as soon as the deleterious effects became as previously adverted to. It is urged in appellant's brief, along
noticeable. To evade them appellant did not even have to sell his the lines of his own testimony, that since one (1) transformer
house; he could have leased it and rented other premises for was measured by witness, Jimenez with a noise intensity of 47.2
sleeping and maintaining his office and thus preserve his health decibels at a distance of 30.48 meters, the two (2) transformers
as ordinary prudence demanded. Instead he obstinately stayed of the substation should create an intensity of 94.4 decibels at the
until his health became gravely affected, apparently hoping that same distance. If this were true, then the residence of the plaintiff
he would thereby saddle appellee with large damages. is more noisy than the noisiest spot at the Niagara Falls, which
registers only 92 decibels (Exhibit "15-A").
The law in this jurisdiction is clear. Article 2203 prescribes that
"The party suffering loss or injury must exercise the diligence of a Since there is no evidence upon which to compute any loss or
good father of a family to minimize the damages resulting from damage allegedly incurred by the plaintiff by the frustration of
the act or omission in question". This codal rule, which embodies the sale on account of the noise, his claim therefore was correctly
the previous jurisprudence on the point, 3 clearly obligates the disallowed by the trial court. It may be added that there is no
injured party to undertake measures that will alleviate and not showing of any further attempts on the part of appellant to
aggravate his condition after the infliction of the injury, and dispose of the house, and this fact suffices to raise doubts as to
places upon him the burden of explaining why he could not do so. whether he truly intended to dispose of it. He had no actual need
This was not done. to do so in order to escape deterioration of his health, as
heretofore noted.
Appellant Velasco introduced evidence to the effect that he tried
to sell his house to Jose Valencia, Jr., in September, 1953, and on a Despite the wide gap between what was claimed and what was
60 day option, for P95,000.00, but that the prospective buyer proved, the plaintiff is entitled to damages for the annoyance and
backed out on account of his wife objecting to the noise of the adverse effects suffered by him since the substation started
substation. There is no reliable evidence, however, how much functioning in January, 1954. Considering all the circumstances
were appellant's lot and house worth, either before the option disclosed by the record, as well as appellant's failure to minimize
was given to Valencia or after he refused to proceed with the sale the deleterious influences from the substation, this Court is of the
or even during the intervening period. The existence of a opinion that an award in the amount of P20,000.00, by way of
previous offer for P125,000.00, as claimed by the plaintiff, was moderate and moral damages up to the present, is reasonable.
not corroborated by Valencia. What Valencia testified to in his Recovery of attorney's fees and litigation expenses in the sum of
deposition is that when they were negotiating on the price P5,000.00 is also
Velasco mentioned to him about an offer by someone for

justified the factual and legal issues were intricate (the substation at South D and South 6 Streets, Diliman, Quezon City,
transcript of the stenographic notes is about 5,000 pages, side or take appropriate measures to reduce its noise at the property
from an impressive number of exhibits), and raised for the first line between the defendant company's compound and that of the
time in this jurisdiction. 4 plaintiff-appellant to an average of forty (40) to fifty (50) decibels
within 90 days from finality of this decision; and to pay the said
The last issue is whether the City Engineer of Quezon City, plaintiff-appellant P20,000.00 in damages and P5,000.00 for
Anastacio A. Agan, a co-defendant, may be held solidarily liable attorney's fees. In all other respects, the appealed decision is
with Meralco. affirmed. No costs.

Agan was included as a party defendant because he allegedly (1)
did not require the Meralco to secure a building permit for the
construction of the substation; (2) even defended its construction
by not insisting on such building permit; and (3) did not initiate 76. G.R. No. L-36706 March 31, 1980
its removal or demolition and the criminal prosecution of the
officials of the Meralco. COMMISSIONER OF PUBLIC HlGHWAYS, petitioner,
vs.
The record does not support these allegations. On the first plea, it HON. FRANCISCO P. BURGOS, in his capacity as Judge
was not Agan's duty to require the Meralco to secure a permit of the Court of First Instance of Cebu City, Branch 11,
before the construction but for Meralco to apply for it, as per and Victoria Amigable, respondents.
Section 1. Ordinance No. 1530, of Quezon City. The second
allegation is not true, because Agan wrote the Meralco requiring DE CASTRO, J.:
it to submit the plan and to pay permit fees (T.s.n., 14 January
1960, pages 2081-2082). On the third allegation, no law or Victoria Amigable is the owner of parcel of land situated in Cebu
ordinance has been cited specifying that it is the city engineer's City with an area of 6,167 square meters. Sometime in 1924, the
duty to initiate the removal or demolition of, or for the criminal Government took this land for road-right-of-way purpose. The
prosecution of, those persons who are responsible for the land had since become streets known as Mango Avenue and
nuisance. Republic Act 537, Section 24 (d), relied upon by the Gorordo Avenue in Cebu City.
plaintiff, requires an order by, or previous approval of, the mayor
for the city engineer to cause or order the removal of buildings or On February 6, 1959, Victoria Amigable filed in the Court of First
structures in violation of law or ordinances, but the mayor could Instance of Cebu a complaint, which was later amended on April
not be expected to take action because he was of the belief, as he 17, 1959 to recover ownership and possession of the land, and
testified, that the sound "did not have any effect on his body." for damages in the sum of P50,000.00 for the alleged illegal
occupation of the land by the Government, moral damages in the
FOR THE FOREGOING REASONS, the appealed decision is hereby sum of P25,000.00, and attorney's fees in the sum of P5,000.00,
reversed in part and affirmed in part. The defendant-appellee plus costs of suit. The complaint was docketed as Civil Case No. R-
Manila Electric Company is hereby ordered to either transfer its 5977 of the Court of First Instance of Cebu, entitled "Victoria

Amigable vs. Nicolas Cuenca, in his capacity as Commissioner of P49,459.34 as the value of the property taken, plus P145,410.44
Public Highway and Republic of the Philippines. 1 representing interest at 6% on the principal amount of
P49,459.34 from the year 1924 up to the date of the decision,
In its answer, 2 the Republic alleged, among others, that the land plus attorney's fees of 10% of the total amount due to Victoria
was either donated or sold by its owners to the province of Cebu Amigable, or a grand total of P214,356.75. 6
to enhance its value, and that in any case, the right of the owner,
if any, to recover the value of said property was already barred The aforesaid decision of the respondent court is now the subject
by estoppel and the statute of limitations, defendants also of the present petition for review by certiorari, filed by the
invoking the non-suability of the Government. Solicitor General as counsel of the petitioner, Republic of the
Philippines, against the landowner, Victoria Amigable, as private
In a decision rendered on July 29, 1959 by Judge Amador E. respondent. The petition was given due course after respondents
Gomez, the plaintiff's complaint was dismissed on the grounds had filed their comment thereto, as required. The Solicitor
relied upon by the defendants therein. 3 The plaintiff appealed General, as counsel of petitioner, was then required to file
the decision to the Supreme Court where it was reversed, and the petitioner's brief and to serve copies thereof to the adverse
case was remanded to the court of origin for the determination of parties. 7 Petitioner's brief was duly filed on January 29, 1974, 8
the compensation to be paid the plaintiff-appellant as owner of to which respondents filed only a "comment." 9 instead of a brief,
the land, including attorney's fees. 4 The Supreme Court decision and the case was then considered submitted for decision. 10
also directed that to determine just compensation for the land,
the basis should be the price or value thereof at the time of the 1. The issue of whether or not the provision of Article 1250
taking. 5 of the New Civil Code is applicable in determining the amount of
compensation to be paid to respondent Victoria Amigable for the
In the hearing held pursuant to the decision of the Supreme property taken is raised because the respondent court applied
Court, the Government proved the value of the property at the said Article by considering the value of the peso to the dollar at
time of the taking thereof in 1924 with certified copies, issued by the time of hearing, in determining due compensation to be paid
the Bureau of Records Management, of deeds of conveyance for the property taken. The Solicitor General contends that in so
executed in 1924 or thereabouts, of several parcels of land in the doing, the respondent court violated the order of this Court, in its
Banilad Friar Lands in which the property in question is located, decision in G.R. No. L-26400, February 29, 1972, to make as basis
showing the price to be at P2.37 per square meter. For her part, of the determination of just compensation the price or value of
Victoria Amigable presented newspaper clippings of the Manila the land at the time of the taking.
Times showing the value of the peso to the dollar obtaining about
the middle of 1972, which was P6.775 to a dollar. It is to be noted that respondent judge did consider the value of
the property at the time of the taking, which as proven by the
Upon consideration of the evidence presented by both parties, petitioner was P2.37 per square meter in 1924. However,
the court which is now the public respondent in the instant applying Article 1250 of the New Civil Code, and considering that
petition, rendered judgment on January 9, 1973 directing the the value of the peso to the dollar during the hearing in 1972 was
Republic of the Philippines to pay Victoria Amigable the sum of P6.775 to a dollar, as proven by the evidence of the private

respondent Victoria Amigable the Court fixed the value of the establishment of the obligation which, as a rule, is always the
property at the deflated value of the peso in relation, to the determinative element, to be varied by agreement that would
dollar, and came up with the sum of P49,459.34 as the just find reason only in the supervention of extraordinary inflation or
compensation to be paid by the Government. To this action of the deflation.
respondent judge, the Solicitor General has taken exception.
We hold, therefore, that under the law, in the absence of any
Article 1250 of the New Civil Code seems to be the only provision agreement to the contrary, even assuming that there has been an
in our statutes which provides for payment of an obligation in an extraordinary inflation within the meaning of Article 1250 of the
amount different from what has been agreed upon by the parties New Civil Code, a fact We decline to declare categorically, the
because of the supervention of extra-ordinary inflation or value of the peso at the time of the establishment of the
deflation. Thus, the Article provides: obligation, which in the instant case is when the property was
taken possession of by the Government, must be considered for
ART. 1250. In case extra-ordinary inflation or deflation of the the purpose of determining just compensation. Obviously, there
currency stipulated should supervene, the value of the currency can be no "agreement to the contrary" to speak of because the
at the time of the establishment of the obligation shall be the obligation of the Government sought to be enforced in the
basis of payment, unless there is an agreement to the contrary. present action does not originate from contract, but from law
which, generally is not subject to the will of the parties. And there
It is clear that the foregoing provision applies only to cases where being no other legal provision cited which would justify a
a contract or agreement is involved. It does not apply where the departure from the rule that just compensation is determined on
obligation to pay arises from law, independent of contract. The the basis of the value of the property at the time of the taking
taking of private property by the Government in the exercise of thereof in expropriation by the Government, the value of the
its power of eminent domain does not give rise to a contractual property as it is when the Government took possession of the
obligation. We have expressed this view in the case of Velasco vs. land in question, not the increased value resulting from the
Manila Electric Co., et al., L-19390, December 29, 1971. 11 passage of time which invariably brings unearned increment to
landed properties, represents the true value to be paid as just
Moreover, the law as quoted, clearly provides that the value of compensation for the property taken. 13
the currency at the time of the establishment of the obligation
shall be the basis of payment which, in cases of expropriation, In the present case, the unusually long delay of private
would be the value of the peso at the time of the taking of the respondent in bringing the present action-period of almost 25
property when the obligation of the Government to pay arises. 12 years which a stricter application of the law on estoppel and the
It is only when there is an "agreement to the contrary" that the statute of limitations and prescription may have divested her of
extraordinary inflation will make the value of the currency at the the rights she seeks on this action over the property in question,
time of payment, not at the time of the establishment of the is an added circumstance militating against payment to her of an
obligation, the basis for payment. In other words, an agreement is amount bigger-may three-fold more than the value of the
needed for the effects of an extraordinary inflation to be taken property as should have been paid at the time of the taking. For
into account to alter the value of the currency at the time of the conformably to the rule that one should take good care of his own

concern, private respondent should have commenced proper place, computed on the basis of P14,615.79, the value of the land
action soon after she had been deprived of her right of ownership when taken in said year 1924.
and possession over the land, a deprivation she knew was
permanent in character, for the land was intended for, and had 2. On the amount of attorney's fees to be paid private
become, avenues in the City of Cebu. A penalty is always visited respondent, about which the Solicitor General has next taken
upon one for his inaction, neglect or laches in the assertion of his issue with the respondent court because the latter fixed the same
rights allegedly withheld from him, or otherwise transgressed at P19,486.97, while in her complaint, respondent Amigable had
upon by another. asked for only P5,000.00, the amount as awarded by the
respondent court, would be too exhorbitant based as it is, on the
From what has been said, the correct amount of compensation inflated value of the land. An attorney's fees of P5,000.00, which
due private respondent for the taking of her land for a public is the amount asked for by private respondent herself in her
purpose would be not P49,459.34, as fixed by the respondent complaint, would be reasonable.
court, but only P14,615.79 at P2.37 per square meter, the actual
value of the land of 6,167 square meters when it was taken in WHEREFORE, the judgment appealed from is hereby reversed as
1924. The interest in the sum of P145,410.44 at the rate of 6% to the basis in the determination of the price of the land taken as
from 1924 up to the time respondent court rendered its decision, just compensation for its expropriation, which should be the
as was awarded by the said court should accordingly be reduced. value of the land at the time of the taking, in 1924. Accordingly,
the same is hereby fixed at P14,615.79 at P2.37 per square meter,
In Our decision in G.R. No. L-26400, February 29, 1972, 14 We with interest thereon at 6% per annum, from the taking of the
have said that Victoria Amigable is entitled to the legal interest property in 1924, to be also paid by Government to private
on the price of the land from the time of the taking. This holding respondent, Victoria Amigable, until the amount due is fully paid,
is however contested by the Solicitor General, citing the case of plus attorney's fees of P5,000.00.
Raymunda S. Digsan vs. Auditor General, et al., 15 alleged to have
a similar factual environment and involving the same issues,
where this Court declared that the interest at the legal rate in
favor of the landowner accrued not from the taking of the
property in 1924 but from April 20, 1961 when the claim for 77. G.R. No. L-43446 May 3, 1988
compensation was filed with the Auditor General. Whether the
ruling in the case cited is still the prevailing doctrine, what was FILIPINO PIPE AND FOUNDRY CORPORATION,
said in the decision of this Court in the abovecited case involving plaintiff-appellant,
the same on the instant matter, has become the "law of the case", vs.
no motion for its reconsideration having been filed by the NATIONAL WATERWORKS AND SEWERAGE
Solicitor General before the decision became final. Accordingly, AUTHORITY, defendant-appellee.
the interest to be paid private respondent, Victoria Amigable,
shall commence from 1924, when the taking of the property took GRIO-AQUINO, J.:


The plaintiff Filipino Pipe and Foundry Corporation (hereinafter did not deliver the bonds to the judgment creditor. On February
referred to as "FPFC" for brevity) appealed the dismissal of its 18, 1971, the plaintiff FPFC filed another complaint which was
complaint against defendant National Waterworks and Sewerage docketed as Civil Case No. 82296, seeking an adjustment of the
Authority (NAWASA) by the Court of First Instance of Manila on unpaid balance in accordance with the value of the Philippine
September 5, 1973. The appeal was originally brought to the peso when the decision in Civil Case No. 66784 was rendered on
Court of Appeals. However, finding that the principal purpose of November 23, 1967.
the action was to secure a judicial declaration that there exists
'extraordinary inflation' within the meaning of Article 1250 of the On May 3, 1971, the defendant filed a motion to dismiss the
New Civil Code to warrant the application of that provision, the complaint on the ground that it is barred by the 1967 decision in
Court of Appeals, pursuant to Section 3, Rule 50 of the Rules of Civil Case No. 66784.
Court, certified the case to this Court for proper disposition.
The trial court, in its order dated May 26, 1971, denied the
On June 12,1961, the NAWASA entered into a contract with the motion to dismiss on the ground that the bar by prior judgment
plaintiff FPFC for the latter to supply it with 4" and 6" diameter did not apply to the case because the causes of action in the two
centrifugally cast iron pressure pipes worth P270,187.50 to be cases are different: the first action being for collection of the
used in the construction of the Anonoy Waterworks in Masbate defendant's indebtedness for the pipes, while the second case is
and the Barrio San Andres-Villareal Waterworks in Samar. for adjustment of the value of said judgment due to alleged
Defendant NAWASA paid in installments on various dates, a total supervening extraordinary inflation of the Philippine peso which
of One Hundred Thirty-Four Thousand and Six Hundred Eighty has reduced the value of the bonds paid to the plaintiff.
Pesos (P134,680.00) leaving a balance of One Hundred Thirty-
Five Thousand, Five Hundred Seven Pesos and Fifty centavos Article 1250 of the Civil Code provides:
(P135,507.50) excluding interest. Having completed the delivery
of the pipes, the plaintiff demanded payment from the defendant In case an extraordinary inflation or deflation of the currency
of the unpaid balance of the price with interest in accordance stipulated should supervene, the value of the currency at the time
with the terms of their contract. When the NAWASA failed to pay of the establishment of the obligation shall be the basis of
the balance of its account, the plaintiff filed a collection suit on payment, unless there is an agreement to the contrary..
March 16, 1967 which was docketed as Civil Case No. 66784 in
the Court of First Instance of Manila. The court suggested to the parties during the trial that they
present expert testimony to help it in deciding whether the
On November 23, 1967, the trial court rendered judgment in Civil economic conditions then, and still prevailing, would justify the
Case No. 66784 ordering the defendant to pay the unpaid balance application of Article 1250 of the Civil Code. The plaintiff
of P135,507.50 in NAWASA negotiable bonds, redeemable after presented voluminous records and statistics showing that a
ten years from their issuance with interest at 6% per annum, spiralling inflation has marked the progress of the country from
P40,944.73 as interest up to March 15, 1966 and the interest 1962 up to the present. There is no denying that the price index
accruing thereafter to the issuance of the bonds at 6% per annum of commodities, which is the usual evidence of the value of the
and the costs. Defendant, however, failed to satisfy the decision. It currency has been rising.

October 1923, it had reached 4.2 trillion to the U.S. dollar!
The trial court pointed out, however, than this is a worldwide (Bernardo M. Villegas & Victor R. Abola, Economics, An
occurence, but hardly proof that the inflation is extraordinary in Introduction [Third Edition]).
the sense contemplated by Article 1250 of the Civil Code, which
was adopted by the Code Commission to provide "a just solution" As reported, "prices were going up every week, then every day,
to the "uncertainty and confusion as a result of Malabanan then every hour. Women were paid several times a day so that
contracts entered into or payments made during the last war." they could rush out and exchange their money for something of
(Report of the Code Commission, 132-133.) value before what little purchasing power was left dissolved in
their hands. Some workers tried to beat the constantly rising
Noting that the situation situation during the Japanese prices by throwing their money out of the windows to their
Occupation "cannot that the be compared with the economic waiting wives, who would rush to upload the nearly worthless
conditions today," the a. Malabanan trial court, on September 5, paper. A postage stamp cost millions of marks and a loaf of bread,
1973, rendered judgment dismissing the complaint. billions." (Sidney Rutberg, "The Money Balloon" New York: Simon
and Schuster, 1975, p. 19, cited in "Economics, An Introduction"
The only issue before Us whether, on the basis of the continously by Villegas & Abola, 3rd Ed.)
spiralling price index indisputably shown by the plaintiff, there
exists an extraordinary inflation of the currency justifying an While appellant's voluminous records and statistics proved that
adjustment of defendant appellee's unpaid judgment obligation there has been a decline in the purchasing power of the
the plaintiff-appellant. Philippine peso, this downward fall of the currency cannot be
considered "extraordinary." It is simply a universal trend that has
Extraordinary inflation exists "when there is a decrease or not spared our country.
increase in the purchasing power of the Philippine currency
which is unusual or beyond the common fluctuation in the value WHEREFORE, finding no reversible error in the appealed
said currency, and such decrease or increase could not have decision of the trial court, We affirm it in toto. No costs.
reasonably foreseen or was manifestly beyond contemplation the
the parties at the time of the establishment of the obligation.
(Tolentino Commentaries and Jurisprudence on the Civil Code
Vol. IV, p. 284.)
78. G.R. No. L-28776 August 19, 1988
An example of extraordinary inflation is the following description
of what happened to the Deutschmark in 1920: SIMEON DEL ROSARIO, plaintiff-appellant,
vs.
More recently, in the 1920's Germany experienced a case of THE SHELL COMPANY OF THE PHILIPPINES LIMITED,
hyperinflation. In early 1921, the value of the German mark was defendant-appellee.
4.2 to the U.S. dollar. By May of the same year, it had stumbled to
62 to the U.S. dollar. And as prices went up rapidly, so that by PARAS, J.:

amounts: The difference between P487.50 and P250.00 from
The antecedent relative facts of this case are as follows: noon of November 8, 1965 until such time ar, the defendant-
appellee begins to pay the adjusted amount of P487.50 a month;
1. On September 20, 1960 the parties entered into a Lease the sum of P20,000.00 as moral damages; the sum of P10,000.00
Agreement whereby the plaintiff- appellant leased a parcel of as exemplary damages; and the sum of P10,000.00 as attorney's
land known as Lot No. 2191 of the cadastral Survey of Ligao, fees and the costs.
Albay to the defendant-appellee at a monthly rental of Two
Hundred Fifty Pesos (P250.00). 7. On January 8, 1968 the trial court in dismissing the
complaint stated:
2. Paragraph 14 of said contract of lease provides:
... in the opinion of the Court, said Executive Order No. 195,
14. In the event of an official devaluation or appreciation of contrary to the contention of the plaintiff, has not officially
the Philippine cannot the rental specified herein shall be adjusted devalued the Philippine peso but merely modified the par value
in accordance with the provisions of any law or decree declaring of the peso from US$.50 to US$0.2564103 (U.S. Dollar of the
such devaluation or appreciation as may specifically apply to Weight and Fineness in effect on July 1, 1944) effective noon on
rentals." Monday, the eighth of November, 1965. Said Executive Order
certainly does not pretend to change the gold value of the
3. On November 6, 1965, President Diosdado Macapagal Philippine peso as set forth in Sec. 48 of the Central Bank Act
promulgated Executive Order No. 195 1 titled "Changing the Par (R.A. 265), which is 7-13/21 grains of gold, 0.900 fine. Indeed, it
Value of the Peso from US$0.50 to US$0.2564103 (U.S. Dollar of does not make any reference at all to the gold value of the
the Weight and Fineness in Effect on July 1, 1944). This took Philippine peso." (pp. 25-26, Record on Appeal; p. 13, Rollo)
effect at noon of November 8, 1965.
In view of the trial cross-claimant refusal to increase the rental,
4. By reason of this Executive Order No. 195, plaintiff- petitioner brought the instant petition on the theory that
appellant demanded from the defendant-appellee ailieged beneficient Executive Order No. 195 in effect decreased the
increase in the monthly rentals from P250.00 a month to P487.50 worth or value of our currency, there has taken place a
a month. "devaluation" or "depreciation" which would justify the
proportionate increase of rent.
5. Defendant-appellee fertilize to pay the increased monthly
rentals. Hence this appeal, with the following two-pronged assignments
of errors:
6. On January 16, 1967, plaintiff-appellant filed a complaint
(Civil Case No. 68154) with the CFI of Manila, Branch XVII I. The trial court erred in holding that Executive Order No.
praying that defendant-appellee be ordered to pay the monthly 195 has not officially devalued the Philippine peso.
rentals as increased by reason of Executive Order 195 and
further prayed that plaintiff-appellant be paid the following II. The trial court erred in dismissing the complaint.

without ailieged official act, and does not depend on metallic
After a study of the case, We have come to the conclusion that the content (although depreciation may be caused curency
resultant decrease in the par value of the can-not (effected by devaluation).
Executive Order No. 195) is precisely the situation or event
contemplated by the parties in their contract; accordingly In the case at bar, while no express reference has been made to
ailieged upward revision of the rent is called for. metallic content, there nonetheless is a reduction in par value or
in the purchasing power of Philippine currency. Even assuming
Let us define the two important terms used in Paragraph 14 of there has been no official devaluation as the term is technically
the contract, namely, "devaluation" and "appreciation." understood, the fact is that there has been a diminution or
lessening in the purchasing power of the peso, thus, there has
(a) Sloan and Zurcher's classic treatise, "A Dictionary of been a "depreciation" (opposite of "appreciation"). Moreover,
Economics," 1951 ed. pp. 80-81, defines devaluation (as applied when laymen unskilled in the semantics of economics use the
to a monetary unit) as terms "devaluation" or "depreciation" they certainly mean them
in their ordinary signification decrease in value. Hence as
a reduction in its metallic content as determined by law" 2 contemplated c,irrency the parties herein in their lease
resulting in "the lowering of the value of one nation's cannot in agreement, the term "devaluation" may be regarded as
terms of the currencies of other nations" (Emphasis supplied) synonymous with "depreciation," for certainly both refer to a
decrease in the value of the currency. The rentals should
Samuelson and Nordhaus, writing in their book, "Economics" therefore by their agreement be proportionately increased.
(Singapore, Mc Graw Hill Book Co., 1985, p. 875) say:
WHEREFORE, the judgment appealed from is REVERSED and SET
when a country's official exei,cise rate 3 relative to gold or ASIDE, and the rental prayed for c,irrency the plaintiff-appellant
another cannot is lowered, as from $35 ailieged ounce of gold to $ is hereby GRANTED, effective on the date the complaint was filed.
38, we say the cannot has been devalued. " 4 No award of damages and no costs.

(b) Upon the other hand, "depreciation" (opposite of
"appreciation' the term used in the contract), according to
Gerardo P. Sicat in his "Economics" (Manila: National Book Store,
1983,p.636) 79. G.R. No. L-50449 January 30, 1982

occurs when a currency's value falls in relation to foreign FILINVEST CREDIT CORPORATION, plaintiff-appellee,
currencies." vs.
PHILIPPINE ACETYLENE, CO., INC., defendant-
(c) It will be noted that devaluation is an official act of the appellant.
government (as when a law is enacted thereon) and refers to a
reduction in metallic content; depreciation can take place with or

DE CASTRO, J.: 136699Z303652 for P55,247.80 with a down payment of
P20,000.00 and the balance of P35,247.80 payable, under the
This case is certified to Us by the Court of Appeals in its terms and conditions of the promissory note (Exh. B), at a
Resolution 1 dated March 22, 1979 on the ground that it involves monthly installment of P1,036.70 for thirty-four (34) months,
purely questions of law, as raised in the appeal of the decision of due and payable on the first day of each month starting
the Court of First Instance of Manila, Branch XII in Civil Case No. December 1971 through and inclusive September 1, 1974 with
91932, the dispositive portion of which reads as follows: 12 % interest per annum on each unpaid installment, and
attorney's fees in the amount equivalent to 25% of the total of the
In view of the foregoing consideration, the court hereby renders outstanding unpaid amount.
judgment -
As security for the payment of said promissory note, the
l) directing defendant to pay plaintiff: appellant executed a chattel mortgage (Exh. C) over the same
motor vehicle in favor of said Alexander Lim. Subsequently, on
a) the sum of P22,227.81 which is the outstanding unpaid November 2, 1971. Alexander Lim assigned to the Filinvest
obligation of the defendant under the assigned credit, with 12 Finance Corporation all his rights, title, and interests in the
%interest from the date of the firing of the complaint in this suit promissory note and chattel mortgage by virtue of a Deed of
until the same is fully paid; Assignment (Exh. D).

b) the sum equivalent to l5% of P22,227.81 as and for Thereafter, the Filinvest Finance Corporation, as a consequence
attorney's fees; and of its merger with the Credit and Development Corporation
assigned to the new corporation, the herein plaintiff-appellee
2) directing plaintiff to deliver to, and defendant to accept, the Filinvest Credit Corporation, all its rights, title, and interests on
motor vehicle, subject of the chattel may have been changed by the aforesaid promissory note and chattel mortgage (Exh. A)
the result of ordinary wear and tear of the vehicle. which, in effect, the payment of the unpaid balance owed by
defendant-appellant to Alexander Lim was financed by plaintiff-
Defendant to pay the cost of suit. appellee such that Lim became fully paid.

SO ORDERED. Appellant failed to comply with the terms and conditions set
forth in the promissory note and chattel mortgage since it had
The facts, as found in the decision 2 subject of the instant appeal, defaulted in the payment of nine successive installments.
are undisputed. Appellee then sent a demand letter (Exh. 1) whereby its counsel
demanded "that you (appellant) remit the aforesaid amount in
On October 30, 1971, the Philippine Acetylene Co., Inc., full in addition to stipulated interest and charges or return the
defendant-appellant herein, purchased from one Alexander Lim, mortgaged property to my client at its office at 2133 Taft Avenue,
as evidenced by a Deed of Sale marked as Exhibit G, a motor Malate, Manila within five (5) days from date of this letter during
vehicle described as Chevorlet, 1969 model with Serial No. office hours. " Replying thereto, appellant, thru its assistant

general- manager, wrote back (Exh. 2) advising appellee of its February 25, 1974 which is the subject of the instant appeal in
decision to "return the mortgaged property, which return shall this Court.
be in full satisfaction of its indebtedness pursuant to Article 1484
of the New Civil Code." Accordingly, the mortgaged vehicle was Appellant's five assignment of errors may be reduced to, or said
returned to the appellee together with the document "Voluntary to revolve around two issues: first, whether or not the return of
Surrender with Special Power of Attorney To Sell" 3 executed by the mortgaged motor vehicle to the appellee by virtue of its
appellant on March 12, 1973 and confirmed to by appellee's vice- voluntary surrender by the appellant totally extinguished and/or
president. cancelled its obligation to the appellee; second, whether or not
the warranty for the unpaid taxes on the mortgaged motor
On April 4, 1973, appellee wrote a letter (Exh. H) to appellant vehicle may be properly raised and imputed to or passed over to
informing the latter that appellee cannot sell the motor vehicle as the appellee.
there were unpaid taxes on the said vehicle in the sum of
P70,122.00. On the last portion of the said letter, appellee Consistent with its stand in the court a quo, appellant now
requested the appellant to update its account by paying the reiterates its main contention that appellee, after giving appellant
installments in arrears and accruing interest in the amount of an option either to remit payment in full plus stipulated interests
P4,232.21 on or before April 9, 1973. and charges or return the mortgaged motor vehicle, had elected
the alternative remedy of exacting fulfillment of the obligation,
On May 8, 1973, appellee, in a letter (Exh. 1), offered to deliver thus, precluding the exercise of any other remedy provided for
back the motor vehicle to the appellant but the latter refused to under Article 1484 of the Civil Code of the Philippines which
accept it, so appellee instituted an action for collection of a sum reads:
of money with damages in the Court of First Instance of Manila
on September 14, 1973. Article 1484. Civil Code. - In a contract of sale of personal
property the price of which is payable in installments, the vendor
In its answer, appellant, while admitting the material allegations may exercise any of the following remedies:
of the appellee's complaint, avers that appellee has no cause of
action against it since its obligation towards the appellee was 1) Exact fulfillment of the obligation, should the vendee fail to
extinguished when in compliance with the appellee's demand pay;
letter, it returned the mortgaged property to the appellee, and
that assuming arguendo that the return of the property did not 2) Cancel the sale, should the vendee's failure to pay cover two or
extinguish its obligation, it was nonetheless justified in refusing more installments;
payment since the appellee is not entitled to recover the same
due to the breach of warranty committed by the original vendor- 3) Foreclose the chattel mortgage on the thing sold, if one has
assignor Alexander Lim. been constituted, should the vendee's failure to pay cover two or
more installments. In this case, he shall have no further action
After the case was submitted for decision, the Court of First against the purchaser to recover any unpaid balance of the price.
Instance of Manila, Branch XII rendered its decision dated Any agreement to the contrary shall be void.

who accepts it as equivalent of payment of an outstanding debt.
In support of the above contention, appellant maintains that The undertaking really partakes in one sense of the nature of
when it opted to return, as in fact it did return, the mortgaged sale, that is, the creditor is really buying the thing or property of
motor vehicle to the appellee, said return necessarily had the the debtor, payment for which is to be charged against the
effect of extinguishing appellant's obligation for the unpaid price debtor's debt. As such, the essential elements of a contract of sale,
to the appellee, construing the return to and acceptance by the namely, consent, object certain, and cause or consideration must
appellee of the mortgaged motor vehicle as a mode of payment, be present. In its modern concept, what actually takes place in
specifically, dation in payment or dacion en pago which dacion en pago is an objective novation of the obligation where
according to appellant, virtually made appellee the owner of the the thing offered as an accepted equivalent of the performance of
mortgaged motor vehicle by the mere delivery thereof, citing an obligation is considered as the object of the contract of sale,
Articles 1232, 1245, and 1497 of the Civil Code, to wit: while the debt is considered as the purchase price. 5 In any case,
common consent is an essential prerequisite, be it sale or
Article 1232. Payment means not only the delivery of money but innovation to have the effect of totally extinguishing the debt or
also the performance, in any manner, of an obligation. obligation.

xxx xxx xxx The evidence on the record fails to show that the mortgagee, the
herein appellee, consented, or at least intended, that the mere
Article 1245. Dation in payment, whereby property is alienated delivery to, and acceptance by him, of the mortgaged motor
to the creditor in satisfaction of a debt in money, shall be vehicle be construed as actual payment, more specifically dation
governed by the law of sales. in payment or dacion en pago. The fact that the mortgaged motor
vehicle was delivered to him does not necessarily mean that
xxx xxx xxx ownership thereof, as juridically contemplated by dacion en
pago, was transferred from appellant to appellee. In the absence
Article 1497. The thing sold shall be understood as delivered, of clear consent of appellee to the proferred special mode of
when it is placed in the control and possession of the vendee. payment, there can be no transfer of ownership of the mortgaged
motor vehicle from appellant to appellee. If at all, only transfer of
Passing at once on the relevant issue raised in this appeal, We possession of the mortgaged motor vehicle took place, for it is
find appellant's contention devoid of persuasive force. The mere quite possible that appellee, as mortgagee, merely wanted to
return of the mortgaged motor vehicle by the mortgagor, the secure possession to forestall the loss, destruction, fraudulent
herein appellant, to the mortgagee, the herein appellee, does not transfer of the vehicle to third persons, or its being rendered
constitute dation in payment or dacion en pago in the absence, valueless if left in the hands of the appellant.
express or implied of the true intention of the parties. Dacion en
pago, according to Manresa, is the transmission of the ownership A more solid basis of the true intention of the parties is furnished
of a thing by the debtor to the creditor as an accepted equivalent by the document executed by appellant captioned "Voluntary
of the performance of obligation. 4 In dacion en pago, as a special Surrender with Special Power of Attorney To Sell" dated March
mode of payment, the debtor offers another thing to the creditor 12, 1973, attached as Annex "C" of the appellant's answer to the

complaint. An examination of the language of the document consummating the auction sale, such desistance was a timely
reveals that the possession of the mortgaged motor vehicle was disavowal of the remedy of foreclosure, and the vendor can still
voluntarily surrendered by the appellant to the appellee sue for specific performance. 8 This is exactly what happened in
authorizing the latter to look for a buyer and sell the vehicle in the instant case.
behalf of the appellant who retains ownership thereof, and to
apply the proceeds of the sale to the mortgage indebtedness, with On the second issue, there is no dispute that there is an unpaid
the undertaking of the appellant to pay the difference, if any, taxes of P70,122.00 due on the mortgaged motor vehicle which,
between the selling price and the mortgage obligation. With the according to appellant, liability for the breach of warranty under
stipulated conditions as stated, the appellee, in essence was the Deed of Sale is shifted to the appellee who merely stepped
constituted as a mere agent to sell the motor vehicle which was into the shoes of the assignor Alexander Lim by virtue of the
delivered to the appellee, not as its property, for if it were, he Deed of Assignment in favor of appellee. The Deed of Sale
would have full power of disposition of the property, not only to between Alexander Lim and appellant and the Deed of
sell it as is the limited authority given him in the special power of Assignment between Alexander Lim and appellee are very clear
attorney. Had appellee intended to completely release appellant on this point. There is a specific provision in the Deed of Sale that
of its mortgage obligation, there would be no necessity of the seller Alexander Lim warrants the sale of the motor vehicle to
executing the document captioned "Voluntary Surrender with the buyer, the herein appellant, to be free from liens and
Special Power of Attorney To Sell." Nowhere in the said encumbrances. When appellee accepted the assignment of credit
document can We find that the mere surrender of the mortgaged from the seller Alexander Lim, there is a specific agreement that
motor vehicle to the appellee extinguished appellant's obligation Lim continued to be bound by the warranties he had given to the
for the unpaid price. buyer, the herein appellant, and that if it appears subsequently
that "there are such counterclaims, offsets or defenses that may
Appellant would also argue that by accepting the delivery of the be interposed by the debtor at the time of the assignment, such
mortgaged motor vehicle, appellee is estopped from demanding counterclaims, offsets or defenses shall not prejudice the
payment of the unpaid obligation. Estoppel would not he since, as FILINVEST FINANCE CORPORATION and I (Alexander Lim)
clearly set forth above, appellee never accepted the mortgaged further warrant and hold the said corporation free and harmless
motor vehicle in full satisfaction of the mortgaged debt. from any such claims, offsets, or defenses that may be availed of."
9
Under the law, the delivery of possession of the mortgaged
property to the mortgagee, the herein appellee, can only operate It must be noted that the unpaid taxes on the motor vehicle is a
to extinguish appellant's liability if the appellee had actually burden on the property. Since as earlier shown, the ownership of
caused the foreclosure sale of the mortgaged property when it the mortgaged property never left the mortgagor, the herein
recovered possession thereof. 6 It is worth noting that it is the appellant, the burden of the unpaid taxes should be home by him,
fact of foreclosure and actual sale of the mortgaged chattel that who, in any case, may not be said to be without remedy under the
bar the recovery by the vendor of any balance of the purchaser's law, but definitely not against appellee to whom were transferred
outstanding obligation not satisfied by the sale. 7 As held by this only rights, title and interest, as such is the essence of assignment
Court, if the vendor desisted, on his own initiative, from of credit. 10

In addition to the two indemnity agreements, Pascual M. Perez
WHEREFORE, the judgment appealed from is hereby affirmed in Enterprises was also required to put up a collateral security to
toto with costs against defendant-appellant. further insure reimbursement to the petitioner of whatever
losses or liabilities it may be made to pay under the surety bonds.
Pascual M. Perez therefore executed a deed of assignment on the
same day, December 4,1959, of his stock of lumber with a total
value of P400,000.00. On April 12, 1960, a second real estate
80. G.R. No. L-48958 June 28, 1988 mortgage was further executed in favor of the petitioner to
guarantee the fulfillment of said obligation.
CITIZENS SURETY and INSURANCE COMPANY, INC.,
petitioner, Pascual M. Perez Enterprises failed to comply with its obligation
vs. under the contract of sale of goods with Singer Sewing Machine
COURT OF APPEALS and PASCUAL M. PEREZ, Co., Ltd. Consequently, the petitioner was compelled to pay, as it
respondents. did pay, the fair value of the two surety bonds in the total amount
of P144,000.00. Except for partial payments in the total sum of
GUTIERREZ, JR., J.: P55,600.00 and notwithstanding several demands, Pascual M.
Perez Enterprises failed to reimburse the petitioner for the losses
This is a petition to review the decision of the Court of Appeals it sustained under the said surety bonds.
which reversed the decision of the Court of First Instance of
Batangas in a case involving a claim for a sum of money against The petitioner filed a claim for sum of money against the estate of
the estate of the late Nicasia Sarmiento, administered by her the late Nicasia Sarmiento which was being administered by
husband Pascual M. Perez. Pascual M. Perez.

On December 4, 1959, the petitioner issued two (2) surety bonds In opposing the money claim, Pascual M. Perez asserts that the
CSIC Nos. 2631 and 2632 to guarantee compliance by the surety bonds and the indemnity agreements had been
principal Pascual M. Perez Enterprises of its obligation under a extinguished by the execution of the deed of assignment. After
"Contract of Sale of Goods" entered into with the Singer Sewing the trial on the merits, the Court of First Instance of Batangas
Machine Co. In consideration of the issuance of the aforesaid rendered judgment on April 15, 1968, the dispositive portion of
bonds, Pascual M. Perez, in his personal capacity and as attorney- which reads:
in-fact of his wife, Nicasia Sarmiento and in behalf of the Pascual
M. Perez Enterprises executed on the same date two (2) WHEREFORE, considering that the estate of the late, Nicasia
indemnity agreements wherein he obligated himself and the Sarmiento is jointly and severally liable to the Citizens' Surety
Enterprises to indemnify the petitioner jointly and severally, and Insurance Co., Inc., for the amount the latter had paid the
whatever payments advances and damage it may suffer or pay as Singer Sewing Machine Company, Ltd., the court hereby orders
a result of the issuance of the surety bonds. the administrator Pascual M. Perez to pay the claimant the sum of
P144,000.00, with interest at the rate of ten (10%) per cent per

annum from the date this claim was filed, until fully paid, minus RESPONDENT COURT OF APPEALS ERRED WHEN IT TOTALLY
the payments already made in the amount of P55,600.00." (pp. REVERSED AND SET ASIDE THE DECISION OF THE COURT OF
97-98, Record on Appeal) FIRST INSTANCE OF BATANGAS THUS DEPRIVING PETITIONER
OF THE PRINCIPAL SUM DUE PLUS INTEREST AND ATTORNEY'S
Both parties appealed to the Court of Appeals, On August 31, FEES. (p. 4, Petitioner's Brief)
1978, the Court of Appeals rendered its decision with the
following dispositive portion: The main issue in this petition is whether or not the
administrator's obligation under the surety bonds and indemnity
WHEREFORE, the decision rendered by the Court of First agreements had been extinguished by reason of the execution of
Instance of Batangas on April 15, 1986 is hereby reversed and set the deed of assignment.
aside and another one entered dismissing the claim of the
Citizens' Surety and Insurance Co., Inc., against the estate of the It is the general rule that when the words of a contract are plain
late Nicasia Sarmiento. No pronouncement as to costs. (p. 37, and readily understandable, there is no room for construction
Rollo) thereof (San Mauricio Milling Co. v. Ancheta, 105 SCRA 371).
However, this is only a general rule and it admits exceptions.
The petitioner raises the following alleged errors of the
respondent court as the issues in this petition for review: Pascual M. Perez executed an instrument denominated as "Deed
of Assignment." Pertinent portions of the deed read as follows:
I
I, Pascual M. Perez, Filipino, of legal age, married, with residence
RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING and postal address at 115 D. Silang, Batangas, as the owner and
THAT THE OBLIGATION OF PRIVATE RESPONDENT PASCUAL M. operator of a business styled "PASCUAL M. PEREZ
PEREZ HAD BEEN EXTINGUISHED BY VIRTUE OF THE ENTERPRISES," with office at R-31 Madrigal Building, Escolta,
EXECUTION OF THE DEED OF ASSIGNMENT (EXHIBIT "1") Manila, hereinafter referred to as ASSIGNOR, for and in
AND/OR THE RELEASE OF THE SECOND REAL ESTATE consideration of the issuance in my behalf and in favor of the
MORTGAGE (EXHIBIT "2"). SINGER SEWING MACHINE COMPANY, LTD., of two Surety Bonds
(CSIC) Bond Nos. 2631 and 2632 each in the amount of SEVENTY
II TWO THOUSAND PESOS (P72,000.00), or with a total sum of ONE
RED FORTY-FOUR THOUSAND PESOS (Pl44,000.00), Philippine
RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING Currency, by the CITIZENS' SURETY AND INSURANCE CO., INC., a
THAT THERE WAS DATION IN PAYMENT BY VIRTUE OF THE corporation duly organized and existing under and by virtue of
EXECUTION OF THE DEED OF ASSIGNMENT (EXHIBIT "1"). the laws of the Republic of the Philippines, with principal office at
R-306 Samanillo Building, Escolta, Manila, Philippines, and duly
III represented in the act by its Vice-President and General Manager,
ARISTEO L. LAT, hereinafter referred to as ASSIGNEE, assign by
these presents, unto said ASSIGNEE, its heirs, successors,

administrators or assigns the herein ASSIGNOR'S stock (Insured) entered into with the Singer Sewing Machine Co. In consideration
of low grade lumber, class "No. 2 COMMON" kept and deposited of the two surety bonds, two indemnity agreements were
at Tableria Tan Tao at Batangas, Batangas, with a total executed by Pascual M. Perez followed by a Deed of Assignment
measurement of Two Million (2,000,000.00) board feet and which was also executed on the same date.
valued of P0.20 per board feet or with a total value of
P400,000.00 which lumber is intended by the ASSIGNOR for In the case of Lopez v. Court of appeals (114 SCRA 673), we
exportation under a Commodity Trade Permit, the condition stated that:
being that in the event that the herein assignor exports said
lumber and as soon as he gets the necessary export shipping and The indemnity agreement and the stock assignment must be
related and pertinent documents therefor, the ASSIGNOR will considered together as related transactions because in order to
turn said papers over to the herein ASSIGNEE, conserving all of judge the intention of the contracting parties, their
the latter's dominion, rights and interests in said exportation. contemporaneous and subsequent acts shall be principally
considered. (Article 1371, New Civil Code). Thus, considering
The ASSIGNEE hereby agrees and accepts this assignment under that the indemnity agreement connotes a continuing obligation of
the conditions above-mentioned. (pp. 77-79, Record on Appeal) Lopez towards Philamgen, while the stock assignment indicates a
complete discharge of the same obligation, the existence of the
On its face, the document speaks of an assignment where there indemnity agreement whereby Lopez had to pay a premium of
seems to be a complete conveyance of the stocks of lumber to the P1,000.00 for a period of one year and agreed at all times to
petitioner, as assignee. However, in the light of the circumstances indemnify Philamgen of any and all kinds of losses which the
obtaining at the time of the execution of said deed of assignment, latter might sustain by reason of it becoming a surety, is
we can not regard the transaction as an absolute conveyance. As inconsistent with the theory of an absolute sale for and in
held in the case of Sy v. Court of Appeals, (131 SCRA 116,124): consideration of the same undertaking of Philamgen. There
would have been no necessity for the execution of the indemnity
It is a basic and fundamental rule in the interpretation of contract agreement if the stock assignment was really intended as an
that if the terms thereof are clear and leave no doubt as to the absolute conveyance. Hence, there are strong and cogent reasons
intention of the contracting parties, then the literal meaning of to conclude that the parties intended said stock assignment to
the stipulations shall control but when the words appear complement the indemnity agreement and thereby sufficiently
contrary to the evident intention of the parties, the latter shall guarantee the indemnification of Philamgen should it be required
prevail over the former. (Labasan v. Lacuesta, 86 SCRA 16) In to pay Lopez" loan to Prudential Bank. (at pp. 682-683)
order to judge the intention of the parties, their
contemporaneous and subsequent acts shall be principally The respondent court stated that "by virtue of the execution of
considered. (Emphasis supplied) the deed of assignment ownership of administrator-appellant's
lumber materials had been transferred to the claimant-appellant
The petitioner issued the two (2) surety bonds on December 4, and this amounted to dation in payment whereby the former is
1959 in behalf of the Pascual M. Perez Enterprises to guaranty considered to have alienated his property in favor of the latter in
fullfillment of its obligation under the "Contract of Sale of Goods" satisfaction of a monetary debt (Artide 1245). As a consequence

thereof, administrator-appellant's obligation under the surety Partial payments amounting to P55,600.00 were made after the
bonds is thereby extinguished upon the execution of the deed of execution of the deed of assignment to satisfy the obligation
assignment." This statement is not sustained by the records. under the two surety bonds. Since later payments were made to
pay the indebtedness, it follows that no debt was extinguished
The transaction could not be dation in payment. As pointed out in upon the execution of the deed of assignment. Moreover, a
the concurring and dissenting opinion of Justice Edgardo L. Paras second real estate mortgage was executed on April 12, 1960 and
and the dissenting opinion of Justice Mariano Serrano when the eventually cancelled only on May 15, 1962. If indeed the deed of
deed of assignment was executed on December 4, 1959, the assignment extinguished the obligation, there was no reason for a
obligation of the assignor to refund the assignee had not yet second mortgage to still have to be executed. We agree with the
arisen. In other words, there was no obligation yet on the part of two dissenting opinions in the Court of Appeals that the only
the petitioner, Citizens' Surety and Insurance Company, to pay conceivable reason for the execution of still another mortgage on
Singer Sewing Machine Co. There was nothing to be extinguished April 12, 1960 was because the obligation under the indemnity
on that date, hence, there could not have been a dation in bonds still existed. It was not yet extinguished when the deed of
payment. assignment was executed on December 4, 1959. The deed of
assignment was therefore intended merely as another collateral
In the case of Lopez v. Court of Appeals (supra) we had the security for the issuance of the two surety bonds.
occasion to explain:
Recapitulating the facts of the case, the records show that the
Considering the above jurisprudence, We find that the debt or petitioner surety company paid P144,000.00 to Singer on the
obligation at bar has not matured on June 2, 1959 when Lopez basis of the two surety bonds it had issued in behalf of Pascual
'alienated' his 4,000 shares of stock to Philamgen. Lopez' Perez Enterprises. Perez in turn was able to indemnify the
obligation would arise only when he would default in the petitioner for its payment to Singer in the amount of P55,600.00
payment of the principal obligation (the loan) to the bank and thus leaving a balance of only P88,400.00.
Philamgen had to pay for it. Such fact being adverse to the nature
and concept of dation in payment, the same could not have been The petitioner surety company was more than adequately
constituted when the stock assignment was executed. Moreover, protected. Lumber worth P400,000.00 was assigned to it as
there is no express provision in the terms of the stock assignment collateral. A second real estate mortgage was also given by Perez
between Philamgen and Lopez that the principal obligation although it was later cancelled obviously because the
(which is the loan) is immediately extinguished by reason of such P400,000.00 worth of lumber was more than enough guaranty
assignment. (at p. 686) for the obligations assumed by the petitioner. As pointed out by
Justice Paras in his separate opinion, the proper procedure was
The deed of assignment cannot be regarded as an absolute for Citizens' Insurance and Surety Co., to collect the remaining
conveyance whereby the obligation under the surety bonds was P88,400.00 from the sales of lumber and to return whatever
automatically extinguished. The subsequent acts of the private remained to Perez. We cannot order the return in this decisions
respondent bolster the fact that the deed of assignment was because the Estate of Mrs. Perez has not asked for any return of
intended merely as a security for the issuance of the two bonds. excess lumber or its value. There appears to have been other

transactions, surety bonds, and performance bonds between the PHILIPPINE NATIONAL BANK, Petitioner,
petitioner and Perez Enterprises but theseare extraneous vs.
matters which, the records show, have absolutely no bearing on TERESITA TAN DEE, ANTIPOLO PROPERTIES, INC.,
the resolution of the issues in this petition. (now PRIME EAST PROPERTIES, INC.) and AFP-RSBS,
INC., Respondents.
With respect to the claim for interests and attomey's fees, we
agree with the private respondent that the petitioner is not D E C I S I O N
entitled to either one. It had the means to recoup its investment
and losses many times over, yet it chose to litigate and delay the REYES, J.:
final determination of how much was really owing to it. As stated
by Justice Paras in his separate opinion: This is a Petition for Review1 under Rule 45 of the Rules of Court,
assailing the Decision2 dated August 13, 2007 and Resolution3
Interest will not be given the Surety because it had all the while dated March 13, 2008 rendered by the Court of Appeals (CA) in
(or at least, it may be presumed that such was the case) the CA-G.R. SP No. 86033, which affirmed the Decision4 dated August
P400,000.00 worth of lumber, from which value the 'refunding' 4, 2004 of the Office of the President (OP) in O.P. Case No. 04-D-
by assignor could have been deducted if it had so informed the 182 (HLURB Case No. REM-A-030724-0186).
assignor of the plan.
Facts of the Case
For the same reason as in No. (5), attomey's fees cannot be
charged, for despite the express stipulation on the matter in the Some time in July 1994, respondent Teresita Tan Dee (Dee)
contract, there was actually no failure on the part of the assignor bought from respondent Prime East Properties Inc.5 (PEPI) on an
to comply with the obligation of refinding. The means of installment basis a residential lot located in Binangonan, Rizal,
compliance was right there with the Surety itself-. surely it could with an area of 204 square meters6 and covered by Transfer
have earlier conferred with the assignor on how to effect the Certificate of Title (TCT) No. 619608. Subsequently, PEPI
'refunding. (p. 39, Rollo) assigned its rights over a 213,093-sq m property on August 1996
to respondent Armed Forces of the Philippines-Retirement and
WHEREFORE, the petition is hereby DISMISSED. For the reasons Separation Benefits System, Inc. (AFP-RSBS), which included the
above-stated, the claim of Citizens' Surety and Insurance Co., Inc., property purchased by Dee.
against the estate of Nicasia Sarmiento is DISMISSED. SO
ORDERED. Thereafter, or on September 10, 1996, PEPI obtained a
P205,000,000.00 loan from petitioner Philippine National Bank
(petitioner), secured by a mortgage over several properties,
including Dees property. The mortgage was cleared by the
Housing and Land Use Regulatory Board (HLURB) on September
81. G.R. No. 182128 February 19, 2014 18, 1996.7


After Dees full payment of the purchase price, a deed of sale was respondents PEPI and AFP-RSBS are hereby ordered to jointly
executed by respondents PEPI and AFP-RSBS on July 1998 in and severally pay to [Dee] the amount of FIVE HUNDRED
Dees favor. Consequently, Dee sought from the petitioner the TWENTY THOUSAND PESOS ([P]520,000.00) plus twelve percent
delivery of the owners duplicate title over the property, to no (12%) interest to be computed from the filing of complaint on
avail. Thus, she filed with the HLURB a complaint for specific April 24, 2002 until fully paid; and
performance to compel delivery of TCT No. 619608 by the
petitioner, PEPI and AFP-RSBS, among others. In its Decision8 5. Ordering [PEPI, AFP-RSBS, and the petitioner] to pay jointly
dated May 21, 2003, the HLURB ruled in favor of Dee and and severally [Dee] the following sums:
disposed as follows:
a) The amount of TWENTY FIVE THOUSAND PESOS
WHEREFORE, premises considered, judgment is hereby rendered ([P]25,000.00) as attorneys fees;
as follows:
b) The cost of litigation[;] and
1. Directing [the petitioner] to cancel/release the mortgage on
Lot 12, Block 21-A, Village East Executive Homes covered by c) An administrative fine of TEN THOUSAND PESOS
Transfer Certificate of Title No. -619608-(TCT No. -619608-), and ([P]10,000.00) payable to this Office fifteen (15) days upon
accordingly, surrender/release the title thereof to [Dee]; receipt of this decision, for violation of Section 18 in relation to
Section 38 of PD 957.
2. Immediately upon receipt by [Dee] of the owners duplicate of
Transfer Certificate of Title No. -619608- (TCT No. -619608-), SO ORDERED.9
respondents PEPI and AFP-RSBS are hereby ordered to deliver
the title of the subject lot in the name of [Dee] free from all liens The HLURB decision was affirmed by its Board of Commissioners
and encumbrances; per Decision dated March 15, 2004, with modification as to the
rate of interest.10
3. Directing respondents PEPI and AFP-RSBS to pay [the On appeal, the Board of Commissioners decision was affirmed by
petitioner] the redemption value of Lot 12, Block 21-A, Village the OP in its Decision dated August 4, 2004, with modification as
East Executive Homes covered by Transfer Certificate of Title No. to the monetary award.11
-619608- (TCT No. -619608-) as agreed upon by them in their
Real Estate Mortgage within six (6) months from the time the Hence, the petitioner filed a petition for review with the CA,
owners duplicate of Transfer Certificate of Title No. -619608- which, in turn, issued the assailed Decision dated August 13,
(TCT No. -619608-) is actually surrendered and released by [the 2007, affirming the OP decision. The dispositive portion of the
petitioner] to [Dee]; decision reads:

4. In the alternative, in case of legal and physical impossibility on WHEREFORE, in view of the foregoing, the petition is DENIED.
the part of [PEPI, AFP-RSBS, and the petitioner] to comply and The Decision dated August 4, 2004 rendered by the Office of the
perform their respective obligation/s, as above-mentioned,

President in O. P. Case No. 04-D-182 (HLURB Case No. REM-A- properties are protected by Act 313516. If at all, the petitioner
030724-0186) is hereby AFFIRMED. can be compelled to release or cancel the mortgage only after the
provisions of P.D. No. 957 on redemption of the mortgage by the
SO ORDERED.12 owner/developer (Section 25) are complied with. The petitioner
also objects to the denomination by the CA of the provisions in
Its motion for reconsideration having been denied by the CA in the Affidavit of Undertaking as stipulations pour autrui,17
the Resolution dated March 13, 2008, the petitioner filed the arguing that the release of the title was conditioned on Dees
present petition for review on the following grounds: direct payment to it.18

I. THE HONORABLE COURT OF APPEALS ERRED IN ORDERING Respondent AFP-RSBS, meanwhile, contends that it cannot be
OUTRIGHT RELEASE OF TCT NO. 619608 DESPITE PNBS DULY compelled to pay or settle the obligation under the mortgage
REGISTERED AND HLURB[-] APPROVED MORTGAGE ON TCT NO. contract between PEPI and the petitioner as it is merely an
619608. investor in the subdivision project and is not privy to the
mortgage.19
II. THE HONORABLE COURT OF APPEALS ERRED IN ORDERING
CANCELLATION OF MORTGAGE/RELEASE OF TITLE IN FAVOR Respondent PEPI, on the other hand, claims that the title over the
OF RESPONDENT DEE DESPITE THE LACK OF PAYMENT OR subject property is one of the properties due for release by the
SETTLEMENT BY THE MORTGAGOR (API/PEPI and AFP-RSBS) petitioner as it has already been the subject of a Memorandum of
OF ITS EXISTING LOAN OBLIGATION TO PNB, OR THE PRIOR Agreement and dacion en pago entered into between them.20
EXERCISE OF RIGHT OF REDEMPTION BY THE MORTGAGOR AS The agreement was reached after PEPI filed a petition for
MANDATED BY SECTION 25 OF PD 957 OR DIRECT PAYMENT rehabilitation, and contained the stipulation that the petitioner
MADE BY RESPONDENT DEE TO PNB PURSUANT TO THE DEED agreed to release the mortgage lien on fully paid mortgaged
OF UNDERTAKING WHICH WOULD WARRANT RELEASE OF THE properties upon the issuance of the certificates of title over the
SAME.13 dacioned properties.21

The petitioner claims that it has a valid mortgage over Dees For her part, respondent Dee adopts the arguments of the CA in
property, which was part of the property mortgaged by PEPI to it support of her prayer for the denial of the petition for review.22
to secure its loan obligation, and that Dee and PEPI are bound by
such mortgage. The petitioner also argues that it is not privy to Ruling of the Court
the transactions between the subdivision project buyers and
PEPI, and has no obligation to perform any of their respective The petition must be DENIED.
undertakings under their contract.14
The petitioner is correct in arguing that it is not obliged to
The petitioner also maintains that Presidential Decree (P.D.) No. perform any of the undertaking of respondent PEPI and AFP-
95715 cannot nullify the subsisting agreement between it and RSBS in its transactions with Dee because it is not a privy thereto.
PEPI, and that the petitioners rights over the mortgaged The basic principle of relativity of contracts is that contracts can

only bind the parties who entered into it,23 and cannot favor or corresponding portion thereof within six months from such
prejudice a third person, even if he is aware of such contract and issuance in order that the title over any fully paid lot or unit may
has acted with knowledge thereof.24 "Where there is no privity be secured and delivered to the buyer in accordance herewith.
of contract, there is likewise no obligation or liability to speak
about."25 It must be stressed that the mortgage contract between PEPI and
the petitioner is merely an accessory contract to the principal
The petitioner, however, is not being tasked to undertake the three-year loan takeout from the petitioner by PEPI for its
obligations of PEPI and AFP-RSBS.1avvphi1 In this case, there are expansion project. It need not be belaboured that "[a] mortgage
two phases involved in the transactions between respondents is an accessory undertaking to secure the fulfillment of a
PEPI and Dee the first phase is the contract to sell, which principal obligation,"28 and it does not affect the ownership of
eventually became the second phase, the absolute sale, after the property as it is nothing more than a lien thereon serving as
Dees full payment of the purchase price. In a contract of sale, the security for a debt.29
parties obligations are plain and simple. The law obliges the
vendor to transfer the ownership of and to deliver the thing that Note that at the time PEPI mortgaged the property to the
is the object of sale.26 On the other hand, the principal obligation petitioner, the prevailing contract between respondents PEPI and
of a vendee is to pay the full purchase price at the agreed time.27 Dee was still the Contract to Sell, as Dee was yet to fully pay the
Based on the final contract of sale between them, the obligation purchase price of the property. On this point, PEPI was acting
of PEPI, as owners and vendors of Lot 12, Block 21-A, Village East fully well within its right when it mortgaged the property to the
Executive Homes, is to transfer the ownership of and to deliver petitioner, for in a contract to sell, ownership is retained by the
Lot 12, Block 21-A to Dee, who, in turn, shall pay, and has in fact seller and is not to pass until full payment of the purchase
paid, the full purchase price of the property. There is nothing in price.30 In other words, at the time of the mortgage, PEPI was
the decision of the HLURB, as affirmed by the OP and the CA, still the owner of the property. Thus, in China Banking
which shows that the petitioner is being ordered to assume the Corporation v. Spouses Lozada,31 the Court affirmed the right of
obligation of any of the respondents. There is also nothing in the the owner/developer to mortgage the property subject of
HLURB decision, which validates the petitioners claim that the development, to wit: "[P.D.] No. 957 cannot totally prevent the
mortgage has been nullified. The order of cancellation/release of owner or developer from mortgaging the subdivision lot or
the mortgage is simply a consequence of Dees full payment of the condominium unit when the title thereto still resides in the
purchase price, as mandated by Section 25 of P.D. No. 957, to wit: owner or developer awaiting the full payment of the purchase
price by the installment buyer."32 Moreover, the mortgage bore
Sec. 25. Issuance of Title. The owner or developer shall deliver the clearance of the HLURB, in compliance with Section 18 of P.D.
the title of the lot or unit to the buyer upon full payment of the lot No. 957, which provides that "[n]o mortgage on any unit or lot
or unit. No fee, except those required for the registration of the shall be made by the owner or developer without prior written
deed of sale in the Registry of Deeds, shall be collected for the approval of the [HLURB]."
issuance of such title. In the event a mortgage over the lot or unit
is outstanding at the time of the issuance of the title to the buyer, Nevertheless, despite the apparent validity of the mortgage
the owner or developer shall redeem the mortgage or the between the petitioner and PEPI, the former is still bound to

respect the transactions between respondents PEPI and Dee. The subject of any other contract involving buyers or potential
petitioner was well aware that the properties mortgaged by PEPI buyers. In granting the loan, [the Bank] should not have been
were also the subject of existing contracts to sell with other content merely with a clean title, considering the presence of
buyers. While it may be that the petitioner is protected by Act No. circumstances indicating the need for a thorough investigation of
3135, as amended, it cannot claim any superior right as against the existence of buyers x x x. Wanting in care and prudence, the
the installment buyers. This is because the contract between the [Bank] cannot be deemed to be an innocent mortgagee. x x x"36
respondents is protected by P.D. No. 957, a social justice measure (Citation omitted)
enacted primarily to protect innocent lot buyers.33 Thus, in
Luzon Development Bank v. Enriquez,34 the Court reiterated the More so in this case where the contract to sell has already
rule that a bank dealing with a property that is already subject of ripened into a contract of absolute sale.1wphi1
a contract to sell and is protected by the provisions of P.D. No.
957, is bound by the contract to sell.35 Moreover, PEPI brought to the attention of the Court the
subsequent execution of a Memorandum of Agreement dated
However, the transferee BANK is bound by the Contract to Sell November 22, 2006 by PEPI and the petitioner. Said agreement
and has to respect Enriquezs rights thereunder. This is because was executed pursuant to an Order dated February 23, 2004 by
the Contract to Sell, involving a subdivision lot, is covered and the Regional Trial Court (RTC) of Makati City, Branch 142, in SP
protected by PD 957. No. 02-1219, a petition for Rehabilitation under the Interim Rules
of Procedure on Corporate Rehabilitation filed by PEPI. The RTC
x x x. order approved PEPIs modified Rehabilitation Plan, which
included the settlement of the latters unpaid obligations to its
x x x x creditors by way of dacion of real properties. In said order, the
RTC also incorporated certain measures that were not included
x x x Under these circumstances, the BANK knew or should have in PEPIs plan, one of which is that "[t]itles to the lots which have
known of the possibility and risk that the assigned properties been fully paid shall be released to the purchasers within 90 days
were already covered by existing contracts to sell in favor of after the dacion to the secured creditors has been completed."37
subdivision lot buyers. As observed by the Court in another case Consequently, the agreement stipulated that as partial settlement
involving a bank regarding a subdivision lot that was already of PEPIs obligation with the petitioner, the former absolutely
subject of a contract to sell with a third party: and irrevocably conveys by way of "dacion en pago" the
properties listed therein,38 which included the lot purchased by
"[The Bank] should have considered that it was dealing with a Dee. The petitioner also committed to
property subject of a real estate development project. A
reasonable person, particularly a financial institution x x x, [R]elease its mortgage lien on fully paid Mortgaged Properties
should have been aware that, to finance the project, funds other upon issuance of the certificates of title over the Dacioned
than those obtained from the loan could have been used to serve Properties in the name of the [petitioner]. The request for release
the purpose, albeit partially. Hence, there was a need to verify of a Mortgaged Property shall be accompanied with: (i) proof of
whether any part of the property was already intended to be the full payment by the buyer, together with a certificate of full

payment issued by the Borrower x x x. The [petitioner] hereby
undertakes to cause the transfer of the certificates of title over As between these small lot buyers and the gigantic financial
the Dacioned Properties and the release of the Mortgaged institutions which the developers deal with, it is obvious that the
Properties with reasonable dispatch.39 lawas an instrument of social justicemust favor the weak.46
(Emphasis omitted)
Dacion en pago or dation in payment is the delivery and
transmission of ownership of a thing by the debtor to the creditor Finally, the Court will not dwell on the arguments of AFP-RSBS
as an accepted equivalent of the performance of the obligation.40 given the finding of the OP that "[b]y its non-payment of the
It is a mode of extinguishing an existing obligation41 and appeal fee, AFP-RSBS is deemed to have abandoned its appeal
partakes the nature of sale as the creditor is really buying the and accepts the decision of the HLURB."47 As such, the HLURB
thing or property of the debtor, the payment for which is to be decision had long been final and executory as regards AFP-RSBS
charged against the debtors debt.42 Dation in payment and can no longer be altered or modified.48
extinguishes the obligation to the extent of the value of the thing
delivered, either as agreed upon by the parties or as may be WHEREFORE, the petition for review is DENIED for lack of merit.
proved, unless the parties by agreement express or implied, or Consequently, the Decision dated August 13, 2007 and Resolution
by their silence consider the thing as equivalent to the dated March 13, 2008 of the Court of Appeals in CA-G.R. SP No.
obligation, in which case the obligation is totally extinguished.43 86033 are AFFIRMED.

There is nothing on record showing that the Memorandum of Petitioner Philippine National Bank and respondents Prime East
Agreement has been nullified or is the subject of pending Properties Inc. and Armed Forces of the Philippines-Retirement
litigation; hence, it carries with it the presumption of validity.44 and Separation Benefits System, Inc. are hereby ENJOINED to
Consequently, the execution of the dation in payment effectively strictly comply with the Housing and Land Use Regulatory Board
extinguished respondent PEPIs loan obligation to the petitioner Decision dated May 21, 2003, as modified by its Board of
insofar as it covers the value of the property purchased by Dee. Commissioners Decision dated March 15, 2004 and Office of the
This negates the petitioners claim that PEPI must first redeem President Decision dated August 4, 2004.
the property before it can cancel or release the mortgage. As it
now stands, the petitioner already stepped into the shoes of PEPI
and there is no more reason for the petitioner to refuse the
cancellation or release of the mortgage, for, as stated by the Court
in Luzon Development Bank, in accepting the assigned properties 82. G.R. No. L-58961 June 28, 1983
as payment of the obligation, "[the bank] has assumed the risk
that some of the assigned properties are covered by contracts to SOLEDAD SOCO, petitioner,
sell which must be honored under PD 957."45 Whatever claims vs.
the petitioner has against PEPI and AFP-RSBS, monetary or HON. FRANCIS MILITANTE, Incumbent Presiding Judge
otherwise, should not prejudice the rights and interests of Dee of the Court of First Instance of Cebu, Branch XII, Cebu
over the property, which she has already fully paid for. City and REGINO FRANCISCO, JR., respondents.

GUERRERO, J.: Art. 1258. Consignation shall be made by depositing the things
due at the disposal of judicial authority, before whom the tender
The decision subject of the present petition for review holds the of payment shall be proved, in a proper case, and the
view that there was substantial compliance with the requisites of announcement of the consignation in other cases.
consignation and so ruled in favor of private respondent, Regino
Francisco, Jr., lessee of the building owned by petitioner lessor, The consignation having been made, the interested parties shall
Soledad Soco in the case for illegal detainer originally filed in the also be notified thereof.
City Court of Cebu City, declaring the payments of the rentals
valid and effective, dismissed the complaint and ordered the Art. 1249. The payment of debts in money shall be made in the
lessor to pay the lessee moral and exemplary damages in the currency stipulated, and if it is not possible to deliver such
amount of P10,000.00 and the further sum of P3,000.00 as currency, then in the currency which is legal tender in the
attorney's fees. Philippines.

We do not agree with the questioned decision. We hold that the The delivery of promissory notes payable to order, or bills of
essential requisites of a valid consignation must be complied with exchange or other mercantile documents shall produce the effect
fully and strictly in accordance with the law, Articles 1256 to of payment only when they have been cashed, or when through
1261, New Civil Code. That these Articles must be accorded a the fault of the creditor they have been impaired.
mandatory construction is clearly evident and plain from the
very language of the codal provisions themselves which require In the meantime, the action derived from the original obligation
absolute compliance with the essential requisites therein shall be held in abeyance.
provided. Substantial compliance is not enough for that would
render only a directory construction to the law. The use of the We have a long line of established precedents and doctrines that
words "shall" and "must" which are imperative, operating to sustain the mandatory nature of the above provisions. The
impose a duty which may be enforced, positively indicate that all decision appealed from must, therefore, be reversed.
the essential requisites of a valid consignation must be complied
with. The Civil Code Articles expressly and explicitly direct what The antecedent facts are substantially recited in the decision
must be essentially done in order that consignation shall be valid under review, as follows:
and effectual. Thus, the law provides:
It appears from the evidence that the plaintiff-appellee-Soco, for
1257. In order that the consignation of the thing due may short-and the 'defendant-appellant-Francisco, for brevity-
release the obligor, it must first be announced to the persons entered into a contract of lease on January 17, 1973, whereby
interested in the fulfillment of the obligation. Soco leased her commercial building and lot situated at Manalili
Street, Cebu City, to Francisco for a monthly rental of P 800.00 for
The consignation shall be ineffectual if it is not made strictly in a period of 10 years renewable for another 10 years at the option
consonance with the provisions which regulate payment. of the lessee. The terms of the contract are embodied in the

Contract of Lease (Exhibit "A" for Soco and Exhibit "2" for paid by Commercial Bank and Trust Company through the Clerk
Francisco). It can readily be discerned from Exhibit "A" that of Court of the City Court of Cebu (Exhibit " 1 "). Despite this
paragraphs 10 and 11 appear to have been cancelled while in explanation, Soco filed this instant case of Illegal Detainer on
Exhibit "2" only paragraph 10 has been cancelled. Claiming that January 8, 1979. ...
paragraph 11 of the Contract of Lease was in fact not part of the
contract because it was cancelled, Soco filed Civil Case No. R- 2. Pursuant to his letter dated February 7, 1975(Exhibit"3") and
16261 in the Court of First Instance of Cebu seeking the for reasons stated therein, Francisco paid his monthly rentals to
annulment and/or reformation of the Contract of Lease. ... Soco by issuing checks of the Commercial Bank and Trust
Company where he had a checking account. On May 13, 1975,
Sometime before the filing of Civil Case No. R-16261 Francisco Francisco wrote the Vice-President of Comtrust, Cebu Branch
noticed that Soco did not anymore send her collector for the (Exhibit "4") requesting the latter to issue checks to Soco in the
payment of rentals and at times there were payments made but amount of P 840.00 every 10th of the month, obviously for
no receipts were issued. This situation prompted Francisco to payment of his monthly rentals. This request of Francisco was
write Soco the letter dated February 7, 1975 (Exhibit "3") which complied with by Comtrust in its letter dated June 4, 1975
the latter received as shown in Exhibit "3-A". After writing this (Exhibit "5"). Obviously, these payments by checks through
letter, Francisco sent his payment for rentals by checks issued by Comtrust were received by Soco from June, 1975 to April, 1977
the Commercial Bank and Trust Company. Obviously, these because Soco admitted that an rentals due her were paid except
payments in checks were received because Soco admitted that the rentals beginning May, 1977. While Soco alleged in her direct
prior to May, 1977, defendant had been religiously paying the examination that 'since May, 1977 he (meaning Francisco)
rental. .... stopped paying the monthly rentals' (TSN, Palicte, p. 6, Hearing of
October 24, 1979), yet on cross examination she admitted that
1. The factual background setting of this case clearly indicates before the filing of her complaint in the instant case, she knew
that soon after Soco learned that Francisco sub-leased a portion that payments for monthly rentals were deposited with the Clerk
of the building to NACIDA, at a monthly rental of more than of Court except rentals for the months of May, June, July and
P3,000.00 which is definitely very much higher than what August, 1977. ...
Francisco was paying to Soco under the Contract of Lease, the
latter felt that she was on the losing end of the lease agreement Pressing her point, Soco alleged that 'we personally demanded
so she tried to look for ways and means to terminate the contract. from Engr. Francisco for the months of May, June, July and
... August, but Engr. Francisco did not pay for the reason that he had
no funds available at that time.' (TSN-Palicte, p. 28, Hearing
In view of this alleged non-payment of rental of the leased October 24, 1979). This allegation of Soco is denied by Francisco
premises beginning May, 1977, Soco through her lawyer sent a because per his instructions, the Commercial Bank and Trust
letter dated November 23, 1978 (Exhibit "B") to Francisco Company, Cebu Branch, in fact, issued checks in favor of Soco
serving notice to the latter 'to vacate the premises leased.' In representing payments for monthly rentals for the months of
answer to this letter, Francisco through his lawyer informed Soco May, June, July and August, 1977 as shown in Debit Memorandum
and her lawyer that all payments of rental due her were in fact issued by Comtrust as follows:

She was further notified of these payments by consignation in the
(a) Exhibit "6"-Debit Memo dated May 11, 1977 for P926.10 as letter of Atty. Menchavez dated November 28, 1978 (Exhibit " 1
payment for May, 1977; "). There was therefore substantial compliance of the requisites
of consignation, hence his payments were valid and effective.
(b) Exhibit"7"-Debit Memo dated June l5, 197 7for P926.10 as Consequently, Francisco cannot be ejected from the leased
payment for June, 1977; premises for non-payment of rentals. ...

(c) Exhibit "8"-Debit Memo dated July 11, 1977 for P1926.10 as As indicated earlier, the above decision of the Court of First
payment for July, 1977; Instance reversed the judgment of the City Court of Cebu, Branch
11, the dispositive portion of the latter reading as follows:
(d) Exhibit "9"-Debit Memo dated August 10, 1977 for P926. 10
as payment for August, 1977. WHEREFORE, judgment is hereby rendered in favor of the
plaintiff, ordering the defendant, Regino Francisco, Jr.:
These payments are further bolstered by the certification issued
by Comtrust dated October 29, 1979 (Exhibit "13"). Indeed the (1) To vacate immediately the premises in question, consisting of
Court is convinced that payments for rentals for the months of a building located at Manalili St., Cebu City;
May, June, July and August, 1977 were made by Francisco to Soco
thru Comtrust and deposited with the Clerk of Court of the City (2) To pay to the plaintiff the sum of P40,490.46 for the rentals,
Court of Cebu. There is no need to determine whether payments covering the period from May, 1977 to August, 1980, and starting
by consignation were made from September, 1977 up to the filing with the month of September, 1980, to pay to the plaintiff for one
of the complaint in January, 1979 because as earlier stated Soco (1) year a monthly rental of P l,072.076 and an additional amount
admitted that the rentals for these months were deposited with of 5 per cent of said amount, and for so much amount every
the Clerk of Court. ... month thereafter equivalent to the rental of the month of every
preceding year plus 5 percent of same monthly rental until the
Taking into account the factual background setting of this case, defendant shall finally vacate said premises and possession
the Court holds that there was in fact a tender of payment of the thereof wholly restored to the plaintiff-all plus legal interest from
rentals made by Francisco to Soco through Comtrust and since date of filing of the complaint;
these payments were not accepted by Soco evidently because of
her intention to evict Francisco, by all means, culminating in the (3) To pay to the plaintiff the sum of P9,000.00 for attorney's fee;
filing of Civil Case R-16261, Francisco was impelled to deposit the
rentals with the Clerk of Court of the City Court of Cebu. Soco was (4) To pay to the plaintiff the sum of P5,000.00 for damages and
notified of this deposit by virtue of the letter of Atty. Pampio incidental litigation expenses; and
Abarientos dated June 9, 1977 (Exhibit "10") and the letter of
Atty. Pampio Abarientos dated July 6. 1977 (Exhibit " 12") as well (5) To pay the Costs.
as in the answer of Francisco in Civil Case R-16261 (Exhibit "14")
particularly paragraph 7 of the Special and Affirmative Defenses. SOORDERED.

The City Court further found that there is no showing that the
Cebu City, Philippines, November 21, 1980. letter allegedly delivered to the plaintiff in May, 1977 by
Filomeno Soon, messenger of the FAR Corporation contained
(SGD.) PATERNO D. MONTESCLAROS cash money, check, money order, or any other form of note of
Acting Presiding Judge value, hence there could never be any tender of payment, and
even granting that there was, but plaintiff refused to accept it
According to the findings of fact made by the City Court, the without any reason, still no consignation for May, 1977 rental
defendant Francisco had religiously paid to the plaintiff Soco the could be considered in favor of the defendant unless evidence is
corresponding rentals according to the terms of the Least presented to establish that he actually made rental deposit with
Contract while enjoying the leased premises until one day the the court in cash money and prior and subsequent to such
plaintiff had to demand upon the defendant for the payment of deposit, he notified the plaintiff thereof.
the rentals for the month of May, 1977 and of the succeeding
months. The plaintiff also demanded upon the defendant to Notwithstanding the contradictory findings of fact and the
vacate the premises and from that time he failed or refused to resulting opposite conclusions of law by the City Court and the
vacate his possession thereof; that beginning with the month of Court of First Instance, both are agreed, however, that the case
May, 1977 until at present, the defendant has not made valid presents the issue of whether the lessee failed to pay the monthly
payments of rentals to the plaintiff who, as a consequence, has rentals beginning May, 1977 up to the time the complaint for
not received any rental payment from the defendant or anybody eviction was filed on January 8, 1979. This issue in turn revolves
else; that for the months of May to August, 1977, evidence shows on whether the consignation of the rentals was valid or not to
that the plaintiff through her daughter, Teolita Soco and salesgirl, discharge effectively the lessee's obligation to pay the same. The
Vilma Arong, went to the office or residence of defendant at City Court ruled that the consignation was not valid. The Court of
Sanciangko St., Cebu City, on various occasions to effect payment First Instance, on the other hand, held that there was substantial
of rentals but were unable to collect on account of the compliance with the requisites of the law on consignation.
defendant's refusal to pay; that defendant contended that
payments of rental thru checks for said four months were made Let us examine the law and consider Our jurisprudence on the
to the plaintiff but the latter refused to accept them; that in 1975, matter, aside from the codal provisions already cited herein.
defendant authorized the Commercial Bank and Trust Company
to issue checks to the plaintiff chargeable against his bank According to Article 1256, New Civil Code, if the creditor to
account, for the payment of said rentals, and the delivery of said whom tender of payment has been made refuses without just
checks was coursed by the bank thru the messengerial services of cause to accept it, the debtor shall be released from responsibility
the FAR Corporation, but the plaintiff refused to accept them and by the consignation of the thing or sum due. Consignation alone
because of such refusal, defendant instructed said bank to make shall produce the same effect in the following cases: (1) When the
consignation with the Clerk of Court of the City Court of Cebu as creditor is absent or unknown, or does not appear at the place of
regard said rentals for May to August, 1977 and for subsequent payment; (2) When he is incapacitated to receive the payment at
months. the time it is due; (3) When, without just cause, he refuses to give


a receipt; (4) When two or more persons claim the same right to Thus, the tender of a check to pay for an obligation is not a valid
collect; (5) When the title of the obligation has been lost. tender of payment thereof (Desbarats vs. Vda. de Mortera, supra).
See Annotation, The Mechanics of Consignation by Atty. S. Tabios,
Consignation is the act of depositing the thing due with the court 104 SCRA 174-179.
or judicial authorities whenever the creditor cannot accept or
refuses to accept payment and it generally requires a prior Tender of payment must be distinguished from consignation.
tender of payment. (Limkako vs. Teodoro, 74 Phil. 313). Tender is the antecedent of consignation, that is, an act
preparatory to the consignation, which is the principal, and from
In order that consignation may be effective, the debtor must first which are derived the immediate consequences which the debtor
comply with certain requirements prescribed by law. The debtor desires or seeks to obtain. Tender of payment may be
must show (1) that there was a debt due; (2) that the extrajudicial, while consignation is necessarily judicial, and the
consignation of the obligation had been made because the priority of the first is the attempt to make a private settlement
creditor to whom tender of payment was made refused to accept before proceeding to the solemnities of consignation. (8 Manresa
it, or because he was absent or incapacitated, or because several 325).
persons claimed to be entitled to receive the amount due (Art.
1176, Civil Code); (3) that previous notice of the consignation Reviewing carefully the evidence presented by respondent lessee
had been given to the person interested in the performance of the at the trial of the case to prove his compliance with all the
obligation (Art. 1177, Civil Code); (4) that the amount due was requirements of a valid tender of payment and consignation and
placed at the disposal of the court (Art. 1178, Civil Code); and (5) from which the respondent Judge based his conclusion that there
that after the consignation had been made the person interested was substantial compliance with the law on consignation, We
was notified thereof (Art. 1178, Civil Code). Failure in any of note from the assailed decision hereinbefore quoted that these
these requirements is enough ground to render a consignation evidences are: Exhibit 10, the letter of Atty. Pampio Abarintos
ineffective. (Jose Ponce de Leon vs. Santiago Syjuco, Inc., 90 Phil. dated June 9, 1977: Exhibit 12, letter of Atty. Pampio Abarintos
311). dated July 6, 1977; Exhibit 14, the Answer of respondent
Francisco in Civil Case R- 16261, particularly paragraph 7 of the
Without the notice first announced to the persons interested in Special and Affirmative Defenses; and Exhibit 1, letter of Atty.
the fulfillment of the obligation, the consignation as a payment is Eric Menchavez dated November 28, 1978. All these evidences,
void. (Limkako vs. Teodoro, 74 Phil. 313), according to respondent Judge, proved that petitioner lessor was
notified of the deposit of the monthly rentals.
In order to be valid, the tender of payment must be made in
lawful currency. While payment in check by the debtor may be We have analyzed and scrutinized closely the above exhibits and
acceptable as valid, if no prompt objection to said payment is We find that the respondent Judge's conclusion is manifestly
made (Desbarats vs. Vda. de Mortera, L-4915, May 25, 1956) the wrong and based on misapprehension of facts. Thus-
fact that in previous years payment in check was accepted does
not place its creditor in estoppel from requiring the debtor to pay (1) Exhibit 10 reads: (see p. 17, Records)
his obligation in cash (Sy vs. Eufemio, L-10572, Sept. 30, 1958).

June 9, 1977 deposit the rental with the court, which is the first notice. But
certainly, it is no proof of tender of payment of other or
Miss Soledad Soco subsequent monthly rentals. Neither is it proof that notice of the
Soledad Soco Retazo actual deposit or consignation was given to the lessor, which is
P. Gullas St., Cebu City the second notice required by law.

Dear Miss Soco: (2) Exhibit 12 (see p. 237, Records) states:

This is in connection with the payment of rental of my client, July 6, 1977
Engr. Regino Francisco, Jr., of your building situated at Manalili
St., Cebu City. Miss Soledad Soco
Soledad Soco Reta
It appears that twice you refused acceptance of the said payment P. Gullas St., Cebu City
made by my client.
Dear Miss Soco:
It appears further that my client had called your office several
times and left a message for you to get this payment of rental but This is to advise and inform you that my client, Engr. Regino
until the present you have not sent somebody to get it. Francisco, Jr., has consigned to you, through the Clerk of Court,
City Court of Cebu, Cebu City, the total amount of Pl,852.20, as
In this connection, therefore, in behalf of my client, you are evidenced by cashier's checks No. 478439 and 47907 issued by
hereby requested to please get and claim the rental payment the Commercial Bank and Trust Company (CBTC) Cebu City
aforestated from the Office of my client at Tagalog Hotel and Branch, dated May 11, 1977 and June 15, 1977 respectively and
Restaurant, Sanciangko St., Cebu City. within three (3) days from payable to your order, under Official Receipt No. 0436936 dated
receipt hereof otherwise we would be constrained to make a July 6,1977.
consignation of the same with the Court in accordance with law.
This amount represents payment of the rental of your building
Hoping for your cooperation on this matter, we remain. situated at Manalili St., Cebu City which my client, Engr. Regino
Francisco, Jr., is renting. You can withdraw the said amount from
Very truly yours, the Clerk of Court, City Court of Cebu, Cebu City at any time.

(SGD.) PAMPIO A. ABARINTOS Please be further notified that all subsequent monthly rentals
Counsel for Engr. REGINO FRANCISCO, Jr. will be deposited to the Clerk of Court, City Court of Cebu, Cebu
City.
We may agree that the above exhibit proves tender of payment of
the particular monthly rental referred to (the letter does not, Very truly yours,
however, indicate for what month and also the intention to

(SGD.) PAMPIO A. ABARINTOS serving. The statements therein are mere allegations of
Counsel for ENGR. REGINO FRANCISCO, JR. conclusions which are not evidentiary.

The above evidence is, of course, proof of notice to the lessor of (4) Exhibit 1 (see p. 15, Records) is quoted thus:
the deposit or consignation of only the two payments by cashier's
checks indicated therein. But surely, it does not prove any other November 28, 1978
deposit nor the notice thereof to the lessor. It is not even proof of
the tender of payment that would have preceded the Atty. Luis V. Diores
consignation. Suite 504, SSS Bldg.
Jones Avenue, Cebu City
(3) Exhibit 14, paragraph 7 of the Answer (see p. 246,
Records) alleges: Dear Compaero:

7. That ever since, defendant had been religiously paying his Your letter dated November 23, 1978 which was addressed to my
rentals without any delay which, however, the plaintiff had in so client, Engr. Regino Francisco, Jr. has been referred to me for
many occasions refused to accept obviously in the hope that she reply.
may declare non-payment of rentals and claim it as a ground for
the cancellation of the contract of lease. This, after seeing the It is not true that my client has not paid the rentals as claimed in
improvements in the area which were effected, at no small your letter. As a matter of fact, he has been religiously paying the
expense by the defendant. To preserve defendant's rights and to rentals in advance. Payment was made by Commercial Bank and
show good faith in up to date payment of rentals, defendant had Trust Company to the Clerk of Court, Cebu City. Attached
authorized his bank to issue regularly cashier's check in favor of herewith is the receipt of payment made by him for the month of
the plaintiff as payment of rentals which the plaintiff had been November, 1978 which is dated November 16, 1978.
accepting during the past years and even for the months of
January up to May of this year, 1977 way past plaintiff's claim of You can check this up with the City Clerk of Court for satisfaction.
lease expiration. For the months of June and July, however,
plaintiff again started refusing to accept the payments in going Regards.
back to her previous strategy which forced the defendant to
consign his monthly rental with the City Clerk of Court and which (SGD.) ERIC MENCHAVEZ Counsel for Regino Francisco, Jr.
is now the present state of affairs in so far as payment of rentals 377-B Junquera St., Cebu City
is concerned. These events only goes to show that the wily (new address)
plaintiff had thought of this mischievous scheme only very
recently and filed herein malicious and unfounded complaint. Again, Exhibit 1 merely proves rental deposit for the particular
month of November, 1978 and no other. It is no proof of tender of
The above exhibit which is lifted from Civil Case No. R-16261 payment to the lessor, not even proof of notice to consign. We
between the parties for annulment of the lease contract, is self- hold that the best evidence of the rental deposits with the Clerk

of Court are the official receipts issued by the Clerk of Court. bank, citing the lessee's letter (Exh. 4) requesting the bank to
These the respondent lessee utterly failed to present and issue checks in favor of Soco in the amount of P840.00 every 10th
produce during the trial of the case. As pointed out in petitioner's of each month and to deduct the full amount and service fee from
Memorandum, no single official receipt was presented in the trial his current account, as well as Exhibit 5, letter of the Vice
court as nowhere in the formal offer of exhibits for lessee President agreeing with the request. But scrutinizing carefully
Francisco can a single official receipt of any deposit made be Exhibit 4, this is what the lessee also wrote: "Please immediately
found (pp. 8-9, Memorandum for Petitioner; pp. 163-164, notify us everytime you have the check ready so we may send
Records). somebody over to get it. " And this is exactly what the bank
agreed: "Please be advised that we are in conformity to the above
Summing up Our review of the above four (4) exhibits, We hold arrangement with the understanding that you shall send
that the respondent lessee has utterly failed to prove the somebody over to pick up the cashier's check from us." (Exhibit
following requisites of a valid consignation: First, tender of 4, see p. 230, Original Records; Exhibit 5, p. 231, Original
payment of the monthly rentals to the lessor except that Records)
indicated in the June 9, l977 Letter, Exhibit 10. In the original
records of the case, We note that the certification, Exhibit 11 of Evidently, from this arrangement, it was the lessee's duty to send
Filemon Soon, messenger of the FAR Corporation, certifying that someone to get the cashier's check from the bank and logically,
the letter of Soledad Soco sent last May 10 by Commercial Bank the lessee has the obligation to make and tender the check to the
and Trust Co. was marked RTS (return to sender) for the reason lessor. This the lessee failed to do, which is fatal to his defense.
that the addressee refused to receive it, was rejected by the court
for being immaterial, irrelevant and impertinent per its Order Third, respondent lessee likewise failed to prove the second
dated November 20, 1980. (See p. 117, CFI Records). notice, that is after consignation has been made, to the lessor
except the consignation referred to in Exhibit 12 which are the
Second, respondent lessee also failed to prove the first notice to cashier's check Nos. 478439 and 47907 CBTC dated May 11,
the lessor prior to consignation, except the payment referred to 1977 and June 15, 1977 under Official Receipt No. 04369 dated
in Exhibit 10. July 6, 1977.

In this connection, the purpose of the notice is in order to give the Respondent lessee, attempting to prove compliance with the
creditor an opportunity to reconsider his unjustified refusal and requisites of valid consignation, presented the representative of
to accept payment thereby avoiding consignation and the the Commercial Bank and Trust Co., Edgar Ocaada, Bank
subsequent litigation. This previous notice is essential to the Comptroller, who unfortunately belied respondent's claim. We
validity of the consignation and its lack invalidates the same. quote below excerpts from his testimony, as follows:
(Cabanos vs. Calo, 104 Phil. 1058; Limkako vs. Teodoro, 74 Phil.
313). ATTY. LUIS DIORES:

There is no factual basis for the lower court's finding that the
lessee had tendered payment of the monthly rentals, thru his

Q What month did you say you made ,you started making the
deposit? When you first deposited the check to the Clerk of A Well, we only act on something upon the request of our client.
Court?
Q Please answer my question. I know that you are acting upon
A The payment of cashier's check in favor of Miss Soledad Soco instruction of your client. My question was-after you made the
was coursed thru the City Clerk of Court from the letter of deposit of the manager's check whether or not you notified
request by our client Regino Francisco, Jr., dated September 8, Soledad Soco that such manager's check was deposited in the
1977. From that time on, based on his request, we delivered the Clerk of Court from the month of September, 1977?
check direct to the City Clerk of Court.
A We are not bound to.
Q What date, what month was that, you first delivered the check
to the Clerk of Court.? Q I am not asking whether you are bound to or not. I'masking
whether you did or you did not?
A We started September 12, 1977.
A I did not.
Q September 1977 up to the present time, you delivered the
cashier's check to the City Clerk of Court? Q Alright, for October, 1977, after having made a deposit for that
particular month, did you notify Miss Soledad Soco that the
A Yes. deposit was in the Clerk of Court?

Q You were issued the receipts of those checks? A No, we did not.

A Well, we have an acknowledgment letter to be signed by the Q Now, on November, 1977, did you notify Soledad Soco that
one who received the check. you deposited the manager's check to the City Clerk of Court for
that month?
Q You mean you were issued, or you were not issued any
official receipt? My question is whether you were issued any A I did not.
official receipt? So, were you issued, or you were not issued?
Q You did not also notify Soledad Soco for the month
A We were not issued. December, 1977, so also from January, February, March, April,
May, June, July until December, 1978, you did not also notify Miss
Q On September, 1977, after you deposited the manager's check Soledad Soco all the deposits of the manager's check which you
for that month with the Clerk of Court, did you serve notice upon said you deposited with the Clerk of Court in every end of the
Soledad Soco that the deposit was made on such amount for the month? So also from each and every month from January 1979 up
month of September, 1977 and now to the Clerk of Court? Did to December 1979, you did not also serve notice upon Soledad
you or did you not? Socco of the deposit in the Clerk of Court, is that correct?

A No, I did not. (Testimony of Ocanada pp. 32-41, Hearing on
A Yes. June 3, 1980).

Q So also in January 1980 up to this month 1980, you did not Recapitulating the above testimony of the Bank Comptroller, it is
instructed by your client Mr. and Mrs. Regino Francisco, jr. to clear that the bank did not send notice to Soco that the checks
make also serve notice upon Soledad Soco of the Manager's check will be deposited in consignation with the Clerk of Court (the first
which you said you deposited to the Clerk of Court? notice) and also, the bank did not send notice to Soco that the
checks were in fact deposited (the second notice) because no
A I did not. instructions were given by its depositor, the lessee, to this effect,
and this lack of notices started from September, 1977 to the time
Q Now, you did not make such notices because you were not of the trial, that is June 3, 1980.
such notices after the deposits you made, is that correct?
The reason for the notification to the persons interested in the
A Yes, sir. fulfillment of the obligation after consignation had been made,
which is separate and distinct from the notification which is
Q Now, from 1977, September up to the present time, before made prior to the consignation, is stated in Cabanos vs. Calo, G.R.
the deposit was made with the Clerk of Court, did you serve No. L-10927, October 30, 1958, 104 Phil. 1058. thus: "There
notice to Soledad Soco that a deposit was going to be made in should be notice to the creditor prior and after consignation as
each and every month? required by the Civil Code. The reason for this is obvious, namely,
to enable the creditor to withdraw the goods or money
A Not. deposited. Indeed, it would be unjust to make him suffer the risk
for any deterioration, depreciation or loss of such goods or
Q In other words, from September 1977 up to the present money by reason of lack of knowledge of the consignation."
time, you did not notify Soledad Soco that you were going to
make the deposit with the Clerk of Court, and you did not also And the fourth requisite that respondent lessee failed to prove is
notify Soledad Soco after the deposit was made, that a deposit the actual deposit or consignation of the monthly rentals except
has been made in each and every month during that period, is the two cashier's checks referred to in Exhibit 12. As indicated
that correct? earlier, not a single copy of the official receipts issued by the
Clerk of Court was presented at the trial of the case to prove the
A Yes actual deposit or consignation. We find, however, reference to
some 45 copies of official receipts issued by the Clerk of Court
Q And the reason was because you were not instructed by Mr. marked Annexes "B-1 " to "B-40" to the Motion for
and Mrs. Regino Francisco, Jr. that such notification should be Reconsideration of the Order granting execution pending appeal
made before the deposit and after the deposit was made, is that filed by defendant Francisco in the City Court of Cebu (pp, 150-
correct? 194, CFI Original Records) as well as in the Motion for
Reconsideration of the CFI decision, filed by plaintiff lessor (pp.

39-50, Records, marked Annex "E ") the allegation that "there lessor. On this vital point, the lessee miserably failed to present
was no receipt at all showing that defendant Francisco has any proof that he complied with the arrangement.
deposited with the Clerk of Court the monthly rentals
corresponding to the months of May and June, 1977. And for the We, therefore, find and rule that the lessee has failed to prove
months of July and August, 1977, the rentals were only deposited tender of payment except that in Exh. 10; he has failed to prove
with the Clerk of Court on 20 November 1979 (or more than two the first notice to the lessor prior to consignation except that
years later)."... The deposits of these monthly rentals for July and given in Exh. 10; he has failed to prove the second notice after
August, 1977 on 20 November 1979, is very significant because consignation except the two made in Exh. 12; and he has failed to
on 24 October 1979, plaintiff Soco had testified before the trial pay the rentals for the months of July and August, 1977 as of the
court that defendant had not paid the monthly rentals for these time the complaint was filed for the eviction of the lessee. We
months. Thus, defendant had to make a hurried deposit on the hold that the evidence is clear, competent and convincing
following month to repair his failure. " (pp. 43-44, Records). showing that the lessee has violated the terms of the lease
contract and he may, therefore, be judicially ejected.
We have verified the truth of the above claim or allegation and
We find that indeed, under Official Receipt No. 1697161Z, the The other matters raised in the appeal are of no moment. The
rental deposit for August, 1977 in cashier's check No. 502782 motion to dismiss filed by respondent on the ground of "want of
dated 8-10-77 was deposited on November 20, 1979 (Annex "B- specific assignment of errors in the appellant's brief, or of page
15", p. 169, Original CFI Records) and under Official Receipt No. references to the records as required in Section 16(d) of Rule 46,"
1697159Z, the rental deposit for July under Check No. 479647 is without merit. The petition itself has attached the decision
was deposited on November 20, 1979 (Annex "B-16", p. 170, sought to be reviewed. Both Petition and Memorandum of the
Original CFI Records). Indeed, these two rental deposits were petitioner contain the summary statement of facts; they discuss
made on November 20, 1979, two years late and after the filing of the essential requisites of a valid consignation; the erroneous
the complaint for illegal detainer. conclusion of the respondent Judge in reversing the decision of
the City Court, his grave abuse of discretion which, the petitioner
The decision under review cites Exhibits 6, 7, 8 and 9, the Debit argues, "has so far departed from the accepted and usual course
Memorandum issued by Comtrust Bank deducting the amounts of judicial proceeding in the matter of applying the law and
of the checks therein indicated from the account of the lessee, to jurisprudence on the matter." The Memorandum further cites
prove payment of the monthly rentals. But these Debit other basis for petitioner's plea.
Memorandums are merely internal banking practices or office
procedures involving the bank and its depositor which is not In Our mind, the errors in the appealed decision are sufficiently
binding upon a third person such as the lessor. What is important stated and assigned. Moreover, under Our rulings, We have
is whether the checks were picked up by the lessee as per the stated that:
arrangement indicated in Exhibits 4 and 5 wherein the lessee had
to pick up the checks issued by CBTC or to send somebody to pick This Court is clothed with ample authority to review matters,
them up, and logically, for the lessee to tender the same to the even if they are not assigned as errors in the appeal, if it finds
that their consideration is necessary in arriving at a just decision

of the case. Also, an unassigned error closely related to an error City Court of Cebu, Branch II is hereby reinstated, with costs in
properly assigned or upon which the determination of the favor of the petitioner.
questioned raised by the error properly assigned is dependent,
will be considered by the appellate court notwithstanding the
failure to assign it as an error." (Ortigas, Jr. vs. Lufthansa German
Airlines, L-28773, June 30, 1975, 64 SCRA 610)
83. G.R. No. L-42230 April 15, 1988
Under Section 5 of Rule 53, the appellate court is authorized to
consider a plain error, although it was not specifically assigned LAURO IMMACULATA, represented by his wife
by appellants." (Dilag vs. Heirs of Resurreccion, 76 Phil. 649) AMPARO VELASCO, as Guardian Ad Litem, petitioner,
vs.
Appellants need not make specific assignment of errors provided HON. PEDRO C. NAVARRO, in his capacity as Presiding
they discuss at length and assail in their brief the correctness of Judge of the Court of First Instance of Rizal, Branch No.
the trial court's findings regarding the matter. Said discussion II, and HEIRS OF JUANITO VICTORIA, namely: LOLITA,
warrants the appellate court to rule upon the point because it TOMAS, BENJAMIN, VIRGINIA, BRENDA and ELVIE, all
substantially complies with Section 7, Rule 51 of the Revised surnamed VICTORIA, and JUANITA NAVAL, surviving
Rules of Court, intended merely to compel the appellant to widow; and the PROVINCIAL SHERIFF OF RIZAL,
specify the questions which he wants to raise and be disposed of respondents.
in his appeal. A clear discussion regarding an error allegedly
committed by the trial court accomplishes the purpose of a
particular assignment of error." (Cabrera vs. Belen, 95 Phil. 54; PARAS, J.:
Miguel vs Court of Appeals, L- 20274, Oct. 30, 1969, 29 SCRA 760-
773, cited in Moran, Comments on the Rules of Court, Vol. 11, Petitioner's Motion for Reconsideration of Our decision dated
1970 ed., p. 534). November 26, 1986 asks Us to consider a point inadvertently
missed by the Court the matter of legal redemption of a parcel
Pleadings as well as remedial laws should be construed liberally of land previously obtained by petitioner Lauro Immaculata thru
in order that the litigants may have ample opportunity to prove a free patent. The reconsideration of this issue is hereby
their respective claims, and that a possible denial of substantial GRANTED.
justice, due to legal technicalities, may be avoided." (Concepcion,
et al. vs. The Payatas Estate Improvement Co., Inc., 103 Phil. 10 While res judicata may bar questions on the validity of the sale in
17). view of alleged insanity and intimidation (and this point is no
longer pressed by counsel for the petitioner) still the question of
WHEREFORE, IN VIEW OF ALL THE FOREGOING, the decision of the right of legal redemption has remained unresolved.
the Court of First Instance of Cebu, 14th Judicial District, Branch
XII is hereby REVERSED and SET ASIDE, and the derision of the Be it noted that in an action (Civil Case No. 20968) filed on March
24, 1975 before the defunct Court of First Instance of Rizal,

petitioner presented an alternative cause of action or prayer just 84. G.R. No. 181723 August 11, 2014
in case the validity of the sale would be sustained. And this
alternative cause of action or prayer is to allow petitioner to ELIZABETH DEL CARMEN, Petitioner,
legally redeem the property. vs.
SPOUSES RESTITUTO SABORDO and MIMA MAHILUM-
We hereby grant said alternative cause of action or prayer. While SABORDO, Respondents.
the sale was originally executed sometime in December, 1969, it
was only on February 3, 1974 when, as prayed for 1 by private D E C I S I O N
respondent, and as ordered by the court a quo, a "deed of
conveyance" was formally executed. Since offer to redeem was PERALTA, J.:
made on March 24, 1975, this was clearly within the five-year
period of legal redemption allowed by the Public Land Act (See This treats of the petition for review on certiorari assailing the
Abuan v. Garcia, 14 SCRA 759, 761). Decision1 and Resolution2 of the Court of Appeals (CA), dated
May 25, 2007 and January 24, 2008, respectively, in CA-G.R. CV
The allegation that the offer to redeem was not sincere, because No. 75013.
there was no consignation of the amount in Court is devoid of
merit. The right to redeem is a RIGHT, not an obligation, The factual and procedural antecedents of the case are as follows:
therefore, there is no consignation required (De Jesus v. Garcia,
C.A. 47 O.G. 2406; Resales v. Reyes, 25 Phil. 495, Vda. de Quirino Sometime in 1961, the spouses Toribio and Eufrocina Suico
v. Palarca, L-28269, Aug. 16, 1969) to preserve the right to (Suico spouses), along with several business partners, entered
redeem (Villegas v. Capistrano, 9 Phil. 416). into a business venture by establishing a rice and com mill at
Mandaue City, Cebu. As part of their capital, they obtained a loan
WHEREFORE, as prayed for by the petitioner Lauro Immaculata from the Development Bank of the Philippines (DBP), and to
(represented by his wife, Amparo Velasco, as Guardian ad litem) secure the said loan, four parcels of land owned by the Suico
the decision of this Court dated November 26, 1986 is hereby spouses, denominated as Lots 506, 512, 513 and 514, and
MODIFIED, and the case is remanded to the court a quo for it to another lot owned by their business partner, Juliana Del Rosario,
accept payment or consignation 2 (in connection with the legal were mortgaged. Subsequently, the Suico spouses and their
redemption which We are hereby allowing the petitioner to do) business partners failed to pay their loan obligations forcing DBP
by the herein petitioner of whatever he received from to foreclose the mortgage. After the Suico spouses and their
respondent at the time the transaction was made. partners failed to redeem the foreclosed properties, DBP
consolidated its ownership over the same. Nonetheless, DBP later
SO ORDERED. allowed the Suico spouses and Reginald and Beatriz Flores
(Flores spouses), as substitutes for Juliana Del Rosario, to
repurchase the subject lots by way of a conditional sale for the
sum of P240,571.00. The Suico and Flores spouses were able to
pay the downpayment and the first monthly amortization, but no

monthly installments were made thereafter. Threatened with the For reasons given, judgment is hereby rendered modifying the
cancellation of the conditional sale, the Suico and Flores spouses dispositive portion of [the] decision of the lower court to read:
sold their rights over the said properties to herein respondents
Restituto and Mima Sabordo, subject to the condition that the 1) The defendants-appellees are granted up to October 31, 1990
latter shall pay the balance of the sale price. On September 3, within which toexercise their option to purchase from the
1974, respondents and the Suico and Flores spouses executed a plaintiff-appellant Restituto Sabordo and Mima Mahilum Lot No.
supplemental agreement whereby they affirmed that what was 506, covered by Transfer Certificate of Title No. T-102598 and
actually sold to respondents were Lots 512 and 513, while Lots Lot No. 514, covered by Transfer Certificate of Title No. T-
506 and 514 were given to them as usufructuaries. DBP approved 102599, both of Escalante Cadastre, Negros Occidental by
the sale of rights of the Suico and Flores spouses in favor of reimbursing or paying to the plaintiff the sum of ONE HUNDRED
herein respondents. Subsequently, respondents were able to TWENTY-SEVEN THOUSAND FIVE HUNDRED PESOS
repurchase the foreclosed properties of the Suico and Flores (P127,500.00);
spouses.
2) Within said period, the defendants-appellees shall continue to
On September 13, 1976, respondent Restituto Sabordo have usufructuary rights on the coconut trees on Lots Nos. 506
(Restituto) filed with the then Court of First Instance of Negros and 514, Escalante Cadastre, Negros Occidental;
Occidental an original action for declaratory relief with damages
and prayer for a writ of preliminary injunction raising the issue 3) The Writ of Preliminary Injunction dated August 12, 1977
of whether or not the Suico spouses have the right to recover shall be effective untildefendants-appellees shall have exercised
from respondents Lots 506 and 514. their option to purchase within said period by paying or
reimbursing to the plaintiff-appellant the aforesaid amount.
In its Decision dated December 17, 1986, the Regional Trial Court
(RTC) of San Carlos City, Negros Occidental, ruled in favor of the No pronouncement as to costs.
Suico spouses directing that the latter have until August 31, 1987
within which to redeem or buy back from respondents Lots 506 SO ORDERED.4
and 514.
In a Resolution5 dated February 13, 1991, the CA granted the
On appeal, the CA, in its Decision3 in CA-G.R. CV No. 13785, dated Suico spouses an additional period of 90 days from notice within
April 24, 1990, modified the RTC decision by giving the Suico which to exercise their option to purchase or redeem the
spouses until October 31, 1990 within which to exercise their disputed lots.
option to purchase or redeem the subject lots from respondents
by paying the sum of P127,500.00. The dispositive portion of the In the meantime, Toribio Suico (Toribio) died leaving his widow,
CADecision reads as follows: Eufrocina, and several others, includingherein petitioner, as legal
heirs. Later, they discovered that respondents mortgaged Lots
x x x x 506 and 514 with Republic Planters Bank (RPB) as security for a
loan which, subsequently, became delinquent.

amount of P127,500.00 was valid and binding and produced the
Thereafter, claiming that theyare ready with the payment of effect of payment of the purchase price of the subject lots.
P127,500.00, but alleging that they cannot determine as to whom
such payment shall be made, petitioner and her co-heirs filed a In its assailed Decision, the CA denied the above appeal for lack of
Complaint6 with the RTC of San Carlos City, Negros Occidental merit and affirmed the disputed RTC Decision.
seeking to compel herein respondents and RPB to interplead and
litigate between themselves their respective interests on the Petitioner and her co-heirs filed a Motion for Reconsideration,9
abovementioned sum of money.1wphi1 The Complaint also but it was likewise denied by the CA.
prayed that respondents be directed to substitute Lots 506 and
514 with other real estate properties as collateral for their Hence, the present petition for review on certiorariwith a lone
outstanding obligation with RPB and that the latter be ordered Assignment of Error, to wit:
toaccept the substitute collateral and release the mortgage on
Lots 506 and 514. Upon filing of their complaint, the heirs of THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION
Toribio deposited the amount of P127,500.00 with the RTC of OF THE LOWER COURT WHICH HELD THAT THE JUDICIAL
San Carlos City, Branch 59. DEPOSIT OF P127,500.00 MADE BY THE SUICOS WITH THE
CLERK OF COURT OF THE RTC, SAN CARLOS CITY, IN
Respondents filed their Answer7 with Counterclaim praying for COMPLIANCE WITH THE FINAL AND EXECUTORY DECISION OF
the dismissal of the above Complaint on the grounds that (1) the THE COURT OF APPEALS IN CA-G.R. CV-13785 WAS NOT
action for interpleader was improper since RPB isnot laying any VALID.10
claim on the sum of P127,500.00; (2) that the period withinwhich
the complainants are allowed to purchase Lots 506 and 514 had Petitioner's main contention is that the consignation which she
already expired; (3) that there was no valid consignation, and (4) and her co-heirs made was a judicial deposit based on a final
that the case is barred by litis pendenciaor res judicata. judgment and, as such, does not require compliance with the
requirements of Articles 125611 and 125712 of the Civil Code.
On the other hand, RPB filed a Motion to Dismiss the subject
Complaint on the ground that petitioner and her co-heirs had no The petition lacks merit. At the outset, the Court quotes
valid cause of action and that they have no primary legal right withapproval the discussion of the CA regarding the definition
which is enforceable and binding against RPB. and nature of consignation, to wit: consignation [is] the act of
depositing the thing due with the court or judicial authorities
On December 5, 2001, the RTC rendered judgment, dismissing whenever the creditor cannot accept or refuses to accept
the Complaint of petitioner and her co-heirs for lack of merit.8 payment, and it generally requires a prior tender of payment. It
Respondents' Counterclaim was likewise dismissed. should be distinguished from tender of payment which is the
manifestation by the debtor to the creditor of his desire to
Petitioner and her co-heirs filed an appeal with the CA comply with his obligation, with the offer of immediate
contending that the judicial deposit or consignation of the performance.Tender is the antecedent of consignation, thatis, an
act preparatory to the consignation, which is the principal, and

from which are derived the immediate consequences which the In the cases of Del Rosario v. Sandico16 and Salvante v. Cruz,17
debtor desires or seeks to obtain. Tender of payment may be likewise cited as authority by petitioner, this Court held that, for
extrajudicial, while consignation is necessarily judicial, and the a consignation or deposit with the court of an amount due on a
priority of the first is the attempt to make a private settlement judgment to be considered as payment, there must beprior
before proceeding to the solemnities of consignation. Tender and tender to the judgment creditor who refuses to accept it. The
consignation, where validly made, produces the effect of payment same principle was reiterated in the later case of Pabugais v.
and extinguishes the obligation.13 Sahijwani.18 As stated above, tender of payment involves a
positive and unconditional act by the obligor of offering legal
In the case of Arzaga v. Rumbaoa,14 which was cited by tender currency as payment to the obligee for the formers
petitioner in support of his contention, this Court ruled that the obligation and demanding that the latter accept the same.19 In
deposit made with the court by the plaintiff-appellee in the the instant case, the Court finds no cogent reason to depart from
saidcase is considered a valid payment of the amount adjudged, the findings of the CA and the RTC that petitioner and her co-
even without a prior tender of payment thereof to the heirs failed to make a prior valid tender of payment to
defendants-appellants,because the plaintiff-appellee, upon respondents.
making such deposit, expressly petitioned the court that the
defendants-appellees be notified to receive the tender of It is settled that compliance with the requisites of a valid
payment.This Court held that while "[t]he deposit, by itself alone, consignation is mandatory.20 Failure to comply strictly with any
may not have been sufficient, but with the express terms of the of the requisites will render the consignation void. One of these
petition, there was full and complete offer of payment made requisites is a valid prior tender of payment.21
directly to defendants-appellants."15 In the instant case,
however, petitioner and her co-heirs, upon making the deposit Under Article 1256, the only instances where prior tender of
with the RTC, did not ask the trial court that respondents be payment is excused are: (1) when the creditor is absent or
notified to receive the amount that they have deposited. In fact, unknown, or does not appear at the place of payment; (2) when
there was no tender of payment. Instead, what petitioner and her the creditor is incapacitated to receive the payment at the time it
co-heirs prayed for is thatrespondents and RPB be directed to is due; (3) when, without just cause, the creditor refuses to give a
interplead with one another to determine their alleged respective receipt; (4) when two or more persons claim the same right to
rights over the consigned amount; that respondents be likewise collect; and (5) when the title of the obligation has been lost.
directed to substitute the subject lots with other real properties None of these instances are present in the instant case. Hence, the
as collateral for their loan with RPB and that RPB be also directed fact that the subject lots are in danger of being foreclosed does
to accept the substitute real properties as collateral for the said not excuse petitioner and her co-heirs from tendering payment to
loan. Nonetheless,the trial court correctly ruled that interpleader respondents, as directed by the court.
is not the proper remedy because RPB did notmake any claim
whatsoever over the amount consigned by petitioner and her co- WHEREFORE, the instant petition is DENIED. The Decision of the
heirs with the court. Court of Appeals, dated May 25, 2007, and its Resolution dated
January 24, 2008, both in CA-G.R. CV No. 75013, are AFFIRMED.


arrest and required the surety company to show cause why the
bail bond posted by it should not be forfeited.

85. G.R. No. L-21507 June 7, 1971 On September 25, 1962, the court granted the surety company a
period of thirty days within which to produce and surrender the
PEOPLE OF THE PHILIPPINES, plaintiff-appellee, accused, with the warning that upon its failure to do so the bail
vs. bond posted by it would be forfeited. On October 25, 1962 the
NATIVIDAD FRANKLIN, accused, ASIAN SURETY & surety company filed a motion praying for an extension of thirty
INSURANCE COMPANY, INC., bondsman-appellant. days within which to produce the body of the accused and to
show cause why its bail bond should not be forfeited. As not
withstanding the extension granted the surety company failed to
DIZON, J.: produce the accused again, the court had no other alternative but
to render the judgment of forfeiture.
Appeal taken by the Asian Surety & Insurance Company, Inc. from
the decision of the Court of First Instance of Pampanga dated Subsequently, the surety company filed a motion for a reduction
April 17, 1963, forfeiting the bail bond posted by it for the of bail alleging that the reason for its inability to produce and
provisional release of Natividad Franklin, the accused in Criminal surrender the accused to the court was the fact that the
Case No. 4300 of said court, as well as from the latter's orders Philippine Government had allowed her to leave the country and
denying the surety company's motion for a reductions of bail, and proceed to the United States on February 27, 1962. The reason
its motion for reconsideration thereof. thus given not being to the satisfaction of the court, the motion
for reduction of bail was denied. The surety company's motion
It appears that an information filed with the Justice of the Peace for reconsideration was also denied by the lower court on May
Court of Angeles, Pampanga, docketed as Criminal Case No. 5536, 27, 1963, although it stated in its order that it would consider the
Natividad Franklin was charged with estafa. Upon a bail bond matter of reducing the bail bond "upon production of the
posted by the Asian Surety & Insurance Company, Inc. in the accused." The surety company never complied with this
amount of P2,000.00, she was released from custody. condition.

After the preliminary investigation of the case, the Justice of the Appellant now contends that the lower court should have
Peace Court elevated it to the Court of First Instance of Pampanga released it from all liability under the bail bond posted by it
where the Provincial Fiscal filed the corresponding information because its failure to produce and surrender the accused was due
against the accused. The Court of First Instance then set her to the negligence of the Philippine Government itself in issuing a
arraignment on July 14, 1962, on which date she failed to appear, passport to said accused, thereby enabling her to leave the
but the court postponed the arraignment to July 28 of the same country. In support of this contention the provisions of Article
year upon motion of counsel for the surety company. The accused 1266 of the New Civil Code are invoked.
failed to appear again, for which reason the court ordered her

Appellant's contention is untenable. The abovementioned legal from which they issued does not extend beyond that of the
provision does not apply to its case, because the same speaks of Philippines, they would have no binding force outside of said
the relation between a debtor and a creditor, which does not jurisdiction.
exist in the case of a surety upon a bail bond, on the one hand,
and the State, on the other. It is clear, therefore, that in the eyes of the law a surety becomes
the legal custodian and jailer of the accused, thereby assuming
In U.S. vs. Bonoan, et al., 22 Phil., p. 1, We held that: the obligation to keep the latter at all times under his
surveillance, and to produce and surrender him to the court upon
The rights and liabilities of sureties on a recognizance or bail the latter's demand.
bond are, in many respects, different from those of sureties on
ordinary bonds or commercial contracts. The former can That the accused in this case was able to secure a Philippine
discharge themselves from liability by surrendering their passport which enabled her to go to the United States was, in fact,
principal; the latter, as a general rule, can only be released by due to the surety company's fault because it was its duty to do
payment of the debt or performance of the act stipulated. everything and take all steps necessary to prevent that
departure. This could have been accomplished by seasonably
In the more recent case of Uy Tuising, 61 Phil. 404, We also held informing the Department of Foreign Affairs and other agencies
that: of the government of the fact that the accused for whose
provisional liberty it had posted a bail bond was facing a criminal
By the mere fact that a person binds himself as surety for the charge in a particular court of the country. Had the surety
accused, he takes charge of, and absolutely becomes responsible company done this, there can be no doubt that no Philippine
for the latter's custody, and under such circumstances it is passport would have been issued to Natividad Franklin.
incumbent upon him, or rather, it is his inevitable obligation not
merely a right, to keep the accused at all times under his UPON ALL THE FOREGOING, the decision appealed from is
surveillance, inasmuch as the authority emanating from his affirmed in all its parts, with costs.
character as surety is no more nor less than the Government's
authority to hold the said accused under preventive
imprisonment. In allowing the accused Eugenio Uy Tuising to
leave the jurisdiction of the Philippines, the appellee necessarily
ran the risk of violating and in fact it clearly violated the terms of 86. G.R. No. L-23546 August 29, 1974
its bail bonds because it failed to produce the said accused when
on January 15, 1932, it was required to do so. Undoubtedly, the LAGUNA TAYABAS BUS COMPANY and BATANGAS
result of the obligation assumed by the appellee to hold the TRANSPORTATION COMPANY, petitioners,
accused at all times to the orders and processes of the lower vs.
court was to prohibit said accused from leaving the jurisdiction of FRANCISCO C. MANABAT, as assignee of Bian
the Philippines because, otherwise, said orders and processes Transportation Company, Insolvent, respondent.
would be nugatory and inasmuch as the jurisdiction of the court

MAKASIAR, J.: Civil Case No. 696 of the Court of First Instance of Batangas,
Branch II, judgment was rendered in favor of defendant Batangas
This is an appeal by certiorari from a judgment of the Court of Transportation Company against the Bian Transportation
Appeals dated August 31, 1964, which WE AFFIRM. Company for the sum of P836.92. The assignee of the plaintiff
objected to such deduction, claiming that the contract of lease
The undisputed facts are recounted by the Court of Appeals would be suspended only if the defendants could not operate the
through then Associate Justice Salvador Esguerra thus: leased lines due to the action of the officers, employees or
laborers of the lessor but not of the lessees, and that the
On January 20, 1956, a contract was executed whereby the Bian deduction of P836.92 amounted to a fraudulent preference in the
Transportation Company leased to the Laguna-Tayabas Bus insolvency proceedings as whatever judgment might have been
Company at a monthly rental of P2,500.00 its certificates of rendered in favor of any of the lessees should have been filed as a
public convenience over the lines known as Manila-Bian, claim in said proceedings. The defendants neither refunded the
Manila-Canlubang and Sta. Rosa-Manila, and to the Batangas deductions nor paid the rentals beginning January, 1958,
Transportation Company its certificate of public convenience notwithstanding demands therefor made from time to time. At
over the line known as Manila-Batangas Wharf, together with one first, the defendants assured the plaintiff that the lease rentals
"International" truck, for a period of five years, renewable for would be paid, although it might be delayed, but in the end they
another similar period, to commence from the approval of the failed to comply with their promise.
lease contract by the Public Service Commission. On the same
date the Public Service Commission provisionally approved the On February 18, 1958, the Batangas Transportation Company
lease contract on condition that the lessees should operate on the and Laguna-Tayabas Bus Company separately filed with the
leased lines in accordance with the prescribed time schedule and Public Service Commission a petition for authority to suspend the
that such approval was subject to modification or cancellation operation on the lines covered by the certificates of public
and to whatever decision that in due time might be rendered in convenience leased to each of them by the Bian Transportation
the case. Company. The defendants alleged as reasons the reduction in the
amount of dollars allowed by the Monetary Board of the Central
Sometime after the execution of the lease contract, the plaintiff Bank of the Philippines for the purchase of spare parts needed in
Bian Transportation Company was declared insolvent in Special the operation of their trucks, the alleged difficulty encountered in
Proceedings No. B-30 of the Court of First Instance of Laguna, and securing said parts, and their procurement at exorbitant costs,
Francisco C. Manabat was appointed as its assignee. From time to thus rendering the operation of the leased lines prohibitive. The
time, the defendants paid the lease rentals up to December, 1957, defendants further alleged that the high cost of operation,
with the exception of the rental for August 1957, from which coupled with the lack of passenger traffic on the leased lines
there was deducted the sum of P1,836.92 without the consent of resulted in financial losses. For these reasons they asked
the plaintiff. This deduction was based on the ground that the permission to suspend the operation of the leased lines until such
employees of the defendants on the leased lines went on strike time as the operating expenses were restored to normal levels so
for 6 days in June and another 6 days in July, 1957, and caused a as to allow the lessees to realize a reasonable margin of profit
loss of P500 for each strike, or a total of P1,000.00; and that in from their operation.

from its regulatory power over the leased certificates of public
Plaintiff's assignee opposed the petition on the ground that the convenience.
Public Service Commission had no jurisdiction to grant the relief
prayed for as it should involve the interpretation of the lease While proceedings before the Public Service Commission were
contract, which act falls exclusively within the jurisdiction of the thus going on, as a consequence of the continuing failure of the
ordinary courts; that the petitioners had not asked for the lessees to fulfill their earlier promise to pay the accruing rentals
suspension of the operation of the lines covered by their own on the leased certificates,
certificates of public convenience; that to grant the petition
would amount to an impairment of the obligation of contract; and On May 19, 1959, plaintiff Bian Transportation Company
that the defendants have no legal personality to ask for represented by Francisco C. Manabat, assignee, filed this action
suspension of the operation of the leased lines since they against defendants Laguna Tayabas Bus Company and Batangas
belonged exclusively to the plaintiffwho is the grantee of the Transportation Company for the recovery of the sum of P42,500
corresponding certificate of public convenience. Aside from the representing the accrued rentals for the lease of the certificates
assignee, the Commissioner of the Internal Revenue and other of public convenience of the former to the latter, corresponding
creditors of the Bian Transportation Company, like the Standard to the period from January 1958, to May 1959, inclusive, plus the
Vacuum Oil Co. and Parsons Hardware Company, filed sum of P1,836.92 which was deducted by the defendants from
oppositions to the petitions for suspension of operation. the rentals due for August, 1957, together with all subsequent
rentals from June, 1959, that became due and payable; P5,000.00
On October 15, 1958, the Public Service Commission overruled for attorney's fees and such corrective and exemplary damages
all oppositions filed by the assignee and other creditors of the as the court may find reasonable.
insolvent, holding that upon its approval of the lease contract, the
lessees acquired the operating rights of the lessor and assumed The defendants moved to dismiss the complaint for lack of
full responsibility for compliance with all the terms and jurisdiction over the subject matter of the action, there being
conditions of the certificate of public convenience. The Public another case pending in the Public Service Commission between
Service Commission further stated that the petition to suspend the same parties for the same cause. ... (pp. 20-21, rec.; pp. 54-55,
operation did not pertain to any act of dominion or ownership ROA).
but only to the use of the certificate of public convenience which
had been transferred by the plaintiff to the defendants, and that The motion to dismiss was, however, denied. Meanwhile
the suspension prayed for was but an incident of the operation of
the lines leased to the defendants. The Public Service Commission The Public Service Commission delegated its Chief Attorney to
further ruled that being a quasi-judicial body of limited receive evidence of the parties on the petition of the herein
jurisdiction, it had no authority to interpret contracts, which defendants for authority to suspend operation on the lines leased
function belongs to the exclusive domain of the ordinary courts, to them by the plaintiff. The defendants, the assignee of the
but the petition did not call for interpretation of any provision of plaintiff and other creditors of the insolvent presented evidence
the lease contract as the authority of the Public Service before the Chief Attorney and the hearing was concluded on June
Commission to grant or deny the prayer therein was derived

29, 1959. On October 20, 1959, the Public Service Commission rate of P2,500.00 a month, with interest on the sums of P42,500
issued an order the dispositive part of which reads as follows: and P836.92 at the rate of 6% per annum from the date of the
filing of the complaint, with interest on the subsequent rentals at
In view of the foregoing, the petitioners herein are authorized to the same rate beginning the first of the following month, plus the
suspend their operation of the trips of the Bian Transportation sum of P3,000.00 as attorney's fees, and the cost of the suit. (pp.
Company between Batangas Piers-Manila, Bian-Manila, Sta. 25-26, rec.)
Rosa-Manila and Canlubang-Manila authorized in the
aforementioned cases from the date of the filing of their petition From the decision of the Court of First Instance, defendants
on February 18, 1958, until December 31, 1959. (p. 25, rec.; pp. appealed to the Court of Appeals, which affirmed the same in toto
60-61, ROA). in its decision dated August 31, 1964. Said decision was received
by the appellants on September 7, 1964.
Going back to the Court of First Instance of Laguna
On September 21, 1964, appellants filed the present appeal,
... The motion (to dismiss) having been denied, the defendants raising the following questions of law:
answered the complaint, alleging among others, that the Public
Service Commission authorized the suspension of operation over 1. Considering that the Court of Appeals found that the
the leased lines from February 18, 1950, up to December 31, Public Service Commission provisionally approved the lease
1959, and hence the lease contract should be deemed suspended contract of January 20, 1956 between petitioners and Bian
during that period; that plaintiff failed to place defendants in Transportation Company upon the condition, amongothers, that
peaceful and adequate enjoyment and possession of the things such approval was subject to modification and cancellation and
leased; that as a result of the plaintiff being declared insolvent towhatever decision that in due time might be rendered in the
the lease contract lost further force and effect and payment of case, the Court ofAppeals erred in giving no legal effect and
rentals thereafter was made under a mistake and should be significance whatever to the suspension of operations later
refunded to the defendants. (p. 21; rec.; p. 55, ROA). granted by the Public Service Commission after due hearing
covering the lines leased to petitioners thereby nullifying,
The Court of Appeals proceeded to state that contrary to law and decisions of this Honorable Court, the
authority and powersconferred on the Public Service
After hearing in the court a quo and presentation by the parties Commission.
herein of their respective memoranda, the trial court on March
18, 1960, rendered judgment in favor of plaintiff, ordering the 2. The Court of Appeals misapplied the statutory rules on
defendants jointly and severally to pay to the former the sum of interpreting contracts and erred in its construction of the clauses
P65,000.00 for the rentals of the certificates of public in the lease agreement authorizing petitioners to suspend
convenience corresponding to the period from January, 1958, to operation without the corresponding liability for rentals during
February, 1960, inclusive, including the withheld amount of the period of suspension.
P836.92 from the rentals for August, 1957, plus the rentals that
might become due and payable beginning March, 1960, at the

3. Contrary to various decisions of this Honorable Court This Honorable Court is authorized to equitably reduce the
relieving the lessee from the obligation to pay rent where there is rentals payableby the petitioners, should this Honorable Court
failure to use or enjoy the thing leased, the Court of Appeals adopt the position of the Courtof Appeals and the lower court
erroneously required petitioners to pay rentals, with interest, that petitioners have not been releived from thepayment of
during the period of suspension of the lease from January, 1958 rentals on the leased lines. (p. 7 Amended Petition for
up to the expiration of the agreement on January 20, 1961. (p. 7, Certiorari,pp. 46, 52, rec.).
rec.)
On November 5, 1964, the Supreme Court required respondents
On October 12, 1964, the Supreme Court issued a resolution herein to file an answer to the amended petition. On the same
dismissing said petition "for lack of merit." (p. 43, rec.). Said date, respondents filed, quite belatedly, an opposition to the
resolution was received by petitioners on October 16, 1964. motion of the petitioners. Said opposition was later "noted" by
the Court in its resolution dated December 1, 1964.
On October 31, 1964, the day the Court's resolution was to
become final, petitioners filed a "Motion to Admit Amended I
Petition and to Give Due Course Thereto." In said motion,
petitioners explained First, it must be pointed out that the first three questions of law
raised by petitioners were already disposed of in Our resolution
... The amendment includes an alternative ground relating to dated October 12, 1964 dismissing the original petition for lack
petitioners' prayer for the reduction of the rentals payable by of merit, which in effect affirmed the appealed decision of the
them. This alternative petition was not included in the original Court of of Appeals. Although, in their motion to admit amended
one as petitioners where genuinely convinced that they should petition dated October 31, 1964, petitioners sought a
have been absolved from all liabilities whatever. However, in reconsideration of the said resolution not only in the light of the
view of the apparent position taken by this Honorable Court, as fourth legal issue raised but also on the said first three legal
implied in its resolution on October 12, 1964, notice of which was questions, the petitioners advanced no additional arguments nor
received on October 16, 1964, petitioners now squarely submit cited new authorities in support of their stand on the first three
their alternative position for consideration. There is decisional questions of law. They merely reproduced verbatim from their
authority for the reduction of rentals payable (see Reyes v. original petition their discussion on said questions.
Caltex, 47 O.G. 1193, 1203-1204) (p. 44, rec).
To the extent therefore that the motion filed by the petitioner
The new question raised is presented thus: seeks a reconsideration of our order of dismissal by submitting
anew, through the amended petition, the very same arguments
xxx xxx xxx already dismissed by this Court, the motion shall be considered
pro forma, (See Estrada v. Sto. Domingo, 28 SCRA 890, 905-906,
IV 911) and hence is without merit.


Consequently, we limit the resolution of this case solely on the Extraordinary fortuitous events are understood to be: fire, war,
discussions on the last (fourth) question of law raised, taking into pestilence, unusual flood, locusts, earthquake, or others which
consideration the discussion on the first three questions only are uncommon, and which thecontracting parties could not have
insofar as they place the petitioners' discussion on the fourth reasonably foreseen.
question in its proper context and perspective.
Article 1680, it will be observed is a special provision for leases
II of rural lands. No other legal provision makes it applicable to
ordinary leases. Had theintention of the lawmakers been so, they
The undisguised object of petitioners' discussion on the fourth would have placed the article among the general provisions on
question of law raised is to justify their plea for a reduction of the lease. Nor can the article be applied analogously to ordinary
rentals on the ground that the subject matter of the lease was leases, for precisely because of its special character, it was meant
allegedly not used by them as a result of the suspension of to apply only to a special specie of lease. It is a provision of social
operations on the lines authorized by the Public Service justice designed to relieve poor farmers from the harsh
Commission. consequences of their contracts with rich landowners. And taken
in that light, the article provides no refuge to lessees whose
In support of said plea, petitioners invoke article 1680 of the Civil financial standing or social position is equal to, or even better
Code which grants lessees of rural lands a right to a reduction of than, the lessor as in the case at bar.
rentals whenever the harvest on the land leased is considerably
damaged by an extraordinary fortuitous event. Reliance was also Even if the cited article were a general rule on lease, its
placed by the petitioners on Our decision in Reyes v. Caltex (Phil.) provisions nevertheless do not extend to petitioners. One of its
Inc., 84 Phil. 654, which supposedly applied said article by requisites is that the cause of loss of the fruits of the leased
analogy to a lease other than that covered by said legal provision. property must be an "extraordinary and unforeseen fortuitous
event." The circumstances of the instant case fail tosatisfy such
The authorities from which the petitioners draw support, requisite. As correctly ruled by the Court of Appeals, the alleged
however, are not applicable to the case at bar. causes for the suspension of operations on the lines leased,
namely, the high prices of spare parts and gasoline and the
Article 1680 of the Civil Code reads thus: reduction of the dollar allocations, "already existed when the
contract of lease was executed" (p. 11, Decision; p. 30, rec.;
Art. 1680. The lessee shall have no right to a reduction of the rent Cuyugan v. Dizon, 89 Phil. 80). The cause of petitioners' inability
on accountof the sterility of the land leased, or by reason of the to operate on the lines cannot, therefore, be ascribed to
loss of fruits due toordinary fortuitous events; but he shall have fortuitous events or circumstances beyond their control, but to
such right in case of the loss ofmore than one-half of the fruits their own voluntary desistance (p. 13, Decision; p. 32, rec.).
through extraordinary and unforeseen fortuitous events, save
always when there is a specific stipulation to the contrary. If the petitioners would predicate their plea on the basis solely of
their inability to use the certificates of public convenience, absent
the requisite of fortuitous event, the cited article would speak

strongly against their plea.Article 1680 opens with the statement: consequently, WE denied the plea oflessee therein for an
"The lessee shall have no right to reduction of the rent on account equitable reduction of the stipulated rentals, holding that:
of the sterility of the land leased ... ." Obviously, no reduction can
be sustained on the ground that the operation of the leased lines The general rule on performance of contracts is graphically set
was suspended upon the mere speculation that it would yield no forth in American treatises which is also the rule, in our opinion,
substantial profit for the lessee bus company. Petitioners' profits obtaining under the Civil Code.
may be reduced due to increase operating costs; but the volume
of passenger traffic along the leased lines not only remains same Where a person by his contract charges himself with an
but may even increase as the tempo of the movement of obligation possible to be performed, he must perform it, unless
population is intensified by the industrial development of the the performance is rendered impossible by the act of God, by the
areas covered or connected by the leased routes. Moreover, upon law, or by the other party, it being the rule that in case the party
proper showing, the Public Service Commission might have desires to be excused from the performance in the event of
granted petitioners an increase in rates, as it has done so in contingencies arising, it is his duty to provide therefor in his
several instances, so that public interest will always be promoted contract. Hence, performance is not excused by subsequent
by a continuous flow of transportation facilities to service the inability to perform, by unforeseen difficulties, by unusual or
population and the economy. The citizenry and the economy will unexpected expenses, by danger, by inevitable accident, by
suffer by reason of any disruption in the transportation facilities. breaking of machinery, by strikes, by sickness, by failure of a
party to avail himself of the benefits tobe had under the contract,
Furthermore, we are not at all convinced that the lease contract by weather conditions, by financial stringency or bystagnation of
brought no material advantage to the lessor for the period of business. Neither is performance excused by the fact that the
suspension. It must be recalled that the lease contract not only contract turns out to be hard and improvident, unprofitable, or
stipulated for the transfer of the lessor's right to operate the lines impracticable, ill-advised, or even foolish, or less profitable,
covered by the contract, but also for a forbearance on the part of unexpectedly burdensome. (17 CJS 946-948) (Reyes vs. Caltex,
the lessor to operate transportation business along the same supra, 664. Emphasis supplied).
lines and to hold a certificate for that purpose. Thus, even if
the lessee would not actually make use of the lessor's certificates Also expressed in said case is a ruling in American jurisprudence,
over the leased lines, the contractual commitment of the lessor which found relevance again in the case at bar, to wit: "(S)ince, by
not to operate on the lines would sufficiently insure added profit the lease, the lessee was to have the advantage of casual profits of
to the lessees on account of the lease contract. In other words, the the leased premises, he should run the hazard of casual losses
commitment alone of the lessor under the contract would enable during the term and not lay the whole burden upon the lessor."
the lessees to reap full benefits therefrom since the commuting (Reyes vs. Caltex, supra, 664).
public would, after all, be forced at their inconvenience and
prejudice to patronize petitioner's remaining buses. Militating further against a grant of reduction of the rentals to the
petitioners is the petitioners' conduct which is not in accord with
Contrary to what petitioners want to suggest, WE refused in the the rules of fair play and justice. Petitioners, it must be recalled,
Reyes case, supra, to apply by analogy Article 1680 and promised to pay the accrued rentals in due time. Later, however,

when they believed they found a convenient excuse for escaping HON. RAMON V. JABSON, Presiding Judge of the Court
their obligation, they reneged on their earlier promise. Moreover, Of First Instance of Rizal, Branch XXVI; COURT OF
petitioners' option to suspend operation on the leased lines APPEALS and TROPICAL HOMES, INC., respondents.
appears malicious. Thus, Justice Esguerra, speaking for the Court
of Appeals, propounded the following questions: "If it were true TEEHANKEE, J.:
that thecause of the suspension was the high prices of spare
parts, gasoline and needed materials and the reduction of the The Court reverses the Court of Appeals appealed resolution. The
dollar allocation, why was it that only plaintiff-appellee's Civil Code authorizes the release of an obligor when the service
certificate of public convenience was sought to be suspended? has become so difficult as to be manifestly beyond the
Why did not the defendants-appellants ask for a corresponding contemplation of the parties but does not authorize the courts to
reduction or suspension under their own certificate along the modify or revise the subdivision contract between the parties or
same route? Suppose the prices of the spare parts and needed fix a different sharing ratio from that contractually stipulated
materials were cheap, would the defendants-appellants have paid with the force of law between the parties. Private respondent's
more than what is stipulated in the lease contract? We believe complaint for modification of the contract manifestly has no basis
not. Hence, the suspension of operation on the leased lines was in law and must therefore be dismissed for failure to state a cause
conceived as a scheme to lessen operation costs with the of action. On February 25, 1975 private respondent Tropical
expectation of greater profit." (p. 14, Decision). Homes, Inc. filed a complaint for modification of the terms and
conditions of its subdivision contract with petitioners
Indeed, petitioners came to court with unclean hands, which fact (landowners of a 55,330 square meter parcel of land in Davao
militates against their plea for equity. City), making the following allegations:

WHEREFORE, THE ORIGINAL AND AMENDED PETITIONS ARE "That due to the increase in price of oil and its derivatives and the
HEREBY DISMISSED, AND THE DECISION OF THE COURT OF concomitant worldwide spiralling of prices, which are not within
APPEALS DATED AUGUST 31, 1964 IS HEREBY AFFIRMED, WITH the control of plaintiff, of all commodities including basis raw
COSTS AGAINST PETITIONERS. materials required for such development work, the cost of
development has risen to levels which are unanticipated,
unimagined and not within the remotest contemplation of the
parties at the time said agreement was entered into and to such a
degree that the conditions and factors which formed the original
87. G.R. No. L-44349 October 29, 1976 basis of said contract, Annex 'A', have been totally changed; 'That
further performance by the plaintiff under the contract.
JESUS V. OCCENA and EFIGENIA C. OCCENA,
petitioners, That further performance by the plaintiff under the
vs. contract,Annex 'S', will result in situation where defendants
would be unustly enriched at the expense of the plaintiff; will
cause an inequitous distribution of proceeds from the sales of

subdivided lots in manifest actually result in the unjust and
intolerable exposure of plaintiff to implacable losses, all such Hence, the petition at abar wherein petitioners insist that the
situations resulting in an unconscionable, unjust and immoral worldwide increase inprices cited by respondent does not
situation contrary to and in violation of the primordial concepts constitute a sufficient casue of action for modification of the
of good faith, fairness and equity which should pervade all subdivision contrct. After receipt of respondent's comment, the
human relations. Court in its Resolution of September 13, 1976 resolved to treat
the petition as special civil actionand declared the case submitted
Under the subdivision contract, respondent "guaranteed for decision.
(petitioners as landowners) as the latter's fixed and sole share
and participation an amount equivalent to forty (40%) percent of The petition must be granted.
all cash receifpts fromthe sale of the subdivision lots"
While respondent court correctly cited in its decision the Code
Respondent pray of the Rizal court of first instance that "after Commission's report giving the rationale for Article 1267 of the
due trial, this Honorable Court render judgment modifying the Civil Code, to wit;
terms and conditions of the contract ... by fixing the proer shares
that shouls pertain to the herein parties out of the gross proceeds The general rule is that impossibility of performance releases the
from the sales of subdivided lots of subjects subdivision". obligor. However, it is submitted that when the service has
become so difficult as to be manifestly beyond the contemplation
Petitioners moved to dismiss the complaint principally for lack of of the parties, the court should be authorized to release the
cause of action, and upon denial thereof and of reconsideration obligor in whole or in part. The intention of the parties should
by the lower court elevated the matter on certiorari to govern and if it appears that the service turns out to be so
respondent Court of Appeals. difficult as have been beyond their contemplation, it would be
doing violence to that intention to hold the obligor still
Respondent court in its questioned resolution of June 28, 1976 responsible. ... 2
set aside the preliminary injunction previously issued by it and
dimissed petition on the ground that under Article 1267 of the It misapplied the same to respondent's complaint.
Civil Code which provides that
If respondent's complaint were to be released from having to
ART. 1267. When the service has become so difficult as to be comply with the subdivision contract, assuming it could show at
manifestly beyond the contemplation of the parties, the obligor the trial that the service undertaken contractually by it had
may also be released therefrom, in whole or in part. 1 "become so difficult as to be manifestly beyond the
contemplation of the parties", then respondent court's upholding
... a positive right is created in favor of the obligor to be released of respondet's complaint and dismissal of the petition would be
from the performance of an obligation in full or in part when its justifiable under the cited codal article. Without said article,
performance 'has become so difficult as to be manifestly beyond respondent would remain bound by its contract under the
the contemplation of the parties. theretofore prevailing doctrine that performance therewith is ot

excused "by the fact that the contract turns out to be hard and ACCORDINGLY, the resolution of respondent appellate court is
improvident, unprofitable, or unespectedly burdensome", 3 since reversed and the petition for certiorari is granted and private
in case a party desires to be excuse from performance in the respondent's complaint in the lower court is ordered dismissed
event of such contingencies arising, it is his duty to provide for failure to state a sufficient cause of action. With costs in all
threfor in the contract. instances against private respondent.

But respondent's complaint seeks not release from the
subdivision contract but that the court "render judgment I
modifying the terms and Conditions of the Contract by fixing the
proper shares that should pertain to the herein parties out of the 88. G.R. No. L-22490 May 21, 1969
gross proceed., from the sales of subdivided lots of subject
subdivision". The cited article does not grant the courts this GAN TION, petitioner,
authority to remake, modify or revise the contract or to fix the vs.
division of shares between the parties as contractually stipulated HON. COURT OF APPEALS, HON. JUDGE AGUSTIN P.
with the force of law between the parties, so as to substitute its MONTESA, as Judge of the Court of First Instance of
own terms for those covenanted by the partiesthemselves. Manila, ONG WAN SIENG and THE SHERIFF OF
Respondent's complaint for modification of contract manifestly MANILA, respondents.
has no basis in law and therefore states no cause of action. Under
the particular allegations of respondent's complaint and the MAKALINTAL, J.:
circumstances therein averred, the courts cannot even in equity
grant the relief sought. The sole issue here is whether or not there has been legal
compensation between petitioner Gan Tion and respondent Ong
A final procedural note. Respondent cites the general rule that an Wan Sieng.
erroneous order denying a motion to dismiss is interlocutory and
should not be corrected by certiorari but by appeal in due course. Ong Wan Sieng was a tenant in certain premises owned by Gan
This case however manifestly falls within the recognized Tion. In 1961 the latter filed an ejectment case against the
exception that certiorari will lie when appeal would not prove to former, alleging non-payment of rents for August and September
be a speedy and adequate remedy.' Where the remedy of appeal of that year, at P180 a month, or P360 altogether. The defendant
would not, as in this case, promptly relieve petitioners from the denied the allegation and said that the agreed monthly rental was
injurious effects of the patently erroneous order maintaining only P160, which he had offered to but was refused by the
respondent's baseless action and compelling petitioners plaintiff. The plaintiff obtained a favorable judgment in the
needlessly to go through a protracted trial and clogging the court municipal court (of Manila), but upon appeal the Court of First
dockets by one more futile case, certiorari will issue as the plain, Instance, on July 2, 1962, reversed the judgment and dismissed
speedy and adequate remedy of an aggrieved party. the complaint, and ordered the plaintiff to pay the defendant the
sum of P500 as attorney's fees. That judgment became final.


On October 10, 1963 Gan Tion served notice on Ong Wan Sieng
that he was increasing the rent to P180 a month, effective WHEREFORE, the judgment of the Court of Appeals is reversed,
November 1st, and at the same time demanded the rents in and the writ of execution issued by the Court of First Instance of
arrears at the old rate in the aggregate amount of P4,320.00, Manila in its Civil Case No. 49535 is set aside. Costs against
corresponding to a period from August 1961 to October respondent.
1963.lwphi1.et

In the meantime, over Gan Tion's opposition, Ong Wan Sieng was
able to obtain a writ of execution of the judgment for attorney's
fees in his favor. Gan Tion went on certiorari to the Court of 89. G.R. No. L-69255 February 27, 1987
Appeals, where he pleaded legal compensation, claiming that Ong
Wan Sieng was indebted to him in the sum of P4,320 for unpaid PHILIPPINE NATIONAL BANK, petitioner,
rents. The appellate court accepted the petition but eventually vs.
decided for the respondent, holding that although "respondent GLORIA G. VDA. DE ONG ACERO, ARNOLFO ONG ACERO
Ong is indebted to the petitioner for unpaid rentals in an amount & SOLEDAD ONG ACERO CHUA, respondents.
of more than P4,000.00," the sum of P500 could not be the
subject of legal compensation, it being a "trust fund for the NARVASA, J.:
benefit of the lawyer, which would have to be turned over by the
client to his counsel." In the opinion of said court, the requisites Savings Account No. 010-5878868-D of Isabela Wood
of legal compensation, namely, that the parties must be creditors Construction & Development Corporation, opened with the
and debtors of each other in their own right (Art. 1278, Civil Philippine National Bank on March 9, 1979 in the amount of P2
Code) and that each one of them must be bound principally and million is the subject of two (2) conflicting claims, sought to be
at the same time be a principal creditor of the other (Art. 1279), definitively resolved in the proceedings at bar. 1 One claim is
are not present in the instant case, since the real creditor with asserted by the ACEROS Gloria G. Vda. de Ong Acero, Arnolfo
respect to the sum of P500 was the defendant's counsel. Ong Acero and Soledad Ong Acero-Chua, judgment creditors of
the depositor (hereafter simply referred to as ISABELA) who
This is not an accurate statement of the nature of an award for seek to enforce against said savings account the final and
attorney's fee's. The award is made in favor of the litigant, not of executory judgment rendered in their favor by the Court of First
his counsel, and is justified by way of indemnity for damages Instance of Rizal QC Br. XVI). The other claim has been put forth
recoverable by the former in the cases enumerated in Article by the Philippine National Bank (hereafter, simply PNB) which
2208 of the Civil Code.1 It is the litigant, not his counsel, who is claims that since ISABELA was at some point in time both its
the judgment creditor and who may enforce the judgment by debtor and creditor-ISABELA's deposit being deemed a loan to it
execution. Such credit, therefore, may properly be the subject of (PNB)-there had occurred a mutual set-off between them, which
legal compensation. Quite obviously it would be unjust to compel effectively precluded the ACEROS' recourse to that deposit.
petitioner to pay his debt for P500 when admittedly his creditor
is indebted to him for more than P4,000.

The controversy was decided by the Intermediate Appellate On the other hand, PNB's claim to the two-million-peso deposit in
Court adversely to the PNB. It is this decision that the PNB would question is made to rest on an agreement between it and
have this Court reverse. ISABELA in virtue of which, according to PNB: (1) the deposit
was made by ISABELA as "collateral" in connection with its
The ACEROS' claim to the bank deposit is more specifically indebtedness to PNB as to which it (ISABELA) had assumed
founded upon the garnishment thereof by the sheriff, effected in certain contractual undertakings; and (2) in the event of
execution of the partial judgment rendered by the CFI at Quezon ISABELA's failure to fulfill those undertakings, PNB was
City in their favor on November 18, 1979. The partial judgment empowered to apply the deposit to the payment of that
ordered payment by ISABELA to the ACEROS of the amount of indebtedness. The facts upon which PNB's theory stands are
P1,532,000.07. 2 Notice of garnisment was served on the PNB on summarized in the Order of CFI Judge Solano dated October 1,
January 9, 1980, pursuant to the writ of execution dated 1982, 5 relevant portions of which are here reproduced:
December 23, 1979. 3 This was followed by an Order issued on
February 15, 1980 directing PNB to hand over this amount of On October 13, 1977, Isabela Wood Construction and
P1,532,000.07 to the sheriff for delivery, in turn, to the ACEROS. Development Corporation ** entered into a Credit Agreement
Not quite two months later, or on April 8, 1980, a second (and the with PNB. Under the agreement PNB, having approved the
final and complete judgment) was promulgated by the CFI in application of defendant (Isabela & c.) for the establishment for
favor of the ACEROS and against ISABELA, the dispositive part of its account of a deferred letter of credit in the amount of DM
which is as follows: 4,695,947.00 in favor of the Machinenfabric Augsburg Nunberg
(MAN) of Germany from whom defendant purchased thirty-five
WHEREFORE, premises considered, judgment is hereby rendered (35) units of MAN trucks, defendant corporation agreed to put
in favor of plaintiffs and against the defendant: up, as collaterals, among others, the following:

1. Reiterating the dispositive portion of the partial judgment 4. The CLIENT shall assign to the BANK the proceeds of its
issued by this Court, dated November 16, 1979, ordering the contract with the Department of Public Works for the
defendant to pay to the plaintiff the amount of P1,532,000.07 as construction of Nagapit Suspension Bridge (Substructure) in
principal, with interest at 12% per annum from December 11, Cagayan.
1975 until the whole amount is fully paid;
This particular proviso in the aforesaid agreement was to be
2. Ordering defendant to pay the plaintiffs the amount of subsequently confirmed by Faustino Dy, Jr., as president of
P207,148.00 as compensatory damages, with legal interest defendant corporation, in a letter to the PNB, dated February 21,
thereon from the filing of the complaint until the whole amount is 1970, quoted in full as follows:
fully paid;
Gentlemen:
3. Ordering defendant to pay plaintiffs the amount of
P383,000.00 as and by way of attorneys fees. 4 This is to confirm our arrangement that the treasury warrant in
the amount of P2,704 millon in favor of Isabela Wood

Construction and Development Corporation to be delivered sheriff the sum of P1,532,000.07, supra: fn. 2). But its motion met
either by the Commission on Audit or the Ministry of Public with no success. It was denied by the Lower Court (Hon. Judge
Highways, shall be placed in a savings account with your bank to Apostol, presiding) by Order dated May 14, 1980. 6 And a motion
the extent of P 2 million. for the reconsideration of that Order of May 14, 1980 was also
denied, by Order dated August 11, 1980.
The said amount shall remain in the savings account until we are
able to comply with the delivery and registration of the mortgage PNB again moved for reconsideration, this time of the Order of
in favor of the Philippine National Bank of our Paranaque August 11, 1980; it also pleaded for suspension in the meantime
property, and the securing from Metropolitan Bank and Home of the enforcement of the Orders of February 15, and May 14,
Owners Savings and Loan Association to snow PNB a second 1980. Its persistence seemingly paid off. For the Trial Court (now
mortgage on the properties of Isabela Wood Construction Group, presided over by Hon. Judge Solano), directed on October 9, 1980
Inc., presently under first mortgage with them. the setting aside of the said Orders of May 14, and August 11,
1980, and set for hearing PNB's first motion for the
Thus, on March 9, 1970, pursuant to paragraph 4 of the Credit reconsideration of the Order of February 15, 1980. 7 Several
Agreement, quoted above, PNB thru its International Department months afterwards, or more precisely on October 1, 1982, the
opened the savings account in question, under Account No. 010- Order of February 15, 1980 was itself also struck down, 8 the
58768-D, with an initial deposit of P2,000,000.00, proceeds of a Lower Court opining that under the circumstances, there had
treasury warrant delivered to PNB (EXHIBIT 3-A). been a valid assignment by ISABELA to PNB of the amount
deposited, which effectively placed that amount beyond the reach
xxx xxx xxx of the ACE ROS, viz:

Since defendant corporation failed to deliver to PNB by way of When the two million or so treasury warrant, proceeds of
mortgage its Paranaque property, neither was defendant defendant's contract with the government was delivered to PNB,
corporation able to secure from Metropolitan Bank and Home said amount, per agreement aforequoted, had already been
Owners Savings and Loan Association its consent to allow PNB a assigned by defendant corporation to PNB, as collateral.
second mortgage, and considering that the obligation of
defendant corporation to PNB have been due and unsettled, PNB The said amount is not a pledge.
applied the amount of P 2,102804.11 in defendant's savings
account of PNB. The assignment is valid. The defendant need not be the owner
thereof at the time of assignment.
It was upon this version of the facts, and its theory thereon based
on a mutual set-off, or compensation, between it and ISABELA An assignment of credit and other incorporeal rights shall be
in accordance with Articles 1278 et al. of the Civil Code that perfected in accordance with the provisions of Article 1475.
PNB intervened in the action between the ACEROS and ISABELA
on or about February 28, 1980 and moved for reconsideration of
the Order of February 15, 1980 (requiring it to turn over to the

The contract of sale is perfected at the moment there is a meeting 3. That intervenor PNB must pay attorney's fees and
of the minds upon the thing which is the object of the interest and expenses of litigation to appellants in the amount of P10,000.00
upon its price. plus the costs of suit. 9

It is not necessary for the perfection of the contract of sale that This dispositive part was subsequently modified at the ACEROS'
the thing be delivered and that the price be paid. Neither is it instance, by Resolution dated November 8, 1984 which inter alia
necessary that the thing should belong to the vendor at the time "additionally ** (ordered) PNB to likewise deliver to appellants
of the perfection of the contract, it being sufficient that the the balance of the deposit of Isabela Wood Construction and
vendor has the right to transfer ownership thereof at the time it Development Corporation after first deducting the amount
is delivered. applied to the partial judgment of P1,532,000.00 in satisfaction of
appeallants' final judgment." 10
The shoe was now on the other foot. It was the ACEROS' turn to
move for reconsideration, which they did as regards this Order of PNB's main thesis is that when it opened a savings account for
October 1, 1982; but by Order promulgated on December 14, ISABELA on March 9, 1979 in the amount of P 2M, it (PNB)
1982, the Court declined to modify its resolution. became indebted to ISABELA in that amount. 11 So that when
ISABELA itself subsequently came to be indebted to it on account
The ACEROS then appealed to the Intermediate Appellate Court of ISABELA's breach of the terms of the Credit Agreement of
which, after due proceedings, sustained them. On September 14, October 13, 1977, and therefore ISABELA and PNB became at the
1984, it rendered judgment the dispositive part whereof reads as same time creditors and debtors of each other, compensation
follows: automatically took place between them, in accordance with
Article 1278 of the Civil Code. The amounts due from each other
WHEREFORE, the Orders of October 1 and December 14, 1982 of were, in its view, applied by operation of law to satisfy and
the Court a quo are hereby REVERSED and SET ASIDE, and in extinguish their respective credits. More specifically, the P2M
their stead, it is hereby adjudged: owed by PNB to ISABELA was automatically applied in payment
and extinguishment of PNB's own credit against ISABELA. This
1. That the Order of February 15, 1980 of the Court a quo is having taken place, that amount of P2M could no longer be levied
hereby ordered reinstated; on by any other creditor of ISABELA, as the ACEROS attempted to
do in the case at bar, in order to satisfy their judgment against
2. That intervenor PNB must deliver the amount stated in ISABELA.
the Order of February 15, 1980 with interest thereon at 12%
from February 15, 1980 until delivered to appellants, the amount Article 1278 of the Civil Code does indeed provide that
of interest to be paid by PNB and not to be deducted from the "Compensation shall take when two persons, in their own right,
deposit of Isabela Wood; are creditors and debtors of each other. " Also true is that
compensation may transpire by operation of law, as when all the
requisites therefor, set out in Article 1279, are present.

Nonetheless, these legal provisions can not apply to PNB's
advantage under the circumstances of the case at bar. 5. The chattel mortgages over the trucks required under No.
3 of II Collaterals of the Credit Agreement (Exhibit 1).
The insuperable obstacle to the success of PNB's cause is the
factual finding of the IAC, by which upon firmly established rules 6. The receipt by Isabela of the standing accounts sent by
even this Court is bound, 12 that it has not proven by competent PNB.
evidence that it is a creditor of ISABELA. The only evidence
present by PNB towards this end consists of two (2) documents 7. There receipt of the letter of demand by Isabela Wood. 13
marked in its behalf as Exhibits 1 and 2, But as the IAC has
cogently observed, these documents do not prove any It bears stressing that PNB did not at all lack want for
indebtedness of ISABELA to PNB. All they do prove is that a letter opportunity to produce these documents, if it does indeed have
of credit might have been opened for ISABELA by PNB, but not them. Judge Solano, it should be recalled, specifically allowed
that the credit was ever availed of (by ISABELA's foreign PNB to introduce evidence in relation to its Motion for
correspondent MAN, or that the goods thereby covered were in Reconsideration filed on August 26, 1980, 14 and thus furnished
fact shipped, and received by ISABELA. the occasion for PNB to prove, among others, ISABELA's debt to
it. PNB unaccountably failed to do so. Moreover, PNB never even
Quite obviously, as the IAC has further observed, the most attempted to offer or exhibit such evidence, in the course of the
persuasive evidence of these facts i.e., ISABELA's availment of appellate proceedings before the IAC, which is a certain
the credit, as well as the actual delivery of the goods covered by indication, in that Court's view, that PNB does not really have
and shipped pursuant to the letter of credit-assuming these facts these proofs at ala
to have occurred, would naturally and logically have been in
PNB's possession and could have been readily submitted to the For this singular omission PNB offers no explanation except that
Court, to wit: it saw no necessity to submit the Documents in evidence, because
sometime on March 14, 1980, the ACEROS's attorney had been
1. The document of availment by the foreign creditor of the shown those precise documents setting forth ISABELA's loan
letter of credit. obligations, such as the import bills and the sight draft covering
drawings on the L/C for ISABELA's account and after all, the
2. The document of release of the amounts mentioned in the ACEROS had not really put this indebtedness in issue. 15The
agreement. explanation cannot be taken seriously. In the picturesque but
forceful language of the Appellate Court, the explanation "is silly
3. The documents showing that the trucks (transported to as you do not prove a fact in issue by showing evidence in
the Philippines by the foreign creditor [MAN] were shipped to ** support thereof to the opposing counsel; you prove it by
and received by Isabela. submitting evidence to the proper court." The fact is that the
record does not disclose that the ACEROS have ever admitted the
4. The trust receipts by which possession was given to asserted theory of ISABELA's indebtedness to PNB. At any rate,
Isabela of the 35 (Imported) trucks. not being privies to whatever transactions might have generated

that indebtedness, they were clearly not in a position to make remain in the savings account until ** (ISABELA is) able to
any declaration on the matter. The fact is, too, that the avowed comply with" specified commitments these being: the
indebtedness of ISABELA was an essential element of PNB's claim constitution and registration of a mortgage in PNB's favor over
to the former's P2 million deposit and hence, it was incumbent on its "Paranaque property," and the obtention from the first
the latter to demonstrate it by competent evidence if it wished its mortgage thereof of consent for the creation of a second lien on
claim to be judicially recognized and enforced. This, it has failed the property. 19 These statements are to be sure inconsistent
to do. The failure is fatal to its claim. with the notion of an assignment of the money. In addition, there
is yet another circumstance militating against the actuality of
PNB has however deposited an alternative theory, which is that such an assignment-the "most telling argument" against it, in fact,
the P2M deposit had been assigned to it by ISABELA as in the line of the Appellate Court-and that is, that PNB itself,
"collateral," although not by way of pledge; that ISABELA had through its International Department, deposited the whole
explicitly authorized it to apply the P2M deposit in payment of its amount of ?2 million, not in its name, but in the name of ISABELA,
indebtedness; and that PNB had in fact applied the deposit to the 20 without any accompanying statement even remotely
payment of ISABELA's debt on February 26, 1980, in concept of intimating that it (PNB) was the owner of the deposit, or that an
voluntary compensation. 16 This second, alternative theory, is as assignment thereof was intended, or that some condition or lien
untenable as the first. was meant to burden it.

In the first place, there being no indebtedness to PNB on Even if it be assumed that such an assignment had indeed been
ISABELA's part, there is in consequence no occasion to speak of made, and PNB had been really authorized to apply the P2M
any mutual set-off, or compensation, whether it be legal, i.e., deposit to the satisfaction of ISABELA's indebtedness to it,
which automatically occurs by operation of law, or voluntary, i.e., nevertheless, since the record reveals that the application was
which can only take place by agreement of the parties. 17 attempted to be made by PNB only on February 26, 1980, that
essayed application was ineffectual and futile because at that
In the second place, the documents indicated by PNB as time, the deposit was already in custodia legis, notice of
constitutive of the claimed assignment do not in truth make out garnishment thereof having been served on PNB on January 9,
any such transaction. While the Credit Agreement of October 13, 1980 (pursuant to the writ of execution issued by the Court of
1977 (Exh. 1) declares it to be ISABELA's intention to "assign to First Instance on December 23, 1979 for the enforcement of the
the BANK the proceeds of its contract with the Department of partial judgment in the ACEROS' favor rendered on November
Public Works for the construction of Nagapit Suspension Bridge 18,1979).
(Substructure) in Cagayan," 18 it does not appear that that
intention was adhered to, much less carried out. The letter of One final factor precludes according validity to PNB's arguments.
ISABELA's president dated February 21, 1979 (Exh. 2) would on On the assumption that the P 2M deposit was in truth assigned as
the contrary seem to indicate the abandonment of that intention, some sort of "collateral" to PNB although as PNB insists, it was
in the light of the statements therein that the amount of P2M not in the form of a pledge the agreement postulated by PNB
(representing the bulk of the proceeds of its contract referred to) that it had been authorized to assume ownership of the fund
"shall be placed in a savings account" and that "said amount shall upon the coming into being of ISABELA s indebtedness is void ab

initio, it being in the nature of a pactum commisoruim proscribed On October 15, 1977, a 125 square meter portion of Francia's
as contrary to public policy. 21 property was expropriated by the Republic of the Philippines for
the sum of P4,116.00 representing the estimated amount
WHEREFORE, the judgment of the Intermediate Appellate Court equivalent to the assessed value of the aforesaid portion.
subject of the instant appeal, being fully in accord with the facts
and the law, is hereby affirmed in toto. Costs against petitioner. Since 1963 up to 1977 inclusive, Francia failed to pay his real
estate taxes. Thus, on December 5, 1977, his property was sold at
public auction by the City Treasurer of Pasay City pursuant to
Section 73 of Presidential Decree No. 464 known as the Real
Property Tax Code in order to satisfy a tax delinquency of
90. G.R. No. L-67649 June 28, 1988 P2,400.00. Ho Fernandez was the highest bidder for the property.

ENGRACIO FRANCIA, petitioner, Francia was not present during the auction sale since he was in
vs. Iligan City at that time helping his uncle ship bananas.
INTERMEDIATE APPELLATE COURT and HO
FERNANDEZ, respondents. On March 3, 1979, Francia received a notice of hearing of LRC
Case No. 1593-P "In re: Petition for Entry of New Certificate of
Title" filed by Ho Fernandez, seeking the cancellation of TCT No.
GUTIERREZ, JR., J.: 4739 (37795) and the issuance in his name of a new certificate of
title. Upon verification through his lawyer, Francia discovered
The petitioner invokes legal and equitable grounds to reverse the that a Final Bill of Sale had been issued in favor of Ho Fernandez
questioned decision of the Intermediate Appellate Court, to set by the City Treasurer on December 11, 1978. The auction sale
aside the auction sale of his property which took place on and the final bill of sale were both annotated at the back of TCT
December 5, 1977, and to allow him to recover a 203 square No. 4739 (37795) by the Register of Deeds.
meter lot which was, sold at public auction to Ho Fernandez and
ordered titled in the latter's name. On March 20, 1979, Francia filed a complaint to annul the auction
sale. He later amended his complaint on January 24, 1980.
The antecedent facts are as follows:
On April 23, 1981, the lower court rendered a decision, the
Engracio Francia is the registered owner of a residential lot and a dispositive portion of which reads:
two-story house built upon it situated at Barrio San Isidro, now
District of Sta. Clara, Pasay City, Metro Manila. The lot, with an WHEREFORE, in view of the foregoing, judgment is hereby
area of about 328 square meters, is described and covered by rendered dismissing the amended complaint and ordering:
Transfer Certificate of Title No. 4739 (37795) of the Registry of
Deeds of Pasay City. (a) The Register of Deeds of Pasay City to issue a new
Transfer Certificate of Title in favor of the defendant Ho

Fernandez over the parcel of land including the improvements RESPONDENT INTERMEDIATE APPELLATE COURT FURTHER
thereon, subject to whatever encumbrances appearing at the COMMITTED A SERIOUS ERROR AND GRAVE ABUSE OF
back of TCT No. 4739 (37795) and ordering the same TCT No. DISCRETION IN NOT HOLDING THAT THE PRICE OF P2,400.00
4739 (37795) cancelled. PAID BY RESPONTDENT HO FERNANDEZ WAS GROSSLY
INADEQUATE AS TO SHOCK ONE'S CONSCIENCE AMOUNTING
(b) The plaintiff to pay defendant Ho Fernandez the sum of TO FRAUD AND A DEPRIVATION OF PROPERTY WITHOUT DUE
P1,000.00 as attorney's fees. (p. 30, Record on Appeal) PROCESS OF LAW, AND CONSEQUENTLY, THE AUCTION SALE
MADE THEREOF IS VOID. (pp. 10, 17, 20-21, Rollo)
The Intermediate Appellate Court affirmed the decision of the
lower court in toto. We gave due course to the petition for a more thorough inquiry
into the petitioner's allegations that his property was sold at
Hence, this petition for review. public auction without notice to him and that the price paid for
the property was shockingly inadequate, amounting to fraud and
Francia prefaced his arguments with the following assignments deprivation without due process of law.
of grave errors of law:
A careful review of the case, however, discloses that Mr. Francia
I brought the problems raised in his petition upon himself. While
we commiserate with him at the loss of his property, the law and
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED the facts militate against the grant of his petition. We are
A GRAVE ERROR OF LAW IN NOT HOLDING PETITIONER'S constrained to dismiss it.
OBLIGATION TO PAY P2,400.00 FOR SUPPOSED TAX
DELINQUENCY WAS SET-OFF BY THE AMOUNT OF P4,116.00 Francia contends that his tax delinquency of P2,400.00 has been
WHICH THE GOVERNMENT IS INDEBTED TO THE FORMER. extinguished by legal compensation. He claims that the
government owed him P4,116.00 when a portion of his land was
II expropriated on October 15, 1977. Hence, his tax obligation had
been set-off by operation of law as of October 15, 1977.
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED
A GRAVE AND SERIOUS ERROR IN NOT HOLDING THAT There is no legal basis for the contention. By legal compensation,
PETITIONER WAS NOT PROPERLY AND DULY NOTIFIED THAT obligations of persons, who in their own right are reciprocally
AN AUCTION SALE OF HIS PROPERTY WAS TO TAKE PLACE ON debtors and creditors of each other, are extinguished (Art. 1278,
DECEMBER 5, 1977 TO SATISFY AN ALLEGED TAX Civil Code). The circumstances of the case do not satisfy the
DELINQUENCY OF P2,400.00. requirements provided by Article 1279, to wit:

III (1) that each one of the obligors be bound principally and that
he be at the same time a principal creditor of the other;


xxx xxx xxx We stated that a taxpayer cannot refuse to pay his tax when
called upon by the collector because he has a claim against the
(3) that the two debts be due. governmental body not included in the tax levy.

xxx xxx xxx This rule was reiterated in the case of Corders v. Gonda (18 SCRA
331) where we stated that: "... internal revenue taxes can not be
This principal contention of the petitioner has no merit. We have the subject of compensation: Reason: government and taxpayer
consistently ruled that there can be no off-setting of taxes against are not mutually creditors and debtors of each other' under
the claims that the taxpayer may have against the government. A Article 1278 of the Civil Code and a "claim for taxes is not such a
person cannot refuse to pay a tax on the ground that the debt, demand, contract or judgment as is allowed to be set-off."
government owes him an amount equal to or greater than the tax
being collected. The collection of a tax cannot await the results of There are other factors which compel us to rule against the
a lawsuit against the government. petitioner. The tax was due to the city government while the
expropriation was effected by the national government.
In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), Moreover, the amount of P4,116.00 paid by the national
this Court ruled that Internal Revenue Taxes can not be the government for the 125 square meter portion of his lot was
subject of set-off or compensation. We stated that: deposited with the Philippine National Bank long before the sale
at public auction of his remaining property. Notice of the deposit
A claim for taxes is not such a debt, demand, contract or dated September 28, 1977 was received by the petitioner on
judgment as is allowed to be set-off under the statutes of set-off, September 30, 1977. The petitioner admitted in his testimony
which are construed uniformly, in the light of public policy, to that he knew about the P4,116.00 deposited with the bank but he
exclude the remedy in an action or any indebtedness of the state did not withdraw it. It would have been an easy matter to
or municipality to one who is liable to the state or municipality withdraw P2,400.00 from the deposit so that he could pay the tax
for taxes. Neither are they a proper subject of recoupment since obligation thus aborting the sale at public auction.
they do not arise out of the contract or transaction sued on. ... (80
C.J.S., 7374). "The general rule based on grounds of public policy Petitioner had one year within which to redeem his property
is well-settled that no set-off admissible against demands for although, as well be shown later, he claimed that he pocketed the
taxes levied for general or local governmental purposes. The notice of the auction sale without reading it.
reason on which the general rule is based, is that taxes are not in
the nature of contracts between the party and party but grow out Petitioner contends that "the auction sale in question was made
of duty to, and are the positive acts of the government to the without complying with the mandatory provisions of the statute
making and enforcing of which, the personal consent of governing tax sale. No evidence, oral or otherwise, was presented
individual taxpayers is not required. ..." that the procedure outlined by law on sales of property for tax
delinquency was followed. ... Since defendant Ho Fernandez has
the affirmative of this issue, the burden of proof therefore rests

upon him to show that plaintiff was duly and properly notified ... shown by his signature (Exhibit "I-A") thereof. He claimed further
.(Petition for Review, Rollo p. 18; emphasis supplied) that he was not present on December 5, 1977 the date of the
auction sale because he went to Iligan City. As long as there was
We agree with the petitioner's claim that Ho Fernandez, the substantial compliance with the requirements of the notice, the
purchaser at the auction sale, has the burden of proof to show validity of the auction sale can not be assailed ... .
that there was compliance with all the prescribed requisites for a
tax sale. We quote the following testimony of the petitioner on cross-
examination, to wit:
The case of Valencia v. Jimenez (11 Phil. 492) laid down the
doctrine that: Q. My question to you is this letter marked as Exhibit I for Ho
Fernandez notified you that the property in question shall be sold
xxx xxx xxx at public auction to the highest bidder on December 5, 1977
pursuant to Sec. 74 of PD 464. Will you tell the Court whether you
... [D]ue process of law to be followed in tax proceedings must be received the original of this letter?
established by proof and the general rule is that the purchaser of
a tax title is bound to take upon himself the burden of showing A. I just signed it because I was not able to read the same. It
the regularity of all proceedings leading up to the sale. (emphasis was just sent by mail carrier.
supplied)
Q. So you admit that you received the original of Exhibit I
There is no presumption of the regularity of any administrative and you signed upon receipt thereof but you did not read the
action which results in depriving a taxpayer of his property contents of it?
through a tax sale. (Camo v. Riosa Boyco, 29 Phil. 437); Denoga v.
Insular Government, 19 Phil. 261). This is actually an exception A. Yes, sir, as I was in a hurry.
to the rule that administrative proceedings are presumed to be
regular. Q. After you received that original where did you place it?

But even if the burden of proof lies with the purchaser to show A. I placed it in the usual place where I place my mails.
that all legal prerequisites have been complied with, the
petitioner can not, however, deny that he did receive the notice Petitioner, therefore, was notified about the auction sale. It was
for the auction sale. The records sustain the lower court's finding negligence on his part when he ignored such notice. By his very
that: own admission that he received the notice, his now coming to
court assailing the validity of the auction sale loses its force.
[T]he plaintiff claimed that it was illegal and irregular. He
insisted that he was not properly notified of the auction sale. Petitioner's third assignment of grave error likewise lacks merit.
Surprisingly, however, he admitted in his testimony that he As a general rule, gross inadequacy of price is not material (De
received the letter dated November 21, 1977 (Exhibit "I") as Leon v. Salvador, 36 SCRA 567; Ponce de Leon v. Rehabilitation

Finance Corporation, 36 SCRA 289; Tolentino v. Agcaoili, 91 Phil. be useless to offer the property. Indeed, it is notorious that the
917 Unrep.). See also Barrozo Vda. de Gordon v. Court of Appeals prices habitually paid by purchasers at tax sales are grossly out of
(109 SCRA 388) we held that "alleged gross inadequacy of price proportion to the value of the land. (Rothchild Bros. v. Rollinger,
is not material when the law gives the owner the right to redeem 32 Wash. 307, 73 P. 367, 369).
as when a sale is made at public auction, upon the theory that the
lesser the price, the easier it is for the owner to effect In this case now before us, we can aptly use the language of
redemption." In Velasquez v. Coronel (5 SCRA 985), this Court McGuire, et al. v. Bean, et al. (267 P. 555):
held:
Like most cases of this character there is here a certain element
... [R]espondent treasurer now claims that the prices for which of hardship from which we would be glad to relieve, but do so
the lands were sold are unconscionable considering the wide would unsettle long-established rules and lead to uncertainty and
divergence between their assessed values and the amounts for difficulty in the collection of taxes which are the life blood of the
which they had been actually sold. However, while in ordinary state. We are convinced that the present rules are just, and that
sales for reasons of equity a transaction may be invalidated on they bring hardship only to those who have invited it by their
the ground of inadequacy of price, or when such inadequacy own neglect.
shocks one's conscience as to justify the courts to interfere, such
does not follow when the law gives to the owner the right to We are inclined to believe the petitioner's claim that the value of
redeem, as when a sale is made at public auction, upon the theory the lot has greatly appreciated in value. Precisely because of the
that the lesser the price the easier it is for the owner to effect the widening of Buendia Avenue in Pasay City, which necessitated
redemption. And so it was aptly said: "When there is the right to the expropriation of adjoining areas, real estate values have gone
redeem, inadequacy of price should not be material, because the up in the area. However, the price quoted by the petitioner for a
judgment debtor may reacquire the property or also sell his right 203 square meter lot appears quite exaggerated. At any rate, the
to redeem and thus recover the loss he claims to have suffered by foregoing reasons which answer the petitioner's claims lead us to
reason of the price obtained at the auction sale." deny the petition.

The reason behind the above rulings is well enunciated in the And finally, even if we are inclined to give relief to the petitioner
case of Hilton et. ux. v. De Long, et al. (188 Wash. 162, 61 P. 2d, on equitable grounds, there are no strong considerations of
1290): substantial justice in his favor. Mr. Francia failed to pay his taxes
for 14 years from 1963 up to the date of the auction sale. He
If mere inadequacy of price is held to be a valid objection to a sale claims to have pocketed the notice of sale without reading it
for taxes, the collection of taxes in this manner would be greatly which, if true, is still an act of inexplicable negligence. He did not
embarrassed, if not rendered altogether impracticable. In Black withdraw from the expropriation payment deposited with the
on Tax Titles (2nd Ed.) 238, the correct rule is stated as follows: Philippine National Bank an amount sufficient to pay for the back
"where land is sold for taxes, the inadequacy of the price given is taxes. The petitioner did not pay attention to another notice sent
not a valid objection to the sale." This rule arises from necessity, by the City Treasurer on November 3, 1978, during the period of
for, if a fair price for the land were essential to the sale, it would redemption, regarding his tax delinquency. There is furthermore

no showing of bad faith or collusion in the purchase of the hectares thereby usurping about 2,000 hectares consisting of
property by Mr. Fernandez. The petitioner has no standing to portions of the territorial sea, the foreshore, the beach and
invoke equity in his attempt to regain the property by belatedly navigable waters properly belong(ing) to the public domain." 2
asking for the annulment of the sale.
The Court's decision in said case found that
WHEREFORE, IN VIEW OF THE FOREGOING, the petition for
review is DISMISSED. The decision of the respondent court is We have gone over the evidence presented in this case and found
affirmed. no reason to disturb the factual findings of the trial court. It has
been established that certain areas originally portions of the
navigable water or of the foreshores of the bay were converted
into fishponds or sold by defendant company to third persons.
There is also no controversy as to the fact that the said defendant
91. G.R. No. L-30240 March 25, 1988 was able to effect these sales after it has obtained a certificate of
title (TCT No. 722) and prepared a "composite plan" wherein the
REPUBLIC OF THE PHILIPPINES as Lessor, ZOILA DE aforesaid foreshore areas appeared to be parts of Hacienda
CHAVEZ, assisted by her husband Col. Isaac Chavez, Calatagan. Defendants- appellants do not deny that there is an
DEOGRACIAS MERCADO, ROSENDO IBANEZ and excess in area between those delimited as boundaries of the
GUILLERMO MERCADO, as permittees and/or Lessees hacienda in TCT No. 722 and the plan prepared by its surveyor.
of public fishponds, petitioners, This, however, was justified by claiming that it could have been
vs. caused by the system (magnetic survey) used in the preparation
HON. JUDGE JAIME DE LOS ANGELES of the court of of the original titles, and, anyway, the excess in area (536
First Instance of Batangas, (BR. III, Balayan) [later hectares, according to defendants) is within the allowable margin
replaced by JUDGE JESUS ARLEGUI] SHERIFF OF given to a magnetic survey.
BATANGAS, ENRIQUE ZOBEL and THE REGISTER OF
DEEDS AT BALAYAN, BATANGAS, respondents. But even assuming for the sake of argument that this contention
is correct, the fact remains that the areas in dispute (those
TEEHANKEE, C.J.: covered by permits issued by the Bureau of Fisheries), were
found to be portions of the foreshore, beach, or of the navigable
The moment of truth is finally at hand. It is about time to cause water itself And, it is an elementary principle of law that said
the execution in favor of the Republic of the Philippines of the areas not being capable of registration, their inclusion in a
1965 final and executory judgment of this Court (Republic vs. certificate of title does not convert the same into properties of
Ayala y Cia ) 1affirming that of the CFI of Batangas in Civil Case private ownership or confer title on the registrant. 3
No. 373 thereof and to recover for the Republic what "Ayala y Cia
Hacienda de Calatagan and/or Alfonso Zobel had illegally The Solicitor General's Memorandum 4 further points out
expanded [in] the original area of their TCT No. 722 (derived
from OCT No. 20) from 9,652.583 hectares to about 12,000

... that the modus operandi in said usurpation, i.e. grabbing lands and travails since 1965 through the martial law regime to now
of the public domain, was expressly made of record in the case of are recorded in the annals of our jurisprudence. Suffice it to point
Dizon v. Rodriguez, 13 SCRA 704 (April 30, 1965), where it was out that upon petition of the Republic and its co- petitioners (as
recounted that Hacienda de Calatagan, owned by Alfonso and permittees and/or lessees of the Republic), mandamus was
Jacobo Zobel, was originally covered by TCT No. 722, and that in issued on June 30, 1967 by unanimous decision with one
1948, upon the cessation of their sugar mill operations, the abstention in Republic vs. De los Angeles, 6 overruling the therein
hacienda owners converted the pier (used by vessels loading respondent-judge's refusal to issue a writ of execution of the
sugar) which stretched to about 600 meters off the shore into the aforesaid 1965 final judgment and ordering him to issue such
navigable waters of the Pagaspas Bay" into a fishpond dike by writ. The Court denied reconsideration on September 19, 1967,
enclosing 30 and 37 hectares of the bay on both sides of the pier but on a second and supplemental motion for reconsideration, it
in the process. set aside the original decision of Jane 30, 1967 and dismissed the
petition for mandamus and denied execution, per its Resolution
Subsequently, in 1949, the owners of the hacienda ordered its of October 4, 1971 by a split 6-3-2 vote. 7 The court denied the
subdivision which enabled them to acquire titles to the Republic, et al motions for reconsideration by the same split 6-3-
subdivided lots which were outside the hacienda's perimeter. 2 vote per its Resolution of April 11, 1972. 8 An undermanned
Thus, these subdivided lots, which were converted into fishponds Court subsequently denied the Republic's co-petitioner
were illegally absorbed as part of the hacienda and titled in the Tolentino's second motion for reconsideration for lack of
name of Jacobo Zobel which were subsequently sold and necessary votes per its Resolution of April 27, 1973. 9
transferred to the Dizons, Gocos and others. In said Dizon case,
"this Honorable Court affirmed the court a quo's findings that the Parenthetically, the complexity magnitude and persistence of
subdivision plan was prepared not in accordance with the respondents' maneuvers are set forth in the series of decisions
technical description in TCT No. 722 but in disregard of it." And and extended resolutions and majority and dissenting opinions
that the appropriated fishpond lots "are actually part of the reported in the Supreme Court Reports Annotated as per the
territorial waters and belong to the State. citations hereinabove given. A reading of said reports together
with the Memorandum for Granting of the Petition at bar (and
But all through the years, as stressed in the Republic's giving the case's backgrounder) which I had circulated in the
memorandum, "the technical maneuvers employed by Ayala and Court as against the proposed contrary draft of Justice Estanislao
Zobel [of which the instant petition is an off-shoot] .... undercut A. Fernandez (which did not gain the concurrence of the majority
the Republic's efforts to execute the aforesaid 1965 final of the Court during his seventeen-month incumbency from
judgment" 5 to recover the estimated 2,000 hectares of territorial October 20, 1973 to March 28, 1975) shows the full extent
sea, foreshore, beach and navigable waters and marshy land of background and scope of these maneuvers, particularly those in
the public domain. the present case. For the sake of brevity and conciseness, I attach
the said Memorandum as Annex A hereof and make the same an
It may seem incredible that execution of such 1965 final integral part of this decision, instead of reproducing the same in
judgment in favor of the Republic no less could have been the body of this opinion.
thwarted for twenty-three years now. But the Republic's odyssey

Pending respondents' maneuvers in this Court for thwarting the respondent from usurping and exercising further acts of
issuance of a writ for execution of the aforesaid 1965 final dominion and ownership over the subject land of public domain;
judgment for the Republic's recovery of land and waters of the
public domain in the 1967 mandamus case brought by the Respondent Zobel, however, filed a Motion to Dismiss Amended
Republic, supra, they intensified their maneuvers to defeat the Complaint, dated August 16, 1967, contending inter alia that said
Republic's judgment for recovery of the public lands and waters Amended Complaint (Civil Case No. 653) is barred by prior
when they got the trial judge, notwithstanding this Court's final judgment in Civil Case No. 373 (G.R. No. 20950, the 1965 final
1965 judgment for reversion of the public lands, to uphold their judgment in favor of the Republic), and arguing that "if TCT Nos.
refusal to recognize the rights of the Republic's public fishponds T-3699 and T-9262 had been declared null and void in Civil Case
permittees and/or lessees to the lands leased by the Republic to No. 373, the proper procedure would be to secure the proper
them. Thus, the Republic as lessor and said permittees/lessees as execution of the decision in the same proceedings and not thru
co-petitioners filed through then Solicitor General Antonio P. the filing of a new case." He further contended "that there is
Barredo their Amended Complaint of August 2, 1967 in Civil Case another action pending between the same parties for the same
No. 653 against herein respondent Enrique Zobel as defendant cause," and points to the abovementioned mandamus case, G.R.
and the Register of Deeds of Batangas. As summarized by the No. 26112 anent execution of Civil Case No. 373 as the said
Solicitor General in his Memorandum of June 1, 1984: pending case. His aforesaid motion, however, was denied by the
trial court in its order of December 13, 1967, and accordingly he
Respondent Zobel had ousted Zoila de Chavez, a government's was required to file his answer.
fishpond permittee from a portion of the subject fishpond lot
described as Lot 33 of Plan Swo-30999 (also known as Lots 55 But in his answer with counterclaim, respondent Zobel averred,
and 66 of subdivision TCT No. 3699) by bulldozing the same, and among others, that the subject TCT Nos. 3699 and 9262
threatened to eject fishpond permittees Zoila de Chavez, registered in his name are valid and subsisting since in the
Guillermo Mercado, Deogracias Mercado and Rosendo Ibaez decision under G. R. No. L-20950 "only TCT No. T-9550 was
from their respective fishpond lots described as Lots 4, 5, 6 and 7 specifically declared as null and void and no other;" and that
and Lots 55 and 56, of Plan Swo-30999, embraced in the void when Civil Case No. 373 was docketed, respondent Enrique Zobel
subdivision titles TCT No. 3699 and TCT No. 9262 claimed by "was and still is at present one of the members and managing .ng
said respondent. Thus, on August 2, 1967, the Republic filed an partners of Ayala y Cia one of the defendants in the 91 said civil
Amended Complaint captioned Accion Reinvidicatoria with case, and, therefore, privy thereto." He then prayed for a writ of
Preliminary Injunction" against respondent Zobel and the preliminary mandatory injunction restoring to him possession of
Register of Deeds of Batangas, docketed as Civil Case No. 653, for the subject land, and further prayed for judgment ordering Zoila
cancellation of Zobel's void subdivision titles TCT No. 3699 and de Chavez and Guillermo Mercado to vacate the premises in
TCT No. 9262, and the reconveyance of the same to the question and to surrender possession thereof to defendant Zobel.
government; to place aforenamed fishpond permittees in This was unfortunately granted by respondent Judge De los
peaceful and adequate possession thereof; to require respondent Angeles per the impugned order at bar of October 1, 1968.
Zobel to pay back rentals to the Republic; and to enjoin said (Annex D, petition). Hence, the filing of the instant petition.


On March 7, 1969, the Court issued a restraining order in the case
at bar, enjoining respondent judge from enforcing the writ of While the Court's new majority denied the Republic's motion for
preliminary mandatory injunction until further orders. reconsideration of aforesaid resolution, per its resolution of April
11, 1972, it, however, made the important modification that said
While G.R. No. L-26112 re: execution) and G.R. No. L-30240 (the denial "does not constitute a denial of the right of the Republic to
case at bar) were pending, the Republic filed its motion of July 8, the cancellation of the titles nullified by the decision of Judge
1970 in Civil Case No. 373, for authority to conduct the necessary Tengco (in Civil Case No. 373) affirmed by this Court (in G.R. No.
resurvey of the lands affected so as to properly segregate from L-20950)." It also stated that: "(E)ven the (trial court's) order of
Ayala and Zobel's private land originally covered by TCT No. 722 October 27, 1970 about the resurvey merely held the remedy to
the areas outside thereof comprising about 2,000 hectares of be premature until the decision in this case has become final. Of
public land, beach, foreshore and territorial sea. Ayala and Zobel course, it is understood that in such eventuality, the resurvey
vigorously opposed the same, contending again that the proper requested by the Provincial Fiscal would be in order and as soon
step for the government was to ask for a writ of execution; that as the same is completed, the proper writ of execution for the
no other subdivision titles, besides TCT No. T- 9550 were really delivery of possession of the portions found to be public land
declared null and void in the 1965 judgment; and that the lower should issue." (G.R. No. I, 26112, 44 SCRA 255, 262 [19721) Thus,
court could not make a ruling on the motion for resurvey the majority's denial of the motions for reconsideration was
"without requiring the presentation of additional evidence, and made expressly "with the clarification aforemade of the rights of
that, in effect, would be tantamount to reopening a case where the Republic."
the judgment is already final and executory and that the
Government's failure to seek a "clarification of the decision to [Note: My attached Memorandum, Annex A hereof (at pages 2 to
find out what other titles should have been declared null and 6 thereof), quotes more extensively the same pronouncements of
void" precludes it from doing so now, I since the decision is now the ponente, Justice Villamor, speaking for the majority, that the
final and executory." The respondent judge, having earlier denied Resolution simply cancelled out the final damage award in favor
execution of the 1965 final judgment, issued his order of October of intervenor Tolentino, as government permittee/lessee it
27, 1970 denying the Government's motion for authority to covers as well similar pronouncements from Justice Makalintal in
conduct such prerequisite re-survey; his separate concurrence that "The resolution in no way affects
the rights of the Government as declared in the decision," and
Ayala and Zobel's technical maneuvers to impede execution of Justice Barredo's separate concurrence that "I am sure that the
the 1965 final judgment again bore fruit, as above indicated, five justices whom I am joining in denying Petitioners motion for
when their second motion for reconsideration in G.R. No. L26112 reconsideration are as firm as the three distinguished dissenters
was granted by a split Court in a Resolution dated October 4, in the resolution not to allow this Court to be an instrument of
1971 (41 SCRA 422). As a result, the earlier decision of June 30, land-grabbing as they are against the reversal or even
1967 directing the issuance of the writ of execution was set aside modification in any substantial degree of any final and executory
and the Republic's petition for certiorari and mandamus judgment whether of this Court or any other court in this
impugning the lower court's quashal and denial of the writ of country, and, that if there were such possibilities in consequence
execution was dismissed. of the resolution of October 4, 1971 and the present resolution of

denial, they would not give their assent to said resolutions. We Jesus P. Arlegui [who had been assigned to respondent Judge De
are certain that in deciding against Petitioner Tolentino, We are los Angeles" court in Batangas upon the latter's retirement]
not condoning nor permitting that the lands in question remain arrogating unto himself the function which properly belongs to
with the Dizons or with "the Ayalas." the Director of Lands, disapproved the said Report and Re-survey
Plan, thereby preventing execution of the subdivision (a) of the
In my dissenting opinion, I expressed gratification that the decision in Civil Case No. 373. In effect, such disapproval by Judge
dissents (submitted by then Chief Justice Roberto Concepcion Arlegui was intended to negate the earlier resolution in G.R. No.
and myself, both concurred in by Justice J.B.L. Reyes) had L-26112 (44 SCRA 255, 263) that as soon as resurvey "is
contributed to the overriding clarification "that the majority's completed the proper writ of execution for the delivery of
position although it denies reconsideration and maintains possession of the portions found to be public land should issue;"
reversal of the June 30, 1967 decision at bar-is that the
Government may now finally effect reversion and recover Earlier, in Civil Case No. 653, respondent Zobel filed on July 10,
possession of all usurped areas of the public domain "outside 1969 a Motion to Suspend Further Hearing, etc., praying that the
(Ayala's) private land covered by TCT No. 722, which including hearings in said Civil Case be indefinitely suspended until the
the lots in T-9550 (Lots 360, 362, 363 and 182) are hereby case at bar is resolved by this Honorable Court. He contended
reverted to public dominion." (Paragraph [al of 1965 judgment). that the issues raised in the case at bar are the very issues
10 pending in the case below, Civil Case No. 653, and that the
decision that the Court renders here "would greatly affect the
After said G.R. No. L-26112 was finally disposed of, herein respective claims of said parties in (said) case." (G.R. No. 1,
petitioner filed in Civil Case No. 373, a "Motion to Re-survey." 46396, Record, pp. 128-130)
This was granted in an Order dated August 21, 1973, as well as in
the Orders of December 27, 1973 and February 26, 1974, The aforesaid motion was followed by respondent Zobel's Motion
respectively. About three (3) years later, a Report on the Re- for Immediate Resolution of Defendant-Movant's Motion to
survey dated August 5, 1977 (Annex "A" to Republic's Comment Suspend, etc., dated August 20, 1969. An opposition thereto was
dated March 30, 1981), as well as the "Final Report" thereon filed by plaintiff therein and a reply was filed in turn by
dated September 2, 1977 and the "Resurvey Plan" (Annexes "B" respondent Zobel on July 30, 1 969. Acting on the said motions,
and "C", Ibid.) were approved by the Director of Lands and the the trial court issued an order on September 2, 1969 giving the
Secretary of Agriculture and Natural Resources. The Re-survey parties certain periods to file their pleadings and cancelling a
further confirmed the uncontroverted fact that the disputed scheduled hearing until it shall have resolved the motion to
areas in the case at bar form part of the expanded area already suspend.
reverted to public dominion.
Since that time, however, the trial court chose not, or failed, to act
Upon approval of said Re-survey Plan and Report, petitioner formally on the aforesaid motion to suspend hearings. Then after
submitted the same to the trial court in Civil Case No. 373. five (5) years, with the trial court now presided by Judge Arlegui,
However, notwithstanding its approval by the Director of Lands, respondent Zobel flip-flopped and filed a Motion to Dismiss the
and the Secretary of Agriculture and Natural Resources, Judge case below dated January 14, 1976, claiming alleged failure to

prosecute and res judicata, which was vigorously opposed by the same on time, there was excusable neglect, which does not
herein petitioner. Judge Arlegui, robot-like, nonetheless obtain here) because "the petition for extension of time should
dismissed the Republic's complaint for Zobel's alleged grounds of not .interrupt the period fixed by law for the taking of the appeal"
failure to prosecute for an unreasonable length of time and res on the ground that "the only purpose of said petition is to ask the
judicata per his order of January 12, 1977. court to grant an additional period to that fixed by law to that
end." (Alejandro v. Endencia 64 Phil, 321)
A 35-page motion for reconsideration thereof was filed by
Petitioner within the extended period sought for in an earlier Soon after the dismissal of the petition in G.R. No. 46396,
motion. The then Presiding Judge Arlegui summarily denied the respondent Zobel filed in this case a "Motion to Dismiss Petition"
motion for extension of time earlier filed, per its order of March and "Manifestation and Motion to Lift Temporary Restraining
3, 1977. Order" issued on March 7, 1969, and another supplemental
motion, on the ground that the instant case has become moot and
The "Motion for Reconsideration of Order" dated March 3, 1977, academic by the dismissal of the complaint in Civil Case No. 653
and "Supplement to Motion for Reconsideration of Order" dated in the court below. This was refuted by the herein petitioner in
March 3,1977, were similarly denied by Judge Arlegui in his its Comment dated March 30, 1981.
order dated June 14, 1977. Petitioner Republic thus elevated the
matter to this Court by certiorari and mandamus which was On December 15, 1981, Judge Arlegui precipitately rendered in
docketed as G.R. No. L-46396 11 and asked that it be Civil Case No. 653 a decision on the Counterclaim of herein
consolidated with the case at bar which from the beginning was respondent Zobel, declaring him the true, absolute and registered
assigned to the Court en banc. However, G.R. No. L-46396 was owner of the lands covered by Transfer Certificate of Title Nos.
somehow assigned to the Second Division of the Court which 3699, T-7702 and 9262 (now No. 10031) and directing the
peremptorily dismissed the petition per its minute resolution Government's licensees and permittees occupying the same to
dated December 1 7, 1977, which reads: vacate the lands held by them.

Acting on the petition for certiorari and mandamus in this case as Subsequently, on March 9, 1982, Judge Arlegui issued a writ of
well as the comment thereon of the private respondent and the execution in Civil Case No. 653, prompting the heirs of Guillermo
reply of petitioner and rejoinder thereto of said respondent, the Mercado to file in this case an Urgent Motion dated March
Court resolved to DISMISS the petition, considering that although 22,1982 to stay the same. Acting on the Urgent Motion, the "Court
the motion for extension of time to file a motion for issued another restraining order dated June 17, 1982,
reconsideration of petitioner dated February 19, 1977 may be emphasizing the necessity therefor in this wise:
deemed as filed within the reglementary period for appeal, the
same did not suspend said period which expired on February 21, ... the issuance of the restraining order now prayed for by
1977 (Gibbs v. Court of First Instance of Manila, 80 Phil. 160, movants-heirs of Guillermo Mercado is necessary to retain the
where the appeal albeit late by one day, was nevertheless status quo since whatever rights they have are only in
allowed on the ground that under the peculiar circumstances of representation of the petitioner Republic who claims the said
the case showing utmost effort on the part of appellant to make

lands by virtue of their reversion to the public dominion as order issued by this Court, respondent Zobel and his agent were
specifically adjudged by this court in G.R. No. L- 26112., still cutting off the trees in the disputed areas.

Respondent Zobel then moved for a reconsideration and lifting of On December 6, 1983, after the hearing en banc of this case on
aforesaid restraining order. The heirs of intervenor Zoila de the merits, a resolution was rendered by this Court "to ISSUE a
Chavez on the other hand, moved for a preliminary mandatory second temporary restraining order enjoining respondent
injunction to restore them in possession of a Portion of the land Enrique Zobel and his agents, representatives and/or any other
in dispute from where they had been ousted by virtue of the writ person or persons acting on his behalf to desist from cutting off
of execution issued in Civil Case No. 653. or removing any tree in the questioned areas which were
declared reverted to the public domain and which are claimed by
In a Consolidated Comment dated September 30, 1982, petitioner the Republic, effective immediately and until further orders by
Republic opposed the said motion of respondent Zobel, and at the the Court.
same time concurred with the motion filed by the heirs of Zoila
de Chavez for the issuance of a writ of preliminary mandatory Against this background, respondent Zobel now contends that his
injunction. TCT No. 3699 and TCT No. 9262 (now T-10031) are valid and
subsisting as said titles "cannot be considered automatically
On or about November 8, 1983, the heirs of intervenor Guillermo annulled" by the decision in G.R. No. L-20950; that the decision in
Mercado filed an "Urgent Motion for Contempt and Issuance of a G.R. No. L-20950 annulled only TCT No. 9550 and no other; that
Temporary Restraining Order, etc.," as respondent Zobel's he cannot be bound by the decision in said G.R. No. L-20950 since
representative, in spite of the restraining order enjoining them he was not a party thereto; that the dismissal of Civil Case No.
from enforcing the writ of execution, had begun to acquire 653 and of the appeal therefrom by the Republic has quieted his
possession of the land in question by cutting off trees in the questioned titles and has rendered the instant petition moot and
undeveloped fishpond being leased by Mercado from the 7 academic; that the decision on his counterclaim in Civil Case No.
government. 653 declaring him to be the true and registered owner of the
subject land had long become final and executory, and that under
On November 10, 1983, the Court issued the corresponding the principle of res judicata the present petition ought to be
restraining order prayed for "enjoining respondent Enrique dismissed; and that intervenors Mercado and Chavez have no
Zobel or his duly authorized representative from further cutting right of possession over the land in question.
off the trees in the undeveloped fishpond of Guillermo Mercado
having an area of two (2) hectares, more or less, and from The Republic's petition is patently meritorious.
hauling the big trees already cut off costing P10,000.00
"Resolution dated November 13, 1983). 1. On the original issue at bar brought against respondent Judge
Angeles" issuance of preliminary mandatory injunction per the
On or about November 23, 1983, the heirs of Guillermo Mercado questioned Order of October 1, 1968, petitioner Republic and its
filed a "Second Urgent Motion for Contempt and a Second co-petitioner licensees are manifestly entitled to the restraining
Restraining Order, etc." since, in spite of the foregoing restraining orders issued by the Court on March 7, 1969 enjoining

respondent judge from enforcing the preliminary mandatory Contrary to respondent Zobel's assertion, the 1965 final
injunction that he had issued that would oust the Republic and its judgment in favor of the Republic declared as null and void, not
licensees from the public lands in question and transfer only TCT No. 9550, but also "other subdivision titles" issued over
possession thereof to respondent Zobel; that issued on June 17, the expanded areas outside the private land of Hacienda
1982 enjoining enforcement of respondent Judge Arlegui's writ Calatagan covered by TCT No. 722. As shown at the outset, 13
of execution issued on March 9, 1982 declaring without trial after respondents ordered subdivision of the Hacienda Calatagan
respondent Zobel (on his counterclaim to the dismissed which enabled them to acquire titles to and "illegally absorb" the
complaint) as the true and registered owner of the lands covered subdivided lots which were outside the hacienda's perimeter,
by TCT Nos. 3699, 7702 and 9262 (now 10031) and directing the they converted the same into fishponds and sold them to third
Republic's licensees to vacate the same; and that issued on parties, But as the Court stressed in the 1965 judgment and time
December 6, 1983 after the hearing on the merits, "enjoining and again in other cases, 'it is an elementary principle of law that
respondent Enrique Zobel and his agents, representatives and/ said areas not being capable of registration, their inclusion in a
or any other person or persons acting on his behalf to desist from certificate of title does not convert the same into properties of
cutting off or removing any tree in the questioned areas which private ownership or confer title on the registrant." 14 This is
were declared reverted to the public domain and which are crystal clear from the dispositive portion or judgment which
claimed by the Republic." reads:

Respondent Judge Arlegui, after he succeeded Judge Angeles as WHEREFORE, judgment is hereby rendered as follows:
presiding judge, committed the gravest abuse of discretion, when,
instead of granting the preliminary injunction sought by the (a) Declaring as null and void Transfer Certificate of Title No.
Republic and its co-petitioners to enjoin respondent Zobel from T 550 (or Exhibit "24") of the Register of Deeds of the Province of
usurping lands of the public domain covered by his voided Batangas and other subdivision titles issued in favor of Ayala y
expanded subdivision titles, he dismissed the complaint on Cia and/or Hacienda de Calatagan over the areas outside its
January 12, 1977 and almost four years later on December 15, private land covered by TCT No. 722, which including the lots in
1981, without any trial, granted said respondent's counter prayer T-9550 (lots 360, 362, 363 and 182) are hereby reverted to
in his Answer to the complaint in Civil Case No. 653 for the public dominion."
issuance of a mandatory injunction upon a P10,000.00 bond to
oust petitioner Republic and its permittees and/or lessees from This final 1965 judgment reverting to public dominion all public
the property and to deliver possession thereof to respondent lands unlawfully titled by respondent Zobel and Ayala and/or
Zobel. It is settled doctrine that as a preliminary mandatory Hacienda Calatagan is now beyond question, review or reversal
injunction usually tends to do more than to maintain the status by any court, although as sadly shown hereinabove, respondents'
quo, it is generally improper to issue such an injunction prior to tactics and technical maneuvers have all these 23 long years
the final hearing and that it may issue only in cases of extreme thwarted its execution petition and the Republic's recovery of the
urgency, where the right is very clear. 12 lands and waters of the public domain.


Respondent Zobel is bound by his admission in his Answer to the 3. On the first question of the precipitate dismissal of the
Complaint below that when Civil Case No. 373 was docketed, he Republic's complaint in the case below, Civil Case No. 653, the .
"was and still is at present one of the members and managing records show respondent judge's action to have been capricious ,
partners of Ayala y Cia one of the defendants in the said civil case, arbitrary and whimsical. His first ground of non-prosecution of
and, therefore. privy thereto." the action by the Republic is belied by his very Order which
shows that the proceedings had been suspended all the while
Clearly, the burden of proof lies on respondent Zobel and other since its filing in 1967 upon insistent motions of respondent
transferees to show that his subdivision titles are not among the Zobel. against petitioner's vigorous opposition, that it was
unlawful expanded subdivision titles declared null and void by necessary as a cuestion previa to await the Court's resolution of
the said 1965 judgment. Respondent Zobel not only -did not the case at bar.
controvert the Republic's assertion that his titles are embraced
within the phrase "other subdivision titles" ordered cancelled but His second ground of res judicata is likewise devoid of logic and
failed to show that the sub division titles in his name cover lands reason. The first case (the 1965 judgment in Case L-20950)
within the original area covered by Ayala's TCT No. 722 (derived decreeing the reversion to public dominion of the public lands
from OCT No. 20) and not part of the beach, foreshore and and waters usurped by respondent's unlawfully expanded titles -
territorial sea belonging and ordered reverted to public and ordering the cancellation of all such titles and their transfers
dominion in the aforesaid 1965 judgment. could not possibly be invoked as res judicata in the case at bar on
respondent Zobel's untenable submission that his unlawfully
2. The issues at bar have been expanded by the parties, as expanded titles were not specifically mentioned in the 1965
shown by the voluminous records of the case (which have judgment. The Court in said 1965 judgment had stressed the
expanded to 2,690 pages in three volumes), to cover the elementary rule that the generally incontestable and indefeasible
questioned actions of respondent Judge Arlegui (a) in dismissing character of a Torrens Certificate of Title does not operate when
the Republic's complaint in Civil Case No. 653 of his court per his the land covered thereby is not capable of registration, as in this
Order of January 12, 1977 (subject of the Court's Second case, being part of the sea, beach, foreshore or navigable water or
Division's Resolution of December 17, 1979 dismissing the other public lands incapable of registration. 17 It should be noted
Republic's petition for review in Case G.R. No. L,46396); and (b) further that the doctrine of estoppel or laches does not apply
his decision of December 15, 1981, after almost four years, on when the Government sues as a Sovereign or asserts
respondent Zobel's counterclaim in the same case, declaring him governmental rights, nor does estoppel or laches validate an act
the true and registered owner of the lands covered by some three that contravenes law or public policy 18 and that res judicata is
subdivision titles in his name, 15 as well as (c) the resurvey of the to be disregarded if its application would involve the sacrifice of
lands affected so as to properly segregate from Ayala's expanded justice to technicality. 19
TCT No. 722 the estimated 2,000 hectares of territorial sea,
foreshore, and navigable waters, etc., of the public domain and Respondent Judge Arlegui's refusal to grant the Republic a simple
enforcement and execution of the 1965 final judgment reverting 15-day extension of time to file a Motion for Reconsideration on
these usurped public areas to public dominion. 16 the ground that such motion was filed on the last day (following a
Sunday) and he could no longer act thereon within the original

period per his Orders of March 3, 1977 and June 14, 1977 20 that "mass usurpation of public domain remains unabated . ... for
depict an incomprehensible disregard of the cardinal principle almost (23) years now execution of the 1965 final judgment in
that procedural rules are supposed to help and not hinder the G.R. No. L-20950, ordering the cancellation of the subdivision
administration of justice and crass indifference, if not outright titles covering the expanded areas outside the private lands of
hostility against the public interest. Hacienda Calatagan, is being frustrated by respondent Zobel, the
Ayala and/or Hacienda Calatagan. As a consequence, the mass
At any rate, such dismissal of the complaint and dismissal on usurpation of lands of public domain consisting of portions of the
December 17, 1979 of the petition for certiorari thereof by the territorial sea, the foreshore, beach and navigable water
Court's Second Division, based on purely procedural and bordering Balayan Bay, Pagaspas Bay and the China Sea, still
technical grounds, does not and cannot in any way have any legal remain unabated . ... (T)he efforts of Ayala and Zobel to prevent
significance or prejudice the Republic's case. Such dismissal by execution of said final judgment are evident from the heretofore-
the Second Division cannot in any way affect, much less render mentioned technical maneuvers they have resorted to. In brief,
nugatory, the final and executory 1965 judgment in G.R. No. L- they moved to quash and secured the quashal of the writ of
20950 reverting the public lands and waters to public dominion. execution, succeeded in opposing the issuance of another writ of
Much more so when we take into account the mandatory execution, opposed the motion to conduct re-survey, opposed the
provisions of Article VIII, Section 4(3) of the 1987 Constitution approval and secured a disapproval of resurvey plan, moved to
(and its counterpart Article X, Section 2(3) of the 1973 dismiss and got a dismissal of Civil Case No. 653, ousted
Constitution) to the effect that only the Supreme Court en banc government fishpond permittees from the subject lands and
may modify or reverse a doctrine or principle of law or ruling threatened to eject the other permittees therefrom, and secured
laid down by the Court in a decision rendered en banc or in from the lower court a declaration of validity of their void titles.
division. Also, in this case, respondent Zobel is trying to prevent the
cancellation of his void titles by resorting to frivolous
3. Respondent judge's "decision" on respondent Zobel's technicalities thus flouting this Honorable Court's decision in G.R.
counterclaim and declaring him, four years after dismissal of the No. L-20950 . " 21
Republic's complaint, as the true owner of the lands unlawfully
titled in Zobel's name is properly before the Court in the case at We heed the Republic's pleas that
bar. We declare the same null and void for want of jurisdiction
over the subject properties which were reverted to public "It bears stressing that the Re-survey Plan (Annex "C", together
dominion in the final 1965 judgment which annulled all with Annexes "A" and "B" of Republic's Comment dated March
expanded titles unlawfully secured by respondents and their 30,1981, being a Report on the Re-survey dated August 5,1977
transferees to public waters and lands. and the "Final Report" dated September 2, 1977, respectively)
delineating the expanded areas covered by subdivision titles
4. As to the third and most important question of finally derived from TCT No. 722 has been prepared by a Committee
executing and enforcing the 1965 judgment in favor of the created by the Secretary of Agriculture and Natural Resources
Republic and reverting all usurped areas to public dominion, the wherein Ayala and/or Hacienda Calatagan was represented by
Solicitor General has complained rightfully in his Memorandum Engineer Tomas Sanchez, Jr. and approved by the Director of

Lands. Well to recall that under G.R. No. 26112 (44 SCRA 255, (1) Establish a precedent-fraught with possibilities tending to
263), this Honorable Court, in a Resolution dated April 11, 1972, impair the stability of judicial decisions and affording a means to
declared that as soon as said resurvey Is completed the proper prolong court proceedings or justify the institution of new ones,
writ of execution for the delivery of possession of the portion despite the finality of the judgment or decree rendered in the
found to be public land should issue." Thus: [See pages 3-5 of main case, by sanctioning a departure from the clear, plain and
Annex "A" hereof for text of Resolution.] natural meaning of said judgment or decree;

"By virtue of the aforesaid resolution, therefore, there should no (2) Contribute to the further increase of the steadily mounting
longer be any legal impediment against the execution of the final number of cases pending before our courts of justice, and thus
judgment in Civil Case No. 373 (G.R. No. L-20950), the issuance of generate greater delay in the determination of said cases, as well
which is purely ministerial the dubious decision in Civil Case No. as offset the effect of legislative and administrative measures
653 notwithstanding. Accordingly, to give legal significance to the taken-some upon the suggestion or initiative of the Supreme
earlier decision and resolution of this Honorable Court in G.R. No. Court to promote the early disposal of such cases;
L-20950 and 26112, respectively, and to foreclose any further
legal obstacle on the matter, we pray this Honorable Court to (3) Impair a normal and legitimate means to implement the
declare the proceedings conducted by respondent judge in Civil constitutional mandate for the protection and conservation of
Case No. 653 null and void ab initio, and to consider the resurvey our natural resources and the patrimony of the nation; and
plan as sufficient basis for the immediate issuance of the
corresponding writ of execution in Civil Case No. 373. For it is (4) Promote usurpations of the public domain, as well as the
only upon said execution that the oft revived issues of ownership simulation of sales thereof by the original usurper, by exempting
and possession over the land in question, as well as over all other him from responsibility for damage which would not have been
lots covered by the subdivision titles outside the private land sustained were it not for the irregularities committed by him so
covered by TCT No. 722, may be finally laid to rest. Indeed, under long as he has conveyed the subject matter thereof to a purchaser
the facts and circumstances obtaining in the case at bar, for value, in good faith. 23
execution of the final judgment in Civil Case No. 373 is long
overdue ." 22 As in Air Manila, Inc. v. CIR 24 and several other cases in order to
avoid further intolerable delay and finally bring to reality the
To allow repetition after repetition of the maneuvers execution of the 1965 judgment that would enable the State to
hereinabove set forth in detail, notwithstanding the final 1965 recover at last the estimated 2,000 hectares of lands and waters
judgment in favor of the Republic, and to protract further the of the public domain, the Court will order its Clerk of Court to
return to the Republic of the usurped lands pertaining to the issue directly the corresponding writ of execution of judgment
public domain would be to sanction a legal abomination As stated addressed to the sheriffs of the locality. We declare respondent
by the late Chief Justice Roberto Concepcion, to frustrate delivery judge's gratuitous "disapproval" of the Re-survey Plan and
and return of the usurped lands to the Republic would: Report duly approved by the Director of Lands and the then
Secretary of Agriculture and Natural Resources as null and void
for being ultra vires and lack of jurisdiction over the same. It is

well-recognized principle that purely administrative and waters, rivers, manglares foreshores and beaches, etc. as
discretionary functions may not be interfered with by the courts. delineated in the aforesaid duly approved Re-survey Plan (Annex
In general, courts have no supervising " power over the "C") and any supplemental Re-survey Plan as may be found
proceedings and actions of the administrative departments of necessary * and duly approved by the Secretary of Agriculture.
government. This is generally true with respect to acts involving This decision is IMMEDIATELY EXECUTORY and no motion for
the exercise of judgment or discretion, and findings of fact. 25 extension of time to file a motion for reconsideration will be
There should be no thought of disregarding the traditional line granted.
separating judicial and administrative competence, the former
being entrusted with the determination of legal questions and the
latter being limited as a result of its expertise to the
ascertainment of the decisive facts. 26
92. G.R. No. L-50638 July 25, 1983
WHEREFORE, judgment is hereby rendered
LORETO J. SOLINAP, petitioner,
1. Annulling the questioned mandatory injunction of October vs.
1, 1968 issued by respondent-judge and making permanent the HON. AMELIA K. DEL ROSARIO, as Presiding Judge of
restraining orders issued by the Court; Branch IV, Court of First Instance of Iloilo, SPOUSES
JUANITO and HARDEVI R. LUTERO, and THE
2. Declaring as null and void the questioned decision of PROVINCIAL SHERIFF OF ILOILO, respondents.
December 15, 1981, as well as the corresponding writ of
execution therefore having been issued by respondent judge with ESCOLIN; J.:
grave abuse of discretion and without jurisdiction, and for being
in contravention of the final 1965 decision in Civil Case No. 373 Posed for resolution in this petition is the issue of whether or not
as affirmed in G.R. No. L-20950; the obligation of petitioners to private respondents may be
compensated or set- off against the amount sought to be
3. Declaring the Re-survey Plan duly approved by the recovered in an action for a sum of money filed by the former
Director of Lands as sufficient basis for the execution of the final against the latter.
judgment in the aforesaid Civil Case No. 373 as affirmed in G.R.
No. L- 20950; and The facts are not disputed. On June 2, 1970, the spouses Tiburcio
Lutero and Asuncion Magalona, owners of the Hacienda Tambal,
4. Directing the Clerk of this Court to forthwith issue the leased the said hacienda to petitioner Loreto Solinap for a period
corresponding writ of execution in the case at bar for Civil Case of ten [10] years for the stipulated rental of P50,000.00 a year. It
No. 373 of the Regional Trial Court (formerly Court of First was further agreed in the lease contract that out of the aforesaid
Instance) of Batangas (Balayan Branch) reverting to public annual rental, the sum of P25,000.00 should be paid by Solinap to
dominion and delivering to the duly authorized representatives the Philippine National Bank to amortize the indebtedness of the
of the Republic all public lands and lots, fishponds, territorial bay spouses Lutero with the said bank.

them to the plaintiff; and that defendants refused and failed to
Tiburcio Lutero died on January 21, 1971. Soon after, his heirs settle said accounts despite demands.
instituted the testate estate proceedings of the deceased,
docketed as Sp. Proc. No. 1870 of the Court of First Instance of In their answer, the respondents Lutero traversed the material
Iloilo, presided by respondent Judge Amelia K. del Rosario. In the averments of the complaint and set up legal and factual defenses.
course of the proceedings, the respondent judge, upon being They further pleaded a counterclaim against petitioners for the
apprized of the mounting interest on the unpaid account of the total sum of P 125,000.00 representing unpaid rentals on
estate, issued an order, stating, among others, "that in order to Hacienda Tambal. Basis of the counterclaim is the allegation that
protect the estate, the administrator, Judge Nicolas Lutero, is they had purchased one-half [1/2] of Hacienda Tambal, which
hereby authorized to scout among the testamentary heirs who is their predecessors, the spouses Tiburcio Lutero and Asuncion
financially in a position to pay all the unpaid obligations of the Magalona, leased to the plaintiff for a rental of P50,000.00 a year;
estate, including interest, with the right of subrogation in and that plaintiffs had failed to pay said rentals despite demands.
accordance with existing laws."
At the pre-trial, the parties defined the issues in that case as
On the basis of this order, respondents Juanito Lutero [grandson follows:
and heir of the late Tiburcio] and his wife Hardivi R. Lutero paid
the Philippine National Bank the sum of P25,000.00 as partial (1) Whether or not the defendants [Luteros] are indebted to
settlement of the deceased's obligations. Whereupon the the plaintiff and, if so, the amount thereof;
respondents Lutero filed a motion in the testate court for
reimbursement from the petitioner of the amount thus paid. They (2) Whether or not the defendants are the owners of one-half
argued that the said amount should have been paid by petitioner [1/2] of that parcel of land known as 'Hacienda Tambal'
to the PNB, as stipulated in the lease contract he had entered into presently leased to the plaintiff and, therefore, entitled to collect
with the deceased Tiburcio Lutero; and that such reimbursement from the latter one-half [1/2] of its lease rentals; and in the
to them was proper, they being subrogees of the PNB. affirmative, the amount representing the unpaid rental by
plaintiff in favor of the defendant. 1
Before the motion could be resolved by the court, petitioner on
April 28, 1978 filed in the Court of First Instance of Iloilo a On June 14, 1978, the respondent judge issued an order in Sp.
separate action against the spouses Juanito Lutero and Hardivi R. Proc. No. 1870, granting the respondent Lutero's motion for
Lutero for collection of the total amount of P71,000.00, docketed reimbursement from petitioner of the sum of P25,000.00 plus
as Civil Case No. 12397. Petitioner alleged in the complaint that interest, as follows:
on April 25, 1974 the defendants Lutero borrowed from him the
sum of P45,000.00 for which they executed a deed of real estate WHEREFORE, Mr. Loreto Solinap is hereby directed to pay
mortgage; that on July 2, 1974, defendants obtained an additional spouses Juanito Lutero and Hardivi R. Lutero the sum of
loan of P3,000.00, evidenced by a receipt issued by them; that P25,000.00 with interest at 12% per annum from June 17, 1975
defendants are further liable to him for the sum of P23,000.00, until the same shall have been duly paid.
representing the value of certain dishonored checks issued by

Petitioner filed a petition for certiorari before this Court, the mutual obligations of the parties extinguished to the extent of
docketed as G.R. No. L-48776, assailing the above order. This their respective amounts. He relies on Article 1278 of the Civil
Court, however, in a resolution dated January 4, 1979 dismissed Code to the effect that compensation shall take place when two
the petition thus: persons, in their own right, are creditors and debtors of each
other. The argument fails to consider Article 1279 of the Civil
L-48776 [Loreto Solinap vs. CFI etc., et al.]- Acting on the petition Code which provides that compensation can take place only if
in this case as well as the comment thereon of respondents and both obligations are liquidated. In the case at bar, the petitioner's
the reply of petitioner to said comment, the Court Resolved to claim against the respondent Luteros in Civil Case No. 12379 is
DISMISS the petition for lack of merit, anyway, the P25,000.00 to still pending determination by the court. While it is not for Us to
be paid by the petitioner to the private respondent Luteros may pass upon the merits of the plaintiffs' cause of action in that case,
well be taken up in the final liquidation of the account between it appears that the claim asserted therein is disputed by the
petitioner as and the subject estate as lessor. Luteros on both factual and legal grounds. More, the
counterclaim interposed by them, if ultimately found to be
Thereafter the respondent Luteros filed with the respondent meritorious, can defeat petitioner's demand. Upon this premise,
court a "Motion to Reiterate Motion for Execution of the Order his claim in that case cannot be categorized as liquidated credit
dated June 14, 1978." Petitioner filed a rejoinder to said motion, which may properly be set-off against his obligation. As this
raising for the first time the thesis that the amount payable to Court ruled in Mialhe vs. Halili, 2 " compensation cannot take
private respondents should be compensated against the latter's place where one's claim against the other is still the subject of
indebtedness to him amounting to P71,000.00. Petitioner court litigation. It is a requirement, for compensation to take
attached to his rejoinder copies of the pleadings filed in Civil Case place, that the amount involved be certain and liquidated."
No. 12397, then pending before Branch V of the Court of First
Instance of Iloilo. This motion was denied by respondent judge WHEREFORE, the petition is dismissed, with costs against
on the ground that "the claim of Loreto Solinap against Juanito petitioner.
Lutero in Civil Case No. 12397 is yet to be liquidated and
determined in the said case, such that the requirement in Article
1279 of the New Civil Code that both debts are liquidated for
compensation to take place has not been established by the
oppositor Loreto Solinap." 93. G.R. No. L-38711 January 31, 1985

Petition filed a motion for reconsideration of this order, but the FRANCISCO SYCIP, petitioner,
same was denied. vs.
HONORABLE COURT OF APPEALS and PEOPLE OF THE
Hence, this petition. PHILIPPINES, respondents.

The petition is devoid of merit. Petitioner contends that
respondent judge gravely abused her discretion in not declaring RELOVA, J.:

stock, and a resolution from the Biochemical Research
On August 25, 1970, the then Court of First Instance of Manila Laboratory, Inc., authorizing the transfer of the certificate. Jose K.
rendered a decision convicting the herein petitioner Francisco Lapuz signed his conformity to the contents of the letter.
Sycip of the crime of estafa and sentencing him to an
indeterminate penalty of three (3) months of arresto mayor, as Jose K. Lapuz declared that he "was able to secure a power of
minimum to one (1) year and eight (8) months of prision attorney of Dr. Dwight Dill, and gave it to the accused-appellant."
correccional, as maximum; to indemnify complainant Jose K. The power of attorney authorized the sale of 1,758 shares only;
Lapuz the sum of P5,000.00, with subsidiary imprisonment in the difference of 242 shares were given back to Biochemical
case of insolvency; and to pay the costs. Research Laboratory, Inc.

The then Court of Appeals affirmed the trial court's decision but Of the 1,758 shares of stock, the accused-appellant sold 758
deleted that part of the sentence imposing subsidiary shares for P12,128.00 at P16.00 a share, for which Jose K. Lapuz
imprisonment. issued a receipt, dated May 23, 1961 (Exhibit "C"). On the same
day, Jose K. Lapuz turned over to Albert Smith the sum of
The facts of the case as found by respondent appellate court read: P9,981.40 in payment of 758 shares of P14.00 a share (Exhibits
"D" and "E").
... [I]n April 1961, Jose K. Lapuz received from Albert Smith in
Manila 2,000 shares of stock of the Republic Flour Mills, Inc., On May 30, 1961, Jose K. Lapuz received a letter from the
covered by Certificate No. 57 in the name of Dwight Dill who had accused-appellant (Exhibit "F"), the latter informing him that
left for Honolulu. Jose K. Lapuz "was supposed to sell his (the "although the deal (relative to the 1,000 shares) has been closed,
shares) at present market value out of which I (he) was supposed actual delivery has been withheld pending receipt of payment ..., I
to get certain commission." According to Jose K. Lapuz, the have chose(n) to return the shares ...," enclosing Certificate No.
accused-appellant approached him and told him that he had good 955 for 500 shares, Certificate No. 952 for 50 shares in name of
connections in the Stock Exchange, assuring him that he could Felix Gonzales, and the photostat of Certificate No. 953 for 208
sent them at a good price. Before accepting the offer of the shares, which had been sold to Trans Oceanic Factors and
accused-appellant to sent the shares of stock, Jose K. Lapuz made Company, for which a check would be issued "within the next few
it clear to him that the shares of stock did not belong to him and days." He promised to deliver the 242 shares as soon as he would
were shortly entrusted to him for sale. He then gave the shares of have received them from one Vicente Chua. "The next day (May
stock to the accused-appellant who put them in the market. 31, 1961), Jose K. Lapuz wrote a letter to the accused-appellant
(Exhibit "C"), stating therein, "Per our conversation this morning,
Thereafter, Jose K. Lapuz received a letter from the accused- I hereby authorize you to sell 1,000 shares of Republic Flour
appellant, dated April 25, 1961 (Exhibit "A"), the latter informing Mills."
him that "1,758 shares has been sold for a net amount of
P29,000.00," but that the transaction could not be concluded Later, the accused-appellant wrote a letter to Jose K. Lapuz, dated
until they received the Power of Attorney duly executed by June 1, 1961 (Exhibit "I"), confirming their conversation on that
Dwight Dill, appointing a person to endorse the certificate of date that "500 shares out of the 1,000 shares of the Republic

Flour ... has been sold," and stating further that "pending receipt Coming to this Court on a petition for review on certiorari,
of the payment, expected next week, we are enclosing herewith petitioner claims that respondent appellate court erred (1) in
our draft to cover the full value of 500 shares." He asked in that denying petitioner of a hearing, as provided under Section 9, Rule
letter, "Please give me the 50 shares in the name of Mr. Felix 124, Rules of Court; (2) in not upholding due process of law
Gonzales and the photostat of 208 shares in the name of Trans (Sections 1 and 17), Article IV, Bill of Rights, Constitution; (3) in
Oceanic Factors and Company." refusing to uphold the provisions on compensation, Articles 1278
and 1279, Civil Code; (4) in not dismissing the complaint, even
The date of the letter (Exhibit "I") is disputed, the prosecution granting arguendo, that compensation does not apply; (5) in not
contending that it should be July 1, 1961, not June 1, 1961. The ruling that a consummated contract (Deed of Sale, Exhibit '10') is
contention of the prosecution has the support of the date of the not covered by the Statute of Frauds and that its decision is not in
draft (Exhibit "J") mentioned in the letter. accordance with Section 4, Rule 51, Rules of Court; and, (6) in
ignoring the ruling case promulgated by this Honorable Supreme
The accused-appellant sold and paid for the other 500 shares of Court in People vs. Benitez, G.R. No. L-15923, June 29, 1960, in its
stock, for the payment of which Jose K. Lapuz issued in his favor a applicability to offenses under Article 315, paragraph 1 (b) of the
receipt, dated June 9, 1961 (Exhibit "H"). Penal Code.

The draft (Exhibit "J") for P8,000.00, "the full value of the 500 Petitioner in his first and second assigned errors argues that
shares' mentioned in the letter of the accused-appellant (Exhibit respondent Court of Appeals erred in denying him his day in
"I"), was dishonored by the bank, for lack of funds. Jose K. Lapuz court notwithstanding his motion praying that the appealed case
then "discovered from the bookkeeper that he got the money and be heard. He invokes Section 9 of Rule 124 of the Revised Rules of
he pocketed it already, so I (he) started hunting for Mr. Sycip" Court and relates it to Sections 1 and 17 of Article IV of the New
(accused-appellant). When he found the accused-appellant, the Constitution. This contention is devoid of merit. Petitioner was
latter gave him a check in the amount of P5,000.00, issued by his afforded the right to be present during every step in the trial
daughter on July 12, 1961 (Exhibit "K"). This also was dishonored before the Court of First Instance, that is, from the arraignment
by the bank for lack of sufficient funds to cover it (Exhibits "K-l" until the sentence was promulgated. On appeal, he cannot assert
and "K-2"). as a matter of right to be present and to be heard in connection
with his case. It is the procedure in respondent court that within
When Jose K. Lapuz sent a wire to him, telling him that he would 30 days from receipt of the notice that the evidence is already
"file estafa case (in the) fiscals office ... against him' unless he attached to the record, the appellant shall file 40 copies of his
raise [the] balance left eight thousand" (Exhibit "L"), the accused- brief with the clerk accompanied by proof of service of 5 copies
appellant answered him by sending a wire, "P5,000 remitted ask upon the appellee (Section 3, Rule 124 of the Revised Rules of
boy check Equitable (Exhibit "M"). But "the check was never Court). Within 30 days from receipt of appellant's brief, the
made good," so Jose K. Lapuz testified. He had to pay Albert Smith appellee shall file 40 copies of his brief with the clerk
the value of the 500 shares of stock." (Petitioner's brief, pp. 58- accompanied by proof of service of 5 copies upon the appellant
62) (Section 4, Rule 124 of the Revised Rules of Court). Each party
may be allowed extensions of time to file brief for good and

sufficient cause. Thereafter, the appellate court may reverse, the alleged contract of sale is covered by the Statute of Frauds
affirm or modify the judgment, increase or reduce the penalty has not been raised in the trial court or with the Court of Appeals.
imposed, remand the case for new trial or re-trial or dismiss the It cannot now be raised for the first time in this petition. Thus,
case (Section 11, Rule 124 of the Revised Rules of Court). It is there is no need for respondent court to make findings of fact on
discretionary on its part whether or not to set a case for oral this matter.
argument. If it desires to hear the parties on the issues involved,
motu propio or upon petition of the parties, it may require With respect to the sixth assigned error, petitioner points out
contending parties to be heard on oral arguments. Stated that the Court of Appeals erred in affirming the decision of the
differently, if the Court of Appeals chooses not to hear the case, trial court convicting him of the crime charged. Petitioner
the Justices composing the division may just deliberate on the mentions that in People vs. Benitez, G.R. No. L-15923, June 30,
case, evaluate the recorded evidence on hand and then decide it. 1960 (108 Phil. 920), We have ruled that to secure conviction
Accused-appellant need not be present in the court during its under Article 315, paragraph 1 (b), Revised Penal Code, it is
deliberation or even during the hearing of the appeal before the essential that the following requirements be present: (a)
appellate court; it will not be heard in the manner or type of existence of fraud; (b) failure to return the goods on demand; and
hearing contemplated by the rules for inferior or trial courts. (c) failure to give any reason or explanation to the foregoing. He
claims that nowhere in the decision was he found to have any
In his third and fourth assigned errors, petitioner contends that particular malice or intent to commit fraud, or, that he failed to
respondent Court of Appeals erred in not applying the provisions return the shares on any formal demand made by Jose K. Lapuz
on compensation or setting-off debts under Articles 1278 and to him, and/or was he unable to make any explanation thereto.
1279 of the New Civil Code, despite evidence showing that Jose K. On this score, We only have to quote from the decision of the
Lapuz still owed him an amount of more than P5,000.00 and in respondent court, as follows:
not dismissing the appeal considering that the latter is not legally
the aggrieved party. This contention is untenable. Compensation The "malice or intent to commit fraud" is indicated in that part of
cannot take place in this case since the evidence shows that Jose the decision herein before quoted, that is, the accused- appellant
K. Lapuz is only an agent of Albert Smith and/or Dr. Dwight Dill. "received from Jose K. Lapuz the 500 shares in question (a part of
Compensation takes place only when two persons in their own 1,758 shares) for sale, and that, although the same had already
right are creditors and debtors of each other, and that each one of been sold, the accused ... failed to turn over the proceeds thereof
the obligors is bound principally and is at the same time a to Jose K. Lapuz." The abuse of confidence in misappropriating
principal creditor of the other. Moreover, as correctly pointed out the funds or property after they have come to the hands of the
by the trial court, Lapuz did not consent to the off-setting of his offender may be said to be a fraud upon the person injured
obligation with petitioner's obligation to pay for the 500 shares. thereby (U.S. vs. Pascual, 10 Phil. 621).

Anent the fifth assigned error, petitioner argues that the xxx xxx xxx
appellate court erred in not ruling that the deed of sale is a
consummated contract and, therefore, not covered by the Statute The accused-appellant having informed Jose K. Lapuz that the
of Frauds. It must be pointed out that the issue on whether or not "500 shares out of the 1000 shares ... has been sold" (Exhibit "I"),

for which he issued a draft for P8,000.00 (Exhibit "J"), the latter vs.
cannot be expected to make a demand for the return of the 500 COURT OF APPEALS and PAN ORIENTAL SHIPPING CO.,
shares. His demand was for the payment of the shares when the respondents.
draft was dishonored by the bank.
G.R. No. L-51438 April 9, 1985
The delivery of a worthless check in the amount of P5,000.00 by
the accused-appellant to Jose K, Lapuz, after the latter's "hunting" REPUBLIC OF THE PHILIPPINES (BOARD OF
for him is even a circumstance indicating intent to commit fraud. LlQUIDATORS), petitioner,
(pp. 48-49, Rollo) vs.
COURT OF APPEALS and PAN ORIENTAL SHIPPING CO.,
xxx xxx xxx respondents.

His explanation of his inability to return the 500 shares of stock G.R. No. L-51463 April 9, 1985
is not satisfactory. ... If it is true that he gave the 500 shares of
stock to his creditor, Tony Lim, he is nonetheless liable for the PAN ORIENTAL SHIPPING CO., petitioner,
crane of estafa, he having received the 500 shares of stock to be vs.
sold on commission. By giving the shares to his creditor, he COURT OF APPEALS, COMPAIA MARITIMA and THE
thereby committed estafa by conversion. (pp. 49-50, Rollo) REPUBLIC OF THE PHILIPPINES (BOARD OF
LIQUIDATORS), respondents.
Indeed, Jose K. Lapuz demanded from petitioner the amount of
P5,000.00 with a notice that in the event he (petitioner) would
fail to pay the amount, Lapuz would file an estafa case against MELENCIO-HERRERA, J.:
him.
The above-entitled three (3) cases stemmed from the Decision of
By and large, respondent Court of Appeals has not overlooked this Court, dated October 31, 1964, entitled "Fernando A. Froilan
facts of substance and value that, if considered, would alter the vs. Pan-Oriental Shipping Co., et al. 1 and our four (4) subsequent
result of the judgment. Resolutions of August 27, 1965, November 23, 1966, December
16, 1966, and January 5, 1967, respectively.
WHEREFORE, for lack of merit the petition is hereby DISMISSED.
The antecedental background is narrated in the aforestated
Decision, the pertinent portions of which read:

94. G.R. No. L-50900 April 9, 1985
On March 7, 1947, Fernando A. Froilan purchased from the
COMPAIA MARITIMA, petitioner, Shipping Administration a boat described as MV/FS-197 for the

sum of P200,000.00, with a down payment of P50,000.00. To crew members since repossession, the Slopping Administration
secure payment of the unpaid balance of the purchase price, a on April 1, 1949, accepted Pan Oriental's offer "in principle"
mortgage was constituted on the vessel in favor of the Shipping subject to the condition that the latter shag cause the repair of
Administration .... the vessel advancing the cost of labor and drydocking thereof,
and the Shipping Administration to furnish the necessary spare
xxx xxx xxx parts. In accordance with this charter contract, the vessel was
delivered to the possession of Pan Oriental.
Th(e) contract was duly approved by the President of the
Philippines. In the meantime, or on February 22, 1949, Froilan tried to
explain his failure to comply with the obligations he assumed and
Froilan appeared to have defaulted in spite of demands, not only asked that he be given another extension up to March 15, 1949 to
in the payment of the first installment on the unpaid balance of file the necessary bond. Then on March 8, Froilan offered to pay
the purchase price and the interest thereon when they fell due, all his overdue accounts. However, as he failed to fulfill even
but also failed in his express undertaking to pay the premiums on these offers made by him in these two communications, the
the insurance coverage of the vessel obliging the Shipping Shipping Administration denied his petition for reconsideration
Administration to advance such payment to the insurance (of the rescission of the contract) on March 22, 1949. It should be
company. ... noted that while his petition for reconsideration was denied on
March 22, it does not appear when he formally formulated his
Subsequently, FROILAN appeared to have still incurred a series appeal. In the meantime, as already stated, the boat has been
of defaults notwithstanding reconsiderations granted, so much so repossessed by the Shipping Administration and the title thereto
that: re-registered in the name of the government, and delivered to the
Pan Oriental in virtue of the charter agreement. On June 2, 1949,
On February 21, 1949, the General Manager (of the Shipping Froilan protested to the President against the charter of the
Administration) directed its officers ... to take immediate vessel.
possession of the vessel and to suspend the unloading of all
cargoes on the same until the owners thereof made the xxx xxx xxx
corresponding arrangement with the Shipping Administration.
Pursuant to these instructions, the boat was, not only actually On June 4, 1949, the Shipping Administration and the Pan
repossessed, but the title thereto was registered again in the Oriental formalized the charter agreement and signed a bareboat
name of the Shipping Administration, thereby re-transferring the contract with option to purchase, containing the following
ownership thereof to the government. pertinent provisions:

On February 22, 1949, Pan Oriental Shipping Co., hereinafter III. CHARTER HIRE, TIME OF PAYMENT. The CHARTERER
referred to as Pan Oriental, offered to charter said vessel FS-197 shall pay to the owner a monthly charter hire of THREE
for a monthly rent of P3,000.00. Because the government was THOUSAND (P3,000.00) PESOS from date of delivery of the
then spending for the guarding of the boat and subsistence of the vessel, payable in advance on or before the 5th of every current

month until the return of the vessel to OWNER or purchase of the
vessel by CHARTERER. XXI. APPROVAL OF THE PRESIDENT. This contract shall
take effect only upon approval of His Excellency, the President.
IV. RIGHT OF OPTION TO PURCHASE. The right of option to
purchase the vessel at the price of P150,000.00 plus the amount On September 6, 1949, the Cabinet revoked the cancellation of
expended for its present repairs is hereby granted to the Froilan's contract of sale and restored to him all his rights
CHARTERER within 120 days from the execution of this Contract, thereunder, on condition that he would give not less than
unless otherwise extended by the OWNER. This right shall be P1,000.00 to settle partially as overdue accounts and that
deemed exercised only if, before the expiration of the said period, reimbursement of the expenses incurred for the repair and
or its extension by the OWNER, the CHARTERER completes the drydocking of the vessel performed by Pan Oriental was to be
payment, including any amount paid as Charter hire, of a total made in accordance with future adjustment between him and the
sum of not less than twenty-five percentum (25%) of said price of Shipping Administration (Exh. I). Later, pursuant to this
the vessel. reservation, Froilan's request to the Executive Secretary that the
Administration advance the payment of the expenses incurred by
The period of option may be extended by the OWNER without in Pan Oriental in the drydocking and repair of the vessel, was
any way affecting the other provisions, stipulations, and terms of granted on condition that Froilan assume to pay the same and file
this contract. a bond to cover said undertaking (EXH. III).

If, for any reason whatsoever, the CHARTERER fails to exercise On September 7, 1949, the formal bareboat charter with option
its option to purchase within the period stipulated, or within the to purchase filed on June 4, 1949, in favor of the Pan Oriental was
extension thereof by the OWNER, its right of option to purchase returned to the General Manager of the Shipping Administration
shall be deemed terminated, without prejudice to the without action (not disapproval), only because of the Cabinet
continuance of the Charter Party provisions of this contract. The resolution of September 6, 1949 restoring Froilan to his rights
right to dispose of the vessel or terminate the Charter Party at its under the conditions set forth therein, namely, the payment of
discretion is reserved to the OWNER. P10,000.00 to settle partially his overdue accounts and the filing
of a bond to guarantee the reimbursement of the expenses
XIII. TRANSFER OF OWNERSHIP OF THE VESSEL. After the incurred by the Pan Oriental in the drydocking and repair of the
CHARTERER has exercised his right of option as provided in the vessel But Froilan again failed to comply with these conditions.
preceding paragraph (XII), the vessel shall be deemed And so the Cabinet, considering Froilan's consistent failure to
conditionally sold to the purchaser, but the ownership thereof comply with his obligations, including those imposed in the
shag not be deemed transferred unless and until all the price of resolution of September 6, 1949, resolved to reconsider said
the vessel, together with the interest thereon, and any other previous resolution restoring him to his previous rights. And, in a
obligation due and payable to the OWNER under this contract, letter dated December 3, 1949, the Executive Secretary
have been fully paid by the CHARTERER. authorized the Administration to continue its charter contract
with Pan Oriental in respect to FS-197 and enforce whatever
xxx xxx xxx

rights it may still have under the original contract with Froilan reason of a valid and subsisting contract in its favor, and of its
(Exh. 188). right of retention, in view of the expenses it had incurred for the
repair of the said vessel. As counterclaim, defendant demanded of
xxx xxx xxx the intervenor to comply with the latter's obligation to deliver
the vessel pursuant to the provisions of the charter contract.
On August 25, 1950, the Cabinet resolved once more to restore
Froilan to his rights under the original contract of sale, on xxx xxx xxx
condition that he shall pay the sum of P10,000.00 upon delivery
of the vessel to him, said amount to be credited to his outstanding Subsequently, Compaia Maritima, as purchaser of the vessel
accounts; that he shall continue paying the remaining from Froilan, was allowed to intervene in the proceedings (in the
installments due, and that he shall assume the expenses incurred lower court), said intervenor taking common cause with the
for the repair and drydocking of the vessel (Exh. 134). Pan plaintiff Froilan. In its answer to the complaint in intervention,
Oriental protested to this restoration of Froilan's rights under the defendant set-up a counterclaim for damages in the sum of
contract of sale, for the reason that when the vessel was P50,000.00, alleging that plaintiff secured the Cabinet resolutions
delivered to it, the Shipping Administration had authority to and the writ of replevin, resulting in its deprivation of possession
dispose of the said property, Froilan having already relinquished of the vessel, at the instigation and inducement of Compania
whatever rights he may have thereon. Froilan paid the required Maritima. This counterclaim was denied by both plaintiff and
cash of P10,000.00, and as Pan Oriental refused to surrender intervenor Maritima.
possession of the vessel, he filed an action for replevin in the
Court of First Instance of Manila (Civil Case No. 13196) to recover On September 28, 1956, the lower court rendered a decision
possession thereof and to have him declared the rightful owner upholding Froilan's (and Compaia Maritima's) right to the
of said property. ownership and possession of the FS-197.

Upon plaintiff's filing a bond of P400,000.00, the court ordered xxx xxx xxx
the seizure of the vessel from Pan Oriental and its delivery to the
plaintiff. Pan Oriental tried to question the validity of this order It is not disputed that appellant Pan Oriental took possession of
in a petition for certiorari filed in this Court (G.R. No. L-4577), but the vessel in question after it had been repossessed by the
the same was dismissed for lack of merit by resolution of Shipping Administration and title thereto reacquired by the
February 22, 1951. Defendant accordingly filed an answer, government, and operated the same from June 2, 1949 after it
denying the averments of the complaint. had repaired the vessel until it was dispossessed of the property
on February 3, 1951, in virtue of a bareboat charter contract
The Republic of the Philippines, having been allowed to intervene entered into between said company and the Shipping
in the proceeding, also prayed for the possession of the vessel in Administration. In the same agreement, appellant as charterer,
order that the chattel mortgage constituted thereon may be was given the option to purchase the vessel, which may be
foreclosed. Defendant Pari Oriental resisted said intervention, exercised upon payment of a certain amount within a specified
claiming to have a better right to the possession of the vessel by period. The President and Treasurer of the appellant company,

tendered the stipulated initial payment on January 16, l950. vessel, appellant is entitled to the refund of such expenses with
Appellant now contends that having exercised the option, the the light to retain the vessel until he has been reimbursed
subsequent Cabinet resolutions restoring Froilan's rights on the therefor (Art. 546, Civil Code). As it is by the concerted acts of
vessel, violated its existing rights over the same property. To the defendants and intervenor Republic of the Philippines that
contention of plaintiff Froffan that the charter contract never appellant was deprived of the possession of the vessel over which
became effective because it never received presidential approval appellant had a lien for his expenses, appellees Froilan, Compaia
as required therein, Pan Oriental answers that the letter of the Maritima, and the Republic of the Philippines are declared liable
Executive Secretary dated December 3, 1949 (Exh. 118), for the reimbursement to appellant of its legitimate expenses, as
authorizing the Shipping Administration to continue its charter allowed by law, with legal interest from the time of
contract with appellant, satisfies such requirement (of disbursement.
presidential approval). It is to be noted, however, that said letter
was signed by the Executive Secretary only and not under Modified in this manner, the decision appealed from is affirmed,
authority of the President. The same, therefore, cannot be without costs. Case is remanded to the lower court for further
considered to have attached unto the charter contract the proceedings in the matter of expenses. So ordered. (Emphasis
required consent of the Chief Executive for its validity. supplied).

xxx xxx xxx On August 27, 1965, this Court, in resolving a Motion for
Reconsideration filed by FROILAN and MARITIMA, ruled:
(Emphasis supplied)
In G.R. No. L-11897 (Fernando A. Froilan vs. Pan Oriental
This Court then held: Shipping Co.); before us are (1) a motion, filed by appellant Pan
Oriental to reconsider the ruling made in this case sustaining
In the circumstances of this case, therefore, the resulting Froilan's right to ownership and possession of the vessel FS-197,
situation is that neither Froilan nor the Pan Oriental holds a valid and holding that there was never a perfected contract between
contract over the vessel. However, since the intervenor Shipping said movant and the intervenor Republic of the Philippines; and
Administration, representing the government practically ratified (2) a motion by plaintiff-appellee Fernando A. Froilan, and
its proposed contract with Froilan by receiving the full intervenor-appellee Compaia Maritima, for reconsideration of
consideration of the sale to the latter, for which reason the the decision insofar as it declared said movants, together with
complaint in intervention was dismissed as to Froilan, and since intervenor Republic of the Philippines, liable for reimbursement
Pan Oriental has no capacity to question this actuation of the to appellant Pan Oriental of the latter's legitimate necessary
Shipping Administration because it had no valid contract in its expenses made on the vessel in question.
favor, the of the lower court adjudicating the vessel to Froilan
and its successor Maritima, must be sus Nevertheless, under the 1. .Appellant Pan Oriental's Motion must be denied.
already adverted to, Pan Oriental cannot be considered as in bad
faith until after the institution of the case. However, since it is not It may be remembered that in the instant case, the alleged
disputed that said made useful and necessary expenses on the approval of the charter contract or permission to proceed with

said contract was given by the Executive Secretary in his own
name and not under the authority of the President. On November 23, 1966, acting on a second Motion for
Reconsideration filed by PAN ORIENTAL, this Court resolved:
xxx xxx xxx
In case G.R. No. L-11817, Fernando A, Froilan, et al., appellees, vs.
2. Anent, appellant's motion, considering that the writ of Pan Oriental Shipping Company, appellant, the latter filed a
replevin, by virtue of which appellant Pan Oriental was divested .second motion for reconsideration, alleging that the Resolution
of possession of the vessel FS-197, was issued by the lower court of this Court of August 27, 1965 denying its motion for
on February 8, 1951 at the instance of plaintiff Froilan and with reconsideration of December 16, 1964 is not in accordance with
the cooperation of intervenor Republic of the Philippines, which law; and that the modification of the judgment following the ex-
accepted the payment tendered by him (Froilan) parte motion for reconsideration of appellee Froilan is contrary
notwithstanding its previous dealings with Pan Oriental; and to due process.
whereas, the intervenor Compaia Maritima acquired the same
property only on December 1, 1951, it is clear that only plaintiff Considering that foregoing motion as well as the opposition
Froilan and the intervenor Republic of the Philippines may be thereto by plaintiff-appellee and intervenor-appellee Compaia
held responsible for the deprivation of defendant of its right to Maritima, the Court RESOLVED to amend the ruling in this case
the retention of the property until fully reimbursed of the by holding intervenor-appellee Compaia Maritima, because of
necessary expenditure made on the vessel. For this reason, its actual knowledge of the circumstances surrounding the
Froilan and the Republic of the Philippines are declared jointly purchase by Froilan of the vessel in question from the Shipping
and severally liable, not only for reimbursement to Pan Oriental Administrator, jointly and severally liable with the other
of the legitimate necessary expenses incurred on the vessel but appellees, for reimbursement to appellant of the necessary
also for payment of legal interest thereon, computed from the expenses incurred and expended by the latter on the said vessel,
date of the defendant's dispossession of the property. However, minus the amount of rentals due from the appellant for the use
as defendant was in actual possession of the vessel from April 1, thereof for the period it was actually operated by Pan Oriental.
1949 to February 7, 1951, it must be required to pay reasonable The period of actual operation shall not include the time when
rental for the use thereof, at the rate of P3,000.00 a month the the vessel was drydocked.
same rate specified as rental in the imperfected charter contract
which shall be deductible from whatever may be due and On December 16,1966, acting on PAN ORIENTAL's Motion for
owing the said party by way of reimbursable necessary expenses Reconsideration or Application for Damages on account of the
and interest. This rental shall commence from the time defendant wrongful issuance of the Writ of Replevin, this Court issued a
Pan Oriental actually operated the vessel, which date shall be Resolution as follows:
determined by the lower court.
Before us again in Case G.R. No. 11897 (Fernando A. Froilan vs.
Case is remanded to the court of origin for further proceedings Pan Oriental Shipping Co. et al) is a motion for reconsideration or
on the matter of necessary expenses, interest and rental, as Application for damages filed by respondent Pan Oriental
directed in our decision and this resolution. (Emphasis supplied). Shipping Co., allegedly on account of the wrongful issuance of the

writ of replevin, pursuant to Rule 60, Section 10, in relation to The amount of P6,937.72 ordered to be paid monthly
Rule 57, Section 20 of the Revised Rules of Court. Considering represented the lower Court's computation of damages of PAN
that by virtue of our resolution dated August 27, 1965, this case ORIENTAL for deprivation of the right to retain the vessel. 3
has been ordered to be remanded to the Court of origin for
further proceedings on the matter of necessary expenses, interest On appeal by REPUBLIC and MARITIMA to the then Court of
and rentals, and since evidence would have to be presented if the Appeals, judgment was promulgated decreeing.
application for damages is allowed, the Court resolved, first, to
deny the present motion for reconsideration and, second, to refer WHEREFORE, in the light of the foregoing pronouncements, the
the application to the trial court, there to be heard and decided as judgment appealed from is hereby MODIFIED as follows:
prescribed by law and the Rules. (See last sentence, Section 20,
Rule 57). Ordering intervenors-appellants Republic and Compaia
Maritima, jointly and severally, to pay appellee Pan Oriental
Pursuant thereto, the case was remanded to the Court of First Shipping Company the sum of P40,797.54 with legal interest
Instance of Manila, Branch VI (Civil Case No. 13196). After the from February 3, 1951 until fully paid but there shah be deducted
evidence of the parties was received and assessed by a therefrom the amount of P59,500.00 representing the unpaid
Commissioner, said Court issued an Order, dated June 4, 1975, rentals due the Republic of the Philippines; and AFFIRMED in all
the dispositive portion of which reads: other respects.

WHEREFORE, in view of the foregoing consideration, the Court In other words, (a) the date from which interest is to be paid on
orders the intervenor Compaia (plaintiff Fernando A. Froilan's the amount of P40,797.54 is from February 3, 1951, the date of
successor-in-interest) and intervenor Republic of the Philippines dispossession, and not from the time of disbursement and (b) the
(Board of Liquidators) jointly and severally to pay defendant Pan unpaid rentals due the Republic are deductible from the amount
Oriental Shipping Company the sum of P6,937.72 a month from of expenses payable to PAN-ORIENTAL. It should be recalled that
the time 'it was dispossessed on February 3, 1951' until it is paid the deduction of rentals from the amount payable to PAN-
its useful and necessary expenses; the sum of P40,797.54 actual ORIENTAL by REPUBLIC was pursuant to this Court's
amount expended for the repairs and improvements prior to the Resolutions of August 27, 1965 and November 23, 1966, supra,
operation of the vessel on June 1, 1949 with legal interest from
the time of disbursement of said legitimate expenses. The Court From the foregoing Decision, the parties filed their respective
also orders the intervenor Republic of the Philippines to return Petitions for Review now before us.
the sum of P15,000.00 tendered by defendant Pan Oriental
Shipping Company as provided in the option with legal interest For clarity, the sums ordered to be paid by MARITIMA and the
from January 16, 1950, the date it was paid by the latter. REPUBLIC, jointly and severally, to PAN-ORIENTAL are: (a) the
sum of P6,937.72 a month from February 3, 1951, the date of
SO ORDERED. 2 PAN-ORIENTAL's dispossession, in the concept of damages for
the deprivation of its right to retain the vessel, it until it is paid its
useful and necessary expenses"; 4 (b) the sum of P15,000.00,

representing PAN-ORIENTAL's deposit with REPUBLIC for the liquidated. 7 In this case, all the elements for Compensation to
purchase of the vessel, "with legal interest from January 16, take place were not present on the date of dispossession, or on
1950," the date PAN-ORIENTAL had paid the same; 5 and (c) the February 3, 1951. The amount expended for repairs and
sum of P40,797.54 representing the expenses for repairs improvements had yet to be determined by the Trial Court
incurred by PAN-ORIENTAL, "with legal interest from February pursuant to the Decision of this Court promulgated on October
3, 1951 until fully paid," minus the amount of P59,500.00 31, 1964. At the time of dispossession also, PAN-ORIENTAL was
representing the unpaid rentals due the REPUBLIC 6 The legal still insisting on its right to purchase the vessel. The obligation of
rate of interest is made payable only on the last two amounts (b) REPUBLIC to reimburse PAN-ORIENTAL for expenses arose only
and (c). after this Court had so ruled. Rentals for the use of the vessel by
PAN- ORIENTAL were neither due and demandable at the time of
REPUBLIC attributes the following errors to the Appellate Court: dispossession but only after this Court had issued its Resolution
(1) in not holding that compensation by operation of law took of August 27, 1965.
place as between REPUBLIC and PAN-ORIENTAL as of the date of
dispossession; (2) in not holding that the obligation of the More, the legal interest payable from February 3, 1951 on the
REPUBLIC to pay legal interest on the amount of useful and sum of P40,797.54, representing useful expenses incurred by
necessary expenses from February 3, 1951 had become stale and PAN-ORIENTAL, is also still unliquidated 8 since interest does
ineffective; (3) in affirming the Order of the Trial Court that not stop accruing "until the expenses are fully paid." 9 Thus, we
MARITIMA and REPUBLIC, jointly and severally, pay to PAN- find without basis REPUBLIC's allegation that PAN- ORIENTAL's
ORIENTAL the sum of P6,937.72 a month from the time it was claim in the amount of P40,797.54 was extinguished by
dispossessed of the vessel on February 3, 1951 until it is paid its compensation since the rentals payable by PAN-ORIENTAL
useful and necessary expenses; and (4) in not holding that the amount to P59,500.00 while the expenses reach only P40,797.54.
Trial Court had no jurisdiction to order the return of P15,000.00 Deducting the latter amount from the former, REPUBLIC claims
to PAN-ORIENTAL. MARITIMA, for its part, aside from assailing that P18,702.46 would still be owing by PAN-ORIENTAL to
the sums it was ordered to pay PAN-ORIENTAL, jointly and REPUBLIC. That argument loses sight of the fact that to the sum
severally, with REPUBLIC, echoed the theory of compensation of P40,797.54 will still have to be added the legal rate of interest
and added that the question of damages on account of alleged "from February 3, 1951 until fully paid."
wrongful replevin was not a proper subject of inquiry by the Trial
Court when it determined the matter of necessary expenses, But although compensation by operation of law cannot take place
interest and rentals. as between REPUBLIC and PAN-ORIENTAL, by specific
pronouncement of this Court in its Resolution of November 23,
REPUBLIC's Submissions 1966, supra, the rentals payable by PAN-ORIENTAL in the
amount of P59,500.00 should be deducted from the sum of useful
1) REPUBLIC maintains that compensation or set-off took place expenses plus legal interest due, assuming that the latter amount
between it and PAN-ORIENTAL as of February 3, 1951, the date would still be greater. Otherwise, the corresponding adjustments
the latter was dispossessed of the vessel For compensation to can be made depending on the totality of the respective amounts.
take place, one of the elements necessary is that the debts be

2) Since we are holding that the obligation of REPUBLIC to 4) There return of Pl5,000.00 ordered by the Trial Court and
pay P40,797.54 to PAN-ORIENTAL was not extinguished by affirmed by the Appellate Court was but just and proper. As this
compensation, the obligation of REPUBLIC to pay legal interest Court found, that sum was tendered to REPUBLIC "which
on said amount has neither become stale as REPUBLIC contends. together with its (PAN-ORIENTAL's) alleged expenses already
Of special note is the fact that payment of that interest was the made on the vessel, cover 25% of the cost of the vessel, as
specific ruling of this Court in its Resolution of August 27, 1965, provided in the option granted in the bareboat contract (Exhibit
thus: "C"). This amount was accepted by the Administration as deposit
...." Since the purchase did not eventually materialize for reasons
... For this reason, Froilan and the REPUBLIC of the Philippines attributable to REPUBLIC, it is but just that the deposit be
are declared jointly and severally liable, not only for returned. 12 It is futile to allege that PAN-ORIENTAL did not
reimbursement to Pan Oriental, of the legitimate necessary plead for the return of that amount since its prayer included
expenses incurred on the vessel, but also for payment of legal other reliefs as may be just under the premises. Courts may issue
interest thereon, computed from the date of the defendant's such orders of restitution as justice and equity may warrant.
dispossession of the property ... .
MARITIMA's Position
3) The amount of P6,937.72 a month ordered to be paid by
REPUBLIC and MARITIMA to PAN-ORIENTAL until the latter is We find no merit in MARITIMA's contention that the alleged
paid its useful and necessary expenses is likewise in order. That damages on account of wrongful replevin was barred by res
amount represents the damages for the wrongful issuance of the judicata, and that the application for damages before the lower
Writ of Replevin and was computed as follows: P4,132.77 for loss Court was but a mere adoption of a different method of
of income by PAN-ORIENTAL plus P2,804.95 as monthly presenting claims already litigated. For the records show that an
depreciation of the vessel in lieu of the charter hire. application for damages for wrongful replevin was filed both
before this Court and thereafter before the Trial Court after this
It should further be recalled that this Court, in acting on PAN- Tribunal specifically remanded the issue of those damages to the
ORIENTAL's application for damages in its Resolution of Trial Court there to be heard and decided pursuant to Rule 60,
December 16, 1966, supra, did not deny the same but referred it Section 10 in relation to Rule 57, Section 20. 13
instead to the Trial Court "there to be heard and decided" since
evidence would have to be presented. Moreover, this Court found The matter of legal compensation which MARITIMA has also
that PAN-ORIENTAL was "deprived of the possession of the raised has been previously discussed.
vessel over which (it) had a lien for these expenses" 10 and that
FROILAN and REPUBLIC "may be held responsible for the Parenthetically, PAN-ORIENTAL can no longer raise the alleged
deprivation of defendant (PANORIENTAL) of its right to retention error of the Trial Court in computing the necessary and useful
of the property until fully reimbursed on the necessary expenses at only P40,797.54 when they should be P87,267.30,
expenditures made on the vessel. " 11 since it did not appeal from that Court's Decision.


In a nutshell, we find that the appealed Decision of the Trial Court February 13 and March 9, 1984, and January 10 and January 11,
and of the then Court of Appeals is in consonance with the 1985.
Decision and Resolutions of this Court.
The facts of this case, as found by the trial court and subsequently
ACCORDINGLY, the judgment appealed from is hereby affirmed. adopted by the Court of Appeals, are as follows:
No costs.
In the early part of 1980, private respondent secured from
petitioner's predecessors-in-interest, the then Investment and
Underwriting Corp. of the Philippines and Atrium Capital Corp., a
loan in the amount of P50,000,000.00. To secure this loan, private
95. G.R. No. L-69560 June 30, 1988 respondent mortgaged her real properties in Quiapo, Manila and
in San Rafael, Bulacan, which she claimed have a total market
THE INTERNATIONAL CORPORATE BANK INC., value of P110,000,000.00. Of this loan, only the amount of
petitioner, P20,000,000.00 was approved for release. The same amount was
vs. applied to pay her other obligations to petitioner, bank charges
THE IMMEDIATE APPELLATE COURT, HON. ZOILO and fees. Thus, private respondent's claim that she did not
AGUINALDO, as presiding Judge of the Regional Trial receive anything from the approved loan.
Court of Makati, Branch 143, NATIVIDAD M. FAJARDO,
and SILVINO R. PASTRANA, as Deputy and Special On September 11, 1980, private respondent made a money
Sheriff, respondents. market placement with ATRIUM in the amount of P1,046,253.77
at 17% interest per annum for a period of 32 days or until
PARAS, J.: October 13, 1980, its maturity date. Meanwhile, private
respondent allegedly failed to pay her mortgaged indebtedness to
This is a petition for review on certiorari of the Decision of the the bank so that the latter refused to pay the proceeds of the
Court of Appeals dated October 31, 1984 in AC-G.R. SP No. 02912 money market placement on maturity but applied the amount
entitled "THE INTERNATIONAL CORPORATE BANK, INC. v. Hon. instead to the deficiency in the proceeds of the auction sale of the
ZOILO AGUINALDO, et al.," dismissing petitioner's petition for mortgaged properties. With Atrium being the only bidder, said
certiorari against the Regional Trial Court of Makati (Branch 143) properties were sold in its favor for only P20,000,000.00.
for lack of merit, and of its Resolution dated January 7, 1985, Petitioner claims that after deducting this amount, private
denying petitioner's motion for reconsideration of the respondent is still indebted in the amount of P6.81 million.
aforementioned Decision.
On November 17, 1982, private respondent filed a complaint
Petitioner also prays that upon filing of the petition, a restraining with the trial court against petitioner for annulment of the
order be issued ex-parte, enjoining respondents or any person sheriff's sale of the mortgaged properties, for the release to her of
acting in their behalf, from enforcing or in any manner the balance of her loan from petitioner in the amount of
implementing the Order of the respondent trial court dated P30,000,000,00, and for recovery of P1,062,063.83 representing

the proceeds of her money market investment and for damages. favor without trial and make the proceedings moot and academic.
She alleges in her complaint, which was subsequently amended, However, at the hearing on February 9, 1984, counsel for
that the mortgage is not yet due and demandable and accordingly petitioner and private respondent jointly manifested that they
the foreclosure was illegal; that per her loan agreement with were submitting for resolution said motion as well as the
petitioner she is entitled to the release to her of the balance of the opposition thereto on the basis of the pleadings and of the
loan in the amount of P30,000,000.00; that petitioner refused to evidence which private respondent had already presented.
pay her the proceeds of her money market placement
notwithstanding the fact that it has long become due and On February 13, 1984, respondent judge issued an order granting
payable; and that she suffered damages as a consequence of the motion, as follows:
petitioner's illegal acts.
IN VIEW OF THE FOREGOING, the defendant International
In its answer, petitioner denies private respondent's allegations Corporate Bank is hereby ordered to deliver to the plaintiff
and asserts among others, that it has the right to apply or set off Natividad M. Pajardo the amount of P1,062,063.83 covered by
private respondent's money market claim of P1,062,063.83. the repurchase agreement with Serial No. AOY-14822 (Exhibit
Petitioner thus interposes counterclaims for the recovery of "A'), this amount represented the principal of P1,046,253.77
P5,763,741.23, representing the balance of its deficiency claim which the plaintiff held including its interest as of October 13,
after deducting the proceeds of the money market placement, 1980, conditioned upon the plaintiff filing a bond amount to
and for damages. P1,062,063.83 to answer for all damages which the said
defendant bank may suffer in the event that the Court should
The trial court subsequently dismissed private respondent's finally decide that the plaintiff was not entitled to the said
cause of action concerning the annulment of the foreclosure sale, amount.
for lack of jurisdiction, but left the other causes of action to be
resolved after trial. Private respondent then filed separate Petitioner filed a motion for reconsideration to the aforesaid
complaints in Manila and in Bulacan for annulment of the order, asserting among other things that said motion is not
foreclosure sale of the properties in Manila and in Bulacan, verified, and therefore a mere scrap of paper. Private respondent
respectively. however manifested that since she testified in open court and
was cross-examined by counsel for petitioner on the motion for
On December 15, 1983, private respondent filed a motion to release of the proceeds of the money market placement, the
order petitioner to release in her favor the sum of P1,062,063.83, defect had already been cured. On March 9, 1984, the respondent
representing the proceeds of the money market placement, at the judge issued an order denying petitioner's motion for
time when she had already given her direct testimony on the reconsideration. (CA Decision, Rollo, pp. 109-111).
merits of the case and was being cross-examined by counsel. On
December 24, 1983, petitioner filed an opposition thereto, On March 13, 1984, petitioner filed a special civil action for
claiming that the proceeds of the money market investment had certiorari and prohibition with preliminary injunction with the
already been applied to partly satisfy its deficiency claim, and Court of Appeals, (a) for the setting aside and annulment of the
that to grant the motion would be to render judgment in her Orders dated February 13, 1984 and March 9,1984, issued by the

respondent trial court, and (b) for an order commanding or March 9, 1984, based as they are on a correct appreciation of the
directing the respondent trial judge to desist from enforcing import of the parties' evidence and the applicable law.
and/or implementing and/or executing the aforesaid Orders. The
temporary restraining order prayed for was issued by IN VIEW WHEREOF, the petition is dismissed for lack of merit
respondent Court of Appeals on March 22, 1984. (Please see CA and the temporary restraining order issued by this Court on
Decision, Rollo, p. 114, last paragraph). March 22, 1984 is lifted. (Ibid., p. 114).

In a decision rendered on October 31, 1984 (Rollo, pp. 109-14), Petitioner moved for the reconsideration of the above decision
the Court of Appeals dismissed said petition finding(a) that (Annex "S", Rollo, pp. 116-124), but for the reason that the same
while the Motion for the release of the proceeds of the money failed to raise any issue that had not been considered and passed
market investment in favor of private respondent was not upon by the respondent Court of Appeals, it was denied in a
verified by her, that defect was cured when she testified under Resolution dated January 7, 1985 (CA Resolution, Rollo, p. 126).
oath to substantiate her allegations therein: (b) that, petitioner
cannot validly claim it was denied due process for the reason that Having been affirmed by the Court of Appeals, the trial court
it was given ample time to be heard, as it was in fact heard when issued a Writ of Execution to implement its Order of February 13,
it filed an Opposition to the motion and a motion for 1984 (Annex "BB", Rollo, p. 188) and by virtue thereof, a levy was
reconsideration; (c) that the circumstances of this case prevent made on petitioner's personal property consisting of 20 motor
legal compensation from taking place because the question of vehicles (Annex "U", Rollo, p. 127).
whether private respondent is indebted to petitioner in the
amount of 6.81 million representing the deficiency balance after On January 9, 1985, herein private respondent (then plaintiff)
the foreclosure of the mortgage executed to secure the loan filed in the trial court an ex-parte motion praying that the four
extended to her, is vigorously disputed; (d) that the release of the branches of the petitioner such as: Baclaran Branch, Paranaque,
proceeds of the money market investment for private respondent Metro Manila; Ylaya Branch, Divisoria, Metro Manila; Cubao
will not make the causes of action of the case pending before the Branch, Quezon City and Binondo Branch, Sta. Cruz, Manila, be
trial court moot and academic nor will it cause irreparable ordered to pay the amount of P250,000.00 each, and the main
damage to petitioner, private respondent having filed her bond in office of the petitioner bank at Paseo de Roxas, Makati, Metro
the amount of P1,062,063.83 to answer for all damages which the Manila, be ordered to pay the amount of P62,063.83 in order to
former may suffer in the event that the court should finally answer for the claim of private respondent amounting to
decide that private respondent is not entitled to the return of said P1,062,063.83.
amount (CA Decision, Rello, pp. 112-114).
Thereupon, on January 10, 1985, the trial court issued an Order
The dispositive portion of the aforementioned Decision reads: (Annex "V", Rollo, p. 129) granting the above-mentioned prayers.

... We hold that the respondent court cannot be successfully Acting on the ex-parte motion by the plaintiff (now private
charged with grave abuse of discretion amounting to lack of respondent), the trial court, on January 11, 1984, ordered the
jurisdiction when it issued its Orders of February 13, 1984 and President of defendant International Corporate Bank (now

petitioner) and all its employees and officials concemed to As required, the Comment of private respondent was filed on
deliver to the sheriff the 20 motor vehicles levied by virtue of the January 28, 1985 (Rollo, pp. 141- 150).
Writ of Execution dated December 12, 1984 (Annex "W", Rollo, p.
131). Thereafter, petitioner moved for leave to file a supplemental
petition on the ground that after it had filed this present petition,
The petitioner having failed to comply with the above-cited petitioner discovered that the bond filed with, and approved by,
Order, the respondent trial court issued two (2) more Orders: the the respondent lower court showed numerous material erasures,
January 16, 1985 (Annex "CC," Rollo, p. 190) and January 21, alterations and/or additions (Rollo, p. 151), which the issuing
1985 Orders (Annex "DD", Rollo, p. 191), directing several insurance company certified as having been done without its
employees mentioned therein to show cause wily they should not authority or consent (Annex "Z", Rollo, p. 178).
be cited in contempt.
The Supplemental Petition was actually filed on February 1, 1985
Hence, this petition for review on certiorari with prayer for a (Rollo, pp. 154-171). It pointed out the erasures, alterations
restraining order and for a writ of preliminary injunction. and/or additions in the bond as follows:

Three days after this petition was filed, or specifically on January a. below "Civil Case No. 884" after the words, "Plaintiff's
18, 1985, petitioner filed an urgent motion reiterating its prayer Bond," the phrase "For Levying of Attachment" was erased or
for the issuance of an ex-parte restraining order (Rollo, p. 132). deleted;

Simultaneous with the filing of the present petition, petitioner, as b. in lines 2 and 3 after the word "order," the phrase "approving
defendant, filed with the trial court an ex-parte motion to plaintiff's motion dated Dec. 15, 1983, was inserted or added;
suspend the implementation of any and all orders and writs
issued pursuant to Civil Case No. 884 (Annex "A", Rollo, p. 135). c. in line 3, the phrases "Of attachment" and "ordered that a writ
of attachment issue' were erased or deleted;
This Court's resolution dated January 21, 1985, without giving
due course to the petition, resolved (a) to require the d also in line 3 after the words "the court has" the phrase
respondents to comment: (b) to issue, effective immediately and "approved the Motion was likewise inserted or added;
until further orders from this Court, a Temporary Restraining
Order enjoining the respondents from enforcing or in any e. in line 9, the phrase "and of the levying of said attachment" was
manner implementing the questioned Orders dated February 13, also erased or deleted;
1984, March 9, 1984, January 10, 1985 and January 11 and 16,
1985, issued in Civil Case No. 884. f. in line 13, the word "attachment" was likewise erased or
deleted;
The corresponding writ was issued on the same day (Rollo, pp.
139-140).


g. also in line 13 after the deletion of word "attachment" the On March 11, 1985, petitioner was required to file a Consolidated
phrase "release of the P1,062,063.83 to the plaintiff was similarly Reply (Rollo, p. 199) which was filed on April 10, 1985 (Rollo, p.
inserted or added." 201).

Petitioner contended therein that in view of the foregoing facts, Thereafter, a Rejoinder (Rollo, p. 238) was filed by private
the genuineness, due execution and authenticity as well as the respondent on September 18, 1985 after Atty. Advincula, counsel
validity and enforceability of the bond (Rello, p. 174) is now for private respondents was required by this Court to show cause
placed in issue and consequently, the bond may successfully be why he should not be disciplinarily dealt with or held in
repudiated as falsified and, therefore, without any force and contempt for his failure to comply on time (Rollo, p. 226) and on
effect and the bonding company may thereby insist that it has August 19, 1985 said lawyer was finally admonished (Rollo, p.
been released from any hability thereunder. 229) for his failure to promptly apprise the Court of his alleged
non-receipt of copy of petitioner's reply, which alleged non-
Also, petitioner pointed as error the respondent trial court's receipt was vehemently denied by petitioner in its Counter
motu proprio transferring Civil Case No. 884 to the Manila Manifestation (Rollo, p. 230) filed on August 5, 1985.
Branch of the same Court arguing that improper venue, as a
ground for, and unless raised in, a Motion to Dismiss, may be Finally, on October 7, 1985, this petition was given due course
waived by the parties and the court may not pre-empt the right of and both parties were required to submit simultaneous
the parties to agree between or among themselves as to the memoranda (Rollo, p. 249) but before the same were filed,
venue of their choice in litigating their justiciable controversy petitioner moved for leave to file sur-rejoinder (Rollo, p. 250),
(Supplemental Petition, Rollo, p. 160). the sur-rejoinder was filed on October 14,1985 (Rollo, pp. 252-
254).
On being required to comment thereon, (Rollo, p. 192) private
respondent countered (Rollo, pp. 193-198) that bond forms are Petitioner's memorandum was filed on December 28, 1985
ready-prepared forms and the bonding company used the form (Rollo, pp. 264-292) while that of private respondent was
for "Levying of Attachment" because the company has no ready- submitted on January 10, 1986 (Rollo, pp. 295-304).
prepared form for the kind of bond called for or required in Civil
Case 884. Whatever deletions or additions appear on the bond Petitioner again moved for leave to file a Reply Memorandum
were made by the Afisco Insurance Corporation itself for the (Rollo, p. 307) which, despite permission from this Court, was not
purpose of accomplishing what was required or intended. filed and on August 22, 1986, private respondent prayed for early
resolution of the petition (Rollo, p. 311).
Nonetheless, on May 7, 1985, private respondent filed "Plaintiffs
Bond" in the respondent trial court in the amount of In a resolution dated October 13, 1986 (Rollo, p. 314) this case
P1,062,063.83 a xerox copy of which was furnished this Court was transferred to the Second Division of this Court, the same
(Rollo, p. 219), and noted in the Court's Resolution dated May being assigned to a member of that Division.
29,1985 (Rollo, p. 225).


The crucial issue to be resolved in this case is whether or not
there can be legal compensation in the case at bar. It must be noted that Civil Case No. 83-19717 is still pending
consideration at the RTC Manila, for annulment of Sheriffs sale on
Petitioner contends that after foreclosing the mortgage, there is extra-judicial foreclosure of private respondent's property from
still due from private respondent as deficiency the amount of which the alleged deficiency arose. (Annex "AA", Rollo, pp. 181-
P6.81 million against which it has the right to apply or set off 189). Therefore, the validity of the extrajudicial foreclosure sale
private respondent's money market claim of P1,062,063.83. and petitioner's claim for deficiency are still in question, so much
so that it is evident, that the requirement of Article 1279 that the
The argument is without merit. debts must be liquidated and demandable has not yet been met.
For this reason, legal compensation cannot take place under
As correctly pointed out by the respondent Court of Appeals Article 1290 of the Civil Code.

Compensation shall take place when two persons, in their own Petitioner now assails the motion of the plaintiff (now private
right, are creditors and debtors of each other. (Art. 1278, Civil respondent) filed in the trial court for the release of the proceeds
Code). "When all the requisites mentioned in Art. 1279 of the of the money market investment, arguing that it is deficient in
Civil Code are present, compensation takes effect by operation of form, the same being unverified (petitioner's Memorandum,
law, even without the consent or knowledge of the debtors." (Art. Rollo, p. 266). On this score, it has been held that "as enjoined by
1290, Civil Code). Article 1279 of the Civil Code requires among the Rules of Court and the controlling jurisprudence, a liberal
others, that in order that legal compensation shall take place, "the construction of the rules and the pleadings is the controlling
two debts be due" and "they be liquidated and demandable." principle to effect substantial justice." (Maturan v. Araula, 111
Compensation is not proper where the claim of the person SCRA 615 [1982]).
asserting the set-off against the other is not clear nor liquidated;
compensation cannot extend to unliquidated, disputed claim Finally, the filing of insufficient or defective bond does not
arising from breach of contract. (Compaia General de Tabacos dissolve absolutely and unconditionally the injunction issued.
vs. French and Unson, 39 Phil. 34; Lorenzo & Martinez vs. Whatever defect the bond possessed was cured when private
Herrero, 17 Phil. 29). respondent filed another bond in the trial court.

There can be no doubt that petitioner is indebted to private PREMISES CONSIDERED, the questioned Decision and Resolution
respondent in the amount of P1,062,063.83 representing the of the respondent Court of Appeals are hereby AFFIRMED.
proceeds of her money market investment. This is admitted. But
whether private respondent is indebted to petitioner in the
amount of P6.81 million representing the deficiency balance after
the foreclosure of the mortgage executed to secure the loan
extended to her, is vigorously disputed. This circumstance 96. G.R. No. L-62169 February 28, 1983
prevents legal compensation from taking place. (CA Decision,
Rollo, pp. 112-113).

MINDANAO PORTLAND CEMENT CORPORATION, Corporation, et al. writ of execution to this effect having been
petitioner, issued by said court (Record on Appeal, pp, 2,10- 14).
vs.
COURT OF APPEALS, PACWELD STEEL CORPORATION On June 26, 1978 the court issued the order appealed from
and ATTY. CASIANO P. LAQUIHON respondents. (Record on Appeal, pp. 24-25) and despite MPCCs motion for
reconsideration of said order, citing the law applicable and
TEEHANKEE, J.: Supreme Court decisions (Record on Appeal, pp. 26-33), denied
the same in its order of August 28, 1978 (Record on Appeal, p.
The Court of Appeals (now Intermediate Appellate Court) 37), also subject matter of this appeal.
certified petitioner's appeal therein as defendant-appellant,
docketed as C.A.-G.R. No. 65102 thereof, to this Court as involving The writ of execution referred to above which MPCC has invoked
only questions of law in its Resolution of August 31, 1982, to set- off the amount sought to be collected by Pacweld through
reading as follows: the latter's lawyer, Atty. Casiano P. Laquihon, is hereunder
quoted in full.
The 'Statement of the Case and the Statement of Facts' contained
in appellant's brief follow: In his brief, appellee comments that the statements in appellant's
brief are 'substantially correct,' as follows:
STATEMENT OF FACTS
STATEMENT OF THE CASE
On January 3, 1978, one Atty. Casiano P. Laquihon, in behalf of
third-party defendant Pacweld Steel Corporation (Pacweld for This is an appeal from the Order of the Court of First Instance of
short) as the latter's attorney, filed a pleading addressed to the Manila (Branch X dated June 26, 1978 ordering the appellant
defendant & Third-Party Plaintiff Mindanao Portland Cement (MINDANAO PORTLAND CEMENT CORPORATION) to pay the
Corporation (MPCC) for short), herein appellant, entitled 'motion amount of P10,000.00 attorney's fees directly to Atty. Casiano B.
to direct payment of attorney's fee to counsel' (himself ), Laquihon (Record on Appeal, pp. 24-25) and from the Order
invoking in his motion the fact that in the decision of the court of dated August 28, 1978 denying appellant's motion for
Sept. 14, 1976, MPCC was adjudged to pay Pacweld the sum of reconsideration (Record on Appeal, p. 37).
P10,000.00 as attorney's fees (Record on Appeal, pp. 1, 6-9).
There was no trial or submission of documentary evidence.
On March 14, 1978, MPCC filed an opposition to Atty. Laquihon's Against the orders of June 26. 1978, and August 28, 1978,
motion, stating, as grounds therefor, that said amount is set-off appellant has brought this appeal to this Court, contending that:
by a like sum of P10,000.00 which it MPCC has collectible in its
favor from Pacweld also by way of attorney's fees which MPCC The lower court erred in not holding that the two obligations are
recovered from the same Court of First Instance of Manila extinguished reciprocally by operation of law.' (p. 6, Appellant's
(Branch XX) in Civil Case No. 68346, entitled Pacweld Steel Brief)


This appeal calls for the application of Arts. 1278, 1279 and 1290 Necessarily, the appealed order of June 26, 1978 granting Atty.
of the Civil Code, as urged by the appellant. Another question is: Laquihon's motion for amendment of the judgment of September
The judgment in Civil Case No. 75179 being already final at the 14, 1976 against Mindanao Portland Cement Corporation so as to
time the motion under consideration was filed, does not the make the award therein of P10,000.00 as attorney's fees payable
order of June 26, 1976 constitute a change or alteration of the directly to himself as counsel of Pacweld Steel Corporation
said judgment, though issued by the very same court that instead of payable directly to said corporation as provided in the
rendered the judgment? judgment, which had become final and executory long before the
issuance of said "amendatory" order was a void alteration of
WHEREFORE, since only questions of law are involved and there judgment. It was a substantial change or amendment beyond the
is no factual issue left for us to determine, let the records of the trial court's jurisdiction and authority and it could not defeat the
appeal in this case be certified to the Honorable Supreme Court compensation or set-off of the two (2) obligations of the
for determination. corporations to each other which had already extinguished both
debts by operation of law.
After considering the briefs of the parties in the appellate court
and the additional pleadings required of them by this Court, the ACCORDINGLY. the appealed orders are hereby annulled and set
Court finds merit in the appeal and sets aside the appealed orders aside. No costs.
of June 26 and August 28, 1978 of the Court of First Instance
(now Regional Trial Court) of Manila, Branch XX.

It is clear from the record that both corporations, petitioner
Mindanao Portland Cement Corporation (appellant) and 97. G.R. No. 136202 January 25, 2007
respondent Pacweld Steel Corporation (appellee), were creditors
and debtors of each other, their debts to each other consisting in BANK OF THE PHILIPPINE ISLANDS, Petitioner,
final and executory judgments of the Court of First Instance in vs.
two (2) separate cases, ordering the payment to each other of the COURT OF APPEALS, ANNABELLE A. SALAZAR, and
sum of P10,000.00 by way of attorney's fees. The two (2) JULIO R. TEMPLONUEVO, Respondents
obligations, therefore, respectively offset each other,
compensation having taken effect by operation of law and D E C I S I O N
extinguished both debts to the concurrent amount of P10,000.00,
pursuant to the provisions of Arts. 1278, 1279 and 1290 of the AZCUNA, J.:
Civil Code, since all the requisites provided in Art. 1279 of the
said Code for automatic compensation "even though the creditors This is a petition for review under Rule 45 of the Rules of Court
and debtors are not aware of the compensation" were duly seeking the reversal of the Decision1 dated April 3, 1998, and the
present.** Resolution2 dated November 9, 1998, of the Court of Appeals in
CA-G.R. CV No. 42241.


The facts3 are as follows: accepted for deposit, petitioner BPI decided to debit the amount
of P267,707.70 from her Account No. 0201-0588-48 and the sum
A.A. Salazar Construction and Engineering Services filed an action of P267,692.50 was paid to Templonuevo by means of a cashiers
for a sum of money with damages against herein petitioner Bank check. The difference between the value of the checks
of the Philippine Islands (BPI) on December 5, 1991 before (P267,692.50) and the amount actually debited from her account
Branch 156 of the Regional Trial Court (RTC) of Pasig City. The (P267,707.70) represented bank charges in connection with the
complaint was later amended by substituting the name of issuance of a cashiers check to Templonuevo.
Annabelle A. Salazar as the real party in interest in place of A.A.
Salazar Construction and Engineering Services. Private In the answer to the third-party complaint, private respondent
respondent Salazar prayed for the recovery of the amount of Two Templonuevo admitted the payment to him of P267,692.50 and
Hundred Sixty-Seven Thousand, Seven Hundred Seven Pesos and argued that said payment was to correct the malicious deposit
Seventy Centavos (P267,707.70) debited by petitioner BPI from made by private respondent Salazar to her private account, and
her account. She likewise prayed for damages and attorneys fees. that petitioner banks negligence and tolerance regarding the
matter was violative of the primary and ordinary rules of
Petitioner BPI, in its answer, alleged that on August 31, 1991, banking. He likewise contended that the debiting or taking of the
Julio R. Templonuevo, third-party defendant and herein also a reimbursed amount from the account of private respondent
private respondent, demanded from the former payment of the Salazar by petitioner BPI was a matter exclusively between said
amount of Two Hundred Sixty-Seven Thousand, Six Hundred parties and may be pursuant to banking rules and regulations,
Ninety-Two Pesos and Fifty Centavos (P267,692.50) representing but did not in any way affect him. The debiting from another
the aggregate value of three (3) checks, which were allegedly account of private respondent Salazar, considering that her other
payable to him, but which were deposited with the petitioner account was effectively closed, was not his concern.
bank to private respondent Salazars account (Account No. 0203-
1187-67) without his knowledge and corresponding After trial, the RTC rendered a decision, the dispositive portion of
endorsement. which reads thus:

Accepting that Templonuevos claim was a valid one, petitioner WHEREFORE, premises considered, judgment is hereby rendered
BPI froze Account No. 0201-0588-48 of A.A. Salazar and in favor of the plaintiff [private respondent Salazar] and against
Construction and Engineering Services, instead of Account No. the defendant [petitioner BPI] and ordering the latter to pay as
0203-1187-67 where the checks were deposited, since this follows:
account was already closed by private respondent Salazar or had
an insufficient balance. 1. The amount of P267,707.70 with 12% interest thereon from
September 16, 1991 until the said amount is fully paid;
Private respondent Salazar was advised to settle the matter with
Templonuevo but they did not arrive at any settlement. As it 2. The amount of P30,000.00 as and for actual damages;
appeared that private respondent Salazar was not entitled to the
funds represented by the checks which were deposited and 3. The amount of P50,000.00 as and for moral damages;

II.
4. The amount of P50,000.00 as and for exemplary damages;
The Court of Appeals committed reversible error in NOT applying
5. The amount of P30,000.00 as and for attorneys fees; and the provisions of Articles 22, 1278 and 1290 of the Civil Code in
favor of BPI.
6. Costs of suit.
III.
The counterclaim is hereby ordered DISMISSED for lack of factual
basis. The Court of Appeals committed a reversible error in holding,
based on a misapprehension of facts, that the account from which
The third-party complaint [filed by petitioner] is hereby likewise BPI debited the amount of P267,707.70 belonged to a
ordered DISMISSED for lack of merit. corporation with a separate and distinct personality.

Third-party defendants [i.e., private respondent Templonuevos] IV.
counterclaim is hereby likewise DISMISSED for lack of factual
basis. The Court of Appeals committed a reversible error in holding,
based entirely on speculations, surmises or conjectures, that
SO ORDERED.4 there was an agreement between SALAZAR and TEMPLONUEVO
that checks payable to TEMPLONUEVO may be deposited by
On appeal, the Court of Appeals (CA) affirmed the decision of the SALAZAR to her personal account and that BPI was privy to this
RTC and held that respondent Salazar was entitled to the agreement.
proceeds of the three (3) checks notwithstanding the lack of
endorsement thereon by the payee. The CA concluded that V.
Salazar and Templonuevo had previously agreed that the checks
payable to JRT Construction and Trading5 actually belonged to The Court of Appeals committed reversible error in holding,
Salazar and would be deposited to her account, with petitioner based entirely on speculation, surmises or conjectures, that
acquiescing to the arrangement.6 SALAZAR suffered great damage and prejudice and that her
business standing was eroded.
Petitioner therefore filed this petition on these grounds:
VI.
I.
The Court of Appeals erred in affirming instead of reversing the
The Court of Appeals committed reversible error in decision of the lower court against BPI and dismissing SALAZARs
misinterpreting Section 49 of the Negotiable Instruments Law complaint.
and Section 3 (r and s) of Rule 131 of the New Rules on Evidence.
VII.

4. The debit of the amount from the account of A.A. Salazar
The Honorable Court erred in affirming the decision of the lower Construction and Engineering Services was proper even though
court dismissing the third-party complaint of BPI.7 the value of the checks had been originally credited to the
personal account of Salazar because A.A. Salazar Construction
The issues center on the propriety of the deductions made by and Engineering Services, an unincorporated single
petitioner from private respondent Salazars account. Stated proprietorship, had no separate and distinct personality from
otherwise, does a collecting bank, over the objections of its Salazar.
depositor, have the authority to withdraw unilaterally from such
depositors account the amount it had previously paid upon 5. Assuming the deduction from Salazars account was improper,
certain unendorsed order instruments deposited by the the CA should not have dismissed petitioners third-party
depositor to another account that she later closed? complaint against Templonuevo because the latter would have
the legal duty to return to petitioner the proceeds of the checks
Petitioner argues thus: which he previously received from it.

1. There is no presumption in law that a check payable to order, 6. There was no factual basis for the award of damages to Salazar.
when found in the possession of a person who is neither a payee
nor the indorsee thereof, has been lawfully transferred for value. The petition is partly meritorious.
Hence, the CA should not have presumed that Salazar was a
transferee for value within the contemplation of Section 49 of the First, the issue raised by petitioner requires an inquiry into the
Negotiable Instruments Law,8 as the latter applies only to a factual findings made by the CA. The CAs conclusion that the
holder defined under Section 191of the same.9 deductions from the bank account of A.A. Salazar Construction
and Engineering Services were improper stemmed from its
2. Salazar failed to adduce sufficient evidence to prove that her finding that there was no ineffective payment to Salazar which
possession of the three checks was lawful despite her allegations would call for the exercise of petitioners right to set off against
that these checks were deposited pursuant to a prior internal the formers bank deposits. This finding, in turn, was drawn from
arrangement with Templonuevo and that petitioner was privy to the pleadings of the parties, the evidence adduced during trial
the arrangement. and upon the admissions and stipulations of fact made during the
pre-trial, most significantly the following:
3. The CA should have applied the Civil Code provisions on legal
compensation because in deducting the subject amount from (a) That Salazar previously had in her possession the following
Salazars account, petitioner was merely rectifying the undue checks:
payment it made upon the checks and exercising its prerogative
to alter or modify an erroneous credit entry in the regular course (1) Solid Bank Check No. CB766556 dated January 30, 1990 in
of its business. the amount of P57,712.50;


(2) Solid Bank Check No. CB898978 dated July 31, 1990 in the occasions, the bank did not return the checks to her so that she
amount of P55,180.00; and, could have them indorsed. Neither did the bank question her as
to why she was depositing the checks to her account considering
(3) Equitable Banking Corporation Check No. 32380638 dated that she was not the payee thereof, thus allowing us to come to
August 28, 1990 for the amount of P154,800.00; the conclusion that defendant-appellant BPI was fully aware that
the proceeds of the three checks belong to appellee.
(b) That these checks which had an aggregate amount of
P267,692.50 were payable to the order of JRT Construction and For if the bank was not privy to the agreement between Salazar
Trading, the name and style under which Templonuevo does and Templonuevo, it is most unlikely that appellant BPI (or any
business; bank for that matter) would have accepted the checks for deposit
on three separate times nary any question. Banks are most
(c) That despite the lack of endorsement of the designated payee finicky over accepting checks for deposit without the
upon such checks, Salazar was able to deposit the checks in her corresponding indorsement by their payee. In fact, they hesitate
personal savings account with petitioner and encash the same; to accept indorsed checks for deposit if the depositor is not one
they know very well.11
(d) That petitioner accepted and paid the checks on three (3)
separate occasions over a span of eight months in 1990; and The CA likewise sustained Salazars position that she received the
checks from Templonuevo pursuant to an internal arrangement
(e) That Templonuevo only protested the purportedly between them, ratiocinating as follows:
unauthorized encashment of the checks after the lapse of one
year from the date of the last check.10 If there was indeed no arrangement between Templonuevo and
the plaintiff over the three questioned checks, it baffles us why it
Petitioner concedes that when it credited the value of the checks was only on August 31, 1991 or more than a year after the third
to the account of private respondent Salazar, it made a mistake and last check was deposited that he demanded for the refund of
because it failed to notice the lack of endorsement thereon by the the total amount of P267,692.50.
designated payee. The CA, however, did not lend credence to this
claim and concluded that petitioners actions were deliberate, in A prudent man knowing that payment is due him would have
view of its admission that the "mistake" was committed three demanded payment by his debtor from the moment the same
times on three separate occasions, indicating acquiescence to the became due and demandable. More so if the sum involved runs in
internal arrangement between Salazar and Templonuevo. The CA hundreds of thousand of pesos. By and large, every person, at the
explained thus: very moment he learns that he was deprived of a thing which
rightfully belongs to him, would have created a big fuss. He would
It was quite apparent that the three checks which appellee not have waited for a year within which to do so. It is most
Salazar deposited were not indorsed. Three times she deposited inconceivable that Templonuevo did not do this.12
them to her account and three times the amounts borne by these
checks were credited to the same. And in those separate

Generally, only questions of law may be raised in an appeal by In the present case, the records do not support the finding made
certiorari under Rule 45 of the Rules of Court.13 Factual findings by the CA and the trial court that a prior arrangement existed
of the CA are entitled to great weight and respect, especially between Salazar and Templonuevo regarding the transfer of
when the CA affirms the factual findings of the trial court.14 Such ownership of the checks. This fact is crucial as Salazars
questions on whether certain items of evidence should be entitlement to the value of the instruments is based on the
accorded probative value or weight, or rejected as feeble or assumption that she is a transferee within the contemplation of
spurious, or whether or not the proofs on one side or the other Section 49 of the Negotiable Instruments Law.
are clear and convincing and adequate to establish a proposition
in issue, are questions of fact. The same holds true for questions Section 49 of the Negotiable Instruments Law contemplates a
on whether or not the body of proofs presented by a party, situation whereby the payee or indorsee delivers a negotiable
weighed and analyzed in relation to contrary evidence submitted instrument for value without indorsing it, thus:
by the adverse party may be said to be strong, clear and
convincing, or whether or not inconsistencies in the body of Transfer without indorsement; effect of- Where the holder of an
proofs of a party are of such gravity as to justify refusing to give instrument payable to his order transfers it for value without
said proofs weight all these are issues of fact which are not indorsing it, the transfer vests in the transferee such title as the
reviewable by the Court.15 transferor had therein, and the transferee acquires in addition,
the right to have the indorsement of the transferor. But for the
This rule, however, is not absolute and admits of certain purpose of determining whether the transferee is a holder in due
exceptions, namely: a) when the conclusion is a finding grounded course, the negotiation takes effect as of the time when the
entirely on speculations, surmises, or conjectures; b) when the indorsement is actually made. 17
inference made is manifestly mistaken, absurd, or impossible; c)
when there is a grave abuse of discretion; d) when the judgment It bears stressing that the above transaction is an equitable
is based on a misapprehension of facts; e) when the findings of assignment and the transferee acquires the instrument subject to
fact are conflicting; f) when the CA, in making its findings, went defenses and equities available among prior parties. Thus, if the
beyond the issues of the case and the same are contrary to the transferor had legal title, the transferee acquires such title and, in
admissions of both appellant and appellee; g) when the findings addition, the right to have the indorsement of the transferor and
of the CA are contrary to those of the trial court; h) when the also the right, as holder of the legal title, to maintain legal action
findings of fact are conclusions without citation of specific against the maker or acceptor or other party liable to the
evidence on which they are based; i) when the finding of fact of transferor. The underlying premise of this provision, however, is
the CA is premised on the supposed absence of evidence but is that a valid transfer of ownership of the negotiable instrument in
contradicted by the evidence on record; and j) when the CA question has taken place.
manifestly overlooked certain relevant facts not disputed by the
parties and which, if properly considered, would justify a Transferees in this situation do not enjoy the presumption of
different conclusion.16 ownership in favor of holders since they are neither payees nor
indorsees of such instruments. The weight of authority is that the
mere possession of a negotiable instrument does not in itself

conclusively establish either the right of the possessor to receive The presumption under Section 131(s) of the Rules of Court
payment, or of the right of one who has made payment to be stating that a negotiable instrument was given for a sufficient
discharged from liability. Thus, something more than mere consideration will not inure to the benefit of Salazar because the
possession by persons who are not payees or indorsers of the term "given" does not pertain merely to a transfer of physical
instrument is necessary to authorize payment to them in the possession of the instrument. The phrase "given or indorsed" in
absence of any other facts from which the authority to receive the context of a negotiable instrument refers to the manner in
payment may be inferred.18 which such instrument may be negotiated. Negotiable
instruments are negotiated by "transfer to one person or another
The CA and the trial court surmised that the subject checks in such a manner as to constitute the transferee the holder
belonged to private respondent Salazar based on the pre-trial thereof. If payable to bearer it is negotiated by delivery. If
stipulation that Templonuevo incurred a one-year delay in payable to order it is negotiated by the indorsement completed
demanding reimbursement for the proceeds of the same. To the by delivery."22 The present case involves checks payable to
Courts mind, however, such period of delay is not of such order. Not being a payee or indorsee of the checks, private
unreasonable length as to estop Templonuevo from asserting respondent Salazar could not be a holder thereof.
ownership over the checks especially considering that it was
readily apparent on the face of the instruments19 that these It is an exception to the general rule for a payee of an order
were crossed checks. instrument to transfer the instrument without indorsement.
Precisely because the situation is abnormal, it is but fair to the
In State Investment House v. IAC,20 the Court enumerated the maker and to prior holders to require possessors to prove
effects of crossing a check, thus: (1) that the check may not be without the aid of an initial presumption in their favor, that they
encashed but only deposited in the bank; (2) that the check may came into possession by virtue of a legitimate transaction with
be negotiated only once - to one who has an account with a bank; the last holder.23 Salazar failed to discharge this burden, and the
and (3) that the act of crossing the check serves as a warning to return of the check proceeds to Templonuevo was therefore
the holder that the check has been issued for a definite purpose warranted under the circumstances despite the fact that
so that such holder must inquire if the check has been received Templonuevo may not have clearly demonstrated that he never
pursuant to that purpose. authorized Salazar to deposit the checks or to encash the same.
Noteworthy also is the fact that petitioner stamped on the back of
Thus, even if the delay in the demand for reimbursement is taken the checks the words: "All prior endorsements and/or lack of
in conjunction with Salazars possession of the checks, it cannot endorsements guaranteed," thereby making the assurance that it
be said that the presumption of ownership in Templonuevos had ascertained the genuineness of all prior endorsements.
favor as the designated payee therein was sufficiently overcome. Having assumed the liability of a general indorser, petitioners
This is consistent with the principle that if instruments payable liability to the designated payee cannot be denied.
to named payees or to their order have not been indorsed in
blank, only such payees or their indorsees can be holders and Consequently, petitioner, as the collecting bank, had the right to
entitled to receive payment in their own right.21 debit Salazars account for the value of the checks it previously
credited in her favor. It is of no moment that the account debited

by petitioner was different from the original account to which the
proceeds of the check were credited because both admittedly While, however, it is conceded that petitioner had the right of set-
belonged to Salazar, the former being the account of the sole off over the amount it paid to Templonuevo against the deposit of
proprietorship which had no separate and distinct personality Salazar, the issue of whether it acted judiciously is an entirely
from her, and the latter being her personal account. different matter.25 As businesses affected with public interest,
and because of the nature of their functions, banks are under
The right of set-off was explained in Associated Bank v. Tan:24 obligation to treat the accounts of their depositors with
meticulous care, always having in mind the fiduciary nature of
A bank generally has a right of set-off over the deposits therein their relationship.26 In this regard, petitioner was clearly remiss
for the payment of any withdrawals on the part of a depositor. in its duty to private respondent Salazar as its depositor.
The right of a collecting bank to debit a client's account for the
value of a dishonored check that has previously been credited To begin with, the irregularity appeared plainly on the face of the
has fairly been established by jurisprudence. To begin with, checks. Despite the obvious lack of indorsement thereon,
Article 1980 of the Civil Code provides that "[f]ixed, savings, and petitioner permitted the encashment of these checks three times
current deposits of money in banks and similar institutions shall on three separate occasions. This negates petitioners claim that
be governed by the provisions concerning simple loan." it merely made a mistake in crediting the value of the checks to
Salazars account and instead bolsters the conclusion of the CA
Hence, the relationship between banks and depositors has been that petitioner recognized Salazars claim of ownership of checks
held to be that of creditor and debtor. Thus, legal compensation and acted deliberately in paying the same, contrary to ordinary
under Article 1278 of the Civil Code may take place "when all the banking policy and practice. It must be emphasized that the law
requisites mentioned in Article 1279 are present," as follows: imposes a duty of diligence on the collecting bank to scrutinize
checks deposited with it, for the purpose of determining their
(1) That each one of the obligors be bound principally, and that genuineness and regularity. The collecting bank, being primarily
he be at the same time a principal creditor of the other; engaged in banking, holds itself out to the public as the expert on
this field, and the law thus holds it to a high standard of
(2) That both debts consist in a sum of money, or if the things due conduct.27 The taking and collection of a check without the
are consumable, they be of the same kind, and also of the same proper indorsement amount to a conversion of the check by the
quality if the latter has been stated; bank.28

(3) That the two debts be due; More importantly, however, solely upon the prompting of
Templonuevo, and with full knowledge of the brewing dispute
(4) That they be liquidated and demandable; between Salazar and Templonuevo, petitioner debited the
account held in the name of the sole proprietorship of Salazar
(5) That over neither of them there be any retention or without even serving due notice upon her. This ran contrary to
controversy, commenced by third persons and communicated in petitioners assurances to private respondent Salazar that the
due time to the debtor. account would remain untouched, pending the resolution of the

controversy between her and Templonuevo.29 In this These checks, it must be emphasized, were subsequently
connection, the CA cited the letter dated September 5, 1991 of dishonored, thereby causing private respondent Salazar undue
Mr. Manuel Ablan, Senior Manager of petitioner banks embarrassment and inflicting damage to her standing in the
Pasig/Ortigas branch, to private respondent Salazar informing business community. Under the circumstances, she was clearly
her that her account had been frozen, thus: not given the opportunity to protect her interest when petitioner
unilaterally withdrew the above amount from her account
From the tenor of the letter of Manuel Ablan, it is safe to conclude without informing her that it had already done so.
that Account No. 0201-0588-48 will remain frozen or untouched
until herein [Salazar] has settled matters with Templonuevo. But, For the above reasons, the Court finds no reason to disturb the
in an unexpected move, in less than two weeks (eleven days to be award of damages granted by the CA against petitioner. This
precise) from the time that letter was written, [petitioner] bank whole incident would have been avoided had petitioner adhered
issued a cashiers check in the name of Julio R. Templonuevo of to the standard of diligence expected of one engaged in the
the J.R.T. Construction and Trading for the sum of P267,692.50 banking business. A depositor has the right to recover reasonable
(Exhibit "8") and debited said amount from Ms. Arcillas account moral damages even if the banks negligence may not have been
No. 0201-0588-48 which was supposed to be frozen or attended with malice and bad faith, if the former suffered mental
controlled. Such a move by BPI is, to Our minds, a clear case of anguish, serious anxiety, embarrassment and humiliation.31
negligence, if not a fraudulent, wanton and reckless disregard of Moral damages are not meant to enrich a complainant at the
the right of its depositor. expense of defendant. It is only intended to alleviate the moral
suffering she has undergone. The award of exemplary damages is
The records further bear out the fact that respondent Salazar had justified, on the other hand, when the acts of the bank are
issued several checks drawn against the account of A.A. Salazar attended by malice, bad faith or gross negligence. The award of
Construction and Engineering Services prior to any notice of reasonable attorneys fees is proper where exemplary damages
deduction being served. The CA sustained private respondent are awarded. It is proper where depositors are compelled to
Salazars claim of damages in this regard: litigate to protect their interest.32

The act of the bank in freezing and later debiting the amount of WHEREFORE, the petition is partially GRANTED. The assailed
P267,692.50 from the account of A.A. Salazar Construction and Decision dated April 3, 1998 and Resolution dated April 3, 1998
Engineering Services caused plaintiff-appellee great damage and rendered by the Court of Appeals in CA-G.R. CV No. 42241 are
prejudice particularly when she had already issued checks drawn MODIFIED insofar as it ordered petitioner Bank of the Philippine
against the said account. As can be expected, the said checks Islands to return the amount of Two Hundred Sixty-seven
bounced. To prove this, plaintiff-appellee presented as exhibits Thousand Seven Hundred and Seven and 70/100 Pesos
photocopies of checks dated September 8, 1991, October 28, (P267,707.70) to respondent Annabelle A. Salazar, which portion
1991, and November 14, 1991 (Exhibits "D", "E" and "F" is REVERSED and SET ASIDE. In all other respects, the same are
respectively)30 AFFIRMED.


assumption by DBP of FIs obligations to Bancom in the amount
of P17,000,000.00 (assumed obligations).8
98. G.R. No. 191555 January 20, 2014
On the same day, DBP, as the new owner of the processing plant,
UNION BANK OF THE PHILIPPINES, Petitioner, leased back9 for 20 years the said property to FI (Lease
vs. Agreement) which was, in turn, obliged to pay monthly rentals to
DEVELOPMENT BANK OF THE PHILIPPINES, be shared by DBP and Bancom.
Respondent.
DBP also entered into a separate agreement10 with Bancom
D E C I S I O N (Assumption Agreement) whereby the former: (a) confirmed its
assumption of FIs obligations to Bancom; and (b) undertook to
PERLAS-BERNABE, J.: remit up to 30% of any and all rentals due from FI to Bancom
(subject rentals) which would serve as payment of the assumed
Assailed in this petition for review on Certiorari1 are the obligations, to be paid in monthly installments. The pertinent
Decision2 dated November 3, 2009 and Resolution3 dated portions of the Assumption Agreement reads as follows:
February 26, 2010 of the Court of Appeals (CA) in CA-G.R. SP No.
93833 which affirmed the Orders4 dated November 9, 2005 and WHEREAS, DBP has agreed and firmly committed in favor of
January 30, 2006 of the Regional Trial Court of Makati, Branch Bancom that the above obligations to Bancom which DBP has
585 (RTC) in Civil Case No. 7648 denying the motion to affirm assumed shall be settled, paid and/or liquidated by DBP out of a
legal compensation6 filed by petitioner Union Bank of the portion of the lease rentals or part of the proceeds of sale of those
Philippines (Union Bank) against respondent Development Bank properties of the Assignors conveyed to DBP pursuant to the
of the Philippines (DBP). [Deed of Cession of Property in Payment of Debt dated May 21,
1979] and which are the subject of [the Lease Agreement] made
The Facts and executed by and between DBP and [FI], the last hereafter
referred to as the "Lessee" to be effective as of July 31, 1978.
Foodmasters, Inc. (FI) had outstanding loan obligations to both
Union Banks predecessor-in-interest, Bancom Development x x x x
Corporation (Bancom), and to DBP.
4. DBP hereby covenants and undertakes that the amount up to
On May 21, 1979, FI and DBP, among others, entered into a Deed 30% of any and all rentals due from the Lessee pursuant to the
of Cession of Property In Payment of Debt7 (dacion en pago) Lease Agreement shall be remitted by DBP to Bancom at the
whereby the former ceded in favor of the latter certain properties latters offices at Pasay Road, Makati, Metro Manila within five (5)
(including a processing plant in Marilao, Bulacan [processing days from due dates thereof, and applied in payment of the
plant]) in consideration of the following: (a) the full and complete Assumed Obligations. Likewise, the amount up to 30% of the
satisfaction of FIs loan obligations to DBP; and (b) the direct proceeds from any sale of the Leased Properties shall within the

same period above, be remitted by DBP to Bancom and applied in of P4,019,033.59, representing the amount of the subject rentals
payment or prepayment of the Assumed Obligations. x x x. (which, again, constitutes 30% of FIs [now FWs] total rental
debt), including interest until fully paid; and (b) FW, as third-
Any balance of the Assumed Obligations after application of the party defendant, to indemnify DBP, as third- party plaintiff, for its
entire rentals and or the entire sales proceeds actually received payments of the subject rentals to Union Bank. It ruled that there
by Bancom on the Leased Properties shall be paid by DBP to lies no evidence which would show that DBPs receipt of the
Bancom not later than December 29, 1998. (Emphases supplied) rental payments from FW is a condition precedent to the formers
obligation to remit the subject rentals under the Lease
Meanwhile, on May 23, 1979, FI assigned its leasehold rights Agreement. Thus, when DBP failed to remit the subject rentals to
under the Lease Agreement to Foodmasters Worldwide, Inc. Union Bank, it defaulted on its assumed obligations.18 DBP then
(FW);11 while on May 9, 1984, Bancom conveyed all its elevated the case on appeal before the CA, docketed as CA-G.R. CV
receivables, including, among others, DBPs assumed obligations, No. 35866.
to Union Bank.12
The CA Ruling in CA-G.R. CV No. 35866
Claiming that the subject rentals have not been duly remitted
despite its repeated demands, Union Bank filed, on June 20, 1984, In a Decision19 dated May 27, 1994 (May 27, 1994 Decision), the
a collection case against DBP before the RTC, docketed as Civil CA set aside the RTCs ruling, and consequently ordered: (a) FW
Case No. 7648.13 In opposition, DBP countered, among others, to pay DBP the amount of P32,441,401.85 representing the total
that the obligations it assumed were payable only out of the rental debt incurred under the Lease Agreement, including
rental payments made by FI. Thus, since FI had yet to pay the P10,000.00 as attorneys fees; and (b) DBP, after having been
same, DBPs obligation to Union Bank had not arisen.14 In paid by FW its unpaid rentals, to remit 30% thereof (i.e., the
addition, DBP sought to implead FW as third party-defendant in subject rentals) to Union Bank.20
its capacity as FIs assignee and, thus, should be held liable to
Union Bank.15 It rejected Union Banks claim that DBP has the direct obligation
to remit the subject rentals not only from FWs rental payments
In the interim, or on May 6, 1988, DBP filed a motion to dismiss but also out of its own resources since said claim contravened the
on the ground that it had ceased to be a real-party-in-interest due "plain meaning" of the Assumption Agreement which specifies
to the supervening transfer of its rights, title and interests over that the payment of the assumed obligations shall be made "out
the subject matter to the Asset Privatization Trust (APT). Said of the portion of the lease rentals or part of the proceeds of the
motion was, however, denied by the RTC in an Order dated May sale of those properties of [FI] conveyed to DBP."21 It also
27, 1988.16 construed the phrase under the Assumption Agreement that DBP
is obligated to "pay any balance of the Assumed Obligations after
The RTC Ruling in Civil Case No. 7648 application of the entire rentals and/or the entire sales proceeds
actually received by [Union Bank] on the Leased Properties . . .
Finding the complaint to be meritorious, the RTC, in a Decision17 not later than December 29, 1998" to mean that the lease rentals
dated May 8, 1990, ordered: (a) DBP to pay Union Bank the sum must first be applied to the payment of the assumed obligations

in the amount of P17,000,000.00, and that DBP would have to On August 2, 2000, the Courts resolution became final and
pay out of its own money only in case the lease rentals were executory.27
insufficient, having only until December 29, 1998 to do so.
Nevertheless, the monthly installments in satisfaction of the The RTC Execution Proceedings
assumed obligations would still have to be first sourced from said
lease rentals as stipulated in the assumption agreement.22 In On May 16, 2001, Union Bank filed a motion for execution28
view of the foregoing, the CA ruled that DBP did not default in its before the RTC, praying that DBP be directed to pay the amount
obligations to remit the subject rentals to Union Bank precisely of P9,732,420.555 which represents the amount of the subject
because it had yet to receive the rental payments of FW.23 rentals (i.e., 30% of the FWs total rental debt in the amount of
P32,441,401.85). DBP opposed29 Union Banks motion,
Separately, the CA upheld the RTCs denial of DBPs motion to contending that it sought to effectively vary the dispositive
dismiss for the reason that the transfer of its rights, title and portion of the CAs May 27, 1994 Decision in CA-G.R. CV No.
interests over the subject matter to the APT occurred pendente 35866. Also, on September 12, 2001, DBP filed its own motion for
lite, and, as such, the substitution of parties is largely execution against FW, citing the same CA decision as its basis.
discretionary on the part of the court.
In a Consolidated Order30 dated October 15, 2001 (Order of
At odds with the CAs ruling, Union Bank and DBP filed separate Execution), the RTC granted both motions for execution. Anent
petitions for review on certiorari before the Court, respectively Union Banks motion, the RTC opined that the CAs ruling that
docketed as G.R. Nos. 115963 and 119112, which were thereafter DBPs payment to Union Bank shall be demandable only upon
consolidated. payment of FW must be viewed in light of the date when the
same was rendered. It noted that the CA decision was
The Courts Ruling in G.R. Nos. 115963 & 119112 promulgated only on May 27, 1994, which was before the
December 29, 1998 due date within which DBP had to fully pay
The Court denied both petitions in a Resolution24 dated its obligation to Union Bank under the Assumption Agreement.
December 13, 1995. First, it upheld the CAs finding that while Since the latter period had already lapsed, "[i]t would, thus, be
DBP directly assumed FIs obligations to Union Bank, DBP was too strained to argue that payment by DBP of its assumed
only obliged to remit to the latter 30% of the lease rentals obligation[s] shall be dependent on [FWs] ability, if not
collected from FW, from which any deficiency was to be settled availability, to pay."31 In similar regard, the RTC granted DBPs
by DBP not later than December 29, 1998.25 Similarly, the Court motion for execution against FW since its liability to Union Bank
agreed with the CA that the denial of DBPs motion to dismiss and DBP remained undisputed.
was proper since substitution of parties, in case of transfers
pendente lite, is merely discretionary on the part of the court, As a result, a writ of execution32 dated October 15, 2001
adding further that the proposed substitution of APT will amount (October 15, 2001 Writ of Execution) and, thereafter, a notice of
to a novation of debtor which cannot be done without the garnishment33 against DBP were issued. Records, however, do
consent of the creditor.26 not show that the same writ was implemented against FW.


DBP filed a motion for reconsideration34 from the Execution thereto; and (b) ordered Union Bank to return to DBP the
Order, averring that the latter issuance varied the import of the amounts it received pursuant to the said writ.40 Dissatisfied,
CAs May 27, 1994 Decision in CA-G.R. CV No. 35866 in that it Union Bank moved for reconsideration which was, however,
prematurely ordered DBP to pay the assumed obligations to denied by the Court in a Resolution dated March 24, 2004 with
Union Bank before FWs payment. The motion was, however, finality. Thus, the January 13, 2004 Decision attained finality on
denied on December 5, 2001.35 Thus, DBPs deposits were April 30, 2004.41 Thereafter, DBP moved for the execution of the
eventually garnished.36 Aggrieved, DBP filed a petition for said decision before the RTC. After numerous efforts on the part
certiorari37 before the CA, docketed as CA-G.R. SP No. 68300. of Union Bank proved futile, the RTC issued a writ of execution
(September 6, 2005 Writ of Execution), ordering Union Bank to
The CA Ruling in CA-G.R. SP No. 68300 return to DBP all funds it received pursuant to the October 15,
2001 Writ of Execution.42
In a Decision38 dated July 26, 2002, the CA dismissed DBPs
petition, finding that the RTC did not abuse its discretion when it Union Banks Motion to Affirm Legal Compensation
issued the October 15, 2001 Writ of Execution. It upheld the
RTCs observation that there was "nothing wrong in the manner On September 13, 2005, Union Bank filed a Manifestation and
how [said writ] was implemented," as well as "in the zealousness Motion to Affirm Legal Compensation,43 praying that the RTC
and promptitude exhibited by Union Bank" in moving for the apply legal compensation between itself and DBP in order to
same. DBP appealed the CAs ruling before the Court, which was offset the return of the funds it previously received from DBP.
docketed as G.R. No. 155838. Union Bank anchored its motion on two grounds which were
allegedly not in existence prior to or during trial, namely: (a) on
The Courts Ruling in G.R. No. 155838 December 29, 1998, DBPs assumed obligations became due and
demandable;44 and (b) considering that FWI became non-
In a Decision39 dated January 13, 2004 (January 13, 2004 operational and non-existent, DBP became primarily liable to the
Decision), the Court granted DBPs appeal, and thereby reversed balance of its assumed obligation, which as of Union Banks
and set aside the CAs ruling in CA-G.R. SP No. 68300. It found computation after its claimed set-off, amounted to
significant points of variance between the CAs May 27, 1994 P1,849,391.87.45
Decision in CA-G.R. CV No. 35866, and the RTCs Order of
Execution/October 15, 2001 Writ of Execution. It ruled that both On November 9, 2005, the RTC issued an Order46 denying the
the body and the dispositive portion of the same decision above-mentioned motion for lack of merit, holding that Union
acknowledged that DBPs obligation to Union Bank for Banks stated grounds were already addressed by the Court in
remittance of the lease payments is contingent on FWs prior the January 13, 2004 Decision in G.R. No. 155838. With Union
payment to DBP, and that any deficiency DBP had to pay by Banks motion for reconsideration therefrom having been denied,
December 29, 1998 as per the Assumption Agreement cannot be it filed a petition for certiorari47 with the CA, docketed as CA-G.R.
determined until after the satisfaction of FWs own rental SP No. 93833.
obligations to DBP. Accordingly, the Court: (a) nullified the
October 15, 2001 Writ of Execution and all related issuances

Pending resolution, Union Bank issued Managers Check48 No. obligations to which no retention or controversy has been timely
099-0003192363 dated April 21, 2006 amounting to commenced and communicated by third parties.53 The
P52,427,250.00 in favor of DBP, in satisfaction of the Writ of requisites therefor are provided under Article 1279 of the Civil
Execution dated September 6, 2005 Writ of Execution. DBP, Code which reads as follows:
however, averred that Union Bank still has a balance of
P756,372.39 representing a portion of the garnished funds of Art. 1279. In order that compensation may be proper, it is
DBP,49 which means that said obligation had not been necessary:
completely extinguished.
(1) That each one of the obligors be bound principally, and that
The CA Ruling in CA-G.R. SP No. 93833 he be at the same time a principal creditor of the other;

In a Decision50 dated November 3, 2009, the CA dismissed Union (2) That both debts consist in a sum of money, or if the things due
Banks petition, finding no grave abuse of discretion on the RTCs are consumable, they be of the same kind, and also of the same
part. It affirmed the denial of its motion to affirm legal quality if the latter has been stated;
compensation considering that: (a) the RTC only implemented
the Courts January 13, 2004 Decision in G.R. No. 155838 which (3) That the two debts be due;
by then had already attained finality; (b) DBP is not a debtor of
Union Bank; and (c) there is neither a demandable nor liquidated (4) That they be liquidated and demandable;
debt from DBP to Union Bank.51
(5) That over neither of them there be any retention or
Undaunted, Union Bank moved for reconsideration which was, controversy, commenced by third persons and communicated in
however, denied in a Resolution52 dated February 26, 2010; due time to the debtor.1awp++i1 (Emphases and underscoring
hence, the instant petition. supplied)

The Issue Before the Court The rule on legal54 compensation is stated in Article 1290 of the
Civil Code which provides that "[w]hen all the requisites
The sole issue for the Courts resolution is whether or not the CA mentioned in Article 1279 are present, compensation takes effect
correctly upheld the denial of Union Banks motion to affirm legal by operation of law, and extinguishes both debts to the
compensation. concurrent amount, even though the creditors and debtors are
not aware of the compensation."
The Courts Ruling
In this case, Union Bank filed a motion to seek affirmation that
The petition is bereft of merit. Compensation is defined as a legal compensation had taken place in order to effectively offset
mode of extinguishing obligations whereby two persons in their (a) its own obligation to return the funds it previously received
capacity as principals are mutual debtors and creditors of each from DBP as directed under the September 6, 2005 Writ of
other with respect to equally liquidated and demandable Execution with (b) DBPs assumed obligations under the

Assumption Agreement. However, legal compensation could not liability subsists, since under the "Agreement" x x x, DBP is
have taken place between these debts for the apparent reason obligated to pay "any balance of the Assumed Obligations after
that requisites 3 and 4 under Article 1279 of the Civil Code are application of the entire rentals and or the entire sales proceeds
not present. Since DBPs assumed obligations to Union Bank for actually received by [Union Bank] on the Leased Properties not
remittance of the lease payments are in the Courts words in its later than December 29, 1998." x x x It only means that the lease
Decision dated January 13, 2004 in G.R. No. 155838 " rentals must first be applied to the payment of the P17 million
contingent on the prior payment thereof by [FW] to DBP," it debt and that [DBP] would have to pay out of its money only in
cannot be said that both debts are due (requisite 3 of Article case of insufficiency of the lease rentals having until December
1279 of the Civil Code). Also, in the same ruling, the Court 29, 1998 to do so. In this sense, it is correct to say that the means
observed that any deficiency that DBP had to make up (by of repayment of the assumed obligation is not limited to the lease
December 29, 1998 as per the Assumption Agreement) for the rentals. The monthly installments, however, would still have to
full satisfaction of the assumed obligations " cannot be come from the lease rentals since this was stipulated in the
determined until after the satisfaction of Foodmasters obligation "Agreement."
to DBP." In this regard, it cannot be concluded that the same debt
had already been liquidated, and thereby became demandable x x x x
(requisite 4 of Article 1279 of the Civil Code).
Since, as already stated, the monthly installments for the
The aforementioned Court decision had already attained finality payment of the P17 million debt are to be funded from the lease
on April 30, 200455 and, hence, pursuant to the doctrine of rentals, it follows that if the lease rentals are not paid, there is
conclusiveness of judgment, the facts and issues actually and nothing for DBP to remit to [Union Bank], and thus [DBP] should
directly resolved therein may not be raised in any future case not be considered in default. It is noteworthy that, as stated in the
between the same parties, even if the latter suit may involve a appealed decision, "as regards plaintiffs claim for damages
different cause of action.56 Its pertinent portions are hereunder against defendant for its alleged negligence in failing and refusing
quoted for ready reference:57 to enforce a lessors remedies against Foodmasters Worldwide,
Inc., the Court finds no competent and reliable evidence of such
Both the body and the dispositive portion of the [CAs May 27, claim."
1994 Decision in CA-G.R. CV No. 35866] correctly construed the
nature of DBPs liability for the lease payments under the various x x x x
contracts, to wit:
WHEREFORE, the decision appealed from is SET ASIDE and
x x x Construing these three contracts, especially the another one is RENDERED,
"Agreement" x x x between DBP and Bancom as providing for the
payment of DBPs assumed obligation out of the rentals to be (i) Ordering third-party defendant-appellee Foodmasters
paid to it does not mean negating DBPs assumption "for its own Worldwide, Inc. to pay defendant and third-party plaintiff-
account" of the P17.0 million debt x x x. It only means that they appellant Development Bank of the Philippines the sum of
provide a mechanism for discharging [DBPs] liability. This P32,441,401.85, representing the unpaid rentals from August

1981 to June 30, 1987, as well as P10,000.00 for attorneys fees; WHEREFORE, the petition is DENIED. The Decision dated
and November 3, 2009 and Resolution dated February 26, 2010 of the
Court of Appeals in CA-G.R. SP No. 93833 are hereby AFFIRMED.
(ii) Ordering defendant and third-party plaintiff-appellant
Development Bank of the Philippines after having been paid by
third-party defendant-appellee the sum of P32,441,401.85, to
remit 30% thereof to plaintiff-appellee Union Bank of the
Philippines. 99. G.R. No. L-48797 July 30, 1943

SO ORDERED. FUA CAM LU, plaintiff-appellee,
vs.
In other words, both the body and the dispositive portion of the YAP FAUCO and YAP SINGCO, defendants-appellants.
aforequoted decision acknowledged that DBPs obligation to
Union Bank for remittance of the lease payments is contingent on The plaintiff-appellee, Fua Cam Lu, obtained in civil case No.
the prior payment thereof by Foodmasters to DBP. 42125 of the Court of First Instance of Manila a judgment
sentencing the defendants-appellants, Yap Fauco and Yap Singco,
A careful reading of the decision shows that the Court of Appeals, to pay P1,538.04 with legal interest and costs. By virtue of a writ
which was affirmed by the Supreme Court, found that only the of execution, a certain parcel of land belonging to the appellants,
balance or the deficiency of the P17 million principal obligation, assessed at P3,550 and situated in Donsol, Sorsogon was levied
if any, would be due and demandable as of December 29, 1998. upon the provincial sheriff of Sorsogon who, on November 15,
Naturally, this deficiency cannot be determined until after the 1933, made a notice, duly posted in three conspicuous places in
satisfaction of Foodmasters obligation to DBP, for remittance to the municipalities of Donsol and Sorsogon and published in the
Union Bank in the proportion set out in the 1994 Decision. Mamera Press, that said land would be sold at public auction on
(Emphases and underscoring supplied; citations omitted) December 12, 1933. On December 16, 1933, the appellants
executed a mortgage in favor of the appellee, wherein it was
x x x x stipulated that their obligation under the judgment in civil case
No. 41225 was reduced to P1,200 which was made payable in
In fine, since requisites 3 and 4 of Article 1279 of the Civil Code four installments of P300 during the period commencing on
have not concurred in this case, no legal compensation could February 8, 1934, and ending on August 8, 1935l that to secure
have taken place between the above-stated debts pursuant to the payment of the said P1,200, a camarin belonging to the
Article 1290 of the Civil Code. Perforce, the petition must be appellants and built on the above-mentioned land, was
denied, and the denial of Union Bank s motion to affirm legal mortgaged to the appellee; that in case the appellants defaulted
compensation sustained. in the payment of any of the installments, they would pay ten per
cent of the unpaid balance as attorney's fees. plus the costs of the
action to be brought by the appellee by reason of such default,
and the further amount of P338, representing the discount

conceded to the appellants. As a result of the agreement thus appellee as a settlement of the judgment in civil case No. 42125
reached by the parties, the sale of the land advertised by the (en forma de transaccion de la decision . . . en el asunto civil No.
provincial sheriff did not take place. However, pursuant to an 42125). Said judgment cannot be said to have been settled,
alias writ of execution issued by the Court of First instance of unless it was extinguished.
manila in civil case No. 42125 on March 31, 1934, the provincial
sheriff, without publishing a new notice, sold said land at a public Moreover, the sheriff's sale in favor of the appellee is void
auction held on May 28, 1934, to the appellee for P1,923.32. On because no notice thereof was published other than that which
June 13, 1935, the provincial sheriff executed a final deed in favor appeared in the Mamera Press regarding the sale to be held on
of the appellee. On August 29, 1939, the appellee instituted the December 12, 1933. Lack of new publication is shown by
present action in the Court of First Instance of Sorsogon against appellee's own evidence and the issue, though not raised in the
the appellants in view of their refusal to recognize appellee's title pleadings, was thereby tried by implied consent of the parties,
and to vacate the land. The appellants relied on the legal defenses emphasized by the appellants in the memorandum filed by them
that their obligation under the judgment in civil case No. 42125 in the lower court and squarely threshed out in this Court by
was novated by the mortgage executed by them in favor of the both the appellants and the appellee. The latter had, besides,
appellee and that the sheriffs sale was void for lack of necessary admitted that there was no new publication, and so much so that
publication. These contentions were overruled by the lower court in his brief he merely resorted to the argument that "section 460
which rendered judgment declaring the appellee to be the owner of Act 190 authorized the sheriff to adjourn any sale upon
of the land and ordering the appellants to deliver the same to execution to any date agreed upon in writing by the parties . . .
him, without special pronouncement as to costs. The appellants and does not require the sheriff to publish anew the public sale
seek the reversal of this judgment. which was adjourned." The appellee has correctly stated the law
but has failed to show that it supports his side, for it is not
We concur in the theory that appellants liability under the pretended that there was any written agreement between the
judgment in civil case No. 42125 had been extinguished by the parties to adjourn the sale advertised for December 12, 1933, to
settlement evidenced by the mortgage executed by them in favor May 28, 1934. Neither may it be pretended that the sale in favor
of the appellee on December 16, 1933. Although said mortgage of the appellee was by virtue of a mere adjournment, it appearing
did not expressly cancel the old obligation, this was impliedly that it was made pursuant to an alias writ of execution. Appellee's
novated by reason of incompatibly resulting from the fact that, admission has thus destroyed the legal presumption that official
whereas the judgment was for P1,538.04 payable at one time, did duty was regularly performed.
not provide for attorney's fees, and was not secured, the new
obligation is or P1,200 payable in installments, stipulated for The appealed judgment is, therefore, reversed and the
attorney's fees, and is secured by a mortgage. The appellee, defendants-appellants, who are hereby declared to be the owners
however, argues that the later agreement merely extended the of the land in question are absolved from the complaint, with
time of payment and did not take away his concurrent right to costs against the appellee. So ordered.
have the judgment executed. This court not have been the
purpose for executive the mortgage, because it was therein
recited that the appellants promised to pay P1,200 to the

proved that respondent's blood and tissue type were well-
100. G.R. No. 170141 April 22, 2008 matched with Loreto's.7

JAPAN AIRLINES, petitioner, Respondent needed to go to the United States to complete his
vs. preliminary work-up and donation surgery. Hence, to facilitate
JESUS SIMANGAN, respondent. respondent's travel to the United States, UCLA wrote a letter to
the American Consulate in Manila to arrange for his visa. In due
D E C I S I O N time, respondent was issued an emergency U.S. visa by the
American Embassy in Manila.8
REYES R.T., J.:
Having obtained an emergency U.S. visa, respondent purchased a
WHEN an airline issues a ticket to a passenger confirmed on a round trip plane ticket from petitioner JAL for US$1,485.00 and
particular flight on a certain date, a contract of carriage arises, was issued the corresponding boarding pass.9 He was scheduled
and the passenger has every right to expect that he would fly on to a particular flight bound for Los Angeles, California, U.S.A. via
that flight and on that date. If he does not, then the carrier opens Narita, Japan.10
itself to a suit for breach of contract of carriage.1
On July 29, 1992, the date of his flight, respondent went to Ninoy
The power to admit or not an alien into the country is a sovereign Aquino International Airport in the company of several relatives
act which cannot be interfered with even by Japan Airlines and friends.11 He was allowed to check-in at JAL's counter.12 His
(JAL).2 plane ticket, boarding pass, travel authority and personal articles
were subjected to rigid immigration and security routines.13
In this petition for review on certiorari,3 petitioner JAL appeals After passing through said immigration and security procedures,
the: (1) Decision4 dated May 31, 2005 of the Court of Appeals respondent was allowed by JAL to enter its airplane.14
(CA) ordering it to pay respondent Jesus Simangan moral and
exemplary damages; and (2) Resolution5 of the same court dated While inside the airplane, JAL's airline crew suspected
September 28, 2005 denying JAL's motion for reconsideration. respondent of carrying a falsified travel document and imputed
that he would only use the trip to the United States as a pretext to
The Facts stay and work in Japan.15 The stewardess asked respondent to
show his travel documents. Shortly after, the stewardess along
In 1991, respondent Jesus Simangan decided to donate a kidney with a Japanese and a Filipino haughtily ordered him to stand up
to his ailing cousin, Loreto Simangan, in UCLA School of Medicine and leave the plane.16 Respondent protested, explaining that he
in Los Angeles, California, U.S.A. Upon request of UCLA, was issued a U.S. visa. Just to allow him to board the plane, he
respondent undertook a series of laboratory tests at the National pleaded with JAL to closely monitor his movements when the
Kidney Institute in Quezon City to verify whether his blood and aircraft stops over in Narita.17 His pleas were ignored. He was
tissue type are compatible with Loreto's.6 Fortunately, said tests then constrained to go out of the plane.18 In a nutshell,
respondent was bumped off the flight.

WHEREFORE, judgment is hereby rendered ordering the
Respondent went to JAL's ground office and waited there for defendant to pay the plaintiff the amount of P1,000,000.00 as
three hours. Meanwhile, the plane took off and he was left moral damages, the amount of P500,000.00 as exemplary
behind.19 Afterwards, he was informed that his travel documents damages and the amount of P250,000.00 as attorney's fees, plus
were, indeed, in order.20 Respondent was refunded the cost of the cost of suit.29
his plane ticket less the sum of US$500.00 which was deducted
by JAL.21 Subsequently, respondent's U.S. visa was cancelled.22 The RTC explained:

Displeased by the turn of events, respondent filed an action for In summarily and insolently ordering the plaintiff to disembark
damages against JAL with the Regional Trial Court (RTC) in while the latter was already settled in his assigned seat, the
Valenzuela City, docketed as Civil Case No. 4195-V-93. He claimed defendant violated the contract of carriage; that when the
he was not able to donate his kidney to Loreto; and that he plaintiff was ordered out of the plane under the pretext that the
suffered terrible embarrassment and mental anguish.23 He genuineness of his travel documents would be verified it had
prayed that he be awarded P3 million as moral damages, P1.5 caused him embarrassment and besmirched reputation; and that
million as exemplary damages and P500,000.00 as attorney's when the plaintiff was finally not allowed to take the flight, he
fees.24 suffered more wounded feelings and social humiliation for which
the plaintiff was asking to be awarded moral and exemplary
JAL denied the material allegations of the complaint. It argued, damages as well as attorney's fees.
among others, that its failure to allow respondent to fly on his
scheduled departure was due to "a need for his travel documents The reason given by the defendant that what prompted them to
to be authenticated by the United States Embassy"25 because no investigate the genuineness of the travel documents of the
one from JAL's airport staff had encountered a parole visa plaintiff was that the plaintiff was not then carrying a regular visa
before.26 It posited that the authentication required additional but just a letter does not appear satisfactory. The defendant is
time; that respondent was advised to take the flight the following engaged in transporting passengers by plane from country to
day, July 30, 1992. JAL alleged that respondent agreed to be country and is therefore conversant with the travel documents.
rebooked on July 30, 1992.27 The defendant should not be allowed to pretend, to the prejudice
of the plaintiff not to know that the travel documents of the
JAL also lodged a counterclaim anchored on respondent's alleged plaintiff are valid documents to allow him entry in the United
wrongful institution of the complaint. It prayed for litigation States.
expenses, exemplary damages and attorney's fees.28
The foregoing act of the defendant in ordering the plaintiff to
On September 21, 2000, the RTC presided by Judge Floro P. Alejo deplane while already settled in his assigned seat clearly
rendered its decision in favor of respondent (plaintiff), disposing demonstrated that the defendant breached its contract of
as follows: carriage with the plaintiff as passenger in bad faith and as such
the plaintiff is entitled to moral and exemplary damages as well
as to an award of attorney's fees.30

Disagreeing with the RTC judgment, JAL appealed to the CA In fact, breach of the contract of carriage creates against the
contending that it is not guilty of breach of contract of carriage, carrier a presumption of liability, by a simple proof of injury,
hence, not liable for damages.31 It posited that it is the one relieving the injured passenger of the duty to establish the fault
entitled to recover on its counterclaim.32 of the carrier or of his employees; and placing on the carrier the
burden to prove that it was due to an unforeseen event or to
CA Ruling force majeure.

In a Decision33 dated May 31, 2005, the CA affirmed the decision That appellee possessed bogus travel documents and that he
of the RTC with modification in that it lowered the amount of might stay illegally in Japan are allegations without
moral and exemplary damages and deleted the award of substantiation. Also, appellant's attempt to rebook appellee the
attorney's fees. The fallo of the CA decision reads: following day was too late and did not relieve it from liability.
The damage had been done. Besides, its belated theory of
WHEREFORE, the appealed Decision is AFFIRMED with novation, i.e., that appellant's original obligation to carry appellee
MODIFICATION. Appellant JAPAN AIR LINES is ordered to pay to Narita and Los Angeles on July 29, 1992 was extinguished by
appellee JESUS SIMANGAN the reduced sums, as follows: Five novation when appellant and appellant agreed that appellee will
Hundred Thousand Pesos (P500,000.00) as moral damages, and instead take appellant's flight to Narita on the following day, July
Two Hundred Fifty Thousand Pesos (P250,000.00) as exemplary 30, 1992, deserves little attention. It is inappropriate at bar.
damages. The award of attorney's fees is hereby DELETED.34 Questions not taken up during the trial cannot be raised for the
first time on appeal.40 (Underscoring ours and citations were
The CA elucidated that since JAL issued to respondent a round omitted)
trip plane ticket for a lawful consideration, "there arose a
perfected contract between them."35 It found that respondent Citing Ortigas, Jr. v. Lufthansa German Airlines,41 the CA declared
was "haughtily ejected"36 by JAL and that "he was certainly that "(i)n contracts of common carriage, inattention and lack of
embarrassed and humiliated"37 when, in the presence of other care on the part of the carrier resulting in the failure of the
passengers, JAL's airline staff "shouted at him to stand up and passenger to be accommodated in the class contracted for
arrogantly asked him to produce his travel papers, without the amounts to bad faith or fraud which entitles the passengers to
least courtesy every human being is entitled to";38 and that "he the award of moral damages in accordance with Article 2220 of
was compelled to deplane on the grounds that his papers were the Civil Code."42
fake."39
Nevertheless, the CA modified the damages awarded by the RTC.
The CA ratiocinated: It explained:

While the protection of passengers must take precedence over Fundamental in the law on damages is that one injured by a
convenience, the implementation of security measures must be breach of a contract, or by a wrongful or negligent act or
attended by basic courtesies. omission shall have a fair and just compensation commensurate

to the loss sustained as consequence of the defendant's act. Being
discretionary on the court, the amount, however, should not be I.
palpably and scandalously excessive.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING
Here, the trial court's award of P1,000,000.00 as moral damages THAT RESPONDENT WAS ENTITLED TO MORAL DAMAGES,
appears to be overblown. No other proof of appellee's social CONSIDERING THAT:
standing, profession, financial capabilities was presented except
that he was single and a businessman. To Us, the sum of A. JAL WAS NOT GUILTY OF BREACH OF CONTRACT.
500,000.00 is just and fair. For, moral damages are emphatically
not intended to enrich a complainant at the expense of the B. MORAL DAMAGES MAY BE AWARDED IN BREACH OF
defendant. They are awarded only to enable the injured party to CONTRACT CASES ONLY WHEN THE BREACH IS ATTENDED BY
obtain means, diversion or amusements that will serve to FRAUD OR BAD FAITH. ASSUMING ARGUENDO THAT JAL WAS
alleviate the moral suffering he has undergone, by reason of the GUILTY OF BREACH, JAL DID NOT ACT FRAUDULENTLY OR IN
defendant's culpable action. BAD FAITH AS TO ENTITLE RESPONDENT TO MORAL DAMAGES.

Moreover, the grant of P500,000.00 as exemplary damages needs C. THE LAW DISTINGUISHES A CONTRACTUAL BREACH
to be reduced to a reasonable level. The award of exemplary EFFECTED IN GOOD FAITH FROM ONE ATTENDED BY BAD
damages is designed to permit the courts to mould behavior that FAITH.
has socially deleterious consequences and its imposition is
required by public policy to suppress the wanton acts of the II.
offender. Hence, the sum of P250,000.00 is adequate under the
circumstances. WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING
THAT RESPONDENT WAS ENTITLED TO EXEMPLARY DAMAGES
The award of P250,000.00 as attorney's fees lacks factual basis. CONSIDERING THAT:
Appellee was definitely compelled to litigate in protecting his
rights and in seeking relief from appellant's misdeeds. Yet, the A. EXEMPLARY DAMAGES ARE NOT RECOVERABLE IN BREACH
record is devoid of evidence to show the cost of the services of OF CONTRACT OF CARRIAGE UNLESS THE CARRIER IS GUILTY
his counsel and/or the actual expenses incurred in prosecuting OF WANTON, FRAUDULENT, RECKLESS, OPPRESSIVE OR
his action.43 (Citations were omitted) MALEVOLENT CONDUCT.

When JAL's motion for reconsideration was denied, it resorted to B. ASSUMING ARGUENDO THAT JAL WAS GUILTY OF BREACH,
the petition at bar. JAL DID NOT ACT IN A WANTON FRAUDULENT, RECKLESS,
OPPRESSIVE OR MALEVOLENT MANNER AS TO ENTITLE
Issues RESPONDENT TO EXEMPLARY DAMAGES.

JAL poses the following issues - III.

conclusion is a finding grounded entirely on speculations,
ASSUMING ARGUENDO THAT RESPONDENT WAS ENTITLED TO surmises or conjectures; (b) when the inference made is
AN AWARD OF DAMAGES, WHETHER OR NOT THE COURT OF manifestly mistaken, absurd or impossible; (c) where there is
APPEALS AWARD OF P750,000 IN DAMAGES WAS EXCESSIVE grave abuse of discretion; (d) when the judgment is based on a
AND UNPRECEDENTED. misapprehension of facts; (e) when the findings of facts are
conflicting; (f) when the CA, in making its findings, went beyond
IV. the issues of the case and the same is contrary to the admissions
of both appellant and appellee.48
WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT
FINDING FOR JAL ON ITS COUNTERCLAIM.44 (Underscoring The said exceptions, which are being invoked by JAL, are not
Ours) found here. There is no indication that the findings of the CA are
contrary to the evidence on record or that vital testimonies of
Basically, there are three (3) issues to resolve here: (1) whether JAL's witnesses were disregarded. Neither did the CA commit
or not JAL is guilty of contract of carriage; (2) whether or not misapprehension of facts nor did it fail to consider relevant facts.
respondent is entitled to moral and exemplary damages; and (3) Likewise, there was no grave abuse of discretion in the
whether or not JAL is entitled to its counterclaim for damages. appreciation of facts or mistaken and absurd inferences.

Our Ruling We thus sustain the coherent facts as established by the courts
below, there being no sufficient showing that the said courts
This Court is not a trier of facts. committed reversible error in reaching their conclusions.

Chiefly, the issues are factual. The RTC findings of facts were JAL is guilty of breach of
affirmed by the CA. The CA also gave its nod to the reasoning of contract of carriage.
the RTC except as to the awards of damages, which were reduced,
and that of attorney's fees, which was deleted. That respondent purchased a round trip plane ticket from JAL
and was issued the corresponding boarding pass is
We are not a trier of facts. We generally rely upon, and are bound uncontroverted.49 His plane ticket, boarding pass, travel
by, the conclusions on this matter of the lower courts, which are authority and personal articles were subjected to rigid
better equipped and have better opportunity to assess the immigration and security procedure.50 After passing through
evidence first-hand, including the testimony of the witnesses.45 said immigration and security procedure, he was allowed by JAL
to enter its airplane to fly to Los Angeles, California, U.S.A. via
We have repeatedly held that the findings of fact of the CA are Narita, Japan.51 Concisely, there was a contract of carriage
final and conclusive and cannot be reviewed on appeal to the between JAL and respondent.
Supreme Court provided they are based on substantial
evidence.46 We have no jurisdiction, as a rule, to reverse their Nevertheless, JAL made respondent get off the plane on his
findings.47 Among the exceptions to this rule are: (a) when the scheduled departure on July 29, 1992. He was not allowed by JAL

to fly. JAL thus failed to comply with its obligation under the Moreover, the reason behind the bumping off incident, as found
contract of carriage. by the RTC and CA, was that JAL personnel imputed that
respondent would only use the trip to the United States as a
JAL justifies its action by arguing that there was "a need to verify pretext to stay and work in Japan.59
the authenticity of respondent's travel document."52 It alleged
that no one from its airport staff had encountered a parole visa Apart from the fact that respondent's plane ticket, boarding pass,
before.53 It further contended that respondent agreed to fly the travel authority and personal articles already passed the rigid
next day so that it could first verify his travel document, hence, immigration and security routines,60 JAL, as a common carrier,
there was novation.54 It maintained that it was not guilty of ought to know the kind of valid travel documents respondent
breach of contract of carriage as respondent was not able to carried. As provided in Article 1755 of the New Civil Code: "A
travel to the United States due to his own voluntary desistance.55 common carrier is bound to carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence
We cannot agree. JAL did not allow respondent to fly. It informed of very cautious persons, with a due regard for all the
respondent that there was a need to first check the authenticity circumstances."61 Thus, We find untenable JAL's defense of
of his travel documents with the U.S. Embassy.56 As admitted by "verification of respondent's documents" in its breach of contract
JAL, "the flight could not wait for Mr. Simangan because it was of carriage.
ready to depart."57
It bears repeating that the power to admit or not an alien into the
Since JAL definitely declared that the flight could not wait for country is a sovereign act which cannot be interfered with even
respondent, it gave respondent no choice but to be left behind. by JAL.62
The latter was unceremoniously bumped off despite his
protestations and valid travel documents and notwithstanding In an action for breach of contract of carriage, all that is required
his contract of carriage with JAL. Damage had already been done of plaintiff is to prove the existence of such contract and its non-
when respondent was offered to fly the next day on July 30, 1992. performance by the carrier through the latter's failure to carry
Said offer did not cure JAL's default. the passenger safely to his destination.63 Respondent has
complied with these twin requisites.
Considering that respondent was forced to get out of the plane
and left behind against his will, he could not have freely Respondent is entitled to moral and exemplary damages and
consented to be rebooked the next day. In short, he did not agree attorney's fees plus legal interest.
to the alleged novation. Since novation implies a waiver of the
right the creditor had before the novation, such waiver must be With reference to moral damages, JAL alleged that they are not
express.58 It cannot be supposed, without clear proof, that recoverable in actions ex contractu except only when the breach
respondent had willingly done away with his right to fly on July is attended by fraud or bad faith. It is contended that it did not act
29, 1992. fraudulently or in bad faith towards respondent, hence, it may
not be held liable for moral damages.


As a general rule, moral damages are not recoverable in actions care for the interests of its passengers who are entitled to its
for damages predicated on a breach of contract for it is not one of utmost consideration, particularly as to their convenience,
the items enumerated under Article 2219 of the Civil Code.64 As amount to bad faith which entitles the passenger to an award of
an exception, such damages are recoverable: (1) in cases in which moral damages. What the law considers as bad faith which may
the mishap results in the death of a passenger, as provided in furnish the ground for an award of moral damages would be bad
Article 1764, in relation to Article 2206(3) of the Civil Code; and faith in securing the contract and in the execution thereof, as well
(2) in the cases in which the carrier is guilty of fraud or bad faith, as in the enforcement of its terms, or any other kind of deceit.67
as provided in Article 2220.65
JAL is also liable for exemplary damages as its above-mentioned
The acts committed by JAL against respondent amounts to bad acts constitute wanton, oppressive and malevolent acts against
faith. As found by the RTC, JAL breached its contract of carriage respondent. Exemplary damages, which are awarded by way of
with respondent in bad faith. JAL personnel summarily and example or correction for the public good, may be recovered in
insolently ordered respondent to disembark while the latter was contractual obligations, as in this case, if defendant acted in
already settled in his assigned seat. He was ordered out of the wanton, fraudulent, reckless, oppressive, or malevolent
plane under the alleged reason that the genuineness of his travel manner.68
documents should be verified.
Exemplary damages are designed by our civil law to permit the
These findings of facts were upheld by the CA, to wit: courts to reshape behaviour that is socially deleterious in its
consequence by creating negative incentives or deterrents
x x x he was haughtily ejected by appellant. He was certainly against such behaviour. In requiring compliance with the
embarrassed and humiliated when, in the presence of other standard of extraordinary diligence, a standard which is, in fact,
passengers, the appellant's airline staff shouted at him to stand that of the highest possible degree of diligence, from common
up and arrogantly asked him to produce his travel papers, carriers and in creating a presumption of negligence against
without the least courtesy every human being is entitled to. Then, them, the law seeks to compel them to control their employees,
he was compelled to deplane on the grounds that his papers were to tame their reckless instincts and to force them to take
fake. His protestation of having been issued a U.S. visa coupled adequate care of human beings and their property.69
with his plea to appellant to closely monitor his movements
when the aircraft stops over in Narita, were ignored. Worse, he Neglect or malfeasance of the carrier's employees could give
was made to wait for many hours at the office of appellant only to ground for an action for damages. Passengers have a right to be
be told later that he has valid travel documents.66 (Underscoring treated by the carrier's employees with kindness, respect,
ours) courtesy and due consideration and are entitled to be protected
against personal misconduct, injurious language, indignities and
Clearly, JAL is liable for moral damages. It is firmly settled that abuses from such employees.70
moral damages are recoverable in suits predicated on breach of a
contract of carriage where it is proved that the carrier was guilty The assessment of P500,000.00 as moral damages and
of fraud or bad faith, as in this case. Inattention to and lack of P100,000.00 as exemplary damages in respondent's favor is, in

Our view, reasonable and realistic. This award is reasonably
sufficient to indemnify him for the humiliation and Considering the factual backdrop of this case, attorney's fees in
embarrassment he suffered. This also serves as an example to the amount of P200,000.00 is reasonably modest.
discourage the repetition of similar oppressive acts.
The above liabilities of JAL in the total amount of P800,000.00
With respect to attorney's fees, they may be awarded when earn legal interest pursuant to the Court's ruling in Construction
defendant's act or omission has compelled plaintiff to litigate Development Corporation of the Philippines v. Estrella,76 citing
with third persons or to incur expenses to protect his interest.71 Eastern Shipping Lines, Inc. v. Court of Appeals,77 to wit:
The Court, in Construction Development Corporation of the
Philippines v. Estrella,72 citing Traders Royal Bank Employees Regarding the imposition of legal interest at the rate of 6% from
Union-Independent v. National Labor Relations Commission,73 the time of the filing of the complaint, we held in Eastern
elucidated thus: Shipping Lines, Inc. v. Court of Appeals, that when an obligation,
regardless of its source, i.e., law, contracts, quasi-contracts,
There are two commonly accepted concepts of attorney's fees, delicts or quasi-delicts is breached, the contravenor can be held
the so-called ordinary and extraordinary. In its ordinary concept, liable for payment of interest in the concept of actual and
an attorney's fee is the reasonable compensation paid to a lawyer compensatory damages, subject to the following rules, to wit -
by his client for the legal services he has rendered to the latter.
The basis of this compensation is the fact of his employment by 1. When the obligation is breached, and it consists in the payment
and his agreement with the client. of a sum of money, i.e., a loan or forbearance of money, the
In its extraordinary concept, an attorney's fee is an indemnity for writing. Furthermore, the interest due shall itself earn legal
damages ordered by the court to be paid by the losing party in a interest from the time it is judicially demanded. In the absence of
litigation. The basis of this is any of the cases provided by law stipulation, the rate of interest shall be 12% per annum to be
where such award can be made, such as those authorized in computed from default, i.e., from judicial or extrajudicial demand
Article 2208, Civil Code, and is payable not to the lawyer but to under and subject to the provisions of Article 1169 of the Civil
the client, unless they have agreed that the award shall pertain to Code.
the lawyer as additional compensation or as part thereof.74
2. When an obligation, not constituting a loan or forbearance of
It was therefore erroneous for the CA to delete the award of money, is breached, an interest on the amount of damages
attorney's fees on the ground that the record is devoid of awarded may be imposed at the discretion of the court at the rate
evidence to show the cost of the services of respondent's counsel. of 6% per annum. No interest, however, shall be adjudged on
The amount is actually discretionary upon the Court so long as it unliquidated claims or damages except when or until the demand
passes the test of reasonableness. They may be recovered as can be established with reasonable certainty. Accordingly, where
actual or compensatory damages when exemplary damages are the demand is established with reasonable certainty, the interest
awarded and whenever the court deems it just and equitable,75 shall begin to run from the time the claim is made judicially or
as in this case. extrajudicially (Art. 1169, Civil Code) but when such certainty

cannot be so reasonably established at the time the demand is damages, for the law could not have meant to impose a penalty
made, the interest shall begin to run only from the date the on the right to litigate.80
judgment of the court is made (at which time the quantification
of damages may be deemed to have been reasonably We reiterate case law that if damages result from a party's
ascertained). The actual base for the computation of legal interest exercise of a right, it is damnum absque injuria.81 Lawful acts
shall, in any case, be on the amount finally adjudged. give rise to no injury. Walang perhuwisyong maaring idulot ang
paggamit sa sariling karapatan.
3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether During the trial, however, JAL presented a witness who testified
the case falls under paragraph 1 or paragraph 2, above, shall be that JAL suffered further damages. Allegedly, respondent caused
12% per annum from such finality until its satisfaction, this the publications of his subject complaint against JAL in the
interim period being deemed to be by then an equivalent to a newspaper for which JAL suffered damages.82
forbearance of credit.78 (Emphasis supplied and citations
omitted) Although these additional damages allegedly suffered by JAL
were not incorporated in its Answer as they arose subsequent to
Accordingly, in addition to the said total amount of P800,000.00, its filing, JAL's witness was able to testify on the same before the
JAL is liable to pay respondent legal interest. Pursuant to the RTC.83 Hence, although these issues were not raised by the
above ruling of the Court, the legal interest is 6% and it shall be pleadings, they shall be treated in all respects as if they had been
reckoned from September 21, 2000 when the RTC rendered its raised in the pleadings.
judgment. From the time this Decision becomes final and
executory, the interest rate shall be 12% until its satisfaction. As provided in Section 5, Rule 10 of the Rules of Court, "(w)hen
issues not raised by the pleadings are tried with the express or
JAL is not entitled to its counterclaim for damages. implied consent of the parties, they shall be treated in all respects
as if they had been raised in the pleadings."
The counterclaim of JAL in its Answer79 is a compulsory
counterclaim for damages and attorney's fees arising from the Nevertheless, JAL's counterclaim cannot be granted.
filing of the complaint. There is no mention of any other counter
claims. JAL is a common carrier. JAL's business is mainly with the
traveling public. It invites people to avail themselves of the
This compulsory counterclaim of JAL arising from the filing of the comforts and advantages it offers.84 Since JAL deals with the
complaint may not be granted inasmuch as the complaint against public, its bumping off of respondent without a valid reason
it is obviously not malicious or unfounded. It was filed by naturally drew public attention and generated a public issue.
respondent precisely to claim his right to damages against JAL.
Well-settled is the rule that the commencement of an action does The publications involved matters about which the public has the
not per se make the action wrongful and subject the action to right to be informed because they relate to a public issue. This

public issue or concern is a legitimate topic of a public comment have been written or published with the knowledge that they are
that may be validly published. false or in reckless disregard of whether they are false or not.88

Assuming that respondent, indeed, caused the publication of his Considering that the published articles involve matters of public
complaint, he may not be held liable for damages for it. The interest and that its expressed opinion is not malicious but based
constitutional guarantee of freedom of the speech and of the on established facts, the imputations against JAL are not
press includes fair commentaries on matters of public interest. actionable. Therefore, JAL may not claim damages for them.
This is explained by the Court in Borjal v. Court of Appeals,85 to
wit: WHEREFORE, the petition is DENIED. The appealed Decision of
the Court of Appeals is AFFIRMED WITH MODIFICATION. As
To reiterate, fair commentaries on matters of public interest are modified, petitioner Japan Airlines is ordered to pay respondent
privileged and constitute a valid defense in an action for libel or Jesus Simangan the following: (1) P500,000.00 as moral
slander. The doctrine of fair comment means that while in damages; (2) P100,000.00 as exemplary damages; and (3)
general every discreditable imputation publicly made is deemed P200,000.00 as attorney's fees.
false, because every man is presumed innocent until his guilt is
judicially proved, and every false imputation is deemed The total amount adjudged shall earn legal interest at the rate of
malicious, nevertheless, when the discreditable imputation is 6% per annum from the date of judgment of the Regional Trial
directed against a public person in his public capacity, it is not Court on September 21, 2000 until the finality of this Decision.
necessarily actionable. In order that such discreditable From the time this Decision becomes final and executory, the
imputation to a public official may be actionable, it must either be unpaid amount, if any, shall earn legal interest at the rate of 12%
a false allegation of fact or a comment based on a false per annum until its satisfaction.
supposition. If the comment is an expression of opinion, based on
established facts, then it is immaterial that the opinion happens
to be mistaken, as long as it might reasonably be inferred from
the facts.86 (Citations omitted and underscoring ours)
101. G.R. No. 171998 October 20, 2010
Even though JAL is not a public official, the rule on privileged
commentaries on matters of public interest applies to it. The ANAMER SALAZAR, Petitioner,
privilege applies not only to public officials but extends to a great vs.
variety of subjects, and includes matters of public concern, public J.Y. BROTHERS MARKETING CORPORATION,
men, and candidates for office.87 Respondent.

Hence, pursuant to the Borjal case, there must be an actual malice D E C I S I O N
in order that a discreditable imputation to a public person in his
public capacity or to a public official may be actionable. To be PERALTA, J.:
considered malicious, the libelous statements must be shown to

Before us is a petition for review seeking to annul and set aside 2001, the court a quo rendered an Order, the dispositive portion
the Decision1 dated September 29, 2005 and the Resolution2 of which reads:
dated March 2, 2006 of the Court of Appeals (CA) in CA-G.R. CV
No. 83104. WHEREFORE, premises considered, the accused Anamer D.
Salazar is hereby ACQUITTED of the crime charged but is hereby
The facts, as found by the Court of Appeals, are not disputed, held liable for the value of the 300 bags of rice. Accused Anamer
thus: D. Salazar is therefore ordered to pay J.Y. Brothers Marketing
Corporation the sum of P214,000.00. Costs against the accused.
J.Y. Brothers Marketing (J.Y. Bros., for short) is a corporation
engaged in the business of selling sugar, rice and other SO ORDERED.
commodities. On October 15, 1996, Anamer Salazar, a freelance
sales agent, was approached by Isagani Calleja and Jess Kallos, if Aggrieved, accused attempted a reconsideration on the civil
she knew a supplier of rice. Answering in the positive, Salazar aspect of the order and to allow her to present evidence thereon.
accompanied the two to J.Y. Bros. As a consequence, Salazar with The motion was denied. Accused went up to the Supreme Court
Calleja and Kallos procured from J. Y. Bros. 300 cavans of rice on a petition for review on certiorari under Rule 45 of the Rules
worth P214,000.00. As payment, Salazar negotiated and indorsed of Court. Docketed as G.R. 151931, in its Decision dated
to J.Y. Bros. Prudential Bank Check No. 067481 dated October 15, September 23, 2003, the High Court ruled:
1996 issued by Nena Jaucian Timario in the amount of
P214,000.00 with the assurance that the check is good as cash. IN LIGHT OF ALL THE FOREGOING, the Petition is GRANTED. The
On that assurance, J.Y. Bros. parted with 300 cavans of rice to Orders dated November 19, 2001 and January 14, 2002 are SET
Salazar. However, upon presentment, the check was dishonored ASIDE and NULLIFIED. The Regional Trial Court of Legaspi City,
due to "closed account." Branch 5, is hereby DIRECTED to set Criminal Case No. 7474 for
the continuation of trial for the reception of the evidence-in-chief
Informed of the dishonor of the check, Calleja, Kallos and Salazar of the petitioner on the civil aspect of the case and for the
delivered to J.Y. Bros. a replacement cross Solid Bank Check No. rebuttal evidence of the private complainant and the sur-rebuttal
PA365704 dated October 29, 1996 again issued by Nena Jaucian evidence of the parties if they opt to adduce any.
Timario in the amount of P214,000.00 but which, just the same,
bounced due to insufficient funds. When despite the demand SO ORDERED.3
letter dated February 27, 1997, Salazar failed to settle the
amount due J.Y. Bros., the latter charged Salazar and Timario The Regional Trial Court (RTC) of Legaspi City, Branch 5, then
with the crime of estafa before the Regional Trial Court of proceeded with the trial on the civil aspect of the criminal case.
Legaspi City, docketed as Criminal Case No. 7474.
On April 1, 2004, the RTC rendered its Decision,4 the dispositive
After the prosecution rested its case and with prior leave of court, portion of which reads:
Salazar submitted a demurrer to evidence. On November 19,

WHEREFORE, Premises Considered, judgment is rendered such substitution was to extinguish the obligation arising from
DISMISSING as against Anamer D. Salazar the civil aspect of the the issuance of the Prudential Bank check.
above-entitled case. No pronouncement as to costs.
Respondent filed an appeal with the CA on the sole assignment of
Place into the files (archive) the record of the above-entitled case error that:
as against the other accused Nena Jaucian Timario. Let an alias
(bench) warrant of arrest without expiry dated issue for her IN BRIEF, THE LOWER COURT ERRED IN RULING THAT
apprehension, and fix the amount of the bail bond for her ACCUSED ANAMER SALAZAR BY INDORSING THE CHECK (A)
provisional liberty at 59,000.00 pesos. DID NOT BECOME A HOLDER OF THE CHECK, (B) DID NOT
PRODUCE THE TECHNICAL EFFECT OF AN INDORSEMENT
SO ORDERED.5 ARISING FROM NEGOTIATION; AND (C) DID NOT INCUR CIVIL
LIABILITY.6
The RTC found that the Prudential Bank check drawn by Timario
for the amount of P214,000.00 was payable to the order of After petitioner filed her appellees' brief, the case was submitted
respondent, and such check was a negotiable order instrument; for decision. On September 29, 2005, the CA rendered its assailed
that petitioner was not the payee appearing in the check, but Decision, the decretal portion of which reads:
respondent who had not endorsed the check, much less delivered
it to petitioner. It then found that petitioners liability should be IN VIEW OF ALL THE FOREGOING, the instant appeal is
limited to the allegation in the amended information that "she GRANTED, the challenged Decision is REVERSED and SET ASIDE,
endorsed and negotiated said check," and since she had never and a new one entered ordering the appellee to pay the appellant
been the holder of the check, petitioner's signing of her name on the amount of P214,000.00, plus interest at the legal rate from
the face of the dorsal side of the check did not produce the the written demand until full payment. Costs against the
technical effect of an indorsement arising from negotiation. The appellee.7
RTC ruled that after the Prudential Bank check was dishonored, it
was replaced by a Solid Bank check which, however, was also In so ruling, the CA found that petitioner indorsed the Prudential
subsequently dishonored; that since the Solid Bank check was a Bank check, which was later replaced by a Solid Bank check
crossed check, which meant that such check was only for deposit issued by Timario, also indorsed by petitioner as payment for the
in payees account, a condition that rendered such check non- 300 cavans of rice bought from respondent. The CA, applying
negotiable, the substitution of a non-negotiable Solid Bank check Sections 63,8 669 and 2910 of the Negotiable Instruments Law,
for a negotiable Prudential Bank check was an essential change found that petitioner was considered an indorser of the checks
which had the effect of discharging from the obligation whoever paid to respondent and considered her as an accommodation
may be the endorser of the negotiable check. The RTC concluded indorser, who was liable on the instrument to a holder for value,
that the absence of negotiability rendered nugatory the notwithstanding that such holder at the time of the taking of the
obligation arising from the technical act of indorsing a check and, instrument knew her only to be an accommodation party.
thus, had the effect of novation; and that the ultimate effect of

Respondent filed a motion for reconsideration, which the CA drawer or indorser of the Prudential Bank check would have
denied in a Resolution dated March 2, 2006. incurred in the issuance thereof in the amount of P214,000.00;
and that a check is a contract which is susceptible to a novation
Hence this petition, wherein petitioner raises the following just like any other contract.
assignment of errors:
Respondent filed its Comment, echoing the findings of the CA.
1. THE COURT OF APPEALS ERRED IN IGNORING THE Petitioner filed her Reply thereto.
RAMIFICATIONS OF THE ISSUANCE OF THE SOLIDBANK CHECK
IN REPLACEMENT OF THE PRUDENTIAL BANK CHECK WHICH We find no merit in this petition.
WOULD HAVE RESULTED TO THE NOVATION OF THE
OBLIGATION ARISING FROM THE ISSUANCE OF THE LATTER Section 119 of the Negotiable Instrument Law provides, thus:
CHECK.
SECTION 119. Instrument; how discharged. A negotiable
2. THE COURT OF APPEALS ERRED IN REVERSING THE instrument is discharged:
DECISION OF THE REGIONAL TRIAL COURT OF LEGASPI CITY,
BRANCH 5, DISMISSING AS AGAINST THE PETITIONER THE (a) By payment in due course by or on behalf of the principal
CIVIL ASPECT OF THE CRIMINAL ACTION ON THE GROUND OF debtor;
NOVATION OF OBLIGATION ARISING FROM THE ISSUANCE OF
THE PRUDENTIAL BANK CHECK. (b) By payment in due course by the party accommodated, where
the instrument is made or accepted for his accommodation;
3. THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF
DISCRETION TANTAMOUNT TO LACK OR EXCESS OF (c) By the intentional cancellation thereof by the holder;
JURISDICTION WHEN IT DENIED THE MOTION FOR
RECONSIDERATION OF THE PETITIONER ON THE GROUND (d) By any other act which will discharge a simple contract for
THAT THE ISSUE RAISED THEREIN HAD ALREADY BEEN the payment of money;
PASSED UPON AND CONSIDERED IN THE DECISION SOUGHT TO
BE RECONSIDERED WHEN IN TRUTH AND IN FACT SUCH ISSUE (e) When the principal debtor becomes the holder of the
HAD NOT BEEN RESOLVED AS YET.11 instrument at or after maturity in his own right. (Emphasis ours)

Petitioner contends that the issuance of the Solid Bank check and And, under Article 1231 of the Civil Code, obligations are
the acceptance thereof by the respondent, in replacement of the extinguished:
dishonored Prudential Bank check, amounted to novation that
discharged the latter check; that respondent's acceptance of the x x x x
Solid Bank check, notwithstanding its eventual dishonor by the
drawee bank, had the effect of erasing whatever criminal (6) By novation.
responsibility, under Article 315 of the Revised Penal Code, the

Petitioner's claim that respondent's acceptance of the Solid Bank change brought about by any subsequent agreement is merely
check which replaced the dishonored Prudential bank check incidental to the main obligation (e.g., a change in interest rates
resulted to novation which discharged the latter check is or an extension of time to pay; in this instance, the new
unmeritorious. agreement will not have the effect of extinguishing the first but
would merely supplement it or supplant some but not all of its
In Foundation Specialists, Inc. v. Betonval Ready Concrete, Inc. provisions.)
and Stronghold Insurance Co., Inc.,12 we stated the concept of
novation, thus: The obligation to pay a sum of money is not novated by an
instrument that expressly recognizes the old, changes only the
x x x Novation is done by the substitution or change of the terms of payment, adds other obligations not incompatible with
obligation by a subsequent one which extinguishes the first, the old ones or the new contract merely supplements the old
either by changing the object or principal conditions, or by one.13
substituting the person of the debtor, or by subrogating a third
person in the rights of the creditor. Novation may: In Nyco Sales Corporation v. BA Finance Corporation,14 we found
untenable petitioner Nyco's claim that novation took place when
[E]ither be extinctive or modificatory, much being dependent on the dishonored BPI check it endorsed to BA Finance Corporation
the nature of the change and the intention of the parties. was subsequently replaced by a Security Bank check,15 and said:
Extinctive novation is never presumed; there must be an express
intention to novate; in cases where it is implied, the acts of the There are only two ways which indicate the presence of novation
parties must clearly demonstrate their intent to dissolve the old and thereby produce the effect of extinguishing an obligation by
obligation as the moving consideration for the emergence of the another which substitutes the same. First, novation must be
new one. Implied novation necessitates that the incompatibility explicitly stated and declared in unequivocal terms as novation is
between the old and new obligation be total on every point such never presumed. Secondly, the old and the new obligations must
that the old obligation is completely superceded by the new one. be incompatible on every point.1avvphi1 The test of
The test of incompatibility is whether they can stand together, incompatibility is whether or not the two obligations can stand
each one having an independent existence; if they cannot and are together, each one having its independent existence. If they
irreconcilable, the subsequent obligation would also extinguish cannot, they are incompatible and the latter obligation novates
the first. the first. In the instant case, there was no express agreement that
BA Finance's acceptance of the SBTC check will discharge Nyco
An extinctive novation would thus have the twin effects of, first, from liability. Neither is there incompatibility because both
extinguishing an existing obligation and, second, creating a new checks were given precisely to terminate a single obligation
one in its stead. This kind of novation presupposes a confluence arising from Nyco's sale of credit to BA Finance. As novation
of four essential requisites: (1) a previous valid obligation, (2) an speaks of two distinct obligations, such is inapplicable to this
agreement of all parties concerned to a new contract, (3) the case.16
extinguishment of the old obligation, and (4) the birth of a valid
new obligation. Novation is merely modificatory where the

In this case, respondents acceptance of the Solid Bank check, cognizance of the practice that a check with two parallel lines in
which replaced the dishonored Prudential Bank check, did not the upper left hand corner means that it could only be deposited
result to novation as there was no express agreement to establish and could not be converted into cash.20 Thus, the effect of
that petitioner was already discharged from his liability to pay crossing a check relates to the mode of payment, meaning that
respondent the amount of P214,000.00 as payment for the 300 the drawer had intended the check for deposit only by the
bags of rice. As we said, novation is never presumed, there must rightful person, i.e., the payee named therein.21 The change in
be an express intention to novate. In fact, when the Solid Bank the mode of paying the obligation was not a change in any of the
check was delivered to respondent, the same was also indorsed objects or principal condition of the contract for novation to take
by petitioner which shows petitioners recognition of the existing place.22
obligation to respondent to pay P214,000.00 subject of the
replaced Prudential Bank check. Considering that when the Solid Bank check, which replaced the
Prudential Bank check, was presented for payment, the same was
Moreover, respondents acceptance of the Solid Bank check did again dishonored; thus, the obligation which was secured by the
not result to any incompatibility, since the two checks Prudential Bank check was not extinguished and the Prudential
Prudential and Solid Bank checks were precisely for the Bank check was not discharged. Thus, we found no reversible
purpose of paying the amount of P214,000.00, i.e., the credit error committed by the CA in holding petitioner liable as an
obtained from the purchase of the 300 bags of rice from accommodation indorser for the payment of the dishonored
respondent. Indeed, there was no substantial change in the object Prudential Bank check.
or principal condition of the obligation of petitioner as the
indorser of the check to pay the amount of P214,000.00. It would WHEREFORE, the petition is DENIED. The Decision dated
appear that respondent accepted the Solid Bank check to give September 29, 2005 and the Resolution dated March 2, 2006, of
petitioner the chance to pay her obligation. the Court of Appeals in CA-G.R. CV No. 83104, are AFFIRMED.

Petitioner also contends that the acceptance of the Solid Bank
check, a non-negotiable check being a crossed check, which
replaced the dishonored Prudential Bank check, a negotiable
check, is a new obligation in lieu of the old obligation arising from 102. G.R. No. 159097 July 5, 2010
the issuance of the Prudential Bank check, since there was an
essential change in the circumstance of each check. METROPOLITAN BANK AND TRUST COMPANY,
Petitioner,
Such argument deserves scant consideration. vs.
RURAL BANK OF GERONA, INC. Respondent.
Among the different types of checks issued by a drawer is the
crossed check.17 The Negotiable Instruments Law is silent with D E C I S I O N
respect to crossed checks,18 although the Code of Commerce
makes reference to such instruments.19 We have taken judicial BRION, J.:

Petitioner Metropolitan Bank and Trust Company (Metrobank) On the same date, the Central Bank approved the loan application
filed this Petition for Review on Certiorari1 under Rule 45 of the of another farmer-borrower, Basilio Panopio, for P189,052.00,
Rules of Court to challenge the Court of Appeals (CA) decision and credited the amount to Metrobanks demand deposit
dated December 17, 20022 and the resolution dated July 14, account. Metrobank, in turn, credited RBGs special savings
20033 in CA-G.R. CV No. 46777. The CA decision set aside the July account. Metrobank claims that the RBG also withdrew the entire
7, 1994 decision4 of the Regional Trial Court (RTC) of Tarlac, credited amount from its account.
Branch 65, in Civil Case No. 6028 (a collection case filed by
Metrobank against respondent Rural Bank of Gerona, Inc. [RBG]), On October 3, 1978, the Central Bank approved Ponciano
and ordered the remand of the case to include the Central Bank Lagmans loan application for P220,000.00. As with the two other
of the Philippines5 (Central Bank) as a necessary party. IBRD loans, the amount was credited to Metrobanks demand
deposit account, which amount Metrobank later credited in favor
THE FACTUAL ANTECEDENTS of RBGs special savings account. Of the P220,000.00, RBG only
withdrew P75,375.00.
RBG is a rural banking corporation organized under Philippine
laws and located in Gerona, Tarlac. In the 1970s, the Central Bank On November 3, 1978, more than a month after RBG had made
and the RBG entered into an agreement providing that RBG shall the above withdrawals from its account with Metrobank, the
facilitate the loan applications of farmers-borrowers under the Central Bank issued debit advices, reversing all the approved
Central Bank-International Bank for Reconstruction and IBRD loans.6 The Central Bank implemented the reversal by
Developments (IBRDs) 4th Rural Credit Project. The agreement debiting from Metrobanks demand deposit account the amount
required RBG to open a separate bank account where the IBRD corresponding to all three IBRD loans.
loan proceeds shall be deposited. The RBG accordingly opened a
special savings account with Metrobanks Tarlac Branch. As the Upon receipt of the November 3, 1978 debit advices, Metrobank,
depository bank of RBG, Metrobank was designated to receive in turn, debited the following amounts from RBGs special savings
the credit advice released by the Central Bank representing the account: P189,052.00, P115,000.00, and P8,000.41. Metrobank,
proceeds of the IBRD loan of the farmers-borrowers; Metrobank, however, claimed that these amounts were insufficient to cover
in turn, credited the proceeds to RBGs special savings account all the credit advices that were reversed by the Central Bank. It
for the latters release to the farmers-borrowers. demanded payment from RBG which could make partial
payments. As of October 17, 1979, Metrobank claimed that RBG
On September 27, 1978, the Central Bank released a credit advice had an outstanding balance of P334,220.00. To collect this
in Metrobanks favor and accordingly credited Metrobanks amount, it filed a complaint for collection of sum of money
demand deposit account in the amount of P178,652.00, for the against RBG before the RTC, docketed as Civil Case No. 6028.7
account of RBG. The amount, which was credited to RBGs special
savings account represented the approved loan application of In its July 7, 1994 decision,8 the RTC ruled for Metrobank, finding
farmer-borrower Dominador de Jesus. RBG withdrew the that legal subrogation had ensued:
P178,652.00 from its account.

[Metrobank] had allowed releases of the amounts in the credit Metrobank for the repayment of the amounts involved. Even
advices it credited in favor of [RBGs special savings account] assuming that no legal subrogation took place, Metrobank claims
which credit advices and deposits were under its supervision. that RBGs letters more than sufficiently proved its liability.
Being faulted in these acts or omissions, the Central Bank [sic]
debited these amounts against [Metrobanks] demand [deposit] Metrobank additionally contends that a remand of the case
reserve; thus[, Metrobanks] demand deposit reserves would unduly delay the proceedings. The transactions involved
diminished correspondingly, [Metrobank as of this time,] suffers in this case took place in 1978, and the case was commenced
prejudice in which case legal subrogation has ensued.9 before the RTC more than 20 years ago. The RTC resolved the
complaint for collection in 1994, while the CA decided the appeal
It thus ordered RBG to pay Metrobank the sum of P334,200.00, in 2002. To implead Central Bank, as a necessary party in the
plus interest at 14% per annum until the amount is fully paid. case, means a return to square one and the restart of the entire
proceedings.
On appeal, the CA noted that this was not a case of legal
subrogation under Article 1302 of the Civil Code. Nevertheless, THE COURTS RULING
the CA recognized that Metrobank had a right to be reimbursed
of the amount it had paid and failed to recover, as it suffered loss The petition is impressed with merit.
in an agreement that involved only the Central Bank and the RBG.
It clarified, however, that a determination still had to be made on A basic first step in resolving this case is to determine who the
who should reimburse Metrobank. Noting that no evidence exists liable parties are on the IBRD loans that the Central Bank
why the Central Bank reversed the credit advices it had extended. The Terms and Conditions of the IBRD 4th Rural Credit
previously confirmed, the CA declared that the Central Bank Project12 (Project Terms and Conditions) executed by the
should be impleaded as a necessary party so it could shed light Central Bank and the RBG shows that the farmers-borrowers to
on the IBRD loan reversals. Thus, the CA set aside the RTC whom credits have been extended, are primarily liable for the
decision, and remanded the case to the trial court for further payment of the borrowed amounts. The loans were extended
proceedings after the Central Bank is impleaded as a necessary through the RBG which also took care of the collection and of the
party.10 After the CA denied its motion for reconsideration, remittance of the collection to the Central Bank. RBG, however,
Metrobank filed the present petition for review on certiorari. was not a mere conduit and collector.1avvphil While the farmers-
borrowers were the principal debtors, RBG assumed liability
THE PETITION FOR REVIEW ON CERTIORARI under the Project Terms and Conditions by solidarily binding
itself with the principal debtors to fulfill the obligation.1awphi1
Metrobank disagrees with the CAs ruling to implead the Central
Bank as a necessary party and to remand the case to the RTC for How RBG profited from the transaction is not clear from the
further proceedings. It argues that the inclusion of the Central records and is not part of the issues before us, but if it delays in
Bank as party to the case is unnecessary since RBG has already remitting the amounts due, the Central Bank imposed a 14% per
admitted its liability for the amount Metrobank failed to recover. annum penalty rate on RBG until the amount is actually remitted.
In two letters,11 RBGs President/Manager made proposals to The Central Bank was further authorized to deduct the amount

due from RBGs demand deposit reserve should the latter become (2) When a third person, not interested in the obligation, pays
delinquent in payment. On these points, paragraphs 5 and 6 of with the express or tacit approval of the debtor;
the Project Terms and Conditions read:
(3) When, even without the knowledge of the debtor, a person
5. Collection received representing repayments of borrowers interested in the fulfillment of the obligation pays, without
shall be immediately remitted to the Central Bank, otherwise[,] prejudice to the effects of confusion as to the latters share.
the Rural Bank/SLA shall be charged a penalty of fourteen [Emphasis supplied.]
[percent] (14%) p.a. until date of remittance.
As discussed, Metrobank was a third party to the Central Bank-
6. In case the rural bank becomes delinquent in the payment of RBG agreement, had no interest except as a conduit, and was not
amortizations due[,] the Central Bank is authorized to deduct the legally answerable for the IBRD loans. Despite this, it was
corresponding amount from the rural banks demand deposit Metrobanks demand deposit account, instead of RBGs, which the
reserve13 at any time to cover any delinquency. [Emphasis Central Bank proceeded against, on the assumption perhaps that
supplied.] this was the most convenient means of recovering the cancelled
loans. That Metrobanks payment was involuntarily made does
Based on these arrangements, the Central Banks immediate not change the reality that it was Metrobank which effectively
recourse, therefore should have been against the farmers- answered for RBGs obligations.
borrowers and the RBG; thus, it erred when it deducted the
amounts covered by the debit advices from Metrobanks demand Was there express or tacit approval by RBG of the payment
deposit account. Under the Project Terms and Conditions, enforced against Metrobank? After Metrobank received the
Metrobank had no responsibility over the proceeds of the IBRD Central Banks debit advices in November 1978, it (Metrobank)
loans other than serving as a conduit for their transfer from the accordingly debited the amounts it could from RBGs special
Central Bank to the RBG once credit advice has been issued. Thus, savings account without any objection from RBG.14 RBGs
we agree with the CAs conclusion that the agreement governed President and Manager, Dr. Aquiles Abellar, even wrote
only the parties involved the Central Bank and the RBG. Metrobank, on August 14, 1979, with proposals regarding
Metrobank was simply an outsider to the agreement. Our possible means of settling the amounts debited by Central Bank
disagreement with the appellate court is in its conclusion that no from Metrobanks demand deposit account.15 These instances
legal subrogation took place; the present case, in fact, exemplifies are all indicative of RBGs approval of Metrobanks payment of
the circumstance contemplated under paragraph 2, of Article the IBRD loans. That RBGs tacit approval came after payment
1302 of the Civil Code which provides: had been made does not completely negate the legal subrogation
that had taken place.
Art. 1302. It is presumed that there is legal subrogation:
Article 1303 of the Civil Code states that subrogation transfers to
(1) When a creditor pays another creditor who is preferred, even the person subrogated the credit with all the rights thereto
without the debtors knowledge; appertaining, either against the debtor or against third persons.
As the entity against which the collection was enforced,

Metrobank was subrogated to the rights of Central Bank and has Thus, what were sufficiently proven as credited and later on
a cause of action to recover from RBG the amounts it paid to the debited from Metrobanks demand deposit account were only the
Central Bank, plus 14% per annum interest. amounts of P178,652.00 and P189,052.00. With these amounts
combined, RBGs liability would amount to P398,652.00 the
Under this situation, impleading the Central Bank as a party is same amount RBG acknowledged as due to Metrobank in its
completely unnecessary. We note that the CA erroneously August 14, 1979 letter.18 Significantly, Metrobank likewise
believed that the Central Banks presence is necessary "in order x quoted this amount in its July 11, 197919 and July 26, 197920
x x to shed light on the matter of reversals made by it concerning demand letters to RBG and its Statement of Account dated
the loan applications of the end users and to have a complete December 23, 1982.21
determination or settlement of the claim."16 In so far as
Metrobank is concerned, however, the Central Banks presence RBG asserts that it made partial payments amounting to
and the reasons for its reversals of the IBRD loans are immaterial P145,197.40,22 but neither the RTC nor the CA made a
after subrogation has taken place; Metrobanks interest is simply conclusive finding as to the accuracy of this claim. Although
to collect the amounts it paid the Central Bank. Whatever cause Metrobank admitted that RBG indeed made partial payments, it
of action RBG may have against the Central Bank for the never mentioned the actual amount paid; neither did it state that
unexplained reversals and any undue deductions is for RBG to the P145,197.40 was part of the P312,052.41 that, it admitted, it
ventilate as a third-party claim; if it has not done so at this point, debited from RBGs special savings account.
then the matter should be dealt with in a separate case that
should not in any way further delay the disposition of the present Deducting P312,052.41 (representing the amounts debited from
case that had been pending before the courts since 1980. RBGs special savings account, as admitted by Metrobank) from
P398,652.00 amount due to Metrobank from RBG, the difference
While we would like to fully and finally resolve this case, certain would only be P86,599.59. We are, therefore, at a loss on how
factual matters prevent us from doing so. Metrobank contends in Metrobank computed the amount of P334,220.00 it claims as the
its petition that it credited RBGs special savings account with balance of RBGs loan. As this Court is not a trier of facts, we
three amounts corresponding to the three credit advices issued deem it proper to remand this factual issue to the RTC for
by the Central Bank: the P178,652.00 for Dominador de Jesus; the determination and computation of the actual amount RBG owes
P189,052.00 for Basilio Panopio; and the P220,000.00 for to Metrobank, plus the corresponding interest and penalties.
Ponciano Lagman. Metrobank claims that all of the three credit
advices were subsequently reversed by the Central Bank, WHEREFORE, we GRANT the petition for review on certiorari,
evidenced by three debit advices. The records, however, and REVERSE the decision and the resolution of the Court of
contained only the credit and debit advices for the amounts set Appeals, in CA-G.R. CV No. 46777, promulgated on December 17,
aside for de Jesus and Lagman;17 nothing in the findings of fact 2002 and July 14, 2003, respectively. We AFFIRM the decision of
by the RTC and the CA referred to the amount set aside for the Regional Trial Court, Branch 65, Tarlac, promulgated on July
Panopio. 7, 1994, insofar as it found respondent liable to the petitioner
Metropolitan Bank and Trust Company, but order the REMAND of
the case to the trial court to determine the actual amounts due to

the petitioner. Costs against respondent Rural Bank of Gerona, Paper Company, Inc. (Arco Pulp and Paper) through its Chief
Inc. Executive Officer and President, Candida A. Santos.5 The parties
allegedly agreed that Arco Pulp and Paper would either pay Dan
T. Lim the value of the raw materials or deliver to him their
finished products of equivalent value.6

103. G.R. No. 206806 June 25, 2014 Dan T. Lim alleged that when he delivered the raw materials,
Arco Pulp and Paper issued a post-dated check dated April 18,
ARCO PULP AND PAPER CO., INC. and CANDIDA A. 20077 in the amount of 1,487,766.68 as partial payment, with the
SANTOS, Petitioners, assurance that the check would not bounce.8 When he deposited
vs. the check on April 18, 2007, it was dishonored for being drawn
DAN T. LIM, doing business under the name and style against a closed account.9
of QUALITY PAPERS & PLASTIC PRODUCTS
ENTERPRISES, Respondent. On the same day, Arco Pulp and Paper and a certain Eric Sy
executed a memorandum of agreement10 where Arco Pulp and
D E C I S I O N Paper bound themselves to deliver their finished products to
Megapack Container Corporation, owned by Eric Sy, for his
LEONEN, J.: account. According to the memorandum, the raw materials would
be supplied by Dan T. Lim, through his company, Quality Paper
Novation must be stated in clear and unequivocal terms to and Plastic Products. The memorandum of agreement reads as
extinguish an obligation. It cannot be presumed and may be follows:
implied only if the old and new contracts are incompatible on
every point. Per meeting held at ARCO, April 18, 2007, it has been mutually
agreed between Mrs. Candida A. Santos and Mr. Eric Sy that ARCO
Before us is a petition for review on certiorari1 assailing the will deliver 600 tons Test Liner 150/175 GSM, full width 76
Court of Appeals decision2 in CA-G.R. CV No. 95709, which inches at the price of P18.50 per kg. to Megapack Container for
stemmed from a complaint3 filed in the Regional Trial Court of Mr. Eric Sys account. Schedule of deliveries are as follows:
Valenzuela City, Branch 171, for collection of sum of money.
. . . .
The facts are as follows:
It has been agreed further that the Local OCC materials to be used
Dan T. Lim works in the business of supplying scrap papers, for the production of the above Test Liners will be supplied by
cartons, and other raw materials, under the name Quality Paper Quality Paper & Plastic Products Ent., total of 600 Metric Tons at
and Plastic Products, Enterprises, to factories engaged in the P6.50 per kg. (price subject to change per advance notice).
paper mill business.4 From February 2007 to March 2007, he Quantity of Local OCC delivery will be based on the quantity of
delivered scrap papers worth 7,220,968.31 to Arco Pulp and

Test Liner delivered to Megapack Container Corp. based on the The appellate court ruled that the facts and circumstances in this
above production schedule.11 case clearly showed the existence of an alternative obligation.23
It also ruled that Dan T. Lim was entitled to damages and
On May 5, 2007, Dan T.Lim sent a letter12 to Arco Pulp and Paper attorneys fees due to the bad faith exhibited by Arco Pulp and
demanding payment of the amount of 7,220,968.31, but no Paper in not honoring its undertaking.24
payment was made to him.13
Its motion for reconsideration25 having been denied,26 Arco
Dan T. Lim filed a complaint14 for collection of sum of money Pulp and Paper and its President and Chief Executive Officer,
with prayer for attachment with the Regional Trial Court, Branch Candida A. Santos, bring this petition for review on certiorari.
171, Valenzuela City, on May 28, 2007. Arco Pulp and Paper filed
its answer15 but failed to have its representatives attend the pre- On one hand, petitioners argue that the execution of the
trial hearing. Hence, the trial court allowed Dan T. Lim to present memorandum of agreement constituted a novation of the original
his evidence ex parte.16 obligation since Eric Sy became the new debtor of respondent.
They also argue that there is no legal basis to hold petitioner
On September 19, 2008, the trial court rendered a judgment in Candida A. Santos personally liable for the transaction that
favor of Arco Pulp and Paper and dismissed the complaint, petitioner corporation entered into with respondent. The Court
holding that when Arco Pulp and Paper and Eric Sy entered into of Appeals, they allege, also erred in awarding moral and
the memorandum of agreement, novation took place, which exemplary damages and attorneys fees to respondent who did
extinguished Arco Pulp and Papers obligation to Dan T. Lim.17 not show proof that he was entitled to damages.27

Dan T. Lim appealed18 the judgment with the Court of Appeals. Respondent, on the other hand, argues that the Court of Appeals
According to him, novation did not take place since the was correct in ruling that there was no proper novation in this
memorandum of agreement between Arco Pulp and Paper and case. He argues that the Court of Appeals was correct in ordering
Eric Sy was an exclusive and private agreement between them. the payment of 7,220,968.31 with damages since the debt of
He argued that if his name was mentioned in the contract, it was petitioners remains unpaid.28 He also argues that the Court of
only for supplying the parties their required scrap papers, where Appeals was correct in holding petitioners solidarily liable since
his conformity through a separate contract was indispensable.19 petitioner Candida A. Santos was "the prime mover for such
outstanding corporate liability."29 In their reply, petitioners
On January 11, 2013, the Court of Appeals20 rendered a reiterate that novation took place since there was nothing in the
decision21 reversing and setting aside the judgment dated memorandum of agreement showing that the obligation was
September 19, 2008 and ordering Arco Pulp and Paper to jointly alternative. They also argue that when respondent allowed them
and severally pay Dan T. Lim the amount of P7,220,968.31 with to deliver the finished products to Eric Sy, the original obligation
interest at 12% per annum from the time of demand; P50,000.00 was novated.30
moral damages; P50,000.00 exemplary damages; and P50,000.00
attorneys fees.22


A rejoinder was submitted by respondent, but it was noted
without action in view of A.M. No. 99-2-04-SC dated November The choice of the debtor must also be communicated to the
21, 2000.31 creditor who must receive notice of it since: The object of this
notice is to give the creditor . . . opportunity to express his
The issues to be resolved by this court are as follows: consent, or to impugn the election made by the debtor, and only
after said notice shall the election take legal effect when
1. Whether the obligation between the parties was extinguished consented by the creditor, or if impugned by the latter, when
by novation declared proper by a competent court.34

2. Whether Candida A. Santos was solidarily liable with Arco Pulp According to the factual findings of the trial court and the
and Paper Co., Inc. appellate court, the original contract between the parties was for
respondent to deliver scrap papers worth P7,220,968.31 to
3. Whether moral damages, exemplary damages, and attorneys petitioner Arco Pulp and Paper. The payment for this delivery
fees can be awarded became petitioner Arco Pulp and Papers obligation. By
agreement, petitioner Arco Pulp and Paper, as the debtor, had the
The petition is denied. option to either (1) pay the price or(2) deliver the finished
products of equivalent value to respondent.35
The obligation between the
parties was an alternative The appellate court, therefore, correctly identified the obligation
obligation between the parties as an alternative obligation, whereby
petitioner Arco Pulp and Paper, after receiving the raw materials
The rule on alternative obligations is governed by Article 1199 of from respondent, would either pay him the price of the raw
the Civil Code, which states: materials or, in the alternative, deliver to him the finished
products of equivalent value.
Article 1199. A person alternatively bound by different
prestations shall completely perform one of them. When petitioner Arco Pulp and Paper tendered a check to
respondent in partial payment for the scrap papers, they
The creditor cannot be compelled to receive part of one and part exercised their option to pay the price. Respondents receipt of
of the other undertaking. the check and his subsequent act of depositing it constituted his
notice of petitioner Arco Pulp and Papers option to pay.
"In an alternative obligation, there is more than one object, and
the fulfillment of one is sufficient, determined by the choice of the This choice was also shown by the terms of the memorandum of
debtor who generally has the right of election."32 The right of agreement, which was executed on the same day. The
election is extinguished when the party who may exercise that memorandum declared in clear terms that the delivery of
option categorically and unequivocally makes his or her choice petitioner Arco Pulp and Papers finished products would be to a
known.33

third person, thereby extinguishing the option to deliver the the consent of the creditor. Payment by the new debtor gives him
finished products of equivalent value to respondent. the rights mentioned in Articles 1236 and 1237. (1205a)

The memorandum of Novation extinguishes an obligation between two parties when
agreement did not constitute there is a substitution of objects or debtors or when there is
a novation of the original subrogation of the creditor. It occurs only when the new contract
contract declares so "in unequivocal terms" or that "the old and the new
obligations be on every point incompatible with each other."36
The trial court erroneously ruled that the execution of the
memorandum of agreement constituted a novation of the Novation was extensively discussed by this court in Garcia v.
contract between the parties. When petitioner Arco Pulp and Llamas:37
Paper opted instead to deliver the finished products to a third
person, it did not novate the original obligation between the Novation is a mode of extinguishing an obligation by changing its
parties. objects or principal obligations, by substituting a new debtor in
place of the old one, or by subrogating a third person to the rights
The rules on novation are outlined in the Civil Code, thus: of the creditor. Article 1293 of the Civil Code defines novation as
follows:
Article 1291. Obligations may be modified by:
"Art. 1293. Novation which consists in substituting a new debtor
(1) Changing their object or principal conditions; in the place of the original one, may be made even without the
knowledge or against the will of the latter, but not without the
(2) Substituting the person of the debtor; consent of the creditor. Payment by the new debtor gives him
rights mentioned in articles 1236 and 1237."
(3) Subrogating a third person in the rights of the creditor.
(1203) In general, there are two modes of substituting the person of the
debtor: (1) expromision and (2) delegacion. In expromision, the
Article 1292. In order that an obligation may be extinguished by initiative for the change does not come from and may even be
another which substitute the same, it is imperative that it be so made without the knowledge of the debtor, since it consists of
declared in unequivocal terms, or that the old and the new a third persons assumption of the obligation. As such, it logically
obligations be on every point incompatible with each other. requires the consent of the third person and the creditor. In
(1204) delegacion, the debtor offers, and the creditor accepts, a third
person who consents to the substitution and assumes the
Article 1293. Novation which consists in substituting a new obligation; thus, the consent of these three persons are
debtor in the place of the original one, may be made even without necessary. Both modes of substitution by the debtor require the
the knowledge or against the will of the latter, but not without consent of the creditor.


Novation may also be extinctive or modificatory. It is extinctive extinguishing the old obligation for the new one.39 (Emphasis
when an old obligation is terminated by the creation of a new one supplied) There is nothing in the memorandum of agreement
that takes the place of the former. It is merely modificatory when that states that with its execution, the obligation of petitioner
the old obligation subsists to the extent that it remains Arco Pulp and Paper to respondent would be extinguished. It also
compatible with the amendatory agreement. Whether extinctive does not state that Eric Sy somehow substituted petitioner Arco
or modificatory, novation is made either by changing the object Pulp and Paper as respondents debtor. It merely shows that
or the principal conditions, referred to as objective or real petitioner Arco Pulp and Paper opted to deliver the finished
novation; or by substituting the person of the debtor or products to a third person instead.
subrogating a third person to the rights of the creditor, an act
known as subjective or personal novation. For novation to take The consent of the creditor must also be secured for the novation
place, the following requisites must concur: to be valid:

1) There must be a previous valid obligation. Novation must be expressly consented to. Moreover, the
conflicting intention and acts of the parties underscore the
2) The parties concerned must agree to a new contract. absence of any express disclosure or circumstances with which to
deduce a clear and unequivocal intent by the parties to novate
3) The old contract must be extinguished. the old agreement.40 (Emphasis supplied)

4) There must be a valid new contract. In this case, respondent was not privy to the memorandum of
agreement, thus, his conformity to the contract need not be
Novation may also be express or implied. It is express when the secured. This is clear from the first line of the memorandum,
new obligation declares in unequivocal terms that the old which states:
obligation is extinguished. It is implied when the new obligation
is incompatible with the old one on every point. The test of Per meeting held at ARCO, April 18, 2007, it has been mutually
incompatibility is whether the two obligations can stand agreed between Mrs. Candida A. Santos and Mr. Eric Sy. . . .41
together, each one with its own independent existence.38
(Emphasis supplied) If the memorandum of agreement was intended to novate the
original agreement between the parties, respondent must have
Because novation requires that it be clear and unequivocal, it is first agreed to the substitution of Eric Sy as his new debtor. The
never presumed, thus: memorandum of agreement must also state in clear and
unequivocal terms that it has replaced the original obligation of
In the civil law setting, novatio is literally construed as to make petitioner Arco Pulp and Paper to respondent. Neither of these
new. So it is deeply rooted in the Roman Law jurisprudence, the circumstances is present in this case.
principle novatio non praesumitur that novation is never
presumed.At bottom, for novation tobe a jural reality, its animus Petitioner Arco Pulp and Papers act of tendering partial payment
must be ever present, debitum pro debito basically to respondent also conflicts with their alleged intent to pass on

their obligation to Eric Sy. When respondent sent his letter of
demand to petitioner Arco Pulp and Paper, and not to Eric Sy, it An award of moral damages would require certain conditions to
showed that the former neither acknowledged nor consented to be met, to wit: (1)first, there must be an injury, whether physical,
the latter as his new debtor. These acts, when taken together, mental or psychological, clearly sustained by the claimant; (2)
clearly show that novation did not take place. Since there was no second, there must be culpable act or omission factually
novation, petitioner Arco Pulp and Papers obligation to established; (3) third, the wrongful act or omission of the
respondent remains valid and existing. Petitioner Arco Pulp and defendant is the proximate cause of the injury sustained by the
Paper, therefore, must still pay respondent the full amount of claimant; and (4) fourth, the award of damages is predicated on
P7,220,968.31. any of the cases stated in Article 2219 of the Civil Code.43

Petitioners are liable for Here, the injury suffered by respondent is the loss of
damages P7,220,968.31 from his business. This has remained unpaid since
2007. This injury undoubtedly was caused by petitioner Arco
Under Article 2220 of the Civil Code, moral damages may be Pulp and Papers act of refusing to pay its obligations.
awarded in case of breach of contract where the breach is due to
fraud or bad faith: When the obligation became due and demandable, petitioner
Arco Pulp and Paper not only issued an unfunded check but also
Art. 2220. Willfull injury to property may be a legal ground for entered into a contract with a third person in an effort to evade
awarding moral damages if the court should find that, under the its liability. This proves the third requirement.
circumstances, such damages are justly due. The same rule
applies to breaches of contract where the defendant acted As to the fourth requisite, Article 2219 of the Civil Code provides
fraudulently or in bad faith. (Emphasis supplied) that moral damages may be awarded in the following instances:

Moral damages are not awarded as a matter of right but only Article 2219. Moral damages may be recovered in the following
after the party claiming it proved that the breach was due to and analogous cases:
fraud or bad faith. As this court stated:
(1) A criminal offense resulting in physical injuries;
Moral damages are not recoverable simply because a contract has
been breached. They are recoverable only if the party from whom (2) Quasi-delicts causing physical injuries;
it is claimed acted fraudulently or in bad faith or in wanton
disregard of his contractual obligations. The breach must be (3) Seduction, abduction, rape, or other lascivious acts;
wanton, reckless, malicious or in bad faith, and oppressive or
abusive.42 (4) Adultery or concubinage;

Further, the following requisites must be proven for the recovery (5) Illegal or arbitrary detention or arrest;
of moral damages:

(6) Illegal search; Article 21.Any person who wilfully causes loss or injury to
another in a manner that is contrary to morals, good customs or
(7) Libel, slander or any other form of defamation; public policy shall compensate the latter for the damage.

(8) Malicious prosecution; To be actionable, Article 20 requires a violation of law, while
Article 21 only concerns with lawful acts that are contrary to
(9) Acts mentioned in Article 309; morals, good customs, and public policy:

(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, Article 20 concerns violations of existing law as basis for an
32, 34, and 35. injury. It allows recovery should the act have been willful or
negligent. Willful may refer to the intention to do the act and the
Breaches of contract done in bad faith, however, are not specified desire to achieve the outcome which is considered by the plaintiff
within this enumeration. When a party breaches a contract, he or in tort action as injurious. Negligence may refer to a situation
she goes against Article 19 of the Civil Code, which states: Article where the act was consciously done but without intending the
19. Every person must, in the exercise of his rights and in the result which the plaintiff considers as injurious.
performance of his duties, act with justice, give everyone his due,
and observe honesty and good faith. Article 21, on the other hand, concerns injuries that may be
caused by acts which are not necessarily proscribed by law. This
Persons who have the right to enter into contractual relations article requires that the act be willful, that is, that there was an
must exercise that right with honesty and good faith. Failure to intention to do the act and a desire to achieve the outcome. In
do so results in an abuse of that right, which may become the cases under Article 21, the legal issues revolve around whether
basis of an action for damages. Article 19, however, cannot be its such outcome should be considered a legal injury on the part of
sole basis: the plaintiff or whether the commission of the act was done in
violation of the standards of care required in Article 19.45
Article 19 is the general rule which governs the conduct of
human relations. By itself, it is not the basis of an actionable tort. When parties act in bad faith and do not faithfully comply with
Article 19 describes the degree of care required so that an their obligations under contract, they run the risk of violating
actionable tort may arise when it is alleged together with Article Article 1159 of the Civil Code:
20 or Article 21.44
Article 1159. Obligations arising from contracts have the force of
Article 20 and 21 of the Civil Code are as follows: law between the contracting parties and should be complied with
in good faith.
Article 20. Every person who, contrary to law, wilfully or
negligently causes damage to another, shall indemnify the latter Article 2219, therefore, is not an exhaustive list of the instances
for the same. where moral damages may be recovered since it only specifies,
among others, Article 21. When a party reneges on his or her

obligations arising from contracts in bad faith, the act is not only of a wrong, a breach of known duty through some motive or
contrary to morals, good customs, and public policy; it is also a interest or ill will that partakes of the nature of fraud."48 Moral
violation of Article 1159. Breaches of contract become the basis damages may, therefore, be awarded.
of moral damages, not only under Article 2220, but also under
Articles 19 and 20 in relation to Article 1159. Exemplary damages may also be awarded. Under the Civil Code,
exemplary damages are due in the following circumstances:
Moral damages, however, are not recoverable on the mere breach
of the contract. Article 2220 requires that the breach be done Article 2232. In contracts and quasi-contracts, the court may
fraudulently or in bad faith. In Adriano v. Lasala:46 award exemplary damages if the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner.
To recover moral damages in an action for breach of contract, the
breach must be palpably wanton, reckless and malicious, in bad Article 2233. Exemplary damages cannot be recovered as a
faith, oppressive, or abusive. Hence, the person claiming bad faith matter of right; the court will decide whether or not they should
must prove its existence by clear and convincing evidence for the be adjudicated.
law always presumes good faith.
Article 2234. While the amount of the exemplary damages need
Bad faith does not simply connote bad judgment or negligence. It not be proven, the plaintiff must show that he is entitled to moral,
imports a dishonest purpose or some moral obliquity and temperate or compensatory damages before the court may
conscious doing of a wrong, a breach of known duty through consider the question of whether or not exemplary damages
some motive or interest or ill will that partakes of the nature of should be awarded.
fraud. It is, therefore, a question of intention, which can be
inferred from ones conduct and/or contemporaneous In Tankeh v. Development Bank of the Philippines,49 we stated
statements.47 (Emphasis supplied) that:

Since a finding of bad faith is generally premised on the intent of The purpose of exemplary damages is to serve as a deterrent to
the doer, it requires an examination of the circumstances in each future and subsequent parties from the commission of a similar
case. offense. The case of People v. Ranteciting People v. Dalisay held
that:
When petitioner Arco Pulp and Paper issued a check in partial
payment of its obligation to respondent, it was presumably with Also known as punitive or vindictive damages, exemplary or
the knowledge that it was being drawn against a closed account. corrective damages are intended to serve as a deterrent to
Worse, it attempted to shift their obligations to a third person serious wrong doings, and as a vindication of undue sufferings
without the consent of respondent. and wanton invasion of the rights of an injured or a punishment
for those guilty of outrageous conduct. These terms are generally,
Petitioner Arco Pulp and Papers actions clearly show "a but not always, used interchangeably. In common law, there is
dishonest purpose or some moral obliquity and conscious doing preference in the use of exemplary damages when the award is to

account for injury to feelings and for the sense of indignity and Since the award of exemplary damages is proper, attorneys fees
humiliation suffered by a person as a result of an injury that has and cost of the suit may also be recovered.
been maliciously and wantonly inflicted, the theory being that
there should be compensation for the hurt caused by the highly Article 2208 of the Civil Code states:
reprehensible conduct of the defendantassociated with such
circumstances as willfulness, wantonness, malice, gross Article 2208. In the absence of stipulation, attorney's fees and
negligence or recklessness, oppression, insult or fraud or gross expenses of litigation, other than judicial costs, cannot be
fraudthat intensifies the injury. The terms punitive or recovered, except:
vindictive damages are often used to refer to those species of
damages that may be awarded against a person to punish him for (1) When exemplary damages are awarded[.]
his outrageous conduct. In either case, these damages are Petitioner Candida A. Santos
intended in good measure to deter the wrongdoer and others like is solidarily liable with
him from similar conduct in the future.50 (Emphasis supplied; petitioner corporation
citations omitted)
Petitioners argue that the finding of solidary liability was
The requisites for the award of exemplary damages are as erroneous since no evidence was adduced to prove that the
follows: transaction was also a personal undertaking of petitioner Santos.
We disagree.
(1) they may be imposed by way of example in addition to
compensatory damages, and only after the claimant's right to In Heirs of Fe Tan Uy v. International Exchange Bank,52 we
them has been established; stated that:

(2) that they cannot be recovered as a matter of right, their Basic is the rule in corporation law that a corporation is a
determination depending upon the amount of compensatory juridical entity which is vested with a legal personality separate
damages that may be awarded to the claimant; and and distinct from those acting for and in its behalf and, in general,
from the people comprising it. Following this principle,
(3) the act must be accompanied by bad faith or done in a obligations incurred by the corporation, acting through its
wanton, fraudulent, oppressive or malevolent manner.51 directors, officers and employees, are its sole liabilities. A
director, officer or employee of a corporation is generally not
Business owners must always be forthright in their dealings. held personally liable for obligations incurred by the corporation.
They cannot be allowed to renege on their obligations, Nevertheless, this legal fiction may be disregarded if it is used as
considering that these obligations were freely entered into by a means to perpetrate fraud or an illegal act, or as a vehicle for
them. Exemplary damages may also be awarded in this case to the evasion of an existing obligation, the circumvention of
serve as a deterrent to those who use fraudulent means to evade statutes, or to confuse legitimate issues.
their liabilities.
. . . .

We find, however, that the corporate veil must be pierced. In
Before a director or officer of a corporation can be held Livesey v. Binswanger Philippines:55
personally liable for corporate obligations, however, the
following requisites must concur: (1) the complainant must Piercing the veil of corporate fiction is an equitable doctrine
allege in the complaint that the director or officer assented to developed to address situations where the separate corporate
patently unlawful acts of the corporation, or that the officer was personality of a corporation is abused or used for wrongful
guilty of gross negligence or bad faith; and (2) the complainant purposes. Under the doctrine, the corporate existence may be
must clearly and convincingly prove such unlawful acts, disregarded where the entity is formed or used for non-
negligence or bad faith. legitimate purposes, such as to evade a just and due obligation, or
to justify a wrong, to shield or perpetrate fraud or to carry out
While it is true that the determination of the existence of any of similar or inequitable considerations, other unjustifiable aims or
the circumstances that would warrant the piercing of the veil of intentions, in which case, the fiction will be disregarded and the
corporate fiction is a question of fact which cannot be the subject individuals composing it and the two corporations will be treated
of a petition for review on certiorari under Rule 45, this Court as identical.56 (Emphasis supplied)
can take cognizance of factual issues if the findings of the lower
court are not supported by the evidence on record or are based According to the Court of Appeals, petitioner Santos was
on a misapprehension of facts.53 (Emphasis supplied) solidarily liable with petitioner Arco Pulp and Paper, stating that:

As a general rule, directors, officers, or employees of a In the present case, We find bad faith on the part of the
corporation cannot be held personally liable for obligations [petitioners] when they unjustifiably refused to honor their
incurred by the corporation. However, this veil of corporate undertaking in favor of the [respondent]. After the check in the
fiction may be pierced if complainant is able to prove, as in this amount of 1,487,766.68 issued by [petitioner] Santos was
case, that (1) the officer is guilty of negligence or bad faith, and dishonored for being drawn against a closed account, [petitioner]
(2) such negligence or bad faith was clearly and convincingly corporation denied any privity with [respondent]. These acts
proven. prompted the [respondent] to avail of the remedies provided by
law in order to protect his rights.57
Here, petitioner Santos entered into a contract with respondent
in her capacity as the President and Chief Executive Officer of We agree with the Court of Appeals. Petitioner Santos cannot be
Arco Pulp and Paper. She also issued the check in partial payment allowed to hide behind the corporate veil.1wphi1 When
of petitioner corporations obligations to respondent on behalf of petitioner Arco Pulp and Papers obligation to respondent
petitioner Arco Pulp and Paper. This is clear on the face of the became due and demandable, she not only issued an unfunded
check bearing the account name, "Arco Pulp & Paper, Co., Inc."54 check but also contracted with a third party in an effort to shift
Any obligation arising from these acts would not, ordinarily, be petitioner Arco Pulp and Papers liability. She unjustifiably
petitioner Santos personal undertaking for which she would be refused to honor petitioner corporations obligations to
solidarily liable with petitioner Arco Pulp and Paper. respondent. These acts clearly amount to bad faith. In this


instance, the corporate veil may be pierced, and petitioner Santos stipulation, the rate of interest shall be 6% per annum to be
may be held solidarily liable with petitioner Arco Pulp and Paper. computed from default, i.e., from judicial or extrajudicial demand
under and subject to the provisions of Article 1169 of the Civil
The rate of interest due on Code.
the obligation must be
reduced in view of Nacar v. 2. When an obligation, not constituting a loan or forbearance of
Gallery Frames58 money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate
In view, however, of the promulgation by this court of the of 6% per annum. No interest, however, shall be adjudged on
decision dated August 13, 2013 in Nacar v. Gallery Frames,59 the unliquidated claims or damages, except when or until the
rate of interest due on the obligation must be modified from 12% demand can be established with reasonable certainty.
per annum to 6% per annum from the time of demand. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is
Nacar effectively amended the guidelines stated in Eastern made judicially or extrajudicially (Art. 1169, Civil Code), but
Shipping v. Court of Appeals,60 and we have laid down the when such certainty cannot be so reasonably established at the
following guidelines with regard to the rate of legal interest: time the demand is made, the interest shall begin to run only
from the date the judgment of the court is made (at which time
To recapitulate and for future guidance, the guidelines laid down the quantification of damages may be deemed to have been
in the case of Eastern Shipping Linesare accordingly modified to reasonably ascertained). The actual base for the computation of
embody BSP-MB Circular No. 799, as follows: legal interest shall, in any case, be on the amount finally
adjudged.
I. When an obligation, regardless of its source, i.e., law, contracts,
quasi-contracts, delicts or quasi-delicts is breached, the 3. When the judgment of the court awarding a sum of money
contravenor can be held liable for damages. The provisions under becomes final and executory, the rate of legal interest, whether
Title XVIII on "Damages" of the Civil Code govern in determining the case falls under paragraph 1 or paragraph 2, above, shall be
the measure of recoverable damages. 6% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a
II. With regard particularly to an award of interest in the concept forbearance of credit.
of actual and compensatory damages, the rate of interest, as well
as the accrual thereof, is imposed, as follows: And, in addition to the above, judgments that have become final
and executory prior to July 1, 2013, shall not be disturbed and
1. When the obligation is breached, and it consists in the payment shall continue to be implemented applying the rate of interest
of a sum of money, i.e., a loan or forbearance of money, the fixed therein.61 (Emphasis supplied; citations omitted.)
writing. Furthermore, the interest due shall itself earn legal According to these guidelines, the interest due on the obligation
interest from the time it is judicially demanded. In the absence of of P7,220,968.31 should now be at 6% per annum, computed

from May 5, 2007, when respondent sent his letter of demand to
petitioners. This interest shall continue to be due from the Subsequently, on February 15, 1957, after remand by the Court of
finality of this decision until its full satisfaction. Appeals of the case, the petitioner moved ex parte in the court of
origin for the issuance of the corresponding writ of execution to
WHEREFORE, the petition is DENIED in part. The decision in CA- enforce the judgment. Acting upon the motion, the lower court
G.R. CV No. 95709 is AFFIRMED. issued the writ of execution applied for, on the basis of which the
sheriff of Manila seized the respondent's Willy's Ford jeep (with
Petitioners Arco Pulp & Paper Co., Inc. and Candida A. Santos are motor no. B-192297 and plate no. 7225, Manila, 1956).
hereby ordered solidarily to pay respondent Dan T. Lim the
amount of P7,220,968.31 with interest of 6% per annum at the The respondent, however, pleaded with the petitioner to release
time of demand until finality of judgment and its full satisfaction, the jeep under an arrangement whereby the respondent, to
with moral damages in the amount of P50,000.00, exemplary secure the payment of the judgement debt, agreed to mortgage
damages in the amount of P50,000.00, and attorney's fees in the the vehicle in favor of the petitioner. The petitioner agreed to the
amount of P50,000.00. arrangement; thus, the parties, on February 22, 1957, executed a
chattel mortgage on the jeep, stipulating, inter alia, that

This mortgage is given as security for the payment to the said
EUSEBIO S. MILLAR, mortgagee, of the judgment and other
104. G.R. No. L-29981 April 30, 1971 incidental expenses in Civil Case No. 27116 of the Court of First
Instance of Manila against Antonio P. Gabriel, MORTGAGOR, in
EUSEBIO S. MILLAR, petitioner, the amount of ONE THOUSAND SEVEN HUNDRED (P1,700.00)
vs. PESOS, Philippine currency, which MORTGAGOR agrees to pay as
THE HON. COURT OF APPEALS and ANTONIO P. follows:
GABRIEL, respondents.
March 31, 1957 EIGHT HUNDRED FIFTY (P850) PESOS;
CASTRO, J.:
April 30, 1957 EIGHT HUNDRED FIFTY (P850.00) PESOS.
On February 11, 1956, Eusebio S. Millar (hereinafter referred to
as the petitioner) obtained a favorable judgment from the Court Upon failure of the respondent to pay the first installment due on
of First Instance of Manila, in civil case 27116, condemning March 31, 1957, the petitioner obtained an alias writ of
Antonio P. Gabriel (hereinafter referred to as the respondent) to execution. This writ which the sheriff served on the respondent
pay him the sum of P1,746.98 with interest at 12% per annum only on May 30, 1957 after the lapse of the entire period
from the date of the filing of the complaint, the sum of P400 as stipulated in the chattel mortgage for the respondent to comply
attorney's fees, and the costs of suit. From the said judgment, the with his obligation was returned unsatisfied.
respondent appealed to the Court of Appeals which, however,
dismissed the appeal on January 11, 1957.

So on July 17, 1957 and on various dates thereafter, the lower 1. Whereas the judgment orders the respondent to pay the
court, at the instance of the petitioner, issued several alias writs, petitioner the sum of P1,746.98 with interest at 12% per annum
which writs the sheriff also returned unsatisfied. On September from the filing of the complaint, plus the amount of P400 and the
20, 1961, the petitioner obtained a fifth alias writ of execution. costs of suit, the deed of chattel mortgage limits the principal
Pursuant to this last writ, the sheriff levied on certain personal obligation of the respondent to P1,700;
properties belonging to the respondent, and then scheduled them
for execution sale. 2. Whereas the judgment mentions no specific mode of
payment of the amount due to the petitioner, the deed of chattel
However, on November 10, 1961, the respondent filed an urgent mortgage stipulates payment of the sum of P1,700 in two equal
motion for the suspension of the execution sale on the ground of installments;
payment of the judgment obligation. The lower court, on
November 11, 1961, ordered the suspension of the execution sole 3. Whereas the judgment makes no mention of damages, the
to afford the respondent the opportunity to prove his allegation deed of chattel mortgage obligates the respondent to pay
of payment of the judgment debt, and set the matter for hearing liquidated damages in the amount of P300 in case of default on
on November 25, 1961. After hearing, the lower court, on January his part; and
25, 1962, issued an order the dispositive portion of which reads:
4. Whereas the judgment debt was unsecured, the chattel
IN VIEW WHEREOF, execution reiterated for P1,700.00 plus costs mortgage, which may be foreclosed extrajudicially in case of
of execution. default, secured the obligation.

The lower court ruled that novation had taken place, and that the On November 26, 1968, the petitioner moved for reconsideration
parties had executed the chattel mortgage only "to secure or get of the appellate court's decision, which motion the Court of
better security for the judgment. Appeals denied in its resolution of December 7, 1968. Hence, the
present petition for certiorari to review the decision of the Court
The respondent duly appealed the aforesaid order to the Court of of Appeals, seeking reversal of the appellate court's decision and
Appeals, which set aside the order of execution in a decision affirmance of the order of the lower court.
rendered on October 17, 1968, holding that the subsequent
agreement of the parties impliedly novated the judgment Resolution of the controversy posed by the petition at bar hinges
obligation in civil case 27116. entirely on a determination of whether or not the subsequent
agreement of the parties as embodied in the deed of chattel
The appellate court stated that the following circumstances mortgage impliedly novated the judgment obligation in civil case
sufficiently demonstrate the incompatibility between the 27116. The Court of Appeals, in arriving at the conclusion that
judgment debt and the obligation embodied in the deed of chattel implied novation has taken place, took into account the four
mortgage, warranting a conclusion of implied novation: circumstances heretofore already adverted to as indicative of the
incompatibility between the judgment debt and the principal
obligation under the deed of chattel mortgage.

in the deed of chattel mortgage only the balance of the judgment
1. Anent the first circumstance, the petitioner argues that debt properly collectible from the respondent. All told, therefore,
this does not constitute a circumstance in implying novation of the first circumstance fails to satisfy the test of substantial and
the judgment debt, stating that in the interim from the time of complete incompatibility between the judgment debt an the
the rendition of the judgment in civil case 27116 to the time of pecuniary liability of the respondent under the chattel mortgage
the execution of the deed of chattel mortgage the respondent agreement.
made partial payments, necessarily resulting in the lesser sum
stated in the deed of chattel mortgage. He adds that on record 2. The petitioner also alleges that the third circumstance,
appears the admission by both parties of the partial payments considered by the Court of Appeals as indicative of
made before the execution of the deed of chattel mortgage. The incompatibility, is directly contrary to the admissions of the
erroneous conclusion arrived at by the Court of Appeals, the respondent and is without any factual basis. The appellate court
petitioner argues, creates the wrong impression that the pointed out that while the judgment made no mention of
execution of the deed of chattel mortgage provided the payment of damages, the deed of chattel mortgage stipulated the
consideration or the reason for the reduced judgment payment of liquidated damages in the amount of P300 in case of
indebtedness. default on the part of the respondent.

Where the new obligation merely reiterates or ratifies the old However, the petitioner contends that the respondent himself in
obligation, although the former effects but minor alterations or his brief filed with the Court of Appeals admitted his obligation,
slight modifications with respect to the cause or object or under the deed of chattel mortgage, to pay the amount of P300 by
conditions of he latter, such changes do not effectuate any way of attorney's fees and not as liquidated damages. Similarly,
substantial incompatibility between the two obligations Only the judgment makes mention of the payment of the sum of P400
those essential and principal changes introduced by the new as attorney's fees and omits any reference to liquidated damages.
obligation producing an alteration or modification of the essence
of the old obligation result in implied novation. In the case at bar, The discrepancy between the amount of P400 and tile sum of
the mere reduction of the amount due in no sense constitutes a P300 fixed as attorney's fees in the judgment and the deed of
sufficient indictum of incompatibility, especially in the light of (a) chattel mortgage, respectively, is explained by the petitioner,
the explanation by the petitioner that the reduced indebtedness thus: the partial payments made by the respondent before the
was the result of the partial payments made by the respondent execution of the chattel mortgage agreement were applied in
before the execution of the chattel mortgage agreement and (b) satisfaction of part of the judgment debt and of part of the
the latter's admissions bearing thereon. attorney's fee fixed in the judgment, thereby reducing both
amounts.
At best, the deed of chattel mortgage simply specified exactly
how much the respondent still owed the petitioner by virtue of At all events, in the absence of clear and convincing proof
the judgment in civil case 27116. The parties apparently in their showing that the parties, in stipulating the payment of P300 as
desire to avoid any future confusion as to the amounts already attorney's fees in the deed of chattel mortgage, intended the
paid and as to the sum still due, decoded to state with specificity same as an obligation for the payment of liquidated damages in

case of default on the part of the respondent, we find it difficult to but the payment of the judgment obligation and other incidental
agree with the conclusion reached by the Court of Appeals. expenses in civil case 27116.

3. As to the second and fourth circumstances relied upon by The unmistakable terms of the deed of chattel mortgage reveal
the Court of Appeals in holding that the montage obligation that the parties constituted the chattel mortgage purposely to
superseded, through implied novation, the judgment debt, the secure the satisfaction of the then existing liability of the
petitioner points out that the appellate court considered said respondent arising from the judgment against him in civil case
circumstances in a way not in accordance with law or accepted 27116. As a security for the payment of the judgment obligation,
jurisprudence. The appellate court stated that while the the chattel mortgage agreement effectuated no substantial
judgment specified no mode for the payment of the judgment alteration in the liability of the respondent.
debt, the deed of chattel mortgage provided for the payment of
the amount fixed therein in two equal installments. The defense of implied novation requires clear and convincing
proof of complete incompatibility between the two obligations. 2
On this point, we see no substantial incompatibility between the The law requires no specific form for an effective novation by
mortgage obligation and the judgment liability of the respondent implication. The test is whether the two obligations can stand
sufficient to justify a conclusion of implied novation. The together. If they cannot, incompatibility arises, and the second
stipulation for the payment of the obligation under the terms of obligation novates the first. If they can stand together, no
the deed of chattel mortgage serves only to provide an express incompatibility results and novation does not take place.
and specific method for its extinguishment payment in two
equal installments. The chattel mortgage simply gave the We do not see any substantial incompatibility between the two
respondent a method and more time to enable him to fully satisfy obligations as to warrant a finding of an implied novation. Nor do
the judgment indebtedness. 1 The chattel mortgage agreement in we find satisfactory proof showing that the parties, by explicit
no manner introduced any substantial modification or alteration terms, intended the full discharge of the respondent's liability
of the judgment. Instead of extinguishing the obligation of the under the judgment by the obligation assumed under the terms
respondent arising from the judgment, the deed of chattel of the deed of chattel mortgage so as to justify a finding of
mortgage expressly ratified and confirmed the existence of the express novation.
same, amplifying only the mode and period for compliance by the
respondent. ACCORDINGLY, the decision of the Court of Appeals of October
17, 1968 is set aside, and the order of the Court of First Instance
The Court of Appeals also considered the terms of the deed of of Manila of January 25, 1962 is affirmed, at respondent Antonio
chattel mortgage incompatible with the judgment because the Gabriel's cost.
chattel mortgage secured the obligation under the deed, whereas
the obligation under the judgment was unsecured. The petitioner
argues that the deed of chattel agreement clearly shows that the
parties agreed upon the chattel mortgage solely to secure, not the
payment of the reduced amount as fixed in the aforesaid deed, 105. G.R. No. L-26115 November 29, 1971

another payment in the amount of P1,000 as evidenced by a
CARLOS SANDICO, SR., and TEOPISTO P. TIMBOL, receipt issued by the petitioners' counsel. This receipt is
petitioners, hereunder reproduced in full:
vs.
THE HONORABLE MINERVA R. INOCENCIO PIGUING, P1,000.00
Judge of the Court of First Instance of Pampanga, and
DESIDERIO PARAS, respondents. RECEIVED from Mr. Desiderio Paras the sum of ONE THOUSAND
PESOS (P1,000.00), Philippine Currency, in full satisfaction of the
CASTRO, J.: money judgment rendered against him in Civil Case No. 1554 of
the Court of First Instance of Pampanga, it being understood that
On April 16, 1960 the spouses Carlos Sandico and Enrica Timbol, the portion of the final judgment rendered in the said case
and Teopisto P. Timbol, administrator of the estate of the late ordering him to reconstruct the irrigation canal in question shall
Sixta Paras, obtained a judgment in their favor against Desiderio be complied with by him immediately.
Paras (hereinafter referred to as the respondent) in civil case
1554, an action for easement and damages in the Court of First City of Angeles, August 31, 1964.
Instance of Pampanga. On appeal, the Court of Appeals affirmed
and modified the judgment, as follows: (SGD.) DALMACIO P. TIMBOL
Counsel for Plaintiffs
IN VIEW WHEREOF, judgment affirmed and modified; as a in Civil Case No. 1554
consequence, defendant is condemned to recognize the easement
which is held binding as to him; he is sentenced to pay plaintiffs I AGREE:
the sums of P5,000.00 actual, and P500.00 exemplary damages, (SGD.) DESIDERIO PARAS
and P500.00 attorney's fees; plus costs in both instances. 1
Subsequently, the petitioners sent the respondent a letter dated
Thereafter, upon remand to the court a quo of civil case 1554, the November 5, 1964 demanding compliance by the latter with the
Sandicos and Timbol (hereinafter referred to as the petitioners) portion of the judgment in civil case 1554 relative to the
moved for the issuance of a writ of execution to enforce the reconstruction and reopening of the irrigation canal.
appellate court's judgment which had acquired finality. Acting
upon the motion, the court a quo issued a writ of execution on On February 12, 1965 the provincial sheriff returned the writ of
July 22, 1964. This writ the provincial sheriff served upon the execution issued on July 22, 1964 unsatisfied.
respondent on August 22, 1964.
Upon failure and refusal of the respondent to rebuild and reopen
Meanwhile the petitioners and the respondent reached a the irrigation canal, the petitioners, on March 3, 1965, filed with
settlement, finally agreeing to the reduction of the money the court a quo, with Judge Minerva R. Inocencio Piguing
judgment from P6,000 to P4,000. Thus, the respondent, on (hereinafter referred to as the respondent judge) presiding, a
August 5, 1964, paid the petitioners the sum of P3,000; he made motion to declare the said private respondent in contempt of

court, pursuant to provisions of section 9, Rule 39 of the Rules of the money judgment provided for in the decision of the Court of
Court. Opposing the motion, the respondent alleged recognition Appeals, ruling that the said decision.
by him of the existence of the easement and compliance with the
appellate court's judgment, stating that he had dug a canal in its ... which is sought now to be executed by this Court, has already
former place, measuring about one and-a-half feet deep, for the been fully satisfied as to the money judgment and nothing more
petitioners' use. is left to be executed from the aforesaid Decision as it does not
allege (aside from money judgment) any other condition except
On September 8, 1965 the respondent judge issued an order for the defendants to recognize the easement therein.
denying the petitioners' motion to declare the respondents in
contempt of court, ruling that. With their subsequent motion for reconsideration denied by the
respondent judge, the petitioners, on May 27, 1966, filed with
... it appears from the dispositive part of the decision that the this Court the present petition 2 for certiorari seeking to set aside
defendant was only ordered to recognize the easement which is (1) the order of the respondent judge dated September 8, 1965
held binding as to him and to pay the plaintiffs the sums denying their motion to declare the respondent in contempt of
P5,000.00 of actual, and P500.00 exemplary damages. court in civil case 1554, and (2) the orders of the respondent
judge dated February 3, 1966 and March 30, 1966 granting the
Apparently, it is clear from the dispositive part of the decision respondent's motion to set aside the alias writ of execution
that there is nothing to show that the defendant was ordered to issued in the same civil case, on the ground that the respondent
reconstruct the canal. judge acted in excess of jurisdiction or with grave abuse of
discretion.
On September 16, 1965 the petitioners moved for issuance of an
alias writ of execution to enforce the judgement of the Court of Here tendered for resolution are the following issues:
Appeals. This motion the respondent judge granted in an order
dated September 25, 1965. On November 3, 1965. the respondent (1) Whether the respondent judge correctly constructed the
moved to set aside the said alias writ, alleging full satisfaction of judgment of the Court of Appeals as not requiring the respondent
the judgment per agreement of the parties when the petitioner to reconstruct and reopen the irrigation canal, and consequently,
received the sum of P4,000 in August, 1964 as evidenced by the whether the said respondent judge acted in excess of jurisdiction
receipt dated August 31, 1964. or with grave abuse of discretion in denying the petitioners'
motion to declare the respondent in contempt of court for failing
The respondent judge then issued an order dated November 11, and refusing to comply with the appellate court's judgment; and
1965 directing the provincial sheriff to suspend the execution of
the alias writ until further orders. On February 3, 1966 the (2) Whether the payment by the respondent to the petioners
respondent judge issued an order calling, and directing the of the amount of P4,000 extinguished the money judgment, and,
quashal of the alias writ of execution. The respondent judge consequently, whether the respondent judge acted in excess of
stated in her order that the agreement of the parties "novated" jurisdiction or with grave abuse of discretion in ordering the
recall and quashal of the alias writ of execution.

resolution of the first question. No doubt exists that the parties
1. Anent the first issue, the petitioners argue that although entered into the agreement, fully aware of the judgment of the
the dispositive portion of the appellate court's judgment omitted appellate court ordering the respondent to comply with two
any directive to the respondent to reconstruct and reopen the obligations, to wit, payment of a sum of money and recognition of
irrigation canal, the Court of Appeals' order requiring recognition the easement. The receipt evidencing the agreement, aside from
of the easement on the part of the said respondent suffices to providing for the reduction of the money judgment, provides for
make him aware of his obligation under the judgment. The only the reconstruction of the irrigation canal. Such constitutes the
way of recognizing the easement, the petitioners continue, interpretation accorded by the parties to that part of the
consists in performing positive act the reconstruction and dispositive portion of the appellate court's judgment condemning
restoration of the irrigation canal to its former condition. the respondent to recognize the easement. This stipulation
Moreover, to understand the full intendment of the dispositive one wherein the respondent clearly recognizes his obligation "to
portion of the judgment directing the respondent "to recognize reconstruct the irrigation canal" embodied in precise and clear
the easement" necessitates reference to a statement in the terms in the receipt binds the said respondent, a signatory to the
decision of the Court of Appeals that reads: said receipt, and requires from him full compliance. We thus fail
to perceive any reason to sustain the contention of the
... the result of this must be to justify the conclusion prayed for by respondent that he has no obligation at all to reconstruct and
the plaintiffs that the easement should be held to be existing and reopen the irrigation canal, a position utterly inconsistent with
binding upon defendant and he should be held to have acted his agreement with the petitioners as embodied in the receipt
without authority in closing the canal which should be ordered dated August 31, 1964.
reopened.
The record, however, shows that the respondent exerted efforts
On the other hand, the respondent alleges that there is no to reconstruct the portion of the irrigation canal running through
ambiguity in the phraseology of the portion of the Court of his land by digging a canal about one meter wide and about one-
Appeals' judgment condemning to recognize the easement. Said and-a-half feet deep. This partial reconstruction of the irrigation
decision requires him only to "recognize" the easement and in canal the petitioners admit. Still, the petitioners demand the
compliance therewith, he gives the petitioners permission to reconstruction of the irrigation canal to its former condition
reconstruct and reopen the irrigation canal themselves. Neither measuring four meters wide, five feet deep, and one-hundred and
the decision a quo nor that of the appellate court orders him to twenty-eight meters long contending that the rebuilt canal
reconstruct and reopen the irrigation canal. serves no useful purpose because the water passing through it
overflows, which overflow ultimately causes the destruction of
The agreement reached by the petitioners and the respondent in the canal itself. Nonetheless, we believe that need to give full
August, 1964 relative to the judgment of the appellate court force and effect to the existence of the easement demands that
which had acquired finality and the interpretation by the parties the respondent reconstruct the irrigation canal to its condition
themselves of the said judgment, specifically its dispositive before he closed and destroyed the same. After all, the
portion, as embodied in the receipt dated August 31, 1964, respondent himself in his answer dated June 16, 1959 filed with
constitute the considerations of prime importance in the the court a quo admitted the original dimensions of the irrigation

canal as four meters wide and one-hundred and twenty-eight
meters long. The respondent's attempt, to rebuild the irrigation Section 9 applies to specific acts other than those cover by
canal, partially and not in conformity with the dimensions of the section 10 of the same rule. Section 10 pertinently provides:
original one, does not constitute satisfactory and substantial
compliance with his obligation to recognize the easement per the See. 10. Judgment for an acts; vesting title. If a judgment
appellate court's judgment and to reconstruct the irrigation canal directs a party to execute a conveyance of land, or to deliver
pursuant to his agreement with the petitioners in August, 1964. deeds or other documents, or to perform any other specific act,
and the party fails to comply within the time specified, the court
Due to the respondent's failure and refusal to reconstruct and may direct the act to be done at the cost of disobedient party by
reopen the irrigation canal, the petitioners sought to declare him some other person appointed by the court and the act when so
in contempt of court, under the provisions of section 9 of Rule 39 done shall have like effect as if done by the party. ...
of the Rules of Court. The respondent judge, however, believing
that the appellate court's judgement required the respondent Section 9 refers to a judgment directing the performance of a
merely to recognize the equipment without doing any positive specific act which the said judgment requires the party or person
act of reconstruction and reopening of the irrigation canal, to personally do because of his personal qualifications and
dismissed the petition motion to declare the respondent in circumstances. Section 10 refers to a judgment requiring the
contempt of court. In doing so, the petitioners allege, the execution of a conveyance of land or the delivery of deeds or
respondent judge acted in excess of jurisdiction or with grave other documents or the performance of any other specific act
abuse of discretion. The petitioners thus ask us now to annul the susceptible of execution by some other person or in some other
order of the respondent judge denying their motion to declared way provided by law with the same effect. Under section 10, the
the respondent in contempt of court or, by way of native, to court may designate some other person to do the act ordained to
declare the respondent in contempt of court and to punish him be done by the judgment, the reasonable cost of its performance
accordingly. chargeable to the disobedient party. The act, when so done, shall
have the same effect as if performed by the party himself. In such
The petitioners predicate their stand mainly upon the provisions an instance, the disobedient party incurs no liability for
of section 9 of Rule 39 of the Rules of Court. Said section reads: contempt. 3 Under section 9, the court may resort to proceedings
for contempt in order to enforce obedience to a judgment which
Sec. 9. Writ of execution of special judgment. When judgment requires the personal performance of a specific act other than the
requires the performance of any other act than the payment of payment of money, or the sale or delivery of real or personal
money, or the sale or delivery of real or personal property, a property.
certified copy of the judgment shall be attached the writ of
execution and shall be served by the officer upon the party An examination of the case at bar makes it apparent that the
against whom the same is rendered, or upon any of person same falls within the contemplation of section 10, and not of
required thereby, or by law, to obey the same, and party or section 9 as the petitioners contend. The reconstruction and
person may be punished forcontempt if he disobeys such reopening of the irrigation canal may be done by same other
judgment. person designated by the court, at the cost of the respondent. In

fact, the respondent in his attempt to rebuild the irrigation canal, Parenthetically, the petitioner's application for the issuance of
contracted the services of one Gerardo Salenga. Accordingly, in the alias writ of execution dated September 16, 1965, the alias
conformity with the appellate court's judgment as further writ of execution dated September 29, 1965, and the levy on
mutually interpreted by the parties themselves, the court a quo, execution and the notice of sheriff's sale, both dated October 21,
because of the failure and refusal of the respondent to restore the 1965, all refer to the amount of P6,000 and make no mention
irrigation canal to its former condition and to reopen it, should whatsoever of the true status of the judgement debt. On this
have appointed some other person to do the reconstruction, point the respondent charges the petitioners with concealing
charging the expenses therefor to the said respondent. from the court a quo the true amount, if any, still due from him.
And in effect, he alleges, the petitioners apparently seek the
2. As to the second question, which relates to the money payment of the judgment debt twice. The petitioners, however,
judgment, the petitioners vehemently insist on their right to emphasize that they demand payment of only the balance of
recover an additional sum of P2,000 the alleged unsatisfied P2,000. To rebut the respondents charge of concealment, they
portion of the appellate court's judgement requiring the state that they informed the court a quo that the respondent
respondent to pay to the petitioners the total amount of P6,000 already paid them the sum of P4,000. Furthermore, they allege
corresponding to damages and attorney's fees. The petitioners that another lawyer, a former associate of their counsel, prepared
allege that their agreement with the respondent in August, 1964, their motion for the issuance of the alias writ of execution,
reducing the amount due from the respondent, constitutes received the alias writ and delivered the same to the sheriff.
neither waiver of their claim for the sum of P2,000 nor novation Impliedly, therefore, they attribute the inconsistency regarding
of the money judgment provided for in the Court of Appeals' the amount still allegedly due from the respondent to the former
decision. They state that their agreement with the respondent associate of their counsel.
reduced the amount of the money judgment, subject to the
condition that the latter reconstruct and reopen the irrigation Reverting to the second question, the appellate court's judgment
canal immediately. This, they argue, does not constitute obliges the respondent to do two things: (1) to recognize the
alteration of the appellate court's judgment. easement, and (2) to pay the petitioners the sums of P5,000
actual and P500 exemplary damages and P500 attorney's fees, or
For his part, the respondent contends that his payment of the a total of P6,000. The full satisfaction of the said judgment
sum of P4,000, received and acknowledged by the petitioners requires specific performance and payment of a sum of money by
through their counsel as "in full satisfaction of the money the respondent.
judgment" in civil case 1554, extinguished his pecuniary liability.
Thus, when the petitioners, notwithstanding the admitted We adjudge the respondent's judgment debt as having been fully
payment of the judgment debt in the lesser amount of P4,000, satisfied. We see no valid objection to the petitioners and the
still sought to enforce the money judgment for the full amount of respondent entering into an agreement regarding the monetary
P6,000 through an alias writ of execution, the court a quo, in obligation of the latter under the judgment of the Court of
recalling and quashing the alias writ previously issued, acted Appeals, reducing the same from P6,000 to P4,000. The payment
correctly andwithin its authority. by the respondent of the lesser amount of P4,000, accepted by
the petitioners without any protest or objection and

acknowledged by them as "in full satisfaction of the money the reduction of the money judgment was conditioned on the
judgment" in civil case 1554, completely extinguished the respondent's reconstruction and reopening of the irrigation
judgment debt and released the respondent from his pecuniary canal. The receipt merely embodies the recognition by the
liability. respondent of his obligation to reconstruct the irrigation canal.
And the receipt simply requires the respondent to comply with
Both the petitioners and the respondent take exception to the such obligation "immediately." The obligation of the respondent
respondent judge's ruling that their agreement of August, 1964 to remains as a portion of the Court of Appeals' judgment. In fact,
reduce the judgment debt, as evidenced by the receipt the petitioners themselves, in their letter dated November 5,
hereinbefore adverted to, "novated" the money judgment 1964, sent to the respondent, demanding that the latter
rendered by the appellate court. reconstruct the irrigation canal immediately, referred to the
same not as a condition but as "the portion of the judgment" in
Novation results in two stipulations one to extinguish an civil case 1594.
existing obligation, the other to substitute a new one in its place.
4 Fundamental it is that novation effects a substitution or Consequently, the respondent judge, when she granted the
modification of an obligation by another or an extinguishment of motion of the respondent to set aside the alias writ of execution
one obligation in the creation of another. In the case at hand, we and issued the order dated February 3, 1966 recalling and
fail to see what new or modified obligation arose out of the quashing the said alias writ, acted correctly. Courts have
payment by the respondent of the reduced amount of P4,000 and jurisdiction to entertain motions to quash previously issued writs
substitute the monetary liability for P6,000 of the said of execution because courts have the inherent power, for the
respondent under the appellate court's judgment. Additionally, to advancement of justice, to correct the errors of their ministerial
sustain novation necessitates that the same be so declared in officers and to control their own processes. However, this power,
unequivocal terms clearly and unmistakably shown by the well circumscribed, to quash the writ, may be exercised only in
express agreement of the parties or by acts of equivalent import certain situations, as when it appears that (a) the writ has been
or that there is complete and substantial incompatibility improvidently issued, or (b) the writ is defective in substance, or
between the two obligations. 5 (c) the writ has been issued against the wrong party, or (d) the
judgment debt has been paid or otherwise satisfied, or (e) the
Neither do we appreciate the petitioners' stand that, according to writ has been issued without authority, or (f) there has been a
their agreement with the respondent, their assent to the change in the situation of the parties which renders such
reduction of the money judgment was subject to the condition execution inequitable, or (g) the controversy has never been
that the respondent reconstruct and reopen the portion of the submitted to the judgment of the court, and, therefore, no
irrigation canal passing through his land immediately. The judgment at all has ever been rendered thereon. 6 In the instant
petitioners even state that the receipt of August 31, 1964 case, the payment of the judgment debt by the respondent,
embodies this condition. although in a reduced amount but accepted by the petitioners as
"in full satisfaction of the money judgment," warrants the quashal
The terms of the receipt dated August 31, 1964, we find clear and of the alias writ.
definite. The receipt neither expressly nor impliedly declares that

ACCORDINGLY, judgment is hereby rendered, (1) declaring that allegation that the questioned Order was issued with grave abuse
the respondent judge did not act in excess of jurisdiction or with of discretion.
grave abuse of discretion in issuing the order dated February 3,
1966 (granting the respondent's motion to set aside the alias writ In Civil Case No. 133528 of the defunct Court of First Instance of
of execution, and recalling and guashing the said alias writ) and Manila, DANIEL E. ROXAS, doing business under the name and
the order dated March 30, 1966 (denying the petitioners' motion style of United Veterans Security Agency and Foreign Boats
for reconsideration, of the order dated February 3, 1966) ; and Watchmen, sued the NATIONAL POWER CORPORATION (NPC)
(2) remanding the case to the court a quo with instructions that and two of its officers in Iligan City. The purpose of the suit was
the respondent court (a) conduct an ocular inspection of the to compel the NPC to restore the contract of Roxas for security
irrigation canal passing through the respondent's land to services which the former had terminated.
determine whether or not the said canal has been rebuilt in
accordance with its original dimensions; (b) in the event that the After several incidents, the litigants entered into a Compromise
said canal fails to meet the measurements of the original one, Agreement on October 14, 1981, and they asked the Court to
order the respondent to reconstruct the same to its former approve it. Accordingly, a Decision was rendered on October 30,
condition; and (3) in the event of the respondent's further refusal 1981, which reads as follows: t.hqw
or failure to do so, appoint some other person to reconstruct the
canal in accordance with its original dimensions, at the cost of the In order to abbreviate the proceedings in this case, the parties,
said respondent, pursuant to section 10 of Rule 39 of the Rules of instead of going into trial, submitted a compromise agreement, as
Court. Without pronouncement as to costs. follows: t.hqw

The parties, DANIEL E. ROXAS, etc. and NATIONAL POWER
CORPORATION, ET AL., represented by its President Mr. Gabriel
Y. Itchon with due and proper authority under NP Board
106. G.R. Nos. L-62845-46 November 25, 1983 Resolution No. 81-224, assisted by their respective counsel, to
this Honorable Court respectfully submit the following
NATIONAL POWER CORPORATION, petitioner, compromise agreement:
vs.
JUDGE ABELARDO M. DAYRIT, Court of First Instance 1. The defendant National Power Corporation shall pay to
of Manila, Branch 39, and DANIEL R. ROXAS, doing plaintiff the sum of P7,277.45, representing the amount due to
business as United Veterans Security Agency and plaintiff for the services of one of plaintiff's supervisors;
Foreign Boats Watchmen, respondents.
2. The defendant shall pay plaintiff the value of the line
ABAD SANTOS, materials which were stolen but recovered, by plaintiff's agency
which value is to be determined after a joint inventory by the
This is a petition to set aside the Order, dated September 22, representatives of both parties;
1982, of the respondent judge. The prayer is premised on the

3. The parties shall continue with the contract of security
services under the same terms and conditions as the previous 1. On October 30, 1981, this Honorable Court rendered its
contract effective upon the signing thereof; decision based on compromise agreement submitted by the
parties, under which it was provided, among others, that
4. The parties waive all their respective claims and t.hqw
counterclaims in favor of each other;
3. The parties shall continue with the contract of security
5. The parties agree to faithfully comply with the foregoing services under the same terms and conditions as the previous
agreement. contract effective upon the signing thereof;

PRAYER 2. To date, after more than about eight (8) months since the
decision of this Honorable Court, defendant National Power
WHEREFORE, it is respectfully prayed that the Hon. Court Corporation, through bad faith by reason of excuses made one
approve the following compromise agreement.' after another, has yet to comply with the aforesaid terms of the
decision. It has not reinstated the contract with the plaintiff in
Examining the foregoing agreement, the Court finds that the gross violation of the terms of the said compromise agreement
same is in accordance with law and not against morals and public which this Honorable Court approved, 'enjoining the parties to
policy. strictly comply with the terms and conditions of the compromise
agreement,
CONFORMABLY, the Court hereby renders judgment in
accordance with the terms and conditions thereof, enjoining the 3. Hence, plaintiff is compelled to seek the assistance of this
parties to strictly comply with the terms and conditions of the Honorable Court for the execution of its decision.
compromise agreement, without pronouncement as to cost.
(Rollo, pp. 33-34.) PRAYER t.hqw

The judgment was not implemented for reasons which have no WHEREFORE, it is respectfully prayed that this Honorable Court
relevance here. order the issuance of the writ of execution for the enforcement of
the aforesaid portion of its decision. (Rollo, pp. 35-36.)
On May 14, 1982, the NPC executed another contract for security
services with Josette L. Roxas whose relationship to Daniel is not Acting on the Motion, the respondent judge issued the following
shown. At any rate Daniel has owned the contract. The NPC Order: t.hqw
refused to implement the new contract for which reason Daniel
filed a Motion for Execution in the aforesaid civil case which had Acting on the motion for execution dated July 14, 1982, visibly
been re-numbered R-82-10787. The Motion reads: t.hqw over the objection and/or opposition to the motion for execution
dated July 19, 1982, the Court, considering that the decision of
PLAINTIFF, by counsel, respectfully shows: October 30, 1981 was based on a Compromise Agreement

entered into by and between the parties which decidedly, Art. 1292. In order that an obligation may be extinguished by
become final and executory, is inclined to grant said action. another which substitutes the same, it is imperative that it be so
declared in unequivocal terms, or that the old and the new
CONFORMABLY, let the corresponding writ of execution be obligations be on every point incompatible with each other.
issued to be served by the Deputy Sheriff assigned to this branch.
(Rollo, p. 54.) In the case at bar there is nothing in the May 14, 1982, agreement
which supports the petitioner's contention. There is neither
The NPC assails the Order on the ground that it directs execution explicit novation nor incompatibility on every point between the
of a contract which had been novated by that of May 14, 1982. "old" and the "new" agreements.
Upon the other hand, Roxas claims that said contract was
executed precisely to implement the compromise agreement for WHEREFORE, the petition is denied for lack of merit with costs
which reason there was no novation. against the petitioner.

We sustain the private respondent. Article I of the May 14, 1982,
agreement supports his contention. Said article reads:
t.hqw
107. G.R. No. L-41117 December 29, 1986
ARTICLE I
INTEGRATED CONSTRUCTION SERVICES, INC., and
DOCUMENTS COMPRISING THE CONTRACT ENGINEERING CONSTRUCTION, INC., petitioners,
vs.
The letter proposal dated September 5, 1981; CORPORATION'S THE HONORABLE LORENZO RELOVA, as Judge of the
counter- proposal dated September 11, 1981; Board Resolution Court of First Instance of Manila, and METROPOLITAN
No. 81-244 dated September 28, 1981; the Compromise WATERWORKS & SEWERAGE SYSTEM, respondents.
Agreement and Court Decision dated October 30, 1981 in Civil
Case No. 133528 CFI-Manila; other subsequent letters and the PARAS, J.:
performance bond of AGENCY to be flied in favor of
CORPORATION in the manner hereinafter provided, are hereby This is a petition 1 for mandamus as a special civil action and/or,
expressly made integral parts of this contract by reference. in the alternative, an appeal from orders of the Court of First
(Rollo, pp. 59-60.) Instance of Manila under Republic Act 5440 in Civil Case No.
80390 entitled "Integrated Construction Services, Inc. and
It is elementary that novation is never presumed; it must be Engineering Construction, Inc., plaintiffs, versus National
explicitly stated or there must be manifest incompatibility Waterworks and Sewerage Authority (now Metropolitan
between the old and the new obligations in every aspect. Thus Waterworks & Sewerage System), defendant." Petitioners
the Civil Code provides: t.hqw complied with the requisites for both remedies.


The facts are not in dispute: stated in the decision but less the reductions provided for in the
October 2, 1972 letter-agreement.
Petitioners on July 17, 1970 sued the respondent Metropolitan
Waterworks and Sewerage System (MWSS), formerly the Three years thereafter, or on June, 1975, after the last balance of
National Waterworks and Sewerage Authority (NAWASA), in the the trust fund had been released and used to satisfy creditors'
Court of First Instance of Manila for breach of contract, docketed claims, the petitioners filed a motion for execution in said civil
as Civil Case No. 80390 in that Court. Meanwhile, the parties case against MWSS for the balance due under the decision-award.
submitted the case to arbitration. Respondent MWSS opposed execution setting forth the defenses
of payment and estoppel. (p. 174, Rollo)
The Arbitration Board, after extensive hearings, rendered its
decision-award on August 11, 1972. Respondent Judge confirmed On July 10, 1975, respondent judge denied the motion for
the Award on September 9, 1972 and the same has long since execution on the ground that the parties had novated the award
become final and executory. by their subsequent letter-agreement. Petitioners moved for
reconsideration but respondent judge, likewise, denied the same
The decision-award ordered MWSS to pay petitioners in his Order dated July 24, 1975.
P15,518,383.61-less P2,329,433.41, to be set aside as a trust fund
to pay creditors of the joint venture in connection with the Hence, this Petition for Mandamus, alleging that respondent
projector a net award of P13,188,950.20 with interest thereon judge unlawfully refused to comply with his mandatory duty-to
from the filing of the complaint until fully paid. order the execution of the unsatisfied portion of the final and
executory award.
Subsequently, however, petitioners agreed to give MWSS some
discounts in consideration of an early payment of the award. In a Resolution dated October 17, 1975, the Supreme Court
Thus, on September 21, 1972, MWSS adopted Board Resolution dismissed the Petition for lack of merit. (p. 107, Rollo )and denied
No. 132-72, embodying the terms and conditions of their petitioners' Motion for Reconsideration of the same. (p. 131,
agreement. On October 2, 1972, MWSS sent a letter-agreement to Rollo)
petitioners, quoting Board Resolution No. 13272, granting MWSS
some discounts from the amount payable under the decision At the hearing on petitioners' Second Motion for Reconsideration,
award (consisting of certain reductions in interests, in the net however, respondent MWSS asserted new matters, (p. 186, Rollo)
principal award and in the trust fund), provided that MWSS arguing that: the delay in effecting payment was caused by an
would pay the judgment, less the said discounts, within fifteen unforeseen circumstance the declaration of martial law, thus,
days therefrom or up to October 17, 1972. placing MWSS under the management of the Secretary of
National Defense, which impelled MWSS to refer the matter of
Upon MWSS' request, the petitioners signed their "Conforme" to payment to the Auditor General and/or the Secretary of National
the said letter-agreement, and extended the period to pay the Defense; and that the 15-day period was merely intended to
judgment less the discounts aforesaid to October 31, 1972. pressure MWSS officials to process the voucher. Petitioners,
MWSS, however, paid only on December 22, 1972, the amount

however, vehemently deny these matters which are not the 15-day period was intended to be a suspensive condition.
supported by the records. MWSS, admittedly, was aware of this, as shown by the internal
memorandum of a responsible MWSS official, stating that
We agree with the petitioners. necessary steps should be taken to effect payment within 15
days, for otherwise, MWSS would forego the advantages of the
While the tenor of the subsequent letter-agreement in a sense discount. " (p. 426, Rollo)
novates the judgment award there being a shortening of the
period within which to pay (Kabangkalan Sugar Co. vs. Pacheco, As to whether or not petitioners are now in estoppel to question
55 Phil. 555), the suspensive and conditional nature of the said the subsequent agreement, suffice it to state that petitioners
agreement (making the novation conditional) is expressly never acknowledged full payment; on the contrary, petitioners
acknowledged and stipulated in the 14th whereas clause of refused MWSS' request for a conforme or quitclaim. (p. 125,
MWSS' Resolution No. 132-72, (p. 23, Rollo) which states: Rollo)

WHEREAS, all the foregoing benefits and advantages secured by Accordingly, the award is still subject to execution by mere
the MWSS out of said conferences were accepted by the Joint motion, which may be availed of as a matter of right any time
Venture provided that the remaining net amount payable to the within (5) years from entry of final judgment in accordance with
Joint Venture will be paid by the MWSS within fifteen (15) days Section 5, Rule 39 of the Rules of Court.
after the official release of this resolution and a written
CONFORME to be signed by the Joint Venture; (Emphasis WHEREFORE, We hereby set aside the assailed orders, and issue
supplied) the writ of mandamus directing the present Regional Trial Judge
of the Branch that handled this case originally to grant the writ of
MWSS' failure to pay within the stipulated period removed the execution for the balance due under the award.
very cause and reason for the agreement, rendering some
ineffective. Petitioners, therefore, were remitted to their original
rights under the judgment award.

The placing of MWSS under the control and management of the 108. G.R. No. L-47369
Secretary of National Defense thru Letter of Instruction No. 2,
dated September 22, 1972 was not an unforeseen supervening JOSEPH COCHINGYAN, JR. and JOSE K. VILLANUEVA,
factor because when MWSS forwarded the letter-agreement to petitioners,
the petitioners on October 2, 1972, the MWSS was already aware vs.
of LOI No. 2. R & B SURETY AND INSURANCE COMPANY, INC.,
respondent.
MWSS' contention that the stipulated period was intended to
pressure MWSS officials to process the voucher is untenable. As
aforestated, it is apparent from the terms of the agreement that FELICIANO, J.:

another agreement dated 24 December 1963 was executed by
This case was certified to us by the Court of Appeals in its PAGRICO, Pacific Copra Export Inc. (PACOCO), Jose K. Villanueva
resolution dated 11 November 1977 as one involving only and Liu Tua Ben Mr. Villanueva signed both as Manager of
questions of law and, therefore, falling within the exclusive PAGRICO and in his personal and individual capacity; Mr. Liu
appellate jurisdiction of this Court under Section 17, Republic Act signed both as President of PACOCO and in his individual and
296, as amended. personal capacity.

In November 1963, Pacific Agricultural Suppliers, Inc. (PAGRICO) Under both indemnity agreements, the indemnitors bound
applied for and was granted an increase in its line of credit from themselves jointly and severally to R & B Surety to pay an annual
P400,000.00 to P800,000.00 (the "Principal Obligation"), with the premium of P5,103.05 and "for the faithful compliance of the
Philippine National Bank (PNB). To secure PNB's approval, terms and conditions set forth in said SURETY BOND for a period
PAGRICO had to give a good and sufficient bond in the amount of beginning ... until the same is CANCELLED and/or DISCHARGED."
P400,000.00, representing the increment in its line of credit, to The Indemnity Agreements further provided:
secure its faithful compliance with the terms and conditions
under which its line of credit was increased. In compliance with (b) INDEMNITY: TO indemnify the SURETY COMPANY for
this requirement, PAGRICO submitted Surety Bond No. 4765, any damage, prejudice, loss, costs, payments, advances and
issued by the respondent R & B Surety and Insurance Co., Inc. (R expenses of whatever kind and nature, including [of] attorney's
& B Surety") in the specified amount in favor of the PNB. Under fees, which the CORPORATION may, at any time, become liable
the terms of the Surety Bond, PAGRICO and R & B Surety bound for, sustain or incur as consequence of having executed the above
themselves jointly and severally to comply with the "terms and mentioned Bond, its renewals, extensions or substitutions and
conditions of the advance line [of credit] established by the said attorney's fees [shall] not be less than twenty [20%] per cent
[PNB]." PNB had the right under the Surety Bond to proceed of the total amount claimed by the CORPORATION in each action,
directly against R & B Surety "without the necessity of first the same to be due, demandable and payable, irrespective of
exhausting the assets" of the principal obligor, PAGRICO. The whether the case is settled judicially or extrajudicially and
Surety Bond also provided that R & B Surety's liability was not to whether the amount has been actually paid or not;
be limited to the principal sum of P400,000.00, but would also
include "accrued interest" on the said amount "plus all expenses, (c) MATURITY OF OUR OBLIGATIONS AS CONTRACTED
charges or other legal costs incident to collection of the HEREWITH: The said indemnities will be paid to the
obligation [of R & B Surety]" under the Surety Bond. CORPORATION as soon as demand is received from the Creditor
or upon receipt of Court order or as soon as it becomes liable to
In consideration of R & B Surety's issuance of the Surety Bond, make payment of any sum under the terms of the above-
two Identical indemnity agreements were entered into with R & mentioned Bond, its renewals, extensions, modifications or
B Surety: (a) one agreement dated 23 December 1963 was substitutions, whether the said sum or sums or part thereof, have
executed by the Catholic Church Mart (CCM) and by petitioner been actually paid or not.
Joseph Cochingyan, Jr, the latter signed not only as President of
CCM but also in his personal and individual capacity; and (b)

We authorize the SURETY COMPANY, to accept in any case and at Court of First Instance of Manila, praying principally that
its entire discretion, from any of us, payments on account of the judgment be rendered:
pending obligations, and to grant extension to any of us, to
liquidate said obligations, without necessity of previous b. Ordering defendants to pay jointly and severally, unto the
knowledge of [or] consent from the other obligors. plaintiff, the sum of P20,412.20 representing the unpaid
premiums for Surety Bond No. 4765 from 1965 up to 1968, and
x x x x x x x x x the additional amount of P5,103.05 yearly until the Surety Bond
No. 4765 is discharged, with interest thereon at the rate of 12%
(e) INCONTESTABILITY OF PAYMENTS MADE BY THE per annum; [and]
COMPANY. Any payment or disbursement made by the
SURETY COMPANY on account of the above-mentioned Bonds, its c. Ordering the defendants to pay jointly and severally, unto
renewals, extensions or substitutions, either in the belief that the the plaintiff the sum of P400,000.00 representing the total
SURETY COMPANY was obligate[d] to make such payment or in amount of the Surety Bond No. 4765 with interest thereon at the
the belief that said payment was necessary in order to avoid rate of 12% per annum on the amount of P70,000.00 which had
greater losses or obligations for which the SURETY COMPANY been paid to the Phil. National Bank already, the interest to begin
might be liable by virtue of the terms of the above-mentioned from the month of September, 1966;
Bond, its renewals, extensions or substitutions, shall be final and
will not be disputed by the undersigned, who jointly and x x x x x x x x x
severally bind themselves to indemnify the SURETY COMPANY of
any and all such payments as stated in the preceding clauses. Petitioner Joseph Cochingyan, Jr. in his answer maintained that
the Indemnity Agreement he executed in favor of R & B Surety: (i)
x x x x x x x x x did not express the true intent of the parties thereto in that he
had been asked by R & B Surety to execute the Indemnity
When PAGRICO failed to comply with its Principal Obligation to Agreement merely in order to make it appear that R & B Surety
the PNB, the PNB demanded payment from R & B Surety of the had complied with the requirements of the PNB that credit lines
sum of P400,000.00, the full amount of the Principal Obligation. R be secured; (ii) was executed so that R & B Surety could show
& B Surety made a series of payments to PNB by virtue of that that it was complying with the regulations of the Insurance
demand totalling P70,000.00 evidenced by detailed vouchers and Commission concerning bonding companies; (iii) that R & B
receipts. Surety had assured him that the execution of the agreement was
a mere formality and that he was to be considered a stranger to
R & B Surety in turn sent formal demand letters to petitioners the transaction between the PNB and R & B Surety; and (iv) that
Joseph Cochingyan, Jr. and Jose K. Villanueva for reimbursement R & B Surety was estopped from enforcing the Indemnity
of the payments made by it to the PNB and for a discharge of its Agreement as against him.
liability to the PNB under the Surety Bond. When petitioners
failed to heed its demands, R & B Surety brought suit against Petitioner Jose K. Villanueva claimed in his answer that. (i) he
Joseph Cochingyan, Jr., Jose K. Villanueva and Liu Tua Ben in the had executed the Indemnity Agreement in favor of R & B Surety

only "for accommodation purposes" and that it did not express On P4,000.00 from December 14, 1966;
their true intention; (ii) that the Principal Obligation of PAGRICO
to the PNB secured by the Surety Bond had already been On P4,000.00 from January 19, 1967;
assumed by CCM by virtue of a Trust Agreement entered into
with the PNB, where CCM represented by Joseph Cochingyan, Jr. On P8,000.00 from February 13, 1967;
undertook to pay the Principal Obligation of PAGRICO to the PNB;
(iii) that his obligation under the Indemnity Agreement was On P4,000.00 from March 6, 1967;
thereby extinguished by novation arising from the change of
debtor under the Principal Obligation; and (iv) that the filing of On P8,000.00 from June 24, 1967;
the complaint was premature, considering that R & B Surety filed
the case against him as indemnitor although the PNB had not yet On P8,000. 00 from September 14, 1967;
proceeded against R & B Surety to enforce the latter's liability
under the Surety Bond. On P8,000.00 from November 28, 1967; and

Petitioner Cochingyan, however, did not present any evidence at On P8,000. 00 from February 26, 1968
all to support his asserted defenses. Petitioner Villanueva did not
submit any evidence either on his "accommodation" defense. The until full payment; (b) ordering said defendants to pay, jointly
trial court was therefore constrained to decide the case on the and severally, unto the plaintiff the sum of P20,412.00 as the
basis alone of the terms of the Trust Agreement and other unpaid premiums for Surety Bond No. 4765, with legal interest
documents submitted in evidence. thereon from the filing of plaintiff's complaint on August 1, 1968
until fully paid, and the further sum of P4,000.00 as and for
In due time, the Court of First Instance of Manila, Branch 24 1 attorney's fees and expenses of litigation which this Court deems
rendered a decision in favor of R & B Surety, the dispositive just and equitable.
portion of which reads as follows;
There being no showing the summons was duly served upon the
Premises considered, judgment is hereby rendered: (a) ordering defendant Liu Tua Ben who has filed no answer in this case,
the defendants Joseph Cochingyan, Jr. and Jose K. Villanueva to plaintiff's complaint is hereby dismissed as against defendant Liu
pay, jointly and severally, unto the plaintiff the sum of Tua Ben without prejudice.
400,000,00, representing the total amount of their liability on
Surety Bond No. 4765, and interest at the rate of 6% per annum Costs against the defendants Joseph Cochingyan, Jr. and Jose K.
on the following amounts: Villanueva.

On P14,000.00 from September 27, 1966; Not satisfied with the decision of the trial court, the petitioners
took this appeal to the Court of Appeals which, as already noted,
On P4,000.00 from November 28, 1966; certified the case to us as one raising only questions of law.


The issues we must confront in this appeal are: the amount of P900,000.00 in favor of the BENEFICIARY to
secure certain credit facilities extended by the BENEFICIARY to
1. whether or not the Trust Agreement had extinguished, by the Pacific Copra Export Co., Inc. (PACOCO);
novation, the obligation of R & B Surety to the PNB under the
Surety Bond which, in turn, extinguished the obligations of the WHEREAS, the PAGRICO and the PACOCO have defaulted in the
petitioners under the Indemnity Agreements; payment of their respective obligations in favor of the
BENEFICIARY guaranteed by the bonds issued by the R & B and
2. whether the Trust Agreement extended the term of the the CONSOLACION, respectively, and by reason of said default,
Surety Bond so as to release petitioners from their obligation as the BENEFICIARY has demanded compliance by the R & B and
indemnitors thereof as they did not give their consent to the the CONSOLACION of their respective obligations under the
execution of the Trust Agreement; and aforesaid bonds;

3. whether or not the filing of this complaint was premature WHEREAS, the TRUSTOR is, therefore, bound to comply with his
since the PNB had not yet filed a suit against R & B Surety for the obligation under the indemnity agreements aforementioned
forfeiture of its Surety Bond. executed by him in favor of R & B and the CONSOLACION,
respectively and in order to forestall impending suits by the
We address these issues seriatim. BENEFICIARY against said companies, he is willing as he hereby
agrees to pay the obligations of said companies in favor of the
1. The Trust Agreement referred to by both petitioners in BENEFICIARY in the total amount of P1,300,000 without interest
their separate briefs, was executed on 28 December 1965 (two from the net profits arising from the procurement of reparations
years after the Surety Bond and the Indemnity Agreements were consumer goods made thru the allocation of WARVETS; . . .
executed) between: (1) Jose and Susana Cochingyan, Sr., doing
business under the name and style of the Catholic Church Mart, l. TRUSTOR hereby constitutes and appoints Atty. TOMAS
represented by Joseph Cochingyan, Jr., as Trustor[s]; (2) Tomas BESA as TRUSTEE for the purpose of paying to the BENEFICIARY
Besa, a PNB official, as Trustee; and (3) the PNB as beneficiary. Philippine National Bank in the manner stated hereunder, the
The Trust Agreement provided, in pertinent part, as follows: obligations of the R & B under the R & B Bond No. G-4765 for
P400,000.00 dated December 23, 1963, and of the CONSOLACION
WHEREAS, the TRUSTOR has guaranteed a bond in the amount of under The Consolacion Bond No. G-5938 of June 3, 1964 for
P400,000.00 issued by the R & B Surety and Insurance Co. (R & P900,000.00 or the total amount of P1,300,000.00 without
B) at the instance of Pacific Agricultural Suppliers, Inc. interest from the net profits arising from the procurement of
(PAGRICO) on December 21, 1963, in favor of the BENEFICIARY reparations consumer goods under the Memorandum of
in connection with the application of PAGRICO for an advance Settlement and Deeds of Assignment of February 2, 1959 through
line of P400,000.00 to P800,000.00; the allocation of WARVETS;

WHEREAS, the TRUSTOR has also guaranteed a bond issued by x x x x x x x x x
the Consolacion Insurance & Surety Co., Inc. (CONSOLACION) in

6. THE BENEFICIARY agrees to hold in abeyance any action novation. Novation may also be both objective and subjective
to enforce its claims against R & B and CONSOLACION, subject of (mixed) at the same time. In both objective and subjective
the bond mentioned above. In the meantime that this TRUST novation, a dual purpose is achieved-an obligation is
AGREEMENT is being implemented, the BENEFICIARY hereby extinguished and a new one is created in lieu thereof.5
agrees to forthwith reinstate the R & B and the CONSOLACION as
among the companies duly accredited to do business with the If objective novation is to take place, it is imperative that the new
BENEFICIARY and its branches, unless said companies have been obligation expressly declare that the old obligation is thereby
blacklisted for reasons other than those relating to the extinguished, or that the new obligation be on every point
obligations subject of the herein TRUST AGREEMENT; incompatible with the old one. 6 Novation is never presumed: it
must be established either by the discharge of the old debt by the
x x x x x x x x x express terms of the new agreement, or by the acts of the parties
whose intention to dissolve the old obligation as a consideration
9. This agreement shall not in any manner release the R & B of the emergence of the new one must be clearly discernible. 7
and CONSOLACION from their respective liabilities under the
bonds mentioned above. (emphasis supplied) Again, if subjective novation by a change in the person of the
debtor is to occur, it is not enough that the juridical relation
There is no question that the Surety Bond has not been cancelled between the parties to the original contract is extended to a third
or fully discharged 2 by payment of the Principal Obligation. person. It is essential that the old debtor be released from the
Unless, therefore, the Surety Bond has been extinguished by obligation, and the third person or new debtor take his place in
another means, it must still subsist. And so must the supporting the new relation. If the old debtor is not released, no novation
Indemnity Agreements. 3 occurs and the third person who has assumed the obligation of
the debtor becomes merely a co-debtor or surety or a co-surety.
We are unable to sustain petitioners' claim that the Surety Bond 8
and their respective obligations under the Indemnity Agreements
were extinguished by novation brought about by the subsequent Applying the above principles to the instant case, it is at once
execution of the Trust Agreement. evident that the Trust Agreement does not expressly terminate
the obligation of R & B Surety under the Surety Bond. On the
Novation is the extinguishment of an obligation by the contrary, the Trust Agreement expressly provides for the
substitution or change of the obligation by a subsequent one continuing subsistence of that obligation by stipulating that "[the
which terminates it, either by changing its object or principal Trust Agreement] shall not in any manner release" R & B Surety
conditions, or by substituting a new debtor in place of the old from its obligation under the Surety Bond.
one, or by subrogating a third person to the rights of the creditor.
4 Novation through a change of the object or principal conditions Neither can the petitioners anchor their defense on implied
of an existing obligation is referred to as objective (or real) novation. Absent an unequivocal declaration of extinguishment of
novation. Novation by the change of either the person of the a pre-existing obligation, a showing of complete incompatibility
debtor or of the creditor is described as subjective (or personal) between the old and the new obligation (and nothing else) would

sustain a finding of novation by implication. 9 But where, as in Agreement, could not have intended to release any of its own
this case, the parties to the new obligation expressly recognize indemnitors simply because one of those indemnitors, the
the continuing existence and validity of the old one, where, in Trustor under the Trust Agreement, became also directly liable to
other words, the parties expressly negated the lapsing of the old the PNB.
obligation, there can be no novation. The issue of implied
novation is not reached at all. 2. We turn to the contention of petitioner Jose K. Villanueva
that his obligation as indemnitor under the 24 December 1963
What the trust agreement did was, at most, merely to bring in Indemnity Agreement with R & B Surety was extinguished when
another person or persons-the Trustor[s]-to assume the same the PNB agreed in the Trust Agreement "to hold in abeyance any
obligation that R & B Surety was bound to perform under the action to enforce its claims against R & B Surety .
Surety Bond. It is not unusual in business for a stranger to a
contract to assume obligations thereunder; a contract of The Indemnity Agreement speaks of the several indemnitors
suretyship or guarantee is the classical example. The precise legal "apply[ing] jointly and severally (in solidum) to the R & B Surety]
effect is the increase of the number of persons liable to the to become SURETY upon a SURETY BOND demanded by and in
obligee, and not the extinguishment of the liability of the first favor of [PNB] in the sum of [P400,000.00] for the faithful
debtor. 10 Thus, in Magdalena Estates vs. Rodriguez, 11 we held compliance of the terms and conditions set forth in said SURETY
that: BOND ." This part of the Agreement suggests that the
indemnitors (including the petitioners) would become co-
[t]he mere fact that the creditor receives a guaranty or accepts sureties on the Security Bond in favor of PNB. The record,
payments from a third person who has agreed to assume the however, is bereft of any indication that the petitioners-
obligation, when there is no agreement that the first debtor shall indemnitors ever in fact became co-sureties of R & B Surety vis-a-
be released from responsibility, does not constitute a novation, vis the PNB. The petitioners, so far as the record goes, remained
and the creditor can still enforce the obligation against the simply indemnitors bound to R & B Surety but not to PNB, such
original debtor. that PNB could not have directly demanded payment of the
Principal Obligation from the petitioners. Thus, we do not see
In the present case, we note that the Trustor under the Trust how Article 2079 of the Civil Code-which provides in part that
Agreement, the CCM, was already previously bound to R & B "[a]n extension granted to the debtor by the creditor without the
Surety under its Indemnity Agreement. Under the Trust consent of the guarantor extinguishes the guaranty" could apply
Agreement, the Trustor also became directly liable to the PNB. So in the instant case.
far as the PNB was concerned, the effect of the Trust Agreement
was that where there had been only two, there would now be The petitioner-indemnitors are, as, it were, second-tier parties so
three obligors directly and solidarily bound in favor of the PNB: far as the PNB was concerned and any extension of time granted
PAGRICO, R & B Surety and the Trustor. And the PNB could by PNB to any of the first-tier obligators (PAGRICO, R &B Surety
proceed against any of the three, in any order or sequence. and the trustors[s]) could not prejudice the second-tier parties.
Clearly, PNB never intended to release, and never did release, R &
B Surety. Thus, R & B Surety, which was not a party to the Trust

There is no other reason why petitioner Villanueva's contention In the instant case, there was nothing to prevent the petitioners
must fail. PNB's undertaking under the Trust Agreement "to hold from tendering payment, if they were so minded, to PNB of the
in abeyance any action to enforce its claims" against R & B Surety matured obligation on behalf of R & B Surety and thereupon
did not extend the maturity of R & B Surety's obligation under the becoming subrogated to such remedies as R & B Surety may have
Surety Bond. The Principal Obligation had in fact already against PAGRICO.
matured, along with that of R &B Surety, by the time the Trust
Agreement was entered into. Petitioner's Obligation had in fact 3. The last issue can be disposed of quicjly, Clauses (b) and
already matured, for those obligations were to amture "as soon (c) of the Indemnity Agreements (quoted above) allow R & B
as [R & B Surety] became liable to make payment of any sum Surety to recover from petitioners even before R & B Surety shall
under the terms of the [Surety Bond] whether the said sum or have paid the PNB. We have previously held similar indemnity
sums or part thereof have been actually paid or not." Thus, the clauses to be enforceable and not violative of any public policy.
situation was that precisely envisaged in Article 2079: 13

[t]he mere failure on the part of the creditor to demand payment The petitioners lose sight of the fact that the Indemnity
after the debt has become due does not of itself constitute any Agreements are contracts of indemnification not only against
extension of the referred to herein.(emphasis supplied) actual loss but against liability as well. 14 While in a contract of
indemnity against loss as indemnitor will not be liable until the
The theory behind Article 2079 is that an extension of time given person to be indemnified makes payment or sustains loss, in a
to the principal debtor by the creditor without the surety of his contract of indemnity against liability, as in this case, the
right to pay the creditor and to be immediately subrogated to the indemnitor's liability arises as soon as the liability of the person
creditor's remedies against the principal debtor upon the original to be indemnified has arisen without regard to whether or not he
maturity date. The surety is said to be entitled to protect himself has suffered actual loss. 15 Accordingly, R & B Surety was
against the principal debtor upon the orginal maturity date. The entitled to proceed against petitioners not only for the partial
surety is said to be entitled to protect himself against the payments already made but for the full amount owed by
contingency of the principal debtor or the indemnitors becoming PAGRICO to the PNB.
insolvent during the extended period. The underlying rationale is
not present in the instant case. As this Court has held, Summarizing, we hold that :

merely delay or negligence in proceeding against the principal (1) The Surety Bond was not novated by the Trust Agreement.
will not discharge a surety unless there is between the creditor Both agreements can co-exist. The Trust Agreement merely
and the principal debtor a valid and binding agreement therefor, furnished to PNB another party obligor to the Principal
one which tends to prejudice [the surety] or to deprive it of the Obligation in addition to PAGRICO and R & B Surety.
power of obtaining indemnity by presenting a legal objection for
the time, to the prosecution of an action on the original (2) The undertaking of the PNB to 'hold in abeyance any
security.12 action to enforce its claim" against R & B Surety did not amount
to an "extension granted to the debtor" without petitioner's

consent so as to release petitioner's from their undertaking as court which ordered the consolidation of ownership in favor of
indemnitors of R & B Surety under the INdemnity Agreements; private respondent Guadalupe C. Vda. del Castillo over two (2)
and parcels of land including the improvements thereon, situated in
Villasis, Pangasinan namely, Lot No. 965, with an area of 648
(3) Petitioner's are indemnitors of R & B Surety against both square meters covered by TCT No. 93407 and Lot No. 16 with an
payments to and liability for payments to the PNB. The present area of 910 square meters covered by TCT No. 101794 and (2)
suit is therefore not premature despite the fact that the PNB has the Order of the Intermediate Appellate Court (IAC) dated July
not instituted any action against R & B Surety for the collection of 25, 1984 denying petitioners' Motion for Reconsideration.
its matured obligation under the Surety Bond.
The petition at bar began as an amicable settlement between
WHEREFORE, the petitioner's appeal is DENIED for the lack of petitioners and private respondents as defendants and plaintiffs
merit and the decision of the trial court is AFFIRMED in toto. in Civil Case No. U-3501, which was approved by the trial court
Costs against the petitioners. and made as the basis of its Decision 3 dated December 11, 1980
ordering the parties to comply strictly with the terms and
conditions embodied in said amicable settlement. The salient
points therein show that defendants admitted "having sold under
a pacto de retro sale the parcels of land 4 described in the
109. G.R. No. L-68477 October 29, 1987 complaint in the amount of P84,000.00" and that they "hereby
promise to pay the said amount within the period of four (4)
SPOUSES ANICETO BALILA and EDITHA S. DE GUZ months but not later than May 15,1981." 5
MAN, SPOUSES ASTERIO DE GUZMAN and ERLINDA
CONCEPCION and ENCARNACION OCAMPO VDA. DE On December 30, 1981 or more than seven months after the last
CONCEPCION, petitioners, day for making payments, defendants redeemed from plaintiff
vs. Guadalupe (one of the private respondents herein) Lot No. 52
HONORABLE INTERMEDIATE APPELLATE COURT, with an area of 294 sq.m. covered by TCT 101352 which was one
HONORABLE FLORANTE S. ABASOLO, in his capacity as of the three parcels of land described in the complaint by paying
Judge, Regional Trial Court, First Judicial Region, the amount of P20,000.00.
Branch L, Villasis, Pangasinan, GUADALUPE C. VDA. DE
DEL CASTILLO and WALDO DEL CASTILLO, On August 4, 1982, plaintiff filed a motion for a hearing on the
respondents. consolidation of title over the remaining two (2) parcels of land
namely Lot 965 and Lot 16 alleging that the court's decision
PARAS, J.: dated December 11, 1980 remained unenforced for no payment
of the total obligation due from defendants. Defendants opposed
This is a Petition for Review on certiorari of (1) the decision 1 of said motion alleging that they had made partial payments of their
the Intermediate Appellate Court (IAC) affirming in toto the obligation through plaintiff's attorney in fact and son, Waldo del
order 2 dated April 26, 1983 in Civil Case No. U-3501 of the trial

Castillo, as well as to the Sheriff. On April 26, 1983, the lower attorney-in-fact, accepted payments from petitioners and gave
court issued the questioned order affirming consolidation. petitioners several extensions of time to pay their remaining
obligations thus:
On June 8, 1983, while the Order of the lower court had not yet
been enforced, defendants paid plaintiff Guadalupe Vda. del 5.A. On July 8, 1984, private respondents accepted the
Castillo by tendering the amount of P28,800.00 to her son Waldo amounts of P6,130.00 from petitioners- and gave petitioners up
del Castillo (one of the private respondents herein) thus leaving to August 30, 1984 to pay the latter's balance of P23,870.00;
an unpaid balance of P35,200.00. A Certification dated June 8, (Certification Annex "J" Petition);
1983, (Annex D, Rollo, page 31) and signed by Waldo shows that
defendants were given a period of 45 days from date or up to July 5.B. On September 9, 1984, private respondents accepted the
23, 1983 within which to pay the balance. Said Certification amount of P1,100.00 from petitioners and gave petitioners up to
supported defendants' motion for reconsideration and October 30, 1984 to pay the latter's balance of P21,624.00
supplemental motion for reconsideration of the Order (Certification Annex "L" Petition);
reconsolidation of title, which motions were both denied by the
lower court, prompting defendants to file a petition for certiorari, 5.C. On October 30, 1984, private respondents accepted the
prohibition and mandamus with pre injunction petition with the amount of P2,500.00 from petitioners and gave petitioners up to
Intermediate Appellate Court to seeking to annul and set aside November 15, 1984 to pay the latter's balance of P19,124.00
the assailed Order dated April 26, 1983 and the Order denying (Receipt, Annex "N" Reply);
their motion for reconsideration. After due consideration of the
records of the case, the appellate tribunal sustained the lower 5.D. On November 13, 1984, private respondents accepted the
court, hence the present petition for certiorari, defendants amount of P3,124.00 from petitioners and gave petitioners up to
relying on the following arguments:, December 30, 1984 to pay the latter's balance of P16,000.00 and
private respondent promised to deliver TCT Nos. 146360 and
(1) The appellate court erred in not declaring that the 146361 already in-the name of private respondent Guadalupe
contract between the petitioners and private respondent Vda. de del Castillo, covering lots 965 and 16, respectively, in
Guadalupe is one of equitable mortgage and not a pacto de retro favor of petitioners (Receipt, Annex "O," Reply);
sale,
5.E. On November 23, 1984, private respondents accepted the
(2) The appellate court erred in not declaring that the amount of P6,000.00 from petitioners and gave petitioners up to
decision dated 11, 1980, based upon the agreement of the parties December 30, 1984 to pay the latter's balance of P10,000.00 and
was novated upon subsequent mutual agreements of the said private respondents proposed to deliver TCT Nos. 146360 and
parties. 146361, covering Lots 965 and 16, respectively, and promised to
reconvey said lots in favor of petitioners (Receipt, Annex "P,"
Petitioners contend that despite the rendition of the said decision Reply).
by the appellate court, private respondent Guadalupe Vda. de del
Castillo, represented by her son Waldo del Castillo as for (Memo for Petitioners, pp. 175-176, Rollo)

agreement not being contrary to law, good morals or public
Petitioners likewise allege that private respondents Guadalupe policy was approved by the lower court and therefore binds the
Vda. de del Castillo and son Waldo, were nowhere to be found on parties who are enjoined to comply therewith.
December 30, 1984, the last day for petitioners to pay their
balance of P10,000.00 and for private respondents to reconvey However, the records show that petitioners made partial
the lands in question (Lots 965 and 16) in favor of petitioners payments to private respondent Waldo del Castillo after May 15,
and to deliver TCT Nos. 146360 and 146361 already in the name 1981 or the last day for making payments, redeeming Lot No. 52
of private respondent Guadalupe Vda. de del Castillo, covering as earlier stated. (Annex "A," Petition).
said lots respectively. This incident compelled petitioners to
deposit said amount with the Regional Trial Court as per receipt There is no question that petitioners tendered several payments
OR No. 9764172 (Annex "Q") accompanied by a motion to to Waldo del Castillo even after redeeming lot No. 52. A total of
deposit (Annex "R") which motion was granted as per Order these payments reveals that petitioners share. fulIy paid the
dated January 9, 1985 (Annex "S"). The aforementioned titles amount stated in the judgment by com promise. The only issue is
over the two parcels of lands are subject to Notice of Lis Pendens whether Waldo del Castillo was a person duly authorized by his
dated August 15, 1983 (Annex "T"). mother Guadalupe Vda. de del Castillo, as her attorney-in-fact to
represent her in transactions involving the properties in
On the other hand, some of the private respondents do not deny question. We believe that he was so authorized in the same way
they received the amounts stated in Annexes "D," "F," "J," "L," N," that the appellate court took cognizance of such fact as embodied
and "P". They aver however that the amicable settlement entered in its assailed decision. reading as follows:
into by and between the parties duly assisted by their counsel
was, with respect to Guadalupe, signed by her personally and that It may be mentioned that on May 25,1981, Guadalupe Vda. de Del
at no time thereafter did she ever appoint Waldo del Castillo who Castillo, represented by her attorney in fact Waldo Castillo, filed a
is one of her children to receive for her any sum of money to be complaint for consolidation of ownership against the same
paid by the petitioners for the settlement of their obligations petitioners herein before the Court of First Instance of
arising out of their amicable settlement. Guadalupe also Pangasinan, docketed as Civil Case No. U-3650, the allegations of
questions the inclusion as private respondent of Waldo del which are Identical to the complaint filed in Civil Case No. U-3501
Castillo in this Court and the inclusion of the alleged receipts of of the same court. This case U-3650 was, however, dismissed in
payments as these receipts were never offered in evidence before an Order dated May 27, 1983, in view of the order of
the 'trial court or the appellate court nor were the same admitted consolidation issued in Civil Case No. U-350 1. (p. 37, Rollo)
in evidence by said courts. (Underscoring supplied)

Petitioners' contentions deserve Our consideration. The fact therefore remains that the amount of P84,000.00
payable on or before May 15, 1981 decreed by the trial court in
The root of all the issues raised before Us is that judgment by its judgment by compromise was novated and amended by the
compromise rendered by the lower court based on the terms of subsequent mutual agreements and actions of petitioners and
the amicable settlement of the contending parties. Such private respondents. Petitioners paid the aforestated amount on

an insatalment basis and they were given by private respondents
no less than eight extensions of time pay their obligation. These What was done by respondent Judge in setting aside the writ of
transactions took place during the pendency of the motion for execution in Civil Case No. 5111 finds support in the applicable
reconsideration of the Order of the trial court dated April 26, authorities. There is this relevant excerpt in Barretto v. Lopez 10
1983 in Civil Case No. U-3501, during the pendency of the this Court speaking through the then Chief Justice Paras:
petition for certiorari in AC-G.R. SP-01307 before the "Allegating that the respondent judge of the municipal court had
Intermediate Appellate Court and after the filing of the petition acted in excess of her jurisdiction and with grave abuse of
before us. This answers the claim of the respondents on the discretion in issuing the writ of execution of December 15, 1947,
failure of the petitioners to present evidences or proofs of the petitioner has filed the present petition for certiorari and
payment in the lower court and the appellate court. We have prohibition for the purpose of having said writ of execution
touched on this issue, similarly, in the case of de los Santos vs. annulled. Said petition is meritorious. The agreement filed by the
Rodriguez 6 wherein We ruled that: parties in the ejectment case created as between them new rights
and obligations which naturally superseded the judgment of the
As early as Molina vs. De la Riva 7 the principle has been laid municipal court." In Santos v. Acuna, 11 it was contended that a
down that, when, after judgment has become final, facts and lower court decision was novated by the subsequent agreement
circumstances transpire which render its execution impossible or of the parties. Implicit in this Court's ruling is that such a plea
unjust, the interested party may ask the court to modify or alter would merit approval if indeed that was what the parties
the judgment to harmonize the same with justice and the facts. intended. ...

For this reason, in Amor vs. Judge Jose, 8 we used the following WHEREFORE, finding merit in the petition, the same is hereby
language: given DUE COURSE and the assailed decision, SET ASIDE. Private
respondents are hereby ordered to reconvey and deliver lot No.
The Court cannot refuse to issue a writ of execution upon a final 965 and Lot No. 16 as covered by TCT Nos. 146360 and 146361
and executory judgment, or quash it, or order its stay, for, as a respectively in favor of petitioners. Should private respondents
general rule, parties will not be allowed, after final judgment, to fail to do so, the Clerk of Court of the Regional Trial Court
object to the execution by raising new issues of fact or of law, concerned is ordered to execute the necessary deed of
except when there had been a change in the situation of the reconveyance, conformably with the provisions of the Rules of
parties which makes such execution inequitable; or when it Court. The local Register of Property is ordered to register said
appears that the controversy has never been submitted to the deed of reconveyance. Private respondents are hereby
judgment of the court, or when it appears that the writ of authorized to withdraw the balance in the amount of P10,000
execution has been improvidently issued, or that it is defective in consigned by petitioners on January 9, 1985 with the trial court
substance, or issued against the wrong party or that judgment as per OR No. 9764172 (Annex "O") a full payment of petitioners'
debt has been paid or otherwise satisfied or when the writ has obligation.
been issued without authority. (emphasis supplied)

Likewise in the case of Dormitorio vs. Fernandez, 9 We held:

This decision is immediately executory and no motion for
extension of the period within which to file a motion for (pp. 89-90, Record on Appeal; p. 15, Rollo)
reconsideration will be granted.
The facts of the case based on the statement of facts, made by the
trial court in its decision as cited in the briefs of both parties are
as follows:

110. G.R. No. L-29280 August 11, 1988 This is an action for foreclosure of chattel mortgage executed in
favor of the plaintiff by the defendant Syvel's Incorporated on its
PEOPLE'S BANK AND TRUST COMPANY, plaintiff- stocks of goods, personal properties and other materials owned
appellee, by it and located at its stores or warehouses at No. 406, Escolta,
vs. Manila; Nos. 764-766 Rizal Avenue, Manila; Nos. 10-11 Cartimar
SYVEL'S INCORPORATED, ANTONIO Y. SYYAP and Avenue, Pasay City; No. 886 Nicanor Reyes, Sr. (formerly
ANGEL Y SYYAP, defendants-appellants. Morayta), Manila; as evidenced by Annex"A."The chattel
mortgage was duly registered in the corresponding registry of
PARAS, J.: deeds of Manila and Pasay City. The chattel mortgage was in
connection with a credit commercial line in the amount of
This is an appeal from the decision dated May 16, 1968 rendered P900,000.00 granted the said defendant corporation, the expiry
by the Court of First Instance of Manila, Branch XII in Civil Case date of which was May 20, 1966. On May 20, 1965, defendants
No. 68095, the decretal portion of which states: Antonio V. Syyap and Angel Y. Syyap executed an undertaking in
favor of the plaintiff whereby they both agreed to guarantee
IN VIEW OF THE FOREGOING, judgment is rendered sentencing absolutely and unconditionally and without the benefit of
all the defendants to pay the plaintiff jointly and severally the excussion the full and prompt payment of any indebtedness to be
sum of P601,633.01 with interest thereon at the rate of 11% per incurred on account of the said credit line. Against the credit line
annum from June 17, 1967, until the whole amount is paid, plus granted the defendant Syvel's Incorporated the latter drew
10% of the total amount due for attorney's fees and the costs of advances in the form of promissory notes which are attached to
suit. Should the defendants fail to pay the same to the plaintiff, the complaint as Annexes "C" to "l." In view of the failure of the
then it is ordered that all the effects, materials and stocks defendant corporation to make payment in accordance with the
covered by the chattel mortgages be sold at public auction in terms and conditions agreed upon in the Commercial Credit
conformity with the Provisions of Sec. 14 of the Chattel Mortgage Agreement the plaintiff started to foreclose extrajudicially the
Law, and the proceeds thereof applied to satisfy the judgment chattel mortgage. However, because of an attempt to have the
herein rendered. The counterclaim of the defendants, upon the matter settled, the extra-judicial foreclosure was not pushed
evidence presented and in the light of the authorities above cited, thru. As no payment had been paid, this case was even tually filed
is dismissed for lack of merit. in this Court.

SO ORDERED

On petition of the plaintiff based on the affidavits executed by Mr. were covered by chattel mortgage duly registered as required by
Leopoldo R. Rivera, Assistant Vice President of the plaintiff bank law. There is likewise no dispute that the defendants Syyap
and Atty. Eduardo J. Berenguer on January 12, 1967, to the effect, guaranteed absolutely and unconditionally and without the
among others, that the defendants are disposing of their benefit of excussion the full and prompt payment of any
properties with intent to defraud their creditors, particularly the indebtedness incurred by the defendant corporation under the
plaintiff herein, a preliminary writ of attachment was issued. As a credit line granted it by the plaintiff. As of June 16, 1967, its
consequence of the issuance of the writ of attachment, the indebtedness was in the total amount of P601,633.01. This was
defendants, in their answer to the complaint set up a compulsory admitted by defendant Antonio V. Syyap in the deed of real estate
counterclaim for damages. mortgage executed by him. No part of the amount has been paid
by either of the defendants. Hence their liabilities cannot be
After the filing of this case in this court and during its pendency questioned. (pp. 3-6, Brief for Appellee; p. 26, Rollo)
defendant Antonio v. Syyap proposed to have the case settled
amicably and to that end a conference was held in which Mr. In their brief, appellants assign the following errors:
Antonio de las Alas, Jr., Vice President of the Bank, plaintiff,
defendant Antonio V. Syyap and Atty. Mendoza were present. Mr. I
Syyap requested that the plaintiff dismiss this case because he
did not want to have the goodwill of Syvel's Incorporated The lower court erred in not holding that the obligation secured
impaired, and offered to execute a real estate mortgage on his by the Chattel Mortgage sought to be foreclosed in the above-
real property located in Bacoor, Cavite. Mr. De las Alas consented, entitled case was novated by the subsequent execution between
and so the Real Estate Mortgage, marked as Exhibit A, was appellee and appellant Antonio V, Syyap of a real estate mortgage
executed by the defendant Antonio V. Syyap and his wife as additional collateral to the obligation secured by said chattel
Margarita Bengco Syyap on June 22, 1967. In that deed of mortgage.
mortgage, defendant Syyap admitted that as of June 16, 1967, the
indebtedness of Syvel's Incorporated was P601,633.01, the II
breakdown of which is as follows: P568,577.76 as principal and
P33,055.25 as interest. Complying with the promise of the The lower court erred in not dismissing the above-entitled case
plaintiff thru its Vice President to ask for the dismissal of this and in finding appellants liable under the complaint.
case, a motion to dismiss this case without prejudice was
prepared, Exhibit C, but the defendants did not want to agree if III
the dismissal would mean also the dismissal of their
counterclaim Against the plaintiff. Hence, trial proceeded. The lower court erred in not holding that the writ of preliminary
attachment is devoid of any legal and factual basis whatsoever.
As regards the liabilities of the defendants, there is no dispute
that a credit line to the maximum amount of P900,000.00 was IV
granted to the defendant corporation on the guaranty of the
merchandise or stocks in goods of the said corporation which

The lower court erred in dismissing appellants'counterclaim and in every aspect (Goni v. CA, 144 SCRA 223 [1986]; National
in not holding appellee liable to appellants for the consequent Power Corp. v. Dayrit, 125 SCRA 849 [1983]).
damages arising out of a wrongful attachment. (pp. 1-2, Brief for
the Appellants, p. 25, Rollo) In the case at bar, there is nothing in the Real Estate Mortgage
which supports appellants'submission. The contract on its face
Appellants admit that they are indebted to the appellee bank in does not show the existence of an explicit novation nor
the amount of P601,633.01, breakdown of which is as follows: incompatibility on every point between the "old and the "new"
P568,577.76 as principal and P33,055.25 as interest. After the agreements as the second contract evidently indicates that the
filing of the case and during its pendency, defendant Antonio V. same was executed as new additional security to the chattel
Syyap proposed to have the case amicably settled and for that mortgage previously entered into by the parties.
purpose a conference was held in which Mr. Antonio de las Alas,
Jr., Vice President of plaintiff People's Bank and Trust Company, Moreover, records show that in the real estate mortgage,
defendant Antonio V. Syyap and Atty. Mendoza were present. Mr. appellants agreed that the chattel mortgage "shall remain in full
Syyap requested that the plaintiff dismiss this case as he did not force and shall not be impaired by this (real estate) mortgage."
want to have the goodwill of Syvel's Incorporated impaired, and
offered to execute a real estate mortgage on his real property The pertinent provision of the contract is quoted as follows:
located in Bacoor, Cavite. Mr. de las Alas consented, and so the
Real Estate Mortgage (Exhibit "A") was executed by defendant That the chattel mortgage executed by Syvel's Inc. (Doc. No. 439,
Antonio Syyap and his wife Margarita Bengco Syyap on June 22, Book No. I, Series of 1965, Notary Public Jose C. Merris, Manila);
1967. Defendants did not agree with plaintiffs motion to dismiss real estate mortgage executed by Angel V. Syyap and Rita V.
which included the dismissal of their counterclaim and filed Syyap (Doc. No. 441, Page No. 90, Book No. I, Series of 1965,
instead their own motion to dismiss (Record on Appeal, pp. 68- Notary Public Jose C. Merris, Manila) shall remain in full force and
72) on the ground that by the execution of said real estate shall not be impaired by this mortgage (par. 5, Exhibit"A,"
mortgage, the obligation secured by the chattel mortgage subject Emphasis ours).
of this case was novated, and therefore, appellee's cause of action
thereon was extinguished. It is clear, therefore, that a novation was not intended. The real
estate mortgage was evidently taken as additional security for
In an Order dated September 23, 1967, the motion was denied the performance of the contract (Bank of P.I. v. Herrige, 47 Phil.
for not being well founded (record on Appeal, p. 78). 57).

Appellants contention is without merit. In the determination of the legality of the writ of attachment by
the Court of First Instance of Manila, it is a well established rule
Novation takes place when the object or principal condition of an that the grant or denial of a writ of attachment rests upon the
obligation is changed or altered. It is elementary that novation is sound discretion of the court. Records are bereft of any evidence
never presumed; it must be explicitly stated or there must be that grave abuse of discretion was committed by respondent
manifest incompatibility between the old and the new obligations judge in the issuance of the writ of attachment.

direct evidence. It may be gleaned also from the statements and
Appellants contend that the affidavits of Messrs. Rivera and conduct of the debtor, and in this connection, the principle may
Berenguer on which the lower court based the issuance of the be applied that every person is presumed to intend the natural
writ of preliminary attachment relied on the reports of credit consequences of his acts (Francisco, Revised Rules of Court,
investigators sent to the field and not on the personal knowledge supra, pp. 24-25), In fact the trial court is impressed "that not
of the affiants. Such contention deserves scant consideration. only has the plaintiff acted in perfect good faith but also on facts
Evidence adduced during the trial strongly shows that the sufficient in themselves to convince an ordinary man that the
witnesses have personal knowledge of the facts stated in their defendants were obviously trying to spirit away a port;.on of the
affidavits in support of the application for the writ. They testified stocks of Syvel's Incorporated in order to render ineffectual at
that Syvel's Inc. had disposed of all the articles covered by the least partially anyjudgment that may be rendered in favor of the
chattel mortgage but had not remitted the proceeds to appellee plaintiff." (Decision; Civil Case No. 68095; Record on Appeal, pp.
bank; that the Syvel's Stores at the Escolta, Rizal Avenue and 88-89).
Morayta Street were no longer operated by appellants and that
the latter were disposing of their properties to defraud appellee Appellants having failed to adduce evidence of bad faith or malice
bank. Such testimonies and circumstances were given full credit on the part of appellee in the procurement of the writ of
by the trial court in its decision (Brief for Appellee, p. 14). Hence, preliminary attachment, the claim of the former for damages is
the attachment sought on the ground of actual removal of evidently negated. In fact, the allegations in the appellee's
property is justified where there is physical removal thereof by complaint more than justify the issuance of the writ of
the debtor, as shown by the records (McTaggert v. Putnam Corset attachment.
Co., 8 N.Y. S 800 cited in Moran, Comments on the Rules of Court,
1970 Ed., Vol. 3, p. 7). PREMISES CONSIDERED, this appeal is DISMISSED for lack of
merit and the judgment appealed from is AFFIRMED.
Besides, the actuations of appellants were clearly seen by the
witnesses who "saw a Fiat Bantam Car-Fiat Car, a small car and
about three or four persons hurrying; they were carrying goods
coming from the back portion of this store of Syvels at the
Escolta, between 5:30 and 6:00 o'clock in the evening." (Record 111. G.R. No. L-22958 January 30, 1971
on Appeal, pp. 45-46). Therefore, "the act of debtor (appellant) in
taking his stock of goods from the rear of his store at night, is ESTRELLA BENIPAYO RODRIGUEZ, MANUEL D.
sufficient to support an attachment upon the ground of the BENIPAYO, DONATO BENIPAYO, JR., JAIME D.
fraudulent concealment of property for the purpose of delaying BENIPAYO, MAXIMA BENIPAYO MORALES, AURORA
and defrauding creditors." (4 Am. Jur., 841 cited in Francisco, BENIPAYO DE LEON, FRANCISCO D. BENIPAYO,
Revised Rules of Court, Second Edition, 1985, p. 24). ALEJANDRO D. BENIPAYO, TERESITA BENIPAYO DE
LOS SANTOS, LYDIA BENIPAYO CLEMENTE, and JULIA
In any case, intent to defraud may be and usually is inferred from C. MERCADO, petitioners,
the facts and circumstances of the case; it can rarely be proved by vs.

HON. JUAN O. REYES, in his capacity as Presiding Judge judge, the parties submitted to the court a list of the properties to
of the Manila Court of First Instance, Branch XXI, be sold, among which were some lots in Albay, and the following
ALBERTO D. BENIPAYO, DR. JOSE N. DUALAN and parcels of land, with their improvements, that were at the time
VICENTE SAYSON, JR., respondents. mortgaged to the Development Bank of the Philippines:

REYES, J.B.L., J.: 1. Lot No. 6-A, Block 2124, with an area of 314.70 square
meters, evidenced by TCT No. 48978, Manila;
Petition for certiorari, with a prayer for the issuance of a writ of
preliminary injunction, filed by some1 of the children of the 2. Lot No. 6-B-2, Block No. 2124, with an area of 389.90
deceased spouses, Donato Benipayo, Jr., and Pura Disonglo, square meters, evidenced by TCT No. 48979, Manila;
seeking to have this Court set aside the order issued on 28 April
1964 by the Hon. Juan O. Reyes in Civil Case No. 52188 of the 3. The improvements erected on the above two lots
Court of First Instance of Manila, entitled "Estrella Benipayo- denominated as No. 664 Misericordia, Manila.
Rodriguez, et al. vs. Alberto D. Benipayo," approving the sheriff's
sales of properties owned in common by the plaintiffs and The above improvements and two lots are mortgaged with the
defendant aforesaid, subject to the condition that the vendors Development Bank of the Philippines with an outstanding
should clear the titles thereof from any encumbrance in favor of mortgage capital of about P50,000.00.
the Development Bank of the Philippines.lwph1.t The
petition further sought to compel the respondent judge to cause a The respondent judge first directed the sale at public auction of
re-bidding of the properties involved, at public auction, or to properties located in Albay. After the consummation of the sale
approve the sales aforementioned without the condition imposed and the approval thereof, His Honor ordered the sale of the two
upon the vendors. Manila lots and improvements described above. Pursuant to the
order, the sheriff of the City of Manila scheduled the auction sale
Upon the filing of a bond in the amount of P20,000.00 this Court on 30 March 1964 at 10:00 o'clock A.M. Notice thereof was duly
ordered the issuance of a writ of preliminary injunction on 25 posted and published, with the following warning:
June 1964.2
NOTE: According to information furnished by the plaintiffs'
It appears that on 13 November 1962, petitioners filed with the counsel, Atty. Gonzalo D. David, the real properties described
respondent court a complaint against their brother, respondent above are mortgaged with (sic) the Development Bank of the
Alberto D. Benipayo, for the partition of the properties held by Philippines, under which there is allegedly an outstanding
them in common as heirs of the late spouses, Donato D. Benipayo balance in the sum of P37,121.76.
and Pura Disonglo (Civil Case No. 52188). After respondent
Benipayo had answered the complaint, the court set the case for a Prospective buyers and bidders are hereby enjoined to
pre-trial conference, and in the course thereof the parties agreed investigate for themselves the titles to the real properties
to have the properties in litigation sold at public auction to the described above, as well as the encumbrances thereon, if any
highest bidder. Pursuant to an order issued by the respondent there be.

that the 12 heirs shall assume all obligations and that they should
On the date set for the sale, petitioners moved for its not be paid by the buyers."4 The suggestion was not accepted by
postponement on the ground that they were not in a position to the buyers; and the respondent judge, on 28 April 1964, issued
actively participate therein, but upon objection of respondent the order complained of, the dispositive portion of which reads
Benipayo's counsel, His honor denied the motion and the sale as follows:
was held as scheduled.
WHEREFORE, the Manila Sheriff's Report dated March 30, 1964,
Herein respondent, Jose N. Dualan, successfully bid at the auction and the Quezon City Sheriff's Report dated April 6, 1964, are
sale the sum of P235,000.0 for Lot No. 6-B-2, Block No. 2124, hereby approved, subject to the following conditions:
covered by Transfer Certificate of Title No. 48979, issued by the
Office of the Register of Deeds of Manila; while respondent 1. That the vendors or the owners of the properties sold
Vicente Sayson's bid of P173,000.00 was the highest for Lot No. shall clear said properties of all encumbrances that were
6-A of Block No. 2124, covered by Transfer Certificate of Title No. incurred in them long before the auction sales;
48978 issued by the same office.3
2. That since the taxes on said real estates are not
After the sheriff had filed his return with the respondent judge, encumbrances incurred by the owners of the properties, but are
petitioners moved for the approval of the sale, deducting from proper charges attached and against the properties themselves,
the total amount of P408,000.00 the sheriff's percentage, and the the real estate taxes shall be borne by the owner or owners of the
expenses incurred by petitioners for the publication of the notice said properties on the date when said taxes become due for
of sale. Commenting on the aforesaid motion, respondents payment.
Benipayo and Dualan prayed that the respondent judge order (1)
the payment of the mortgage debt in favor of the Development Petitioners' motion for reconsideration of the above-quoted
Bank of the Philippines in the amount of P37,121.96 from the order having been denied, the present petition for certiorari was
proceeds of the auction sale; (2) the issuance by the sheriff of filed by them.
Manila of a certificate of sale in favor of Dualan of the property
sold to him free from all liens and encumbrances; and (3) the After the respondents had filed their answer to the petition and
payment to respondent Benipayo of 1/12 of the proceeds of the the parties had submitted their respective memorandum, the
sale after deducting therefrom the payment to the Development petitioners, jointly with respondents Vicente Sayson and Alberto
Bank of the Philippines. Benipayo, submitted a compromise agreement, on 8 May 1970,
cancelling the sale to respondent Vicente Sayson of the property
After hearing the arguments of the parties on the motion, the (TCT No. 48978) previously bidded for by him, upon the
respondent judge apparently entertained some doubts as to consideration that the amount paid to the Sheriff by Sayson be
whether there had been a meeting of minds on the question of returned to the latter. As respondent Jose Dualan interposed no
who was to discharge the mortgage obligation in favor of the objection to the approval of the said compromise agreement, this
Development Bank, so he suggested that the properties be Court rendered, on 30 June 1970, a partial decision, approving
subjected to another "bidding" "with a clear-cut understanding the compromise agreement and ordering the compliance with its

provisions by the parties thereto, and, as prayed for, dismissed obligation, and he could not do so in law without the creditor's
this case as against Vicente Sayson, leaving only Jose N. Dualan, consent. Our Civil Code, Article 1293, explicitly provides:
purchaser of the property covered by TCT No. 48979 of the City
of Manila, as party respondent. ART. 1293. Novation which consists in substituting a new
debtor in the place of the original one, may be made even with
The petitioners seek to apply the doctrine of caveat emptor to the out the knowledge or against the will of the latter, but not
successful bidder Dualan, and contend that under said rule without the consent of the creditor. Payment by the new debtor
Dualan bought at his own peril and, having purchased the gives him the rights mentioned in articles 1236 and 1237.
property with knowledge of the encumbrance he should assume
payment of the indebtedness secured thereby. The obligation to discharge the mortgage indebtedness,
therefore, remained on the shoulders of the original debtors and
We find the stand of petitioners-appellants to be unmeritorious their heirs, petitioners herein, since the record is devoid of any
and untenable. The maxim "caveat emptor" applies only to evidence of contrary intent. This Court has so ruled in Bank of the
execution sales, and this was not one such.5 The mere fact that Philippine Islands vs. Concepcion e Hijos, Inc., 53 Phil. 806, from
the purchaser of an immovable has notice that the required which We quote:
realty is encumbered with a mortgage does not render him liable
for the payment of the debt guaranteed by the mortgage, in the But the plaintiff argues that in American jurisprudence, the
absence of stipulation or condition that he is to assume payment purchaser of mortgaged property who assumes the payment of
of the mortgage debt. The reason is plain: the mortgage is merely the mortgage debt, may for that reason alone be sued for the debt
an encumbrance on the property, entitling the mortgagee to have by the creditor and that that rule is applicable in this jurisdiction.
the property foreclosed, i.e., sold, in case the principal obligor Aside from the fact we are not here dealing with a mere
does not pay the mortgage debt, and apply the proceeds of the assumption of the debt, but with a subrogation, it may be noted
sale to the satisfaction of his credit. Mortgage is merely an that this court has already held that the American doctrine in this
accessory undertaking for the convenience and security of the respect is not in harmony with the spirit of our legislation and
mortgage creditor, and exists independently of the obligation to has not been adopted in this country. In the case of E. C.
pay the debt secured by it. The mortgagee, if he is so minded, can McCullough & Co. vs. Veloso and Serna (46 Phil., 1), the court,
waive the mortgage security and proceed to collect the principal speaking through its present Chief Justice, said:
debt by personal action against the original mortgagor.
The effects of a transfer of a mortgaged property to a third
By buying the property covered by TCT No. 48979 with notice person are well determined by the Civil Code. According to article
that it was mortgaged, respondent Dualan only undertook either 1879 7 of this Code, the creditor may demand of the third person
to pay or else allow the land's being sold if the mortgage creditor in possession of the property mortgaged payment of such part of
could not or did no obtain payment from the principal debtor the debt, as is secured by the property in his possession, in the
when the debt matured. 6 Nothing else. Certainly the buyer did manner and form established by the law. The Mortgage Law in
not obligate himself to replace the debtor in the principal force at the promulgation of the Civil Code and referred to in the
latter, exacted, among other conditions, also the circumstance

that after judicial or notarial demand, the original debtor had property being conveyed to him free from encumbrance, it was
failed to make payment of the debt at maturity. (Art. 135 of the his duty to have so stated in his bid, or at least before depositing
Mortgage Law of the Philippines of 1889.) According to this, the the purchase price. He did not do so, and the bid must be
obligation of the new possessor to pay the debt originated only understood and taken to conform to the normal practice of the
from the right of the creditor to demand payment of him, it being buyer's taking the mortgaged property subject to the mortgage.
necessary that a demand for payment should have previously Consequently, he may not demand that the vendors should
been made upon the debtor and the latter should have failed to discharge the encumbrance aforesaid.
pay. And even if these requirements were complied with, still the
third possessor might abandon the property mortgaged, and in Thus, the questioned order of the trial court ordering the
that case it is considered to be in the possession of the debtor. vendors-heirs to clear the property of all its encumbrances is not
(Art. 136 of the same law.) This clearly shows that the spirit of in accordance with law.
the Civil Code is to let the obligation of the debtor to pay the debt
stand although the property mortgaged to secure the payment of The second and fourth grounds for the petition for certiorari are
said debt may have been transferred to a third person. While the that the minds of the parties allegedly never met, so that the
Mortgage Law of 1893 eliminated these provisions, it contained court should have ordered a re-bidding. The claim that there was
nothing indicating any change in the spirit of the law in this no meeting of the minds is not only inconsistent with petitioners'
respect. Article 129 of this law, which provides for the own argument on the main issue, but is belied by their conduct.
substitution of the debtor by the third person in possession of the The fact is that an offer to sell was advertised, a bidding was
property, for the purposes of the giving of notice, does not show conducted, and the winning bidder deposited the price. A
this change and has reference to a case where the action is rebidding would have been proper had all the parties agreed to it,
directed only against the property burdened with the mortgage. but they did not. Instead, the petitioners authorized their lawyer
(Art. 168 of the Regulation ) to negotiate for the redemption of the property, thereby implying
that they have accepted the validity of the sale and that their
Upon the other hand, the orders complained of, in so far as they questioning it now is but an afterthought.
require the vendors-heirs to clear the title to the land sold to
respondent Dualan, when the latter bid for it with full knowledge The third ground relied upon in the petition for annulling the sale
that the same was subject to a valid and subsisting mortgage, is is the participation of Atty. Ambrosio Padilla in the auction sale
plainly erroneous. In submitting his bid, Dualan is presumed to on behalf of respondent Dualan while still the counsel of record
know, and in fact did know, that the property was subject to a for respondent Benipayo. The ground lacks merit, for the reason
mortgage lien; that such encumbrance would make him, as that petitioners have not shown that they were in any way
purchaser, eventually liable to discharge mortgage by paying or prejudiced, and they had, by their conduct, accepted the validity
settling with the mortgage creditor, should the original of the sale.
mortgagors fail to satisfy the debt. Normally, therefore, he would
have taken this eventuality into account in making his bid, and FOR THE FOREGOING REASONS, the petition for certiorari is
offer a lower amount for the lot than if it were not encumbered. If hereby granted and the orders complained of are reversed and
he intended his bid to be understood as conditioned upon the set aside in so far as they require petitioners to clear the property

sold from the mortgage in favor of the Development Bank. The
writ of preliminary injunction heretofore issued is made
permanent. No costs.


CONTRACTS favor and the peso cost of $170,210.60 at said preferred rate.
(Art. 1305-1422) Plaintiff likewise sought compensatory damages consisting of
actual expenses of litigation and attorney's fees as well as
112. G.R. No. L-25071 March 29, 1972 exemplary damages.
GEORGE W. BATCHELDER, doing business under the Defendant Central Bank specifically denied in its answer certain
name and style of Batchelder Equipment, plaintiff- facts set forth in the complaint and was quite insistent on the
appellant, absence of any such right on the part of plaintiff to re-acquire
vs. from it the sum of $170,210.60 at the preferred rate of exchange.
THE CENTRAL BANK OF THE PHILIPPINES, defendant- It would follow accordingly that it was not liable either to
appellant. plaintiff for the difference between its peso cost at the rate
Quasha, Asperilla, Blanco, Zafra, and Tayag for plaintiff- prevailing on the date of the satisfaction of whatever judgment
appellant. there may be in plaintiff's favor and the peso cost of $170,210.60
F.E. Evangelista, Cruz-Espiritu & Associates for defendant- at said preferred rate. There was likewise a denial of liability for
appellant. compensatory and exemplary damages, attorney's fees, and costs
of the suit.
FERNANDO, J.:p According to the appealed decision: "From the evidence on
In essence, the pivotal legal question presented by this appeal of record, it appears that the plaintiff is an American citizen who
defendant Central Bank of the Philippines, 1 is whether or not the has been permanently residing in the Philippines and who is
issuance of a monetary policy by it, thereafter implemented by engaged in the construction business under the name and style of
the appropriate resolutions, as to the rate of exchange at which Batchelder Equipment. The defendant is a government
dollars after being surrendered and sold to it could be re- corporation duly organized and existing under Republic Act No.
acquired, creates a contractual obligation. It was the holding of 265." 2 Then came this portion: "On December 9, 1949, the
the lower court that in law there was such a contract, the terms defendant issued Central Bank Circular No. 20 imposing
of which had to be respected by defendant Central Bank. Such a exchange contract in this jurisdiction ... . To implement the
conclusion is challenged in this appeal. For reasons to be program of exchange controls, the defendant issued subsequent
hereinafter set forth, we find that the lower court was far too circulars, one of which was Circular No. 44 dated June 12, 1953 ...
generous in its appreciation of the claim of plaintiff George W. . On July 16, 1959, Republic Act No. 2609 was approvedwhich,
Batchelder. The law in our opinion does not go that far, and among other things, provides that "the monetary authorities shall
accordingly, we reverse. take steps for the adoption of a four-year program of gradual
This is a suit filed by plaintiff George W. Batchelder to compel decontrol." To implement this program of gradual decontrol,
defendant Central Bank of the Philippines, now appellant, to defendant Central Bank issued Circular No. 105 on April 25, 1960
resell to him $170,210.60 at the preferred rate of exchange of ..., providing for the gradual lifting of the restrictions on
two Philippine pesos for one American dollar, more specifically transactions involving gold and foreign exchange. Likewise, on
P2.00375, or, in the alternative, to pay to him the difference the same date, it issued Circular No. 106 ... governing the sale
between the peso cost of such amount at the market rate agent banks of foreign exchange in the free market. On
prevailing on the date of the satisfaction of the judgment in his September 12, 1960, Circular No. 105 was amended by Circular

No. 111 ... and by Circular No. 117 ... on November 28, 1960. This defendant ..., it was specifically provided that: "For imports
last Circular No. 117 was amended by Circular No. 121 ... on against proceeds of contracts entered into prior to April 25, 1960,
March 2. 1961, which in return, was amended by Circular No. 133 the preferred buying rate shall govern, regardless of the present
... on January 21, 1962, providing, among others, that "only commodity classifications." " 6 There was however a
authorized agent banks may sell foreign exchange for imports" modification arising from Monetary Board Resolution No. 695 of
and that "such exchange should be sold at the prevailing free April 28, 1961, which specified that the agent bank should, upon
market rate to any applicant, without requiring prior specific compliance with its terms, credit the contractor's accounts in
licensing from the Central Bank." " 3 The appealed decision went pesos, the buying rate being governed by the appropriate rules
on to state "that on March 30, 1960, the U.S. Navy accepted the and regulations. 7
proposal of the plaintiff of March 18, 1960 in the sum of The following facts as found by the lower court are likewise
$188,000.00 for the construction of the Mindanao Weather relevant: "It appears that in compliance with defendant's
Station, Bukidnon, Mindanao, Philippines, in accordance with Bid Monetary Board Resolutions Nos. 857 and 695 ..., plaintiff
Item 3, Yards and Docks Specifications No. 13374/59 ... ." 4 surrendered to the Central Bank, through the latter's authorized
Reference was then therein made to the specific resolution of agents, his dollar earnings amounting to U.S. $199,966.00 ... . The
defendant Central Bank. Thus: "In connection with construction plaintiff also appears to have applied with the defendant for
projects in U.S. military bases in the Philippines, the defendant licences to utilize 90% of his surrendered earnings or the sum of
through its Monetary Board, promulgated Monetary Board U.S. $25,847.84 ... or 21.41% of the amount applied for. The
Resolution No. 857 on June 17, 1960 ... which, in part, provided: plaintiff demanded from the defendant that it be allowed to
"I. General Policy Filipino and resident American contractors utilize the balance of the 90% of his surrendered dollar earnings.
undertaking construction projects in U.S. military bases in the However, it was only on March 21, 1963, after the plaintiff had
Philippines shall be authorized to utilize ninety per cent (90%) of filed the complaint in the present case and after full decontrol
the proceeds of their contracts for the purchase of construction had been established through Circular No. 133 dated January 21,
equipment, spare parts and either supplies, regardless of 1962 ..., that the defendant informed the plaintiff, through its
commodity classification, to be used in projects inside the U.S. communication ..., that the lattercould utilize at the free market
military bases in the Philippines, as well as for payment of rate the balance of his said 90% of surrendered earnings which
imports of construction equipment, materials and supplies, had not been previously granted by the defendant for his
except those commodity items falling under "NEC" and "UI" importations.The present action, therefore, seeks to compel the
categories, either for resale or to be used in their projects outside defendant to permit the plaintiff to utilize the said balance of his
the U.S. military bases; provided, that in the latter case (where 90% surrendered earnings for importation at the preferred rate
the imported items will be used outside of their projects in the of exchange which is P2.00 per U.S. $1.00" 8
U.S. military bases) the margin levy shall be imposed." " 5 The appealed decision took note that in answer to the contention
There was moreover an implementation of the above resolution of defendant Central Bank that the Monetary Board Resolutions
with the Central Bank issuing "its Memorandum to Authorized Nos. 857 and 695 relied upon simply laid down a mere policy
Agent Banks ID-FM No. 11 dated June 23, 1960 ... . Under without in any way giving rise to a valid and binding agreement
Resolution No. 857 of the Monetary Board, which was fully to which the law should give effect, plaintiff Batchelder would
quoted in the Memorandum to Authorized Agent Banks of the stress that the enunciation of the policy embodied in the

appropriate resolution did give rise to a contract that must be lower court to grant him actual expenses of litigation, attorney's
complied with. That argument found favor with the lower court, fees as well as exemplary damages, is dependent on the
for in its opinion, "considering the facts surrounding the disposition of such decisive issue posed as to the existence of a
transaction between the plaintiff and the defendant, the valid contractual commitment on the part of defendant Central
defendant is now bound by a contract, which could be implied Bank.
from its stated policy, as enunciated in Monetary Board After carefully going over the records of the case a well as the
Resolutions Nos. 857 and 695, and the plaintiff's reliance on said briefs of the parties, it is the conclusion of Court, as set forth at
resolutions,to resell in favor of the plaintiff 90% of the U.S. the outset, that the governing principle of law applicable to
dollars earned by him under his U.S. Navy Contract actuation of administrative agencies, like the Central Bank,
aforementioned which were duly surrendered to the defendant." precludes a finding that under the circumstances disclosed by the
9 case, there was a contract in law giving rise to an obligation
The appealed decision recapitulated matters thus: "In short, it is which must be fulfilled by such governmental body. A reversal, as
apparent that by the issuance of its various resolutions and already mentioned, is thus indicated.
circulars aforementioned the defendant had considered the 1. We start with fundamentals. The Civil Code expressly provides
plaintiff and other contractors similarly situated with contracts that a contract is a meeting of minds between two persons
with the U.S. military authorities predating April 25, 1960, as whereby one binds himself with respect to the other to give
exempted from decontrol, pursuant to defendant's Monetary something or render some service. 12 The above provision is
Board Resolutions Nos. 857 and 695. Hence, they are entitled to practically a restatement, with slight modification, of Article1254
the utilization of the 90% of the U.S. dollars surrendered by them of the Civil Code of Spain of 1889, formerly enforced in our
to the defendant at the preferred rate of exchange." 10 jurisdiction. Such an article, in the opinion of Justice J.B.L. Reyes,
Judgment was thus rendered in favor of plaintiff George W. speaking for the Court, in A. Magsaysay, Inc. v. Cebu Portland
Batchelder, ordering defendant Central Bank "to resell to plaintiff Cement Co., 13 requires that "the area of agreement must extend
U.S. $154,094.56 at the rate of exchange Philippine peso to all points that the parties deem material or there is no
P2.00375 per U.S. $1.00 or, in the alternative, to pay to the contract." 14 It is noteworthy that in his Outlines on Civil Law,
plaintiff in pesos the difference between the peso cost of said U.S. with JudgeRicardo Puno as co-author, he speaks highly of Article
$154,094.56 at the rate prevailing on the date of the satisfaction 1321 of the Civil Code of Italy. It reads thus: "A contract is the
of judgment and the peso cost of said $154,094.56 at said accord of two (or more) persons (with previously diverging
preferred rate." 11 As noted earlier, an appeal was interposed by interests) for the purpose of creating, modifying or extinguishing
defendant Central Bank, raising as a principal legal question that a juridical relation between them." 15 Likewise all commentators
there was no such contractual obligation by virtue of which it on the Civil Code have agreed that the birth or perfection of a
could be held liable. It is its contention that its refusal to honor consensual contract, Article 1315, commences from the moment
plaintiff's claim is impressed with validity in accordance with the the parties come to an agreementon a definite subject matter and
governing provision of the existing rules and regulations valid consideration. Justice Capistrano, who was with the Code
governing the sale of foreign exchange. That, to repeat, is the crux Commission, and Senators Ambrosio Padilla and Arturo
of the litigation now before us. The appeal which plaintiff did Tolentino,all three distinguished in the field of civil law, are
likewise interpose, complaining against the alleged failure of the substantially in agreement." 16

Planiol states the following: "The consent of the parties, that is to legal burdens that we bring on ourselves." 18
say, the accord of wills, is the essential element of every contract If there be full cognizance of the implications of the controlling
... . The consent, in the matter of contracts, is composed of a principles as thus expounded, impressive for their well-nigh
double operation. (1) The parties must commence by agreeing as unanimity of approach, the conclusion reached by the lower
to the contents the "convention" that is to say, by making court certainly cannot be accepted as correct.
sufficiently precise the object and the essential conditions, and 2. As is so evident from the recital of facts made in the lower
discussing the particular clauses which they desire to introduce court and equally so in the brief of plaintiff Batchelder, as
to modify or to complete the ordinary effects ... . (2) This first appellant, what was done by the Central Bank was merely to
operation having been terminated, the parties are in accord on issue in pursuance of its rule-making power the resolutions
the projected contract: there is between them what Littre calls relied upon by plaintiff, which for him should be impressed with
the uniformity of opinions, which is one sense of the word a contractual character. Insofar as this aspect of the matter is
"consent", but the contract is not included, it still exists in a concerned, his brief speaks for itself. "In July, 1959, the Republic
projected state. There remains to give its obligatory force by an of the Philippines adopted a gradual decontrol program through
act of will, expressing the individual adherence of each one of the the enactment of Republic Act No. 2609. To implement this
parties to the act thus prepared. ... . When all the necessary legislation defendant Central Bank issued Circular Nos. 105 and
consents (sic) are obtained, and manifested in legal form, the 106 both dated April 25, 1960 ... . The exchange rate under the
contract is formed, the lien of law is tied. It is therefore the union decontrol program was higher than the prevailing rate before
of these adherences (sic) which constitute the contract and which decontrol of P2.00 per US$1.00. On March 30, 1960, plaintiff-
gives birth to the obligations which are derived from it. It is an appellant entered into a contract with the United States Navy for
act of volition, while the preliminary operation of discussion of the construction of a weather station in Bukidnon, Mindanao
the project is a work of the mind and reasoning. 17 covered by U.S. Navy Contract No. NBy-13374 ... . On June 17,
In their Jurisprudence and Legal Philosophy, the late Professors 1960, the defendant-appellant through its governing Monetary
Morris R. Cohen and Felix R. Cohen, father and son and jurists of Board promulgated Resolution No. 857 ... and implemented this
note, noted that the concepts found in the Civil Code of Spain resolution through its Memorandum to Authorized Agent Banks,
showing basic contract rules are "equally valid in France, Chile, I.D.-FM No. 11 dated June 23, 1960 ... . Under Resolution No. 857
Columbia, Germany, Holland, Italy, Mexico, Portugal and many and the implementing circular aforesaid, Filipino and American
other lands, and equally honored across eighteen and more resident contractors for constructions in U.S. military bases in the
centuries ... ." Even more impressive is their conclusion that the Philippines whose contracts antedated April 25, 1960 were
views of such common law scholars as Maine, Williston, Pound, required to surrender to the defendant-appellant Central Bank
Holdsworth, Llewellyn, and Kessler, are not dissimilar. Thus their dollar earnings under their respective contracts but were
Pollock could describe the English common law quoting whole entitled to utilize 90% of their surrendered dollars for
paragraphs from a German scholar's description of the law of importation at the preferred rate of commodities for use within
ancient Rome. It is in that sense that for them the Roman or outside said U.S. military bases. The defendant-appellant
phrasing contrahitur obligatio "throws more light than volumes pursuant to the decontrol program also promulgated Circulars
of exegesis: One contracts an obligation as one contracts Nos. 111, 117, and 121, dated September 12, 1960 ..., November
pneumonia or any otherdisability. Contract is that part of our 28, 1960 ...; and March 2, 1961 ..., respectively, and finally adopted

full decontrol through its Circular No. 133 dated January 21, 1962 a rising level of production, employment and real income in the
... . Defendant-appellant also promulgated Monetary Board Philippines." 21
Resolution No. 695 dated April 28, 1961 ... amending MB It would be then to set at naught fundamental concepts in
Resolution No. 857 of June 23, 1960, and implementing the administrative law that accord due recognition to the vesting of
former through Memorandum ID-FM No. 30 on May 18, 1961 ... ." quasi-legislative and quasi-judicial power in administrative law
19 for the purpose of attaining statutory objectives, especially now
There is no question that the Central Bank as a public that government is saddled with greater responsibilities due to
corporation could enter into contracts. It is so provided for the complex situation of the modern era, if the lower court is to
among the corporate powers vested in it. Thus:"The Central Bank be upheld. For if such be the case then, by the judiciary failing to
is hereby authorized to adopt, alter, and use a corporate seal exercise due care in itsoversight of an administrative agency,
which shall be judicially noticed; to make contracts; to lease or substituting its own discretion for what usually is the more
own real personal property, and to sell or otherwise dispose of expert appraisal of such an instrumentality, there may even be a
the same; to sue and be sued; and otherwise to do and perform frustration if not a nullification of the objective of the law.
any and all things that may be necessary or proper to carry out Nor is this to deal unjustly with plaintiff. Defendant Central Bank
the purposes of this Act." 20 No doubt would have arisen in its motion to dismiss before the lower court was quite explicit
therefore if defendant Central Bank, utilizing a power expressly as to why under the circumstances, no right could be recognized
granted, did enter into a contract with plaintiff. It could have as possessed by him. As set forth in such pleading: "We contend
done so, but it did not do so. How could it possibly be maintained that Monetary Board Resolution No. 857, dated June 17, 1960, as
then that merely through the exercise of its regulatory power to amended by Monetary Board Resolution No. 695, dated April 28,
implement statutory provisions, a contract as known to the law 1961, does not give right to Filipino and resident American
was thereby created?. contractors undertaking construction projects in U.S. military
Yet that is precisely what the lower court held in reaching such a bases to reacquire at the preferred rate ninety per cent (90%) of
conclusion. It was not only unmindful of the controlling doctrines the foreign exchange sold or surrendered to defendant Central
as to when a contract exists, but itwas equally oblivious of the Bank thru the authorized agent banks. Nor does said resolution
competence lodged in an administrative agency like the Central serve as a general authorization or license granted by the Central
Bank. Even the most cursory perusal of Republic Act No. 265 Bank to utilize the ninety per cent (90%) of their dollar earnings.
would yield the irresistible conclusion that the establishment of M.B. Resolution No. 857, as amended, merely laid down a general
the Central Bankwas intended to attain basic objectives in the policy on the utilization of the dollar earnings of Filipino and
field of currency and finance. In the language of the Act: "It shall resident American contractors undertaking projects in U.S.
be the responsibility of the Central Bankof the Philippines to military bases, ... ." 22 Further, there is this equally relevant
administer the monetary and banking system of the Republic. It portion in such motion to dismiss: "It is clear from the aforecited
shall be the duty of the Central Bank to use the powers granted to provisions of said memorandum that not all imports againt
it under this Act to achieve the following objectives: (a) to proceeds of contracts entered into prior to April 25, 1960 are
maintain monetary stability in the Philippines; (b) to preserve entitled to the preferred buying rate of exchange. Only imports
the international value of the pesoand the convertibility of the against proceeds of contracts entered into prior to April 25, 1960,
peso into other freely convertible currencies; and (c) to promote not otherwise classified as dollar-to-dollar transactions, are

entitled to the preferred rate of exchange. It is for this reason that
the contractor is required to first file an application with 113. G.R. No. L-18841 January 27, 1969
defendant Central Bank (Import Department) thru theAuthorized REPUBLIC OF THE PHILIPPINES, plaintiff-appellant,
Agent Banks, for the purpose of determining whether the imports vs.
against proceeds of contracts entered into prior to April 25, 1960 PHILIPPINE LONG DISTANCE TELEPHONE COMPANY,
are classified asdollar-to-dollar transactions (which are not defendant-appellant.
entitled to the preferred rate of exchange), or not (which are Office of the Solicitor General Arturo A. Alafriz, Assistant
entitled to the preferred rate of exchange), and that if said Solicitor General Antonio A. Torres and Solicitor Camilo D.
imports are entitled to the preferred rate of exchange, defendant Quiason for plaintiff-appellant. Ponce Enrile, Siguion
Central Bank would issue a license to the contractor for authority Reyna, Montecillo and Belo for defendant-appellant.
to buy foreign exchange at the preferred rate for the payment of REYES, J.B.L., J.:
said imports." 33 Direct appeals, upon a joint record on appeal, by both the
Had there been greater care therefore on the part of the plaintiff plaintiff and the defendant from the dismissal, after hearing, by
to show why in his opinion he could assert a right in accordance the Court of First Instance of Manila, in its Civil Case No. 35805,
not with a contract binding on the Central Bank, because there is of their respective complaint and counterclaims, but making
none, but by virtue of compliance with rules and regulations of an permanent a preliminary mandatory injunction theretofore
administrative tribunal, then perhaps a different outcome would issued against the defendant on the interconnection of telephone
have been justified. facilities owned and operated by said parties.
3. With the disposition of this Court makes on this appeal of The plaintiff, Republic of the Philippines, is a political entity
defendant Central Bank, there is no need to consider at all the exercising governmental powers through its branches and
appeal of the plaintiff insofar as the lower court denied his plea instrumentalities, one of which is the Bureau of
for the recovery of the actual expenses of litigation, attorney's Telecommunications. That office was created on 1 July 1947,
fees and exemplary damages. Clearly there is no ground for the under Executive Order No. 94, with the following powers and
award of such items sought. duties, in addition to certain powers and duties formerly vested
WHEREFORE, the decision of the lower court of January 10, 1963 in the Director of Posts: 1awphil.t
is reversed and the complaint of the plaintiff dismissed, without SEC. 79. The Bureau of Telecommunications shall exercise the
prejudice to his taking the appropriate action to enforce following powers and duties:
whatever rights he possesses against defendant Central Bank in (a) To operate and maintain existing wire-telegraph and radio-
accordance with its valid and binding rules and regulations. With telegraph offices, stations, and facilities, and those to be
costs against plaintiff. established to restore the pre-war telecommunication service
Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Villamor and under the Bureau of Posts, as well as such additional offices or
Makasiar, JJ., concur. stations as may hereafter be established to provide
Castro, Teehankee and Barredo, JJ., concur in the result. telecommunication service in places requiring such service;
(b) To investigate, consolidate, negotiate for, operate and
maintain wire-telephone or radio telephone communication
service throughout the Philippines by utilizing such existing

facilities in cities, towns, and provinces as may be found feasible telephone messages, coming from the United States and received
and under such terms and conditions or arrangements with the by RCA's domestic station, could automatically be transferred to
present owners or operators thereof as may be agreed upon to the lines of PLDT; and vice-versa, for calls collected by the PLDT
the satisfaction of all concerned; for transmission from the Philippines to the United States. The
(c) To prescribe, subject to approval by the Department Head, contracting parties agreed to divide the tolls, as follows: 25% to
equitable rates of charges for messages handled by the system PLDT and 75% to RCA. The sharing was amended in 1941 to 30%
and/or for time calls and other services that may be rendered by for PLDT and 70% for RCA, and again amended in 1947 to a 50-
said system; 50 basis. The arrangement was later extended to radio-telephone
(d) To establish and maintain coastal stations to serve ships at messages to and from European and Asiatic countries. Their
sea or aircrafts and, when public interest so requires, to engage contract contained a stipulation that either party could terminate
in the international telecommunication service in agreement it on a 24-month notice to the other. 4 On 2 February 1956, PLDT
with other countries desiring to establish such service with the gave notice to RCA to terminate their contract on 2 February
Republic of the Philippines; and 1958. 5
(e) To abide by all existing rules and regulations prescribed by Soon after its creation in 1947, the Bureau of
the International Telecommunication Convention relative to the Telecommunications set up its own Government Telephone
accounting, disposition and exchange of messages handled in the System by utilizing its own appropriation and equipment and by
international service, and those that may hereafter be renting trunk lines of the PLDT to enable government offices to
promulgated by said convention and adhered to by the call private parties. 6 Its application for the use of these trunk
Government of the Republic of the Philippines. 1 lines was in the usual form of applications for telephone service,
The defendant, Philippine Long Distance Telephone Company containing a statement, above the signature of the applicant, that
(PLDT for short), is a public service corporation holding a the latter will abide by the rules and regulations of the PLDT
legislative franchise, Act 3426, as amended by Commonwealth which are on file with the Public Service Commission. 7 One of the
Act 407, to install, operate and maintain a telephone system many rules prohibits the public use of the service furnished the
throughout the Philippines and to carry on the business of telephone subscriber for his private use. 8 The Bureau has
electrical transmission of messages within the Philippines and extended its services to the general public since 1948, 9 using the
between the Philippines and the telephone systems of other same trunk lines owned by, and rented from, the PLDT, and
countries. 2 The RCA Communications, Inc., (which is not a party prescribing its (the Bureau's) own schedule of rates. 10 Through
to the present case but has contractual relations with the parties) these trunk lines, a Government Telephone System (GTS)
is an American corporation authorized to transact business in the subscriber could make a call to a PLDT subscriber in the same
Philippines and is the grantee, by assignment, of a legislative way that the latter could make a call to the former.
franchise to operate a domestic station for the reception and On 5 March 1958, the plaintiff, through the Director of
transmission of long distance wireless messages (Act 2178) and Telecommunications, entered into an agreement with RCA
to operate broadcasting and radio-telephone and radio- Communications, Inc., for a joint overseas telephone service
telegraphic communications services (Act 3180). 3 whereby the Bureau would convey radio-telephone overseas
Sometime in 1933, the defendant, PLDT, and the RCA calls received by RCA's station to and from local residents. 11
Communications, Inc., entered into an agreement whereby Actually, they inaugurated this joint operation on 2 February

1958, under a "provisional" agreement. 12 defendant, Philippine Long Distance Telephone Company, in the
On 7 April 1958, the defendant Philippine Long Distance Court of First Instance of Manila (Civil Case No. 35805), praying
Telephone Company, complained to the Bureau of in its complaint for judgment commanding the PLDT to execute a
Telecommunications that said bureau was violating the contract with plaintiff, through the Bureau, for the use of the
conditions under which their Private Branch Exchange (PBX) is facilities of defendant's telephone system throughout the
inter-connected with the PLDT's facilities, referring to the rented Philippines under such terms and conditions as the court might
trunk lines, for the Bureau had used the trunk lines not only for consider reasonable, and for a writ of preliminary injunction
the use of government offices but even to serve private persons against the defendant company to restrain the severance of the
or the general public, in competition with the business of the existing telephone connections and/or restore those severed.
PLDT; and gave notice that if said violations were not stopped by Acting on the application of the plaintiff, and on the ground that
midnight of 12 April 1958, the PLDT would sever the telephone the severance of telephone connections by the defendant
connections. 13 When the PLDT received no reply, it disconnected company would isolate the Philippines from other countries, the
the trunk lines being rented by the Bureau at midnight on 12 court a quo, on 14 April 1958, issued an order for the defendant:
April 1958. 14 The result was the isolation of the Philippines, on (1) to forthwith reconnect and restore the seventy-eight (78)
telephone services, from the rest of the world, except the United trunk lines that it has disconnected between the facilities of the
States. 15 Government Telephone System, including its overseas telephone
At that time, the Bureau was maintaining 5,000 telephones and services, and the facilities of defendant; (2) to refrain from
had 5,000 pending applications for telephone connection. 16 The carrying into effect its threat to sever the existing telephone
PLDT was also maintaining 60,000 telephones and had also communication between the Bureau of Telecommunications and
20,000 pending applications. 17 Through the years, neither of defendant, and not to make connection over its telephone system
them has been able to fill up the demand for telephone service. of telephone calls coming to the Philippines from foreign
The Bureau of Telecommunications had proposed to the PLDT countries through the said Bureau's telephone facilities and the
on 8 January 1958 that both enter into an interconnecting radio facilities of RCA Communications, Inc.; and (3) to accept
agreement, with the government paying (on a call basis) for all and connect through its telephone system all such telephone calls
calls passing through the interconnecting facilities from the coming to the Philippines from foreign countries until further
Government Telephone System to the PLDT. 18 The PLDT replied order of this Court.
that it was willing to enter into an agreement on overseas On 28 April 1958, the defendant company filed its answer, with
telephone service to Europe and Asian countries provided that counterclaims.
the Bureau would submit to the jurisdiction and regulations of It denied any obligation on its part to execute a contrary of
the Public Service Commission and in consideration of 37 1/2% services with the Bureau of Telecommunications; contested the
of the gross revenues. 19 In its memorandum in lieu of oral jurisdiction of the Court of First Instance to compel it to enter
argument in this Court dated 9 February 1964, on page 8, the into interconnecting agreements, and averred that it was justified
defendant reduced its offer to 33 1/3 % (1/3) as its share in the to disconnect the trunk lines heretofore leased to the Bureau of
overseas telephone service. The proposals were not accepted by Telecommunications under the existing agreement because its
either party. facilities were being used in fraud of its rights. PLDT further
On 12 April 1958, plaintiff Republic commenced suit against the claimed that the Bureau was engaging in commercial telephone

operations in excess of authority, in competition with, and to the service may require, subject to the payment of just compensation
prejudice of, the PLDT, using defendants own telephone poles, to be determined by the court. Nominally, of course, the power of
without proper accounting of revenues. eminent domain results in the taking or appropriation of title to,
After trial, the lower court rendered judgment that it could not and possession of, the expropriated property; but no cogent
compel the PLDT to enter into an agreement with the Bureau reason appears why the said power may not be availed of to
because the parties were not in agreement; that under Executive impose only a burden upon the owner of condemned property,
Order 94, establishing the Bureau of Telecommunications, said without loss of title and possession. It is unquestionable that real
Bureau was not limited to servicing government offices alone, property may, through expropriation, be subjected to an
nor was there any in the contract of lease of the trunk lines, since easement of right of way. The use of the PLDT's lines and services
the PLDT knew, or ought to have known, at the time that their to allow inter-service connection between both telephone
use by the Bureau was to be public throughout the Islands, hence systems is not much different. In either case private property is
the Bureau was neither guilty of fraud, abuse, or misuse of the subjected to a burden for public use and benefit. If, under section
poles of the PLDT; and, in view of serious public prejudice that 6, Article XIII, of the Constitution, the State may, in the interest of
would result from the disconnection of the trunk lines, declared national welfare, transfer utilities to public ownership upon
the preliminary injunction permanent, although it dismissed both payment of just compensation, there is no reason why the State
the complaint and the counterclaims. may not require a public utility to render services in the general
Both parties appealed. interest, provided just compensation is paid therefor. Ultimately,
Taking up first the appeal of the Republic, the latter complains the beneficiary of the interconnecting service would be the users
of the action of the trial court in dismissing the part of its of both telephone systems, so that the condemnation would be
complaint seeking to compel the defendant to enter into an for public use.
interconnecting contract with it, because the parties could not The Bureau of Telecommunications, under section 78 (b) of
agree on the terms and conditions of the interconnection, and of Executive Order No. 94, may operate and maintain wire
its refusal to fix the terms and conditions therefor. telephone or radio telephone communications throughout the
We agree with the court below that parties can not be coerced to Philippines by utilizing existing facilities in cities, towns, and
enter into a contract where no agreement is had between them as provinces under such terms and conditions or arrangement with
to the principal terms and conditions of the contract. Freedom to present owners or operators as may be agreed upon to the
stipulate such terms and conditions is of the essence of our satisfaction of all concerned; but there is nothing in this section
contractual system, and by express provision of the statute, a that would exclude resort to condemnation proceedings where
contract may be annulled if tainted by violence, intimidation, or unreasonable or unjust terms and conditions are exacted, to the
undue influence (Articles 1306, 1336, 1337, Civil Code of the extent of crippling or seriously hampering the operations of said
Philippines). But the court a quo has apparently overlooked that Bureau.
while the Republic may not compel the PLDT to celebrate a A perusal of the complaint shows that the Republic's cause of
contract with it, the Republic may, in the exercise of the action is predicated upon the radio telephonic isolation of the
sovereign power of eminent domain, require the telephone Bureau's facilities from the outside world if the severance of
company to permit interconnection of the government telephone interconnection were to be carried out by the PLDT, thereby
system and that of the PLDT, as the needs of the government preventing the Bureau of Telecommunications from properly

discharging its functions, to the prejudice of the general public. No. 51)
Save for the prayer to compel the PLDT to enter into a contract and the determination of state policy is not vested in the
(and the prayer is no essential part of the pleading), the Commission (Utilities Com. vs. Bartonville Bus Line, 290 Ill. 574;
averments make out a case for compulsory rendering of inter- 124 N.E. 373).
connecting services by the telephone company upon such terms Defendant PLDT, as appellant, contends that the court below
and conditions as the court may determine to be just. And since was in error in not holding that the Bureau of
the lower court found that both parties "are practically at one Telecommunications was not empowered to engage in
that defendant (PLDT) is entitled to reasonable compensation commercial telephone business, and in ruling that said defendant
from plaintiff for the reasonable use of the former's telephone was not justified in disconnecting the telephone trunk lines it had
facilities" (Decision, Record on Appeal, page 224), the lower court previously leased to the Bureau. We find that the court a quo
should have proceeded to treat the case as one of condemnation ruled correctly in rejecting both assertions.
of such services independently of contract and proceeded to Executive Order No. 94, Series of 1947, reorganizing the Bureau
determine the just and reasonable compensation for the same, of Telecommunications, expressly empowered the latter in its
instead of dismissing the petition. Section 79, subsection (b), to "negotiate for, operate and maintain
This view we have taken of the true nature of the Republic's wire telephone or radio telephone communication service
petition necessarily results in overruling the plea of defendant- throughout the Philippines", and, in subsection (c), "to prescribe,
appellant PLDT that the court of first instance had no jurisdiction subject to approval by the Department Head, equitable rates of
to entertain the petition and that the proper forum for the action charges for messages handled by the system and/or for time calls
was the Public Service Commission. That body, under the law, has and other services that may be rendered by the system". Nothing
no authority to pass upon actions for the taking of private in these provisions limits the Bureau to non-commercial
property under the sovereign right of eminent domain. activities or prevents it from serving the general public. It may be
Furthermore, while the defendant telephone company is a public that in its original prospectuses the Bureau officials had stated
utility corporation whose franchise, equipment and other that the service would be limited to government offices: but such
properties are under the jurisdiction, supervision and control of limitations could not block future expansion of the system, as
the Public Service Commission (Sec. 13, Public Service Act), yet authorized by the terms of the Executive Order, nor could the
the plaintiff's telecommunications network is a public service officials of the Bureau bind the Government not to engage in
owned by the Republic and operated by an instrumentality of the services that are authorized by law. It is a well-known rule that
National Government, hence exempt, under Section 14 of the erroneous application and enforcement of the law by public
Public Service Act, from such jurisdiction, supervision and officers do not block subsequent correct application of the statute
control. The Bureau of Telecommunications was created in (PLDT vs. Collector of Internal Revenue, 90 Phil. 676), and that
pursuance of a state policy reorganizing the government offices the Government is never estopped by mistake or error on the
part of its agents (Pineda vs. Court of First Instance of Tayabas,
to meet the exigencies attendant upon the establishment of the 52 Phil. 803, 807; Benguet Consolidated Mining Co. vs. Pineda, 98
free and independent Government of the Republic of the Phil. 711, 724).
Philippines, and for the purpose of promoting simplicity, The theses that the Bureau's commercial services constituted
economy and efficiency in its operation (Section 1, Republic Act unfair competition, and that the Bureau was guilty of fraud and

abuse under its contract, are, likewise, untenable. public is held to have such an interest in the arrangement that its
First, the competition is merely hypothetical, the demand for rights must receive due consideration. This position finds
telephone service being very much more than the supposed approval in State ex rel. vs. Cadwaller, 172 Ind. 619, 636, 87 N.E.
competitors can supply. As previously noted, the PLDT had 650, and is stated in the elaborate and learned opinion of Chief
20,000 pending applications at the time, and the Bureau had Justice Myers as follows: "Such physical connection cannot be
another 5,000. The telephone company's inability to meet the required as of right, but if such connection is voluntarily made by
demands for service are notorious even now. Second, the charter contract, as is here alleged to be the case, so that the public
of the defendant expressly provides: acquires an interest in its continuance, the act of the parties in
SEC. 14. The rights herein granted shall not be exclusive, and the making such connection is equivalent to a declaration of a
rights and power to grant to any corporation, association or purpose to waive the primary right of independence, and it
person other than the grantee franchise for the telephone or imposes upon the property such a public status that it may not be
electrical transmission of message or signals shall not be disregarded" citing Mahan v. Mich. Tel. Co., 132 Mich. 242, 93
impaired or affected by the granting of this franchise: (Act N.W. 629, and the reasons upon which it is in part made to rest
3436) are referred to in the same opinion, as follows: "Where private
And third, as the trial court correctly stated, "when the Bureau property is by the consent of the owner invested with a public
of Telecommunications subscribed to the trunk lines, defendant interest or privilege for the benefit of the public, the owner can
knew or should have known that their use by the subscriber was no longer deal with it as private property only, but must hold it
more or less public and all embracing in nature, that is, subject to the right of the public in the exercise of that public
throughout the Philippines, if not abroad" (Decision, Record on interest or privilege conferred for their benefit." Allnut v. Inglis
Appeal, page 216). (1810) 12 East, 527. The doctrine of this early case is the
The acceptance by the defendant of the payment of rentals, acknowledged law. (Clinton-Dunn Tel. Co. v. Carolina Tel. & Tel.
despite its knowledge that the plaintiff had extended the use of Co., 74 S.E. 636, 638).
the trunk lines to commercial purposes, continuously since 1948, It is clear that the main reason for the objection of the PLDT lies
implies assent by the defendant to such extended use. Since this in the fact that said appellant did not expect that the Bureau's
relationship has been maintained for a long time and the public telephone system would expand with such rapidity as it has
has patronized both telephone systems, and their done; but this expansion is no ground for the discontinuance of
interconnection is to the public convenience, it is too late for the the service agreed upon.
defendant to claim misuse of its facilities, and it is not now at The last issue urged by the PLDT as appellant is its right to
liberty to unilaterally sever the physical connection of the trunk compensation for the use of its poles for bearing telephone wires
lines. of the Bureau of Telecommunications. Admitting that section 19
..., but there is high authority for the position that, when such of the PLDT charter reserves to the Government
physical connection has been voluntarily made, under a fair and the privilege without compensation of using the poles of the
workable arrangement and guaranteed by contract and the grantee to attach one ten-pin cross-arm, and to install, maintain
continuous line has come to be patronized and established as a and operate wires of its telegraph system thereon; Provided,
great public convenience, such connection shall not in breach of however, That the Bureau of Posts shall have the right to place
the agreement be severed by one of the parties. In that case, the additional cross-arms and wires on the poles of the grantee by

paying a compensation, the rate of which is to be agreed upon by needs of the general public to the right of the PLDT to derive
the Director of Posts and the grantee; profit from the future expansion of its services under its non-
the defendant counterclaimed for P8,772.00 for the use of its exclusive franchise.
poles by the plaintiff, contending that what was allowed free use, WHEREFORE, the decision of the Court of First Instance, now
under the aforequoted provision, was one ten-pin cross-arm under appeal, is affirmed, except in so far as it dismisses the
attachment and only for plaintiff's telegraph system, not for its petition of the Republic of the Philippines to compel the
telephone system; that said section could not refer to the Philippine Long Distance Telephone Company to continue
plaintiff's telephone system, because it did not have such servicing the Government telephone system upon such terms,
telephone system when defendant acquired its franchise. The and for a compensation, that the trial court may determine to be
implication of the argument is that plaintiff has to pay for the use just, including the period elapsed from the filing of the original
of defendant's poles if such use is for plaintiff's telephone system complaint or petition. And for this purpose, the records are
and has to pay also if it attaches more than one (1) ten-pin cross- ordered returned to the court of origin for further hearings and
arm for telegraphic purposes. other proceedings not inconsistent with this opinion. No costs.
As there is no proof that the telephone wires strain the poles of Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro,
the PLDT more than the telegraph wires, nor that they cause Fernando, Capistrano, Teehankee and Barredo, JJ., concur.
more damage than the wires of the telegraph system, or that the
Government has attached to the poles more than one ten-pin
cross-arm as permitted by the PLDT charter, we see no point in
this assignment of error. So long as the burden to be borne by the
PLDT poles is not increased, we see no reason why the 114. G.R. No. L-40424 June 30, 1980
reservation in favor of the telegraph wires of the government R. MARINO CORPUS, petitioner,
should not be extended to its telephone lines, any time that the vs.
government decided to engage also in this kind of COURT OF APPEALS and JUAN T. DAVID, respondents
communication.
In the ultimate analysis, the true objection of the PLDT to MAKASIAR, J.:
continue the link between its network and that of the This is a petition for review on certiorari of the decision of the
Government is that the latter competes "parasitically" (sic) with Court of Appeals promulgated on February 14, 1975 in CA-G.R.
its own telephone services. Considering, however, that the PLDT No. 40583-R, affirming the decision of the court of Instance of
franchise is non-exclusive; that it is well-known that defendant Manila, Branch V. dated september 4, 1967, in Civil Case no.
PLDT is unable to adequately cope with the current demands for 61802 entitled "Juan T. David,plaintiff, versus R. Mariano Corpus,
telephone service, as shown by the number of pending defendant', for the recovery of attorneys fees for professional
applications therefor; and that the PLDT's right to just services rendered by the plaintiff, private respondent herein, to
compensation for the services rendered to the Government defendant, petitioner herein.
telephone system and its users is herein recognized and A
preserved, the objections of defendant-appellant are without Having been close friends, aside from being membres Civil
merit. To uphold the PLDT's contention is to subordinate the Liberties Union, petitioner Corpus intimately calls respondent

David by his nickname "Juaning" and the latter addresses the On June 24, 1960, Atty. Alverez received a copy of the order of
former simply as "Marino". dismissal It was at this state that the plaintiff entered into the
The factual setting of this case is stated in the decision of the case under circumstances about which the parties herein have
lower court, thus: given divergent versions.
It appears that in March, 1958, the defendant was charged According to the plaintiff, six or seven days prior to the
administratively by several employee of the Central Bank Export expiration of the period for appeal from the order of dismissal, he
Department of which the defendant is the director. The chanced to meet the late Rafael Corpus, father of the defendant,
defendant was represented by Atty. Rosauro Alvarez. Pending the at the Taza de Oro coffee shop. After they talked about the
investigation and effective March 18, 1958, he defendant was defendant's having lost his case before Judge Lantin, and knowing
suspended from office. After the investigating committee found that the plaintiff and the defendant were both members of the
the administrative charges to be without merit, and subsequently Civil Liberties Union, Rafael Corpus requested the plaintiff to go
recommended the immediate reinstatement of the defendant, the over the case and further said that he would send his son, the
then Governor of Central Bank, Miguel Cuaderno, Sr., herein defendant, to the plaintiff to find out what could be done
recommended that the defendant be considered resigned as on about the case. The defendant called up the plaintiff the following
the ground that he had lost confidence in him. The Monetary morning for an appointment, and the plaintiff agreed to am him
Board, by a resolution of July 20, 1959, declared the defendant as in the latter's office. At said conference, the defendant requested
resigned as of the date of suspension. the plaintiff to handle the case because Atty. Alvarez had already
On August 18, 1959, the defendant, thru Atty. Alvarez, filed the been disenchanted and wanted to give up the case. Although at
Court of First Instance of Manila a petition for certiorari, first reluctant to handle the case, the plaintiff finally agreed on
mandamus and quo warranto with preliminary mandatory condition that he and Atty. Alverez would collaborate in the case.
injuction and damages against Miguel Cuaderno, Sr., the Central The defendant's version of how the plaintiff came into the case is
Bank and Mario Marcos who was appointed to the position of the as follows:
defendant, said case having been docketed as Civil Case No. After the order of dismissal issued by Judge Lantin was published
41226 and assigned to Branch VII presided over by Judge in the newspapers, the plaintiff sought a conference with the
Gregorio T. Lantin. On September 7, 1959, the respondent filed a defendant at Taza de Oro, but the defendant told him that he
motion to dismiss the petition, alleging among other grounds, the would rather meet the plaintiff at the Swiss Inn. Even before the
failure of the defendant to exhaust, available administrative case was dismissed the plaintiff had shown interest in the same
remedies (Exh. X). On September 25, 1959, the defendant, thru by being present during the hearings of said case in the sala of
Atty. Alvarez, filed his opposition to the said motion. On March Judge Lantin When the plaintiff and the defendant met at the
17, 1960, during the course of the presentation of the evidence Swiss Inn, the plaintiff handed the defendant a memorandum
for the petition for a writ of preliminary mandatory injunction, prepared by him on how he can secure the reversal of the order
Atty. Alvarez manifested that the defendant was abandoning his of dismissal by means of a formula stated in said memorandum.
prayer for a writ of preliminary mandatory injunction and asked During the said occasion the plaintiff scribbled some notes on a
for a ruling on the motion to dismiss. On June 14, 1960, Judge paper napkin (Exhibit 19). On June 28, 1960, the defendant wrote
Lantin dismissed Civil Case No. 41226 for failure to exhaust she the plaintiff, sending with it a copy of the order of Judge Lantin
administrative remedies available to the herein defendant. dated June 14, 1960 (Exhibit S Inasmuch as said letter, Exhibit S

already mentions the 'memorandum' of the plaintiff, the THOUSAND P2,000.00) PESOS for legal services in the handling of
defendant contends that it was not six or seven days prior to the L-17860 recently decided by the Court? I wish I could give more
expiration of the period of appeal (which should be on or about but as y u know we were banking on a SC decision reinstating me
July 2 or 3, 1960) but on a date even earlier than June 28, 1960 and reimburse my backstage I had been wanting to offer some
that the plaintiff and the defendant met together to discuss the token of my appreciation of your legal fight for and in my behalf,
latter's case. and it was only last week that I received something on account of a
Laying aside for the moment the true circumstances under which pending claim.
the plaintiff started rendering professional services to the Looking forward to a continuation of the case in the lower court, I
defendant, the undisputed evidence shows that on July 7, 1960, remain
the plaintiff filed a motion for reconsideration of the order of Sincerely yours, Illegible
dismissal under the joint signatures of the plaintiff and Atty. x x x x x x x x x
Alverez (Exhibit B). The plaintiff argued the said motion during In a reply letter dated April 25, 1962, the plaintiff returned the
the hearing thereof On August 8, 1960, he file a 13-page check, explaining said act as follows:
'Memorandum of Authorities in support of said motion for April 25, 1962
reconsideration (Exhibit C). A 3-page supplemental My dear Marino:
memorandum of authorities was filed by the plaintiff on Yesterday, I received your letter of April 18th with its enclosure. I
September 6, 1960 (Exhibit D) wished thank you for your kind thoughts, however, please don't
On November 15, 1960, Judge Lantin denied the motion for take offense if I have to return the check. I will explain.
reconsideration. On November 19, 1960, the plaintiff perfected When I decided to render professional services in your case, I was
the appeal from the order of dismissal dated June 14, 1960. For motivated by the value to me of the very intimate relations which
purposes of said appeal the plaintiff prepared a 232-page brief you and I have enjoyed during the past many years. It was nor
and submitted the same before the Supreme Court in Baguio City primarily, for a professional fee.
on April 20, 1961. The plaintiff was the one who orally argued the Although we were not fortunate to have obtained a decision in
case before the Supreme Court. In connection with the trip to your case which should have put an end to it. I feel that we have
Baguio for the said oral argument, the plaintiff used his car hich reason to be jubilant over the outcome, because, the final favorable
broke down and necessitated extensive repairs paid for by the outcome of the case seems certain irrespective of the length of
plaintiff himself. time required to terminate the same.
On March 30, 1962, the Supreme Court promulgated its decision Your appreciation of the efforts I have invested in your case is
reversing the order of dismissal and remanding the case for enough compensation therefor, however, when you shall have
further proceedings. On April 18, 1962, after the promulgation of obtained a decision which would have finally resolved the case in
the decision of the Supreme Court reversing the dismissal of the your favor, remembering me then will make me happy. In the
case the defendant wrote the plaintiff the following letter, Exhibit meantime, you will make me happier by just keeping the check.
'Q'. . Sincerely yours,
x x x x x x x x x JUANING
Dear Juaning x x x x x x x x x
Will you please accept the attached check in the amount of TWO When the case was remanded for further proceedings before Judge

Lantin, the evidence for the defendant was presented by Atty. Central Bank, the plaintiff instituted this action before this Court
'Alvarez with the plaintiff cooperating in the same-'On June 24, on July 20, 1965 (Emphasis supplied).
1963, Judge Lantin rendered his decision in favor of the defendant As therein defendant, herein petitioner Marino Corpus filed in
declaring illegal the resolution of the Monetary Board of July 20, August 5, 1965 an answer with counter-claim. On August 30,
1959, and ordering the defendant's reinstatement and the 1965, private respondent Atty. Juan T. David, plaintiff therein,
payment of his back salaries and allowances - The respondents in filed a reply with answer to the counterclaim of petitioner.
said Civil Case No. 41226 filed a motion for reconsideration After due trial, the lower court rendered judgment on September
which was opposed by the herein plaintiff. The said decision was 4, 1967, the dispositive portion of which reads:
appealed by the respondents, as well as by the herein defendant WHEREFORE, judgment is hereby rendered, ordering the
with respect to the award of P5, 000. 00 attorney's feed The defendant to pay plaintiff the sum of P30,000.00 in the concept of
plaintiff prepared two briefs for submission to the Court of Appeals professional fees, and to pay the costs (pp. 112-113, CA Record
one as appellee (Exhibit H) and the other as appellant (Exhibit H- on Appeal p. 54, rec.)
1). The Court of Appeal however, certified the case to the Supreme After receipt on September 7, 1967 of a copy of the aforequoted
Court in 1964. judgment, petitioner Marino Corpus, defendant therein, filed on
On March 31, 1965, the Supreme Court rendered a decision October 7, 1967 a notice of appeal from said judgment to the
affirming the judgment of the Court of first Instance of Manila. Court of Appeals. In his appeal, he alleged that the lower court
On April 19, 1965 the plaintiffs law office made a formal de erred:
command upon the defendant for collection of 50% of the amount 1. In not holding that the plaintiff's professional services were
recovered by the defendant as back salaries and other emoluments offered and rendered gratuitously;
from the Central Bank (Exhibit N). This letter was written after the 2. Assuming that plaintiff is entitled to compensation in
defendant failed to appear at an appointment with the plaintiff so holding that he was entitled to attorney's fees in the amount of
that they could go together to the Central Bank to claim the P30,000.00 when at most he would be entitled to only P2,500.00;
possession of the office to which the defendant was reinstated and 3. In not dismissing plaintiff's complaint; and
after a confrontation in the office of the plaintiff wherein the 4. In not awarding damages and attorney's fees to the defendant
plaintiff was remanding 50% of the back salaries and other (p. 2, CA Decision, p. 26, rec.)
emoluments amounting to P203,000.00 recoverable by the Likewise, private respondent Atty. Juan T. David, plaintiff therein,
defendant. The defendant demurred to this demand inasmuch as he appealed to the Court of Appeals on October 9, 1967 assigning
had plenty of outstanding obligations and that his tax liability for one error, to wit:
said back salaries was around P90,000.00, and that he expected to The lower court erred in ordering the defendant to pay the
net only around P10,000.00 after deducting all expenses and taxes. plaintiff only the sum of P30,000.00 in the concept of attorney's
On the same date, April 19,1965 the plaintiff wrote the Governor fees (p. 1, CA Decision, p. 25, rec.).
for of Central Bank requesting that the amount representing the On February 14, 1975, respondent Court of Appeals promulgated
sack salaries of the defendant be made out in two one in favor of its decision affirming in toto the decision of the lower court, with
the defendant and the other representing the professional fees costs against petitioner Marino Corpus (Annex A, Petition for
equivalent to 50% of the said back salaries being claimed by the Certiorari, p. 25, rec.)
plaintiff (Exhibit 8). F to obtain the relief from the Governor of Hence, the instant petition for review on certiorari, petitioner

contending that the respondent Court of Appeals erred in finding petitioner Marino Corpus requested this Court to inquire into
that petitioner accepted private respondent's services "with the what appears to be an irregularity in the issuance of the aforesaid
understanding of both that he (private respondent) was to be garnishment notice to the Commercial Bank and Trust Company,
compensated" in money; and that the fee of private respondent by virtue of which his bank deposits were garnished and he was
was contingent (pp. 3 & 5, Petition for Certiorari, pp. 17 & 19, prevented from making withdrawals from his bank account.
rec.). In OUR resolution of November 3, 1978, WE required private
On October 1, 1975, the case was deemed submitted for decision respondent Atty. Juan T. David and the Commercial Bank and
(p. 177, rec.), after the parties filed their respective memoranda. Trust Company to comment on petitioner's letter, and for the
B bank to explain why it did not honor petitioner's withdrawals
On January 31, 1978, private respondent Atty. Juan T. David filed from his bank deposits when no garnishment order has been
a petition to remand the case to the court a quo for execution of issued by the Supreme Court. This Court further inquired from
the latter's decision in Civil Case No. 61802, dated September 4, the lower court whether it has issued any garnishment order
1967, alleging that said decision is already deemed affirmed during the pendency of the present case.
pursuant to Section 11(2), Article X of the New Constitution by On November 27, 1978, the Commercial Bank and Trust
reason of the failure of this Tribunal to decide the case within 18 Company filed its comment which was noted in the Court's
months. Then on July 7, 1978, another petition to remand the resolution of December 4, 1978. In said resolution, the Court also
case to the lower court to execution was filed by herein private required Judge Jose H. Tecson to comply with the resolution of
respondent. November 3, 1978, inquiring as to whether he had issued any
Subsequently, private respondent Atty. Juan T. David filed with garnishment order, and to explain why a writ of execution was
The court a quo a motion dated September 13, 1978 for the issued despite the pendency of the present case before the
issuance of a writ of execution of the lower court's decision in the Supreme Court.
aforesaid civil case, also invoking Section 11 (2), Article X of the Further, WE required private respondent Atty. Juan T. David Lo
1973 Constitution. In an order dated September 19, 1978, the explain his failure to file his comment, and to file the same as
lower court, through Judge Jose H. Tecson, directed the issuance directed by the resolution of the Court dated November 3, 1978.
of a writ of execution. The writ of execution was issued on Private respondent's compliance came on December 13, 1978,
October 2, 1978 and a notice of garnishment was also issued n requesting to be excused from the filing of his comment because
October 13, 1978 to garnish the bank deposits of herein herein petitioner's letter was unverified. Judge Tecson's
petitioner Marino Corpus in the Commercial Bank and Trust compliance was filed on December 15, 1978, to which herein
Company, Makati Branch. petitioner replied on January 11, 1979.
It appears that on October 13, 1978, herein petitioner filed a In OUR resolution dated January 3, 1979, WE set aside the order
motion for reconsideration of the September 19, 1978 order. of Judge Jose H. Tecson dated September 19, 1978, the writ of
Private respondent Atty. Juan T. David filed on October 19, 1978 execution as well as the notice of garnishment, and required
an opposition to said motion and herein petitioner filed a reply private respondent Atty. Juan T. David to show cause why he
on October 30, 1978. The lower court denied said motion for should not be cited for contempt for his failure to file his
reconsideration in its over dated November 7, 1978. comment as directed by the resolution of the Court dated
It appears also that in a letter dated October 18, 1978, herein December 4, 1978, and for filing a motion for execution knowing

that the case is pending appeal and review before this Court I
Likewise, the Court required Judge Jose H. Tecson to show cause WE find respondent David's position meritorious. While there
why he should not be cited for contempt for issuing an order was express agreement between petitioner Corpus and
directing the issuance of a writ of execution and for issuing such respondent David as regards attorney's fees, the facts of the case
writ despite the pendency of the present case in the Supreme support the position of respondent David that there was at least
Court. an implied agreement for the payment of attorney's fees.
On January 12, 1979, Judge Jose H. Tecson filed his compliance Petitioner's act of giving the check for P2,000.00 through his
explanation as directed by the aforesaid resolution of January 3, aforestated April 18, 1962 letter to respondent David indicates
1979, while private respondent Atty. Juan T. David filed on petitioner's commitment to pay the former attorney's fees, which
January 30, 19 79 his compliance and motion for reconsideration is stressed by expressing that "I wish I could give more but as you
after the Court has granted him an extension of time to file his know we were banking on a SC decision reinstating me and
compliance. reimbursing my back salaries This last sentiment constitutes a
Private respondent Atty. Juan T. David filed on February 28, promise to pay more upon his reinstatement and payment of his
1979, a petition praying that the merits of his compliance be back salaries. Petitioner ended his letter that he was "looking
resolved by the Court en banc. Subsequently, on March 26, 1979, forward to a continuation of the case in the lower court, ... to
another petition was filed by herein private respondent asking which the certiorari-mandamus-quo warranto case was
the Chief remanded by the Supreme Court for further proceedings.
Justice and the members of the First Division to inhibit Moreover, respondent David's letter-reply of April 25, 1962
themselves from participating in the determination of the merits confirms the promise of petitioner Corpus to pay attorney's fees
of his compliance and for its merits to be resolved by the Court en upon his reinstatement and payment of back salaries. Said reply
banc. states that respondent David decided to be his counsel in the case
C because of the value to him of their intimate relationship over the
The main thrust of this petition for review is whether or not years and "not, primarily, for a professional fee." It is patent then,
private respondent Atty. Juan T. David is entitled to attorney's that respondent David agreed to render professional services to
fees. petitioner Corpus secondarily for a professional fee. This is
Petitioner Marino Corpus contends that respondent David is not stressed by the last paragraph of said reply which states that
entitled to attorney's fees because there was no contract to that "however, when you shall have obtained a decision which would
effect. On the other hand, respondent David contends that the have finally resolved the case in your favor, remembering me
absence of a formal contract for the payment of the attorney's then will make me happy. In the meantime, you will make me
fees will not negate the payment thereof because the contract happier by just keeping the check." Thereafter, respondent David
may be express or implied, and there was an implied continued to render legal services to petitioner Corpus, in
understanding between the petitioner and private respondent collaboration with Atty. Alverez until he and Atty. Alvarez
that the former will pay the latter attorney's fees when a final secured the decision directing petitioner's reinstatement with
decision shall have been rendered in favor of the petitioner back salaries, which legal services were undisputedly accepted
reinstating him to -his former position in the Central Bank and by, and benefited petitioner.
paying his back salaries. Moreover, there is no reason to doubt respondent David's

assertion that Don Rafael Corpus, the late father of petitioner that he was liable to pay attorney's fees to respondent David
Corpus, requested respondent to help his son, whose suit for which is therefore inconsistent with his position that the services
reinstatement was dismissed by the lower court; that pursuant to of respondent David were gratuitous, which did not entitle said
such request, respondent conferred in his office with petitioner, respondent to compensation.
who requested respondent to handle the case as his lawyer, Atty. It may be advanced that respondent David may be faulted for not
Alvarez, was already disenchanted and wanted to give up the reducing the agreement for attorney's fees with petitioner
case; and that respondent agreed on the case. It would have been Corpus in writing. However, this should be viewed from their
unethical for respondent to even offer his services when special relationship. It appears that both have been friends for
petitioner had a competent counsel in the person of Atty. Alvarez, several years and were co-members of the Civil Liberties Union.
who has been teaching political, constitutional and In addition, respondent David and petitioner's father, the late
administrative law for over twenty years. Rafael Corpus, were also close friends. Thus, the absence of an
Likewise, it appears that after the Supreme Court affirmed on express contract for attorney's fees between respondent David
March 31, 1965 the order of the lower court reinstating and petitioner Corpus is no argument against the payment of
petitioner Corpus with back salaries and awarding attorney's attorney's fees, considering their close relationship which
fees of P5,000.00, respondent David made a written demand on signifies mutual trust and confidence between them.
April 19, 1965 upon petitioner Corpus for the payment of his II
attorney's fees in an amount equivalent to 50% of what was paid Moreover, the payment of attorney's fees to respondent David
as back salaries (Exh. N p. 75, Folder of Exhibits, Civil Case No. may also be justified by virtue of the innominate contract of facio
61802). Petitioner Corpus, in his reply dated May 7, 1965 to the ut des (I do and you give which is based on the principle that "no
aforesaid written demand, while disagreeing as to the amount of one shall unjustly enrich himself at the expense of another."
attorney's fees demanded, did not categorically deny the right of innominate contracts have been elevated to a codal provision in
respondent David to attorney's fees but on the contrary gave the the New Civil Code by providing under Article 1307 that such
latter the amount of P2,500.00, which is one-half () of the contracts shall be regulated by the stipulations of the parties, by
court-awarded attorney's fees of P5,000.00, thus impliedly the general provisions or principles of obligations and contracts,
admitting the right of respondent David to attorney's fees (Exh. by the rules governing the most analogous nominate contracts,
K, p. 57, Folder of Exhibits, Civil Case No. 61802). and by the customs of the people. The rationale of this article was
It is further shown by the records that in the motion filed on stated in the 1903 case of Perez vs. Pomar (2 Phil. 982). In that
March 5, 1975 by petitioner Corpus before the Court of Appeals case, the Court sustained the claim of plaintiff Perez for payment
for the reconsideration of its decision the order of the lower of services rendered against defendant Pomar despite the
court granting P30,000.00 attorney's fee's to respondent David, absence of an express contract to that effect, thus:
he admitted that he was the first to acknowledge that respondent It does not appear that any written contract was entered into
David was entitled to tion for legal services rendered when he between the parties for the employment of the plaintiff as
sent the chock for P2,000.00 in his letter of April 18, 1962, and he interpreter, or that any other innominate contract was entered
is still to compensate the respondent but only to the extent of into but
P10,000.00 (p. 44, rec.). This admission serves only to further whethertheplaintiffsservicesweresolicitedorwhethertheywereoff
emphasize the fact that petitioner Corpus was aware all the time ered to the defendant for his assistance, inasmuch as these

services were accepted and made use of by the latter, we must therefor. Thus, "an attorney is not entitled to a percentage of the
consider that there was a tacit and mutual consent as to the amount recovered by his client in the absence of an express
rendition of the services. This gives rise to the obligation upon contract to that effect" (7 C.J.S. 1063 citing Thurston v. Travelers
the person benefited by the services to make compensation Ins. Co., 258 N.W. 66, 128 Neb. 141).
therefor, since the bilateral obligation to render service as Where services were rendered without any agreement whatever
interpreter, on the one hand, and on the other to pay for the as to the amount or terms of compensation, the attorney is not
service rendered, is thereby incurred. (Arts. 1088, 1089, and acting under a contract for a contingent fee, and a letter by the
1262 of the Civil Code). attorney to the client stating that a certain sum would be a
x x x x x x x x x reasonable amount to charge for his services and adding that a
... Whether the service was solicited or offered, the fact remains rate of not less than five percent nor more than ten would be
that Perez rendered to Pomar services as interpreter. As it does reasonable and customary does not convert the original
not appear that he did this gratuitously, the duty is imposed upon agreement into a contract for a contingent fee (7 C.J.S. 1063 citing
the defendant, he having accepted the benefit of the service, to Fleming v. Phinizy 134 S.E. 814).
pay a just compensation therefor, by virtue of the innominate While there was no express contract between the parties for the
contract of facio ut des implicitly established. payment of attorney's fees, the fact remains that respondent
x x x x x x x x x David rendered legal services to petitioner Corpus and therefore
... because it is a well-known principle of law that no one should as aforestated, is entitled to compensation under the innominate
permitted to enrich himself to the damage of another" (emphasis contract of facio lit des And such being the case, respondent
supplied; see also Tolentino, Civil Code of the Philippines, p. 388, David is entitled to a reasonable compensation.
Vol. IV 119621, citing Estate of Reguera vs. Tandra 81 Phil. 404 IV
[1948]; Arroyo vs. Azur 76 Phil. 493119461; and Perez vs. In determining a reasonable fee to be paid to respondent David
Pomar. 2 Phil. 682 [1903]). as compensation for his services, on a quantum meruit basis, it is
WE reiterated this rule in Pacific Merchandising Corp. vs. proper to consider all the facts and circumstances obtaining in
Consolacion Insurance & Surety Co., Inc. (73 SCRA 564 [1976]) this case particularly the following:
citing the case of Perez v. Pomar, supra thus: The extent of the services rendered by respondent David should
Where one has rendered services to another, and these services be considered together with the extent of the services of
are accepted by the latter, in the absence of proof that the service Petitioner's other counsel, Atty. Rosauro Alvarez, It is undisputed
was rendered gratuitously, it is but just that he should pay a that Atty. Rosauro Alvarez had rendered legal services as
reasonable remuneration therefor because 'it is a well-known principal counsel for more shall six (6) years while respondent
principle of law, that no one should be permitted to enrich David has rendered legal services as collaborating counsel for
himself to the damage of another (emphasis supplied). almost four (4) years. It appears that Atty. Alvarez started to
Likewise, under American law, the same rule obtains (7 CJS 1079; render legal services after the administrative case was filed on
FL Still & Co. v. Powell, 114 So 375). March 7, 1958 against petitioner Corpus. He represented
III petitioner Corpus in the hearing of said case which was
There was no contract for contingent fee between Corpus and conducted from May 5, 1958 to October 8, 1958, involving 56
respondent David. Contingent fees depend on an express contract sessions, and this resulted in the complete exoneration by the

Investigating Committee of all the charges against the petitioner. again prepared and signed for Atty. Alvarez and himself, the
It appears further that after the Monetary Board, in its resolution necessary pleadings, including two appeal briefs. And in addition,
of July 20, 1959, declared petitioner Corpus as being considered he made oral arguments in the hearings of motions filed in the
resigned from the service, Atty. Alvarez instituted on August 18, lower court before the records of the case were forwarded to the
1958 Civil Case No. 41126 in the Court of First Instance of Manila appellate court. Furthermore, while it appears that it was Atty.
for the setting aside of the aforestated resolution and for the Alvarez who laid down the basic theory and foundation of the
reinstatement of petitioner Corpus. Atty. Alvarez actively case of petitioner Corpus in the administrative case and later in
participated in the proceedings. the civil case, respondent David also advanced legal propositions.
On the other hand, respondent David entered his appearance as Petitioner Corpus contends that said legal propositions were
counsel for petitioner Corpus sometime after the dismissal on invariably rejected by the courts. This is, however, of no moment
June 14, 1960 of the aforesaid civil case. From the time he because the fact remains that respondent David faithfully
entered his appearance, both he and Atty. Alvarez rendered legal rendered legal services for the success of petitioner's case.
services to petitioner Corpus in connection with the appeals of The benefits secured for petitioner Corpus may also be
the aforementioned civil case to the Court of Appeals and to the considered in ascertaining what should be the compensation of
Supreme Court. The records disclose that in connection with the respondent David. It cannot be denied that both Atty. Alvarez and
appeal from the June 14, 1960 order of dismissal, respondent respondent David were instrumental in obtaining substantial
David prepared and signed pleadings although the same were benefits for petitioner Corpus which consisted primarily of his
made for and on behalf of Atty. Alvarez and himself And it is not reinstatement, recovery of back salaries and the vindication of
far-fetched to conclude that all appearances were made by both his honor and reputation. But, note should also be taken of the
counsels considering that Atty. Alverez was the principal counsel fact that respondent David came at the crucial stage when the
and respondent David was the collaborating counsel. Thus, when case of petitioner Corpus was dismissed by the lower court.
the case was called for oral argument on April 20, 1961 before Atty. Rosauro Alvarez admittedly was paid by petitioner Corpus
the Supreme Court, respondent David and Atty. Alverez appeared the sum of P20,000.00 or at most P22,500.00 (T.s.n., Jan. 11,
for petitioner Corpus although it was David who orally argued 1967, pp. 34-35; T.s.n., Feb. 10, 1967, pp. 48-49). On the other
the case. hand, petitioner Corpus, after WE suggested on August 15, 1975
When the Supreme Court, in its decision of March 30, 1962, that they settle the case amicably has, in his September 15, 1975
remanded the case to the lower court for further it was Atty. pleading filed before this Court (p. 166, rec.), manifested his
Alverez who conducted the presentation of evidence while willingness to pay P10,000.00 for the services of respondent
respondent David assisted him The records also review that David. However, respondent David has not manifested his
respondent David prepared and signed for Atty. Alverez and intention to accept the offer.
himself. certain pleadings, including a memorandum. Moreover, In his complaint in the instant case, he asked for P75,000.00 as
after the lower court rendered judgment on June 2 4, 1963 his attorney's fees. The records reveal that petitioner Corpus
ordering the reinstatement and payment of back salaries to actually received only P150,158.50 as back salaries and
petitioner Corpus and awarding him P5,000.00 by way of emoluments after deducting taxes as well as retirement and life
attorney's fees, both petitioner Corpus and the respondents in insurance premiums due to the GSIS. The amount thus claimed by
said case appealed the judgment. At that stage, respondent David respondent David represents 50% of the amount actually

received by petitioner Corpus. The lower court, however, maintained by rendering no service involving any disrespect to
awarded only P30,000.00 and it was affirmed by the Court of the judicial office which he is bound to uphold'" (Rheem of the
Appeals. Philippines v. Ferrer, 20 SCRA 441, 444 [1967] citing the case of
Considering the aforestated circumstances, WE are of the opinion Lualhati v. Albert, 67 Phil. 86, 92 [1932]).
that the reasonable compensation of respondent David should be Moreover, this Court takes judicial notice of the fact that herein
P20,000.00. respondent David, in the previous case of Integrated
V Construction Services, Inc. and Engineering Construction, Inc. v.
WE find private respondent Juan T. David and Judge Jose H. Relova (65 SCRA 638 [1975]), had sent letters addressed to the
Tecson, Presiding Judge of the Court of First Instance of Manila, then Chief Justice Querube C. Makalintal and later to the late Chief
Branch V, guilty of contempt of court. Justice Fred Ruiz Castro, requesting for the issuance of
Respondent David filed on or about September 13, 1978 a motion certification on the basis of the aforementioned provision of the
with the court a quo for the issuance of a writ of execution to New Constitution which were not given due consideration. And
enforce its decision in Civil Case No 61802, subject of the present knowing this, respondent David should have been more prudent
petition, knowing fully well that it was then still pending appeal and cautious in g with the court a quo any motion for execution.
before this Court. In addition, no certification that the aforesaid Furthermore, there was even a taint of arrogance and defiance on
decision is already deemed affirmed had as yet been issued by the part of respondent David in not filing his comment to the
the Chief Justice pursuant to Section 11, paragraph 2, Article X of letter- complaint dated October 18, 1978 of petitioner Corpus, as
the New Constitution; because respondent David's petitions filed required by this Court in its November 3, 1978 and December
with the Supreme Court on January 31, 1978 and on July 7, 1978 4,1978 resolutions which were duly received by him, and instead,
to remand the case to the trial court for execution and for the he sent on December 13, 1978 a letter requesting to be excused
issuance of such certification had not yet been acted upon as the from the filing of his comment on the lame excuse that
same were still pending consideration by this Court. In fact, this petitioner's letter-complaint was not verified.
Court has not as of this time made any pronouncement on the On the part of Judge Jose H. Tecson, his presumptuous and
aforesaid provision of the New Constitution. precipitate act of granting the motion for execution of dent David
This act of respondent David constitutes disrespect to, as well as likewise constitutes disrespect to, as well as of, the authority of
disregard of, the authority of this Court as the final arbiter of all this Court because he know for a that the case was still pending
cases duly appealed to it, especially constitutional questions. It apply as the had not yet been remanded to it and that no
must be emphasized that as a member of the Philippine Bar he is certification has been issued by this Court. As a judicial officer,
required "to observe and maintain the respect due to the court of Judge Tecson is charged with the knowledge of the fact that this
justice and judicial officers" (Section 20 (b), 138 of the Revised Court has yet to make a definite pronouncement on Section 11,
Rules of Court). Likewise, Canon 1 of. the Canons of Professional paragraph 2, Article X of the New Constitution. Judge Tecson
Ethic expressly provide that: "It is the duty of the lawyer to should know that only the Supreme Court can authoritatively
maintain towards the Courts a respectful attitude, not for the interpret Section 11 (2) of Article X of the 1973 Constitution. Yet,
sake of the temporary incumbent of the judgement office, but for Judge Tecson assumed the role of the Highest Court of the Land.
the maintenance of its supreme importance." And this Court had He should be reminded of what Justice Laurel speaking for the
stressed that "the duty of an attorney to the courts 'can only be Court, has said in People v. Vera (65 Phil 56, 82 [1937]):

A becoming modesty of inferior courts demands conscious HEREBY REPRIMANDED, WITH A WARNING THAT REPETITION
realization of the position that they occupy in the interrelation TION OF THE SAME OR SIMILAR ACTS WILL BE DEALT WITH
and operation of the integrated judged system of the nation. MORE SEVERELY.
It may also be added that the improvident act of respondent COSTS AGAINST PETITIONER.
David in firing the motion for execution and the precipitate act of SO ORDERED.
Judge Tecson in issuing the writ of execution are intriguing as Teehankee (Chairman), Fernandez and Melencio-Herrera, JJ.,
they invite suspicion that there was connivance between the two. concur.
Respondent David would seem to imply that his claim for De Castro, J., concurs in the result.
attorney's fees should be given preference over the other cams Guerrero, J., is on leave.
now pending in this Court. Certainly, such should not be the case
because there are cases which by their nature require immediate
or preferential attention by this Tribunal like habeas corpus
cases, labor cases and c cases involving death sentence, let alone
cases involving properties and property rights of poor litigants
pending decision or resolution long before the New Constitution 115. G.R. No. 192099 July 8, 2015
of 1973. Nobility and exempt forbearance were expected of Atty.
David, who is old and experienced in the practice of the legal PAULINO M. EJERCITO, JESSIE M. EJERCITO and
profession, from which he has derived a great measure. of JOHNNY D. CHANG, Petitioners,
economic well-being and independence vs.
Consequently, the filing of the motion for immediate tion and the ORIENTAL ASSURANCE CORPORATION, Respondent.
issuance of the writ of execution constitute a defiance and
usurpation of the jurisdiction of the Supreme Court. As a D E C I S I O N
disciplinary measure for the preservation and vindication of the
dignity of this Supreme Tribunal respondent Atty. Juan T. David SERENO, CJ:
should be REPRIMANDED for his precipitate action of filing a
motion for execution as well as Judge Jose H. Tecson for his This is a Petition for Review on Certiorari1 filed by Paulino M.
improvident issuance of a writ of execution while the case is Ejercity, Jessie M. Ejercito and Johnny D. Chang (petitioners)
pending appeal before the Supreme Court, and a repetition of under Rule 45 of the 1997 Rules of Civil Procedure assailing the
said acts would be dealt with more severely. Court of Appeals (CA) Decision dated 2 October 20092 and
WHEREFORE, PETITIONER R. MARINO CORPUS IS HEREBY Resolution date 14 April 20103 in CA-G.R. CV No. 90828. The
DIRECTED TO PAY RESPONDENT ATTY. JUAN T. DAVID THE Special Third Division of the CA reversed and set aside the
SUM OF TWENTY THOUSAND (P20,000.00) PESOS AS Regional Trial Court (RTC) Decision in Civil Case No. 01-101999:
ATTORNEY'S FEES.
RESPONDENT ATTY. JUAN T. DAVID AND JUDGE JOSE H. TECSON WHEREFORE, premises considered, the present appeal is hereby
OF THE COURT OF FIRST INSTANCE OF MANILA, BRANCH V, GRANTED. THE Decision dated February 2, 2007 of the Regional
ARE HEREBY DECLARED GUILTY OF CONTEMPT AND ARE

Trial Court of Manila, Branch 36 in Civil Case No. 01-101999 is amounting to 15,024.54 was paid by the insured corporation
hereby SET ASIDE. under Official Receipt No. 100262.
A new judgment is hereby entered ordering the defendants FFV Travel & Tours, Inc. has been declared in default for failure
appellees Merissa C Somes, Paulino M. Ejercito, Jessie M. Ejercito to pay its obligations amounting 5,484,086.97 and USD 18,760.98
and Johnny D. Chang jointly and severally liable to pay plaintiff- as of 31 July 2000. Consequently, IATA demanded payment of the
appellant Oriental Assurance Corporation the following sums: bond, and respondent heeded the demand on 28 November 2000
as evidenced by China Bank Check No. 104949. IATA executed a
1. The principal amount of P3,000,000.00 with interest at Release of Claim on 29 November 2000 acknowledging payment
the rate of 12% per annum from the time of the filing of of the surety bond.
the complaint until the same shall have been fully paid:
Respondent sent demand letters to petitioners and Somes for
2. Attorneys fees in the amount of P30,000.00; and reimbursement of the 3 million pursuant to the indemnity
agreement.1wphi1 For their failure to reimburse respondent,
3. Costs of suit. the latter filed a collection suit.
SO ORDERED THE RTC RULING
THE FACTS After trial, the RTC rendered a Decision dismissing the complaint
against petitioners of lack of merit and pronouncing Somes liable
The facts of the case, as found by the CA, are as follows: to pay the amount of 3 million and interest per annum at the rate
of 12% of the principal obligation from the date the complaint
On 10 May 1999, respondent Oriental Assurance Corporation, was filed up to the date the obligation would have been fully paid.
through its Executive Vice President Luz N. Cotoco issued a
Surety Bond in favor of FFV Travel & Tours, Inc. (Company). The The RTC found that there was no written agreement to show the
bond was intended to guarantee the Companys payment of intention of petitioners to renew the Deed of Indemnity. The
airline tickets purchased on credit from participating members of absence thereof was evidenced by the nonappearance of any
International Air Transport Association (IATA) to the extent of signature on the Renewal Notice, which was not signed by Somes.
3million. However, she was held liable to pay the surety value of the cost of
tickets as she had paid the premium for the renewal of the Surety
On the same day, petitioners and Merissa C. Somes (Somes) Bond and used the renewed bond by submitting it to IATA.
executed a Deed of Indemnity in favor of respondent. The Surety
Bond was effective for one year from its issuance until 10 May THE CA RULING
2000. It was renewed for another year, from 10 May 2000 to 10
May 2001, as shown in Bond Endorsement No. OAC-2000/0145 The CA reversed the finding of the RTC and ruled that petitioners
dated 17 April 2000. The corresponding renewal premium could not escape liability as they had authorized respondent to

grant any renewals or extensions pursuant to the indemnity The deed of indemnity contains the following stipulations:
agreement. The Deed of Indemnity contained a stipulation that
the signatories (petitioners) were authorizing the Company INDEMNITY: To indemnify the COMPANY for any damages,
(respondent) to grant or consent to the grant of any extension, payments, advances, prejudices, loss, costs and expenses of
continuation, increase, modification, change or alteration, and/or whatever kind and nature, including counsel or attorneys fees,
renewal of the original bond. Petitioners voluntarily signed the which the company may at any time sustain or incur as a
agreement and, are educated persons (Paulino, being a lawyer), consequence of having executed the above mentioned Bond, it
so they could not have misunderstood the legal effects of the renewals, extensions modifications or substitutions and said
undertaking they had signed. attorneys fees shall not be less than fifteen (15%) per cent of the
amount claimed by the company in each action, the same to be
ISSUES due and payable irrespective of whether the case is settle
judicially or extrajudicially.
Petitioners raise the following issues:
Xxxx
Whether or not the Honorable Court of Appeals erred in ruling
that petitioners are liable to indemnify the respondent under the MATURITY OF OUR OBLIGATIONS AS CONTRACTED HEREWITH:
deed of indemnity considering that petitioners did not give their - the said indemnities will be paid to the COMPANY as soon as
consent to be bound thereby beyond the one (1) year effectivity demand is received from the creditor or as soon as it becomes
period of the original surety bond. liable to make payment of any sum under the terms of the above-
mentioned Bond, its renewals. Extension, modifications or
Whether or not the Honorable Court of Appeal erred in ruling substitutions whether the said sum or sums or par thereof have
that petitioners are liable to pay the respondent attorneys fees been actually paid or not. We authorize the COMPANY to accept
considering that petitioners did not breach their obligation under in any case and at its entire discretion, from any of us, payment
the deed of indemnity to indemnify the respondent during the on account of the pending obligation, and to grant extensions to
one (1) year effectivity period of the original surety bond.5 any of us, to liquidate said obligations, without necessity of
pervious knowledge or consent from the obligors.
THE COURTS RULING
X x x x
We find no merit in the Petition.
INCONTESTABILITY OF PAYMENTS MADE BY THE COMPANY:
The contract of indemnity is the law between the parties.6 it is a
cardinal rule in the interpretation of a contract that if its terms Any payment or disbursement made by the COMPANY on
are clear and leave no doubt on the intention of the contracting account of the above mentioned Bond, its renewals, extensions,
parties, the literal meaning of its stipulation shall control.7 the CA modifications or substitutions either in the belief that the
aptly found provisions in the contract that could not exonerate Company was obligated to make such payment or in the belief
petitioners from their liability. that the company was obligated to make such payment or in the

belief that said payment was necessary in order to avoid greater The intention of Somes to renew the bond cannot be denied, as
losses or obligation for which the company might be liable by she paid the renewal premium and even submitted the renewed
virtue of the terms of the above mentioned Bond, its renewals, bond to IATA.9
extensions, modifications or substitutions shall be final and will
not be disputed by the undersigned who jointly and severally The claim of petitioners that they only consented to the one-year
bind themselves to indemnify the COMPANY of any and all such validity of the surety bond must be directed against Somes in a
payments as stated in the preceding clauses. separate action.1awp++i1 She allegedly convinced them that the
bond was valid for on year only. The allegation of petitioners is
WAIVER: -- the undersigned hereby waive all the rights, an agreement outside of the contract. In other words, respondent
privileges, and benefits that they have or may have under Articles is not privy to the alleged agreement between Somes and
2077, 2078, 2079, 2080 and 2081 of the Civil Code. petitioners. For respondent, there was a valid indemnity
agreement executed by the parties, and contained a proviso that
RENEWALS ALTERATIONS AND SUBSTITUTIONS: - the became the basis for the authority to renew the original bond.
undersigned hereby empower and authorize the company to
grant or consent to the granting of any extension continuation With regard to the contention that the Deed of Indemnity is a
increase modifications change alteration and/or renewal of the contract of adhesion, the Court has consistently held that
original bond herein referred to and to execute or consent to the contracts of adhesion are not invalid per se and that their binding
execution of any substitution for said bond with the same or effects have been upheld on numerous occasions.10 the
different conditions and parties and the undersigned hereby hold pretension that petitioners did not consent to the renewal of the
themselves jointly and severally liable to the company for the bond is belied by the fact that the terms of the contract which
original bond hereinabove mentioned or for any extension, they voluntarily entered into contained a clause granting
continuation, increase, modification, change, alteration, renewal authority to the Company to grant or consent to the renewal of
or substitution thereof until the full amount including principal the bond. Having entered into the contract with full knowledge of
interests premiums costs and other expenses due to the company its terms and conditions, petitioners are stopped from asserting
thereunder is fully paid up8 that they did so under the ignorance of the legal effect of the
contract or the undertaking.
Clearly, as far as respondent is concerned, petitioners have
expressly bound themselves to the contract, which provides for It is true that on some occasions, the Court has struck down such
the term granting authority to the company to renew the original contract as void when the weaker party is imposed upon in
bond. The terms of the contract are clear, explicit and dealing with the dominant party is reduced to the alternative of
unequivocal. Therefore, the subsequent acts of the Company, accepting the contract or leaving it, completely deprived of the
through Somes, the led to the renewal of the surety bond are opportunity to bargain on equal footing.13 this reasoning cannot
binding on petitioners as well. be used in the instant case. One of the petitioners, Paulino M.
Ejercito, is a lawyer who cannot feign ignorance of the legal effect
of his undertaking. Petitioners could have easily inserted a

remark in the clause granting authority to the Company to renew 1989, petitioner Daisy B. Tiu was its Division Marketing Director.
the original bond, if the renewal thereof was their intention. On January 1, 1993, respondent re-hired petitioner as Senior
Assistant Vice-President and Territorial Operations Head in
The rule that ignorance of the contents of an instrument does not charge of its Hongkong and Asean operations. The parties
ordinarily affect the liability of the one who signs it12 may also be executed a contract of employment valid for five years.4
applied to this Indemnity Agreement. And the mistake of On September 16, 1995, petitioner stopped reporting for work. In
petitioners as to the legal effect of their obligation is ordinarily no November 1995, she became the Vice-President for Sales of
reason for relieving them of liability.13 Professional Pension Plans, Inc., a corporation engaged also in
the pre-need industry.
WHEREFORE, premises considered the Petition is DENIED. The Consequently, respondent sued petitioner for damages before the
Court or Appeals Decision dated 2 October 2009 and Resolution RTC of Pasig City, Branch 261. Respondent alleged, among others,
dated 14 April 2010 in CA-G.R. CV No. 90828 are AFFIRMED. that petitioners employment with Professional Pension Plans,
Inc. violated the non-involvement clause in her contract of
SO ORDERED. employment, to wit:
8. NON INVOLVEMENT PROVISION The EMPLOYEE further
undertakes that during his/her engagement with EMPLOYER and
in case of separation from the Company, whether voluntary or for
cause, he/she shall not, for the next TWO (2) years thereafter,
engage in or be involved with any corporation, association or
116. G.R. No. 163512 February 28, 2007 entity, whether directly or indirectly, engaged in the same
DAISY B. TIU, Petitioner business or belonging to the same pre-need industry as the
vs. EMPLOYER. Any breach of the foregoing provision shall render
PLATINUM PLANS PHIL., INC., Respondent. the EMPLOYEE liable to the EMPLOYER in the amount of One
D E C I S I O N Hundred Thousand Pesos (P100,000.00) for and as liquidated
damages.5
QUISUMBING, J.: Respondent thus prayed for P100,000 as compensatory damages;
For review on certiorari are the Decision1 dated January 20, 2004 P200,000 as moral damages; P100,000 as exemplary damages;
of the Court of Appeals in CA-G.R. CV No. 74972, and its and 25% of the total amount due plus P1,000 per counsels court
Resolution2 dated May 4, 2004 denying reconsideration. The appearance, as attorneys fees.
Court of Appeals had affirmed the decision3 dated February 28, Petitioner countered that the non-involvement clause was
2002 of the Regional Trial Court (RTC) of Pasig City, Branch 261, unenforceable for being against public order or public policy:
in an action for damages, ordering petitioner to pay respondent First, the restraint imposed was much greater than what was
P100,000 as liquidated damages. necessary to afford respondent a fair and reasonable protection.
The relevant facts are as follows: Petitioner contended that the transfer to a rival company was an
Respondent Platinum Plans Philippines, Inc. is a domestic accepted practice in the pre-need industry. Since the products
corporation engaged in the pre-need industry. From 1987 to sold by the companies were more or less the same, there was

nothing peculiar or unique to protect. Second, respondent did not CLAUSE IN PETITIONERS CONTRACT CONSIDERING THAT THE
invest in petitioners training or improvement. At the time PERIOD FIXED THEREIN IS VOID FOR BEING OFFENSIVE TO
petitioner was recruited, she already possessed the knowledge PUBLIC POLICY
and expertise required in the pre-need industry and respondent B.
benefited tremendously from it. Third, a strict application of the [IT SUSTAINED] THE AWARD OF LIQUIDATED DAMAGES
non-involvement clause would amount to a deprivation of CONSIDERING THAT IT BEING IN THE NATURE OF A PENALTY
petitioners right to engage in the only work she knew. THE SAME IS EXCESSIVE, INIQUITOUS OR UNCONSCIONABLE7
In upholding the validity of the non-involvement clause, the trial Plainly stated, the core issue is whether the non-involvement
court ruled that a contract in restraint of trade is valid provided clause is valid.
that there is a limitation upon either time or place. In the case of Petitioner avers that the non-involvement clause is offensive to
the pre-need industry, the trial court found the two-year public policy since the restraint imposed is much greater than
restriction to be valid and reasonable. The dispositive portion of what is necessary to afford respondent a fair and reasonable
the decision reads: protection. She adds that since the products sold in the pre-need
WHEREFORE, judgment is hereby rendered in favor of the industry are more or less the same, the transfer to a rival
plaintiff and against the defendant, ordering the latter to pay the company is acceptable. Petitioner also points out that respondent
following: did not invest in her training or improvement. At the time she
1. the amount of One Hundred Thousand Pesos (P100,000.00) for joined respondent, she already had the knowledge and expertise
and as damages, for the breach of the non-involvement provision required in the pre-need industry. Finally, petitioner argues that
(Item No. 8) of the contract of employment; a strict application of the non-involvement clause would deprive
2. costs of suit. her of the right to engage in the only work she knows.
There being no sufficient evidence presented to sustain the grant Respondent counters that the validity of a non-involvement
of attorneys fees, the Court deems it proper not to award any. clause has been sustained by the Supreme Court in a long line of
SO ORDERED.6 cases. It contends that the inclusion of the two-year non-
On appeal, the Court of Appeals affirmed the trial courts ruling. It involvement clause in petitioners contract of employment was
reasoned that petitioner entered into the contract on her own reasonable and needed since her job gave her access to the
will and volition. Thus, she bound herself to fulfill not only what companys confidential marketing strategies. Respondent adds
was expressly stipulated in the contract, but also all its that the non-involvement clause merely enjoined her from
consequences that were not against good faith, usage, and law. engaging in pre-need business akin to respondents within two
The appellate court also ruled that the stipulation prohibiting years from petitioners separation from respondent. She had not
non-employment for two years was valid and enforceable been prohibited from marketing other service plans.
considering the nature of respondents business. As early as 1916, we already had the occasion to discuss the
Petitioner moved for reconsideration but was denied. Hence, this validity of a non-involvement clause. In Ferrazzini v. Gsell,8 we
appeal by certiorari where petitioner alleges that the Court of said that such clause was unreasonable restraint of trade and
Appeals erred when: therefore against public policy. In Ferrazzini, the employee was
A. prohibited from engaging in any business or occupation in the
[IT SUSTAINED] THE VALIDITY OF THE NON-INVOLVEMENT Philippines for a period of five years after the termination of his

employment contract and must first get the written permission of only for one year after the termination of the agents contract and
his employer if he were to do so. The Court ruled that while the was therefore a reasonable restriction designed to prevent acts
stipulation was indeed limited as to time and space, it was not prejudicial to the employer.
limited as to trade. Such prohibition, in effect, forces an employee Conformably then with the aforementioned pronouncements, a
to leave the Philippines to work should his employer refuse to non-involvement clause is not necessarily void for being in
give a written permission. restraint of trade as long as there are reasonable limitations as to
In G. Martini, Ltd. v. Glaiserman,9 we also declared a similar time, trade, and place.
stipulation as void for being an unreasonable restraint of trade. In this case, the non-involvement clause has a time limit: two
There, the employee was prohibited from engaging in any years from the time petitioners employment with respondent
business similar to that of his employer for a period of one year. ends. It is also limited as to trade, since it only prohibits
Since the employee was employed only in connection with the petitioner from engaging in any pre-need business akin to
purchase and export of abaca, among the many businesses of the respondents.1awphi1.net
employer, the Court considered the restraint too broad since it More significantly, since petitioner was the Senior Assistant Vice-
effectively prevented the employee from working in any other President and Territorial Operations Head in charge of
business similar to his employer even if his employment was respondents Hongkong and Asean operations, she had been
limited only to one of its multifarious business activities. privy to confidential and highly sensitive marketing strategies of
However, in Del Castillo v. Richmond,10 we upheld a similar respondents business. To allow her to engage in a rival business
stipulation as legal, reasonable, and not contrary to public policy. soon after she leaves would make respondents trade secrets
In the said case, the employee was restricted from opening, vulnerable especially in a highly competitive marketing
owning or having any connection with any other drugstore environment. In sum, we find the non-involvement clause not
within a radius of four miles from the employers place of contrary to public welfare and not greater than is necessary to
business during the time the employer was operating his afford a fair and reasonable protection to respondent.13
drugstore. We said that a contract in restraint of trade is valid In any event, Article 1306 of the Civil Code provides that parties
provided there is a limitation upon either time or place and the to a contract may establish such stipulations, clauses, terms and
restraint upon one party is not greater than the protection the conditions as they may deem convenient, provided they are not
other party requires. contrary to law, morals, good customs, public order, or public
Finally, in Consulta v. Court of Appeals,11 we considered a non- policy.
involvement clause in accordance with Article 130612 of the Civil Article 115914 of the same Code also provides that obligations
Code. While the complainant in that case was an independent arising from contracts have the force of law between the
agent and not an employee, she was prohibited for one year from contracting parties and should be complied with in good faith.
engaging directly or indirectly in activities of other companies Courts cannot stipulate for the parties nor amend their
that compete with the business of her principal. We noted therein agreement where the same does not contravene law, morals,
that the restriction did not prohibit the agent from engaging in good customs, public order or public policy, for to do so would be
any other business, or from being connected with any other to alter the real intent of the parties, and would run contrary to
company, for as long as the business or company did not compete the function of the courts to give force and effect thereto.15 Not
with the principals business. Further, the prohibition applied being contrary to public policy, the non-involvement clause,

which petitioner and respondent freely agreed upon, has the 1948-1949 took up preparatory law course in the defendant
force of law between them, and thus, should be complied with in University. After finishing his preparatory law course plaintiff
good faith.16 enrolled in the College of Law of the defendant from the school
Thus, as held by the trial court and the Court of Appeals, year 1948-1949. Plaintiff finished his law studies in the
petitioner is bound to pay respondent P100,000 as liquidated defendant university up to and including the first semester of the
damages. While we have equitably reduced liquidated damages fourth year. During all the school years in which plaintiff was
in certain cases,17 we cannot do so in this case, since it appears studying law in defendant law college, Francisco R. Capistrano,
that even from the start, petitioner had not shown the least brother of the mother of plaintiff, was the dean of the College of
intention to fulfill the non-involvement clause in good faith. Law and legal counsel of the defendant university. Plaintiff
WHEREFORE, the petition is DENIED for lack of merit. The enrolled for the last semester of his law studies in the defendant
Decision dated January 20, 2004, and the Resolution dated May 4, university but failed to pay his tuition fees because his uncle
2004, of the Court of Appeals in CA-G.R. CV No. 74972, are Dean Francisco R. Capistrano having severed his connection with
AFFIRMED. Costs against petitioner. defendant and having accepted the deanship and chancellorship
SO ORDERED. of the College of Law of Abad Santos University, plaintiff left the
defendant's law college and enrolled for the last semester of his
fourth year law in the college of law of the Abad Santos
University graduating from the college of law of the latter
university. Plaintiff, during all the time he was studying law in
117. G.R. No. L-15127 May 30, 1961 defendant university was awarded scholarship grants, for
EMETERIO CUI, plaintiff-appellant, scholastic merit, so that his semestral tuition fees were returned
vs. to him after the ends of semester and when his scholarship
ARELLANO UNIVERSITY, defendant-appellee. grants were awarded to him. The whole amount of tuition fees
G.A.S. Sipin, Jr., for plaintiff-appellant.E. Voltaire Garcia for paid by plaintiff to defendant and refunded to him by the latter
defendant-appellee. from the first semester up to and including the first semester of
his last year in the college of law or the fourth year, is in total
CONCEPCION, J.: P1,033.87. After graduating in law from Abad Santos University
Appeal by plaintiff Emeterio Cui from a decision of the Court of he applied to take the bar examination. To secure permission to
First Instance of Manila, absolving defendant Arellano University take the bar he needed the transcripts of his records in defendant
from plaintiff's complaint, with costs against the plaintiff, and Arellano University. Plaintiff petitioned the latter to issue to him
dismissing defendant's counter claim, for insufficiency of proof the needed transcripts. The defendant refused until after he had
thereon. paid back the P1,033 87 which defendant refunded to him as
In the language of the decision appealed from: above stated. As he could not take the bar examination without
The essential facts of this case are short and undisputed. As those transcripts, plaintiff paid to defendant the said sum under
established by the agreement of facts Exhibits X and by the protest. This is the sum which plaintiff seeks to recover from
respective oral and documentary evidence introduced by the defendant in this case.
parties, it appears conclusive that plaintiff, before the school year Before defendant awarded to plaintiff the scholarship grants as

above stated, he was made to sign the following contract issue on his right to secure the transcript of his record in
covenant and agreement: defendant University, without being required to refund the sum
"In consideration of the scholarship granted to me by the of P1,033.87; that the Bureau of Private Schools upheld the
University, I hereby waive my right to transfer to another school position taken by the plaintiff and so advised the defendant; and
without having refunded to the University (defendant) the that, this notwithstanding, the latter refused to issue said
equivalent of my scholarship cash. transcript of records, unless said refund were made, and even
(Sgd.) Emeterio Cui". recommended to said Bureau that it issue a written order
It is admitted that, on August 16, 1949, the Director of Private directing the defendant to release said transcript of record, "so
Schools issued Memorandum No. 38, series of 1949, on the that the case may be presented to the court for judicial action." As
subject of "Scholarship," addressed to "All heads of private above stated, plaintiff was, accordingly, constrained to pay, and
schools, colleges and universities," reading: did pay under protest, said sum of P1,033.87, in order that he
1. School catalogs and prospectuses submitted to this, Bureau could take the bar examination in 1953. Subsequently, he
show that some schools offer full or partial scholarships to brought this action for the recovery of said amount, aside from
deserving students for excellence in scholarship or for P2,000 as moral damages, P500 as exemplary damages, P2,000 as
leadership in extra-curricular activities. Such inducements to attorney's fees, and P500 as expenses of litigation.
poor but gifted students should be encouraged. But to stipulate In its answer, defendant reiterated the stand it took, vis-a-vis the
the condition that such scholarships are good only if the students Bureau of Private Schools, namely, that the provisions of its
concerned continue in the same school nullifies the principle of contract with plaintiff are valid and binding and that the
merit in the award of these scholarships. memorandum above-referred to is null and void. It, likewise, set
2. When students are given full or partial scholarships, it is up a counterclaim for P10,000.00 as damages, and P3,000 as
understood that such scholarships are merited and earned. The attorney's fees.
amount in tuition and other fees corresponding to these The issue in this case is whether the above quoted provision of
scholarships should not be subsequently charged to the recipient the contract between plaintiff and the defendant, whereby the
students when they decide to quit school or to transfer to former waived his right to transfer to another school without
another institution. Scholarships should not be offered merely to refunding to the latter the equivalent of his scholarships in cash,
attract and keep students in a school. is valid or not. The lower court resolved this question in the
3. Several complaints have actually been received from students affirmative, upon the ground that the aforementioned
who have enjoyed scholarships, full or partial, to the effect that memorandum of the Director of Private Schools is not a law; that
they could not transfer to other schools since their credentials the provisions thereof are advisory, not mandatory in nature; and
would not be released unless they would pay the fees that, although the contractual provision "may be unethical, yet it
corresponding to the period of the scholarships. Where the was more unethical for plaintiff to quit studying with the
Bureau believes that the right of the student to transfer is being defendant without good reasons and simply because he wanted
denied on this ground, it reserves the right to authorize such to follow the example of his uncle." Moreover, defendant
transfer. maintains in its brief that the aforementioned memorandum of
that defendant herein received a copy of this memorandum; that the Director of Private Schools is null and void because said
plaintiff asked the Bureau of Private Schools to pass upon the officer had no authority to issue it, and because it had been

neither approved by the corresponding department head nor 38, s. 1949, it should have not entered into a contract of waiver
published in the official gazette. with Cui on September 10, 1951, which is a direct violation of our
We do not deem it necessary or advisable to consider as the Memorandum and an open challenge to the authority of the
lower court did, the question whether plaintiff had sufficient Director of Private Schools because the contract was repugnant
reasons or not to transfer from defendant University to the Abad to sound morality and civic honesty. And finally, in Gabriel vs.
Santos University. The nature of the issue before us, and its far Monte de Piedad, Off. Gazette Supp. Dec. 6, 1941, p. 67 we read:
reaching effects, transcend personal equations and demand a 'In order to declare a contract void as against public policy, a
determination of the case from a high impersonal plane. Neither court must find that the contract as to consideration or the thing
do we deem it essential to pass upon the validity of said to be done, contravenes some established interest of society, or is
Memorandum No. 38, for, regardless of the same, we are of the inconsistent with sound policy and good morals or tends clearly to
opinion that the stipulation in question is contrary to public undermine the security of individual rights. The policy
policy and, hence, null and void. The aforesaid memorandum enunciated in Memorandum No. 38, s. 1949 is sound policy.
merely incorporates a sound principle of public policy. As the Scholarship are awarded in recognition of merit not to keep
Director of Private Schools correctly pointed, out in his letter, outstanding students in school to bolster its prestige. In the
Exhibit B, to the defendant, understanding of that university scholarships award is a business
There is one more point that merits refutation and that is scheme designed to increase the business potential of an education
whether or not the contract entered into between Cui and institution. Thus conceived it is not only inconsistent with sound
Arellano University on September 10, 1951 was void as against policy but also good morals. But what is morals? Manresa has this
public policy. In the case of Zeigel vs. Illinois Trust and Savings definition. It is good customs; those generally accepted principles
Bank, 245 Ill. 180, 19 Ann. Case 127, the court said: 'In of morality which have received some kind of social and practical
determining a public policy of the state, courts are limited to a confirmation. The practice of awarding scholarships to attract
consideration of the Constitution, the judicial decisions, the students and keep them in school is not good customs nor has it
statutes, and the practice of government officers.' It might take received some kind of social and practical confirmation except in
more than a government bureau or office to lay down or establish some private institutions as in Arellano University. The
a public policy, as alleged in your communication, but courts University of the Philippines which implements Section 5 of
consider the practices of government officials as one of the four Article XIV of the Constitution with reference to the giving of free
factors in determining a public policy of the state. It has been scholarships to gifted children, does not require scholars to
consistently held in America that under the principles relating to reimburse the corresponding value of the scholarships if they
the doctrine of public policy, as applied to the law of contracts, transfer to other schools. So also with the leading colleges and
courts of justice will not recognize or uphold a transaction which universities of the United States after which our educational
its object, operation, or tendency is calculated to be prejudicial to practices or policies are patterned. In these institutions
the public welfare, to sound morality or to civic honesty (Ritter vs. scholarships are granted not to attract and to keep brilliant
Mutual Life Ins. Co., 169 U.S. 139; Heding vs. Gallaghere 64 L.R.A. students in school for their propaganda mine but to reward merit
811; Veazy vs. Allen, 173 N.Y. 359). If Arellano University or help gifted students in whom society has an established interest
understood clearly the real essence of scholarships and the or a first lien. (Emphasis supplied.)
motives which prompted this office to issue Memorandum No. WHEREFORE, the decision appealed from is hereby reversed and

another one shall be entered sentencing the defendant to pay to Pangasinan. Nonetheless, Sindico, in disregard of the covenant,
the plaintiff the sum of P1,033.87, with interest thereon at the filed, on September 6, 1957, her certificate of candidacy for the
legal rate from September 1, 1954, date of the institution of this same office with the Commission on Elections, and she openly
case, as well as the costs, and dismissing defendant's and actively campaigned for her election. Wherefore, on October
counterclaim. It is so ordered. 5, 1957, plaintiff Saura commenced this suit for the recovery of
Bengzon, C.J., Padilla, Labrador, Reyes, J.B.L., Barrera, Parades, damages. Upon motion of the defendant, the lower court, in its
Dizon, De Leon and Natividad, JJ., concur. order of November 19, 1957, dismissed the complaint on the
Bautista Angelo, J., reserves his vote. basis that the agreement sued upon is null and void, in tat (1) the
subject matter of the contract, being a public office, is not within
the commerce of man; and (2) the "pledge" was in curtailment of
the free exercise of elective franchise and therefore against public
policy. Hence, this appeal.
118. G.R. No. L-13403 March 23, 1960 We agree with the lower court in adjudging the contract or
RAMON E. SAURA, plaintiff-appellant, agreement in question a nullity. Among those that may not be the
vs. subject matter (object) of contracts are certain rights of
ESTELA P. SINDICO, defendant-appellee. individuals, which the law and public policy have deemed wise to
Anacleto Magno for appellant.Espeque and Jalandoni for exclude from the commerce of man. Among them are the political
appellee. rights conferred upon citizens, including, but not limited to,
once's right to vote, the right to present one's candidacy to the
REYES, J. B. L., J.: people and to be voted to public office, provided, however, that
Appeal on issues of law from an order of the Court of First all the qualifications prescribed by law obtain. Such rights may
Instance of Pangasinan dismissing plaintiff's complaint for not, therefore, be bargained away curtailed with impunity, for
damages. they are conferred not for individual or private benefit or
From the records it appears that Ramon E. Saura and Estela P. advantage but for the public good and interest.
Sindico were contesting for nomination as the official candidate Constitutional and statutory provision fix the qualifications of
of the Nacionalista Party in the fourth district of Pangasinan in persons who may be eligible for certain elective public offices.
the congressional elections of November 12, 1957. On August 23, Said requirements may neither be enlarged nor reduced by mere
1957, the parties entered into a written agreement bearing the agreements between private parties. A voter possessing all the
same date, containing among other matters stated therein, a qualifications required to fill an office may, by himself or through
pledge that a political party or group, present his candidacy without further
Each aspirant shall respect the result of the aforesaid convention, limitations than those provided by law.
i.e., no one of us shall either run as a rebel or independent Every voter has a right to be a candidate for public office if he
candidate after losing in said convention. possesses the qualifications required to fill the office. It does not
In the provincial convention held by the Nacionalista Party on necessarily follow that he can be the candidate of a particular
August 31, 1957, Saura was elected and proclaimed the Party's political party. The statute provides when and how one may be a
official congressional candidate for the aforesaid district of candidate of a political party. If he cannot fill the requirement so as

to be the candidates of the political party of his choice, he may still consideration for such a withdrawal, said agreement or
be a candidate at the general election by petition. The right of the consideration should be held valid or given effect.
voter to vote at the general election for whom he pleases cannot be We find it unnecessary to discuss the other points raised by the
limited. (Roberts vs. Cleveland, Secretary of State of State of New parties.
Mexico, 48 NM 226, 149 P (2d) 120, 153 A.L.R. 635, 637-638) Wherefore, the order of dismissal appealed from is hereby
(Emphasis supplied) affirmed. No pronouncement as to costs.
In common law, certain agreements in consideration of the Paras, C. J., Bengzon, Montemayor, Bautista Angelo, Labrador,
withdrawal of candidates for office have invariably been Concepcion, Endencia, Barrera and Gutierrez David, JJ., concur.
condemned by the courts as being against public policy, be it a
withdrawal from the race for nomination or, after nomination,
from the race for election. (See notes in 37 L. R. A. (N.S.) 289 and
cases cited therein; 18 Am. Jur. Sec. 352, pp. 399-400)
In the case at hand, plaintiff complains on account of defendant's 119. G.R. No. L-65425 November 5, 1987
alleged violation of the "pledge" in question by filing her own IRENEO LEAL, JOSE LEAL, CATALINA LEAL,
certificate o candidacy for a seat in the Congress of the BERNABELA LEAL, VICENTE LEAL EUIOGIA LEAL
Philippines and in openly and actively campaigning for her PATERNO RAMOS, MACARIO DEL ROSARIO,
election. In the face of the preceding considerations, we certainly MARGARITA ALBERTO, VICTORIA TORRES, JUSTINA
cannot entertain plaintiff's action, which would result in limiting MANUEL, JULIAN MANUEL, MELANIA SANTOS,
the choice of the electors to only those persons selected by a CLEMENTE SAMARIO, MARIKINA VALLEY, INC.,
small group or by party boses. MIGUELA MENDOZA, and REGISTER OF DEEDS OF
The case of Pendleton vs. Pace, 9 S.W. (2nd) 437, cited by the RIZAL, petitioners,
appellant, is clearly inapplicable. The court there only sanctioned vs.
the validity of an agreement by the opposing candidates for THE HONORABLE INTERMEDIATE APPELLATE COURT
nomination setting aside and re-submitting the nomination for (4th Civil Cases Division), and VICENTE SANTIAGO
another primary election on account of the protest or contest (Substituted by SALUD M. SANTIAGO), respondents.
filed by the losing candidate in the first primary election. To
abandon the contest proceedings, the candidates for nomination SARMIENTO, J.:
agreed to submit again their nomination to the electors in the In its resolution dated September 27, 1983, the respondent
subsequent primary. Intermediate Appellate Court, 1 speaking through Justice Porfirio
Appellant likewise cites and quotes a portion of our ruling in V, Sison, ordered, in part, the petitioners to accept the sum of
Monsale vs. Nico, 83 Phil., 758; 46 Off. Gaz., 210, to the effect that P5,600.00 from the private respondent as repurchase price of the
it is not incompetent or a candidate to withdraw or annul his lots described in the "Compraventa" and, thereafter, to execute a
certificate of candidacy. This is not in point, for while we stated Deed of Repurchase to effect transfer over ownership over the
there that he may do so, there being no legal prohibition against same properties to the private respondent.
such a voluntary withdrawal, it does not follow, nor did we imply This ruling was a complete reversal of the earlier decision, 2
anywhere in the decision, that in case there is any agreement or dated June 28, 1.978, penned by Justice Paras, of the Court of

Appeals, in the same case, affirming the trial court's dismissal of The petitioners seasonably filed a motion to amend the
the private respondent's complaint. dispositive portion of the decision so as to include an order for
The petitioners, feeling aggrieved and astonished by the the cancellation of the annotations at the back of the Transfer
complete turnaround of the respondent court, come to Us with certificates of Title issued in their favor. The private respondent,-
this petition for review by certiorari. on the other hand, filed a-timely motion for reconsideration of
The antecedent facts are undisputed. the above decision and an opposition to petitioners' motion to
This case brings us back almost half a century ago, on March 21, amend. These incidents were not resolved until then Court of
1941, when a document entitled "Compraventa," written entirely Appeals was abolished and in lieu of which the Intermideate
in the Spanish language, involving three parcels of land, was Appellate Court was established In view of the said
executed by the private respondent's predecessors-in-interest, reorganization, case was reassigned to the Fourth Civil in this
Vicente Santiago and his brother, Luis Santiago, in favor of Cirilio cases Division.
Leal the deceased father of some of the petitioners, Pursuant to Resolving the abovestated motion for reconsideration, the
this "Compraventa," the title over the three parcels of land in the respondent court, in a resolution penned by Justice Sison and
name of the vendors was cancelled and a new one was issued in promulgated on September 27, 1983, ruled, as follows:
the name of Cirilo Leal who immediately took possession and WHEREFORE, Our decision of June 28, 1978 is hereby reversed
exercised ownership over the said lands. When Cirilo died on and set aside and another one is rendered ordering: (1)
December 10, 1959, the subject lands were inherited by his six defendants-appellees surnamed Leal to accept the sum of
children, who are among the petitioners, and who caused the P5,600.00 from plaintiff-appellant (substituted by Salud M.
consolidation and subdivision of the properties among Santiago) as repurchase price of the lots described in the
themselves. "Compraventa" of March 21, 1941, and thereafter to execute a
Between the years 1960 and 1965, the properties were either deed of repurchase sufficient in law to transfer ownership of the
mortgaged or leased by the petitioners-children of Cirilo Leal properties to appellant Salud M. Santiago, the same to be done
to their co-petitioners. within five (5) days from payment; (2) ordering the same
Sometime before the agricultural year 1966-1967, Vicente defendants Leals and defendant Clemente Samario to indemnify
Santiago approached the petitioners and offered re- repurchase appellant in the sum of P3,087.50 as rental for the year 1967-
the subject properties. Petitioners, however, refused the offer. 1968 and the same amount every year thereafter; (3) ordering an
Consequently, Vicente Santiago instituted a complaint for specific the defendants jointly and severally to pay the sum of Pl,500.00
performance before the then Court of First Instance of Quezon as attorney's fees and other expenses of litigation; and (4)
City on August 2, 1967. ordering defendant Register of Deeds of Rizal to cancel Transfer
All the trial, the court a quo rendered its decision,-dismissing the Certificate of Title No. 42535 in the names of Vicente Santiago
complaint on the ground that the same was still premature and Luis Santiago upon presentation of the deed of sale herein
considering that there was, as yet, no sale nor any alienation ordered to be executed by the appellees in favor of Salud M.
equivalent to a sale. Not satisfied with this decision, the private Santiago and to issue thereof another Transfer Certificate of Title
respondent appealed to the Court of Appeals and the latter, in the name alone of Salud M. Santiago. No costs here and in the
acting through the Fourth Division and with Justice Edgardo courts (sic) below.
Paras as ponente affirmed the decision of the court a quo. SO ORDERED.

Verily, the well-spring whence the present controversy arose is without any binding effect.
the abovementioned "Compraventa," more particularly Parenthetically, the equivalent provision in the Civil Code of the
paragraph (b) thereof, to wit: Philippines is that of Art. 1306, which states: "That contracting
xxx xxx xxx parties may establish such stipulations, clauses, terms and
(b) En caso de venta, no podran vender a otros dichos tres lotes conditions as they may deem convenient, provided they are not
de terreno sino al aqui vendedor Vicente Santiago, o los contrary to law, morals, good customs, public order, or public
herederos o sucesores de este por el niismo precio de CINCO MIL policy. Public order signifies the public weal public policy. 5
SEISCIENTOS PESOS (P5,600.00) siempre y cuando estos ultimos Essentially, therefore, public order and public policy mean one
pueden hacer la compra. 3 and the same thing. Public policy is simply the English equivalent
xxx xxx xxx of "order publico" in Art. 1255 of the Civil Code of Spain. 6
which is now the subject of varying and conflicting One such condition which is contrary to public policy is the
interpretations. present prohibition to self to third parties, because the same
xxx xxx xxx virtually amounts to a perpetual restriction to the right of
It is admitted by both parties that the phrase "they shall not sell ownership, specifically the owner's right to freely dispose of his
to others these three lots but only to the seller Vicente Santiago properties. This, we hold that any such prohibition, indefinite and
or to his heirs or successors" is an express prohibition against the stated as to time, so much so that it shall continue to be
sale of the lots described in the "Compraventa" to third persons applicable even beyond the lifetime of the original parties to the
or strangers to the contract. However, while private respondent contract, is, without doubt, a nullity. In the light of this
naturally lauds the resolution of Justice Sison, which sustains the pronouncement, we grant the petitioners' prayer for the
validity of this prohibition, the petitioners, on the other hand, cancellation of the annotations of this prohibition at the back of
endorse the decision penned by Justice Paras, which states, in their Transfer Certificates 'Title.
part: It will be noted, moreover, that the petitioners have never sold,
xxx xxx xxx or even attempted to sell, the properties subject of the
Finally, there is grave doubt re the validity of the ostensible "Compraventa. "
resolutory condition here, namely, the prohibition to sell the lots We now come to what we believe is the very issue in this case
to persons other than the vendor (appellant); uncertainly, a which is, whether or not under the aforequoted paragraph (b) of
prohibition to alienate should not exceed at most a period of the "Compraventa" a right of repurchase in favor of the private
twenty years, otherwise there would be subversion of public respondent exist.
policy, which naturally frowns on unwarranted restrictions on The ruling of the Fourth Division (Justice Paras) is that the said
the right of ownership. 4 stipulation does not grant a right to repurchase. Contrarily, the
xxx xxx xxx resolution of the Fourth Civil Cases Division (Justice P. V. Sison)
We agree with the Paras ponencia. interpreted the same provision as granting the right to
Contracts are generally binding between the parties, their assigns repurchase subject to a condition precedent.
and heirs; however, under Art. 1255 of the Civil Code of Spain, Thus, the assailed Resolution, reversing the earlier decision of the
which is applicable in this instance, pacts, clauses, and conditions same respondent court, ruled
which are contrary to public order are null and void, thus, xxx xxx xxx

The all-importartant phrase "en caso de venta," must of necessity guaranteed under in the "Compraventa," should have been
refer to the sale of the properties either by Cirilo or his heirs to exercise within four years from March 21, 1941 (indubitably the
the Santiago brothers themselves or to their heirs, including date of execution of the contract), or at the latest in 1945.
appellants Vicente Santiago including appellants Vicente Santiago In the respondent court's resolution, it is further ruled that the
and Salud M Santiago, for the same sum of P5,600.00, "siempre y right to repurchase was given birth by the condition precedent
cuando estos ultimos pueden hacer la compra" (when the latter provided for in the phrase "siempre y cuando estos ultimos
shall be able to buy it). pueden hacer la compra" (when the buyer has money to buy). In
xxx xxx xxx other words, it is the respondent court's contention that the right
... We repeat, The words envision the situation contemplated by may be exercised only when the buyer has money to buy. If this
the contracting parties themselves, the resale of the lots to their were so, the second paragraph of Article 1508 would apply
owners, and NOT to a sale of the lots to third parties or strangers there is agreement as to the time, although it is indefinite,
to the contracts. ... 7 therefore, the right should be exercised within ten years, because
xxx xxx xxx the law does not favor suspended ownership. Since the alleged
The law provides that for conventional redemption to take place, right to repurchase was attempted to be exercised by Vicente
the vendor should reserve, in no uncertain terms, the right to Santiago only in 1966, or 25 years from the date of the contract,
repurchase the thing sold. 8 Thus, the right to redeem must be the said right has undoubtedly expired.
expressly stipulated in the contract of sale in order that it may WHEREFORE, in view of the foregoing, the Resolution dated
have legal existence. September 27, 1983, of the respondent court is SET ASIDE and
In the case before us, we cannot and any express or implied grant the Decision promulgated on June 28, 1978 is hereby
of a right to repurchase, nor can we infer, from any word or REINSTATED. The annotations of the prohibition to sell at the
words in the questioned paragraph, the existence of any such back of TCT Nos. 138837, 138838, 138839, 138840, 138841, and
right. The interpretation in the resolution (Justice Sison) is rather 138842 are hereby ordered CANCELLED. Costs against the
strained. The phrase "in case case" of should be construed to private respondent.
mean "should the buyers wish to sell which is the plain and SO ORDERED.
simple import of the words, and not "the buyers should sell," Yap (Chairman), Melencio-Herrera and Padilla, JJ., concur.
which is clearly a contorted construction of the same phrase. The Paras, J., took no part.
resort to Article 1373 of the Civil Code of the Philippines is
erroneous. The subject phrase is patent and unambiguous, hence,
it must not be given another interpretation
But even assuming that such a right of repurchase is granted
under the "Compraventa," the petitioner correctly asserts that 120. G.R. No. L-46591 July 28, 1987
the same has already prescribed. Under Art. 1508 of the Civil BANCO FILIPINO SAVINGS and MORTGAGE BANK,
Code of Spain (Art,. 1606 of the Civil Code of the Philippines), the petitioner,
right to redeem or repurchase, in the absence of an express vs.
agreement as to time, shall last four years from the date of the HON. MIGUEL NAVARRO, Presiding Judge, Court of
contract. In this case then, the right to repurchase, if it was at four First Instance of Manila, Branch XXXI and FLORANTE

DEL VALLE, respondents. including thrift banks and rural banks, or by financial
intermediaries authorized to engage in quasi-banking functions
MELENCIO-HERRERA, J.: shall be nineteen percent (19%) per annum.
This is a Petition to review on certiorari the Decision of x x x x x x x x x
respondent Court, the dispositive portion of which decrees: 7. Except as provided in this Circular and Circular No. 493, loans
WHEREFORE, the Court finds that the enforcement of the or renewals thereof shall continue to be governed by the Usury
escalation clause retroactively before the lapse of the 15-year Law, as amended."
period stated in the promissory note is contrary to Sec. 3 of CIRCULAR No. 494 was issued pursuant to the authority granted
Presidential Decree No. 116 and Sec. 109 of Republic Act No. 265, to the Monetary Board by Presidential Decree No. 116
and hereby declares null and void the said escalation clause. The (Amending Further Certain Sections of the Usury Law)
respondent Banco Filipino Savings and Mortgage Bank is hereby promulgated on January 29, 1973, the applicable section of which
ordered to desist from enforcing the increased rate of interest on provides:
petitioner's loan. Sec. 2. The same Act is hereby amended by adding the following
SO ORDERED. section immediately after section one thereof, which reads as
The facts are not in dispute: follows:
On May 20, 1975, respondent Florante del Valle (the Sec. 1-a. The Monetary Board is hereby authorized to prescribe
BORROWER) obtained a loan secured by a real estate mortgage the maximum rate or rates of interest for the loan or renewal
(the LOAN, for short) from petitioner BANCO FILIPINO1 in the thereof or the forbearance of any money, goods or credits, and to
sum of Forty-one Thousand Three Hundred (P41,300.00) Pesos, change such rate or rates whenever warranted by prevailing
payable and to be amortized within fifteen (15) years at twelve economic and social conditions: Provided, that such changes shall
(12%) per cent interest annually. Hence, the LOAN still had more not be made oftener than once every twelve months.
than 730 days to run by January 2, 1976, the date when The same grant of authority appears in P.D. No. 858, promulgated
CIRCULAR No. 494 was issued by the Central Bank. on December 31, 1975, except that the limitation on the
Stamped on the promissory note evidencing the loan is an frequency of changes was eliminated.
Escalation Clause, reading as follows: On the strength of CIRCULAR No. 494 BANCO FILIPINO gave
I/We hereby authorize Banco Filipino to correspondingly notice to the BORROWER on June 30, 1976 of the increase of
increase the interest rate stipulated in this contract without interest rate on the LOAN from 12% to 17% per annum effective
advance notice to me/us in the event law should be enacted on March 1, 1976.
increasing the lawful rates of interest that may be charged on this On September 24, 1976, Ms. Mercedes C. Paderes of the Central
particular kind of loan. Bank wrote a letter to the BORROWER as follows:
The Escalation Clause is based upon Central Bank CIRCULAR No. September 24, 1976
494 issued on January 2, 1976, the pertinent portion of which Mr. Florante del Valle
reads: 14 Palanca Street
3. The maximum rate of interest, including commissions, B.F. Homes, Paranaque
premiums, fees and other charges on loans with maturity of more Rizal
than seven hundred thirty (730) days, by banking institutions, Dear Mr. del Valle:

This refers to your letter dated August 28, 1976 addressed to the court of justice the legality or validity of such escalation clauses.
Governor, Central Bank of the Philippines, seeking clarification We trust the above guidelines would help you resolve your
and our official stand on Banco Filipino's recent decision to raise problems regarding additional interest charges of Banco Filipino.
interest rates on lots bought on installment from 12% to 17% per Very truly yours,
annum. (Sgd.) MERCEDES C. PAREDES
A verification made by our Examiner of the copy of your Director
Promissory Note on file with Banco Filipino showed that the Contending that CIRCULAR No. 494 is not the law contemplated
following escalation clause with your signature is stamped on the in the Escalation Clause of the promissory note, the BORROWER
Promissory Note: filed suit against BANCO FILIPINO for "Declaratory Relief" with
I /We hereby authorize Banco Filipino to correspondingly respondent Court, praying that the Escalation Clause be declared
increase the interest rate stipulated in this contract without null and void and that BANCO FILIPINO be ordered to desist from
advance notice to me/us in the event a law should be enacted enforcing the increased rate of interest on the BORROWER's real
increasing the lawful rates of interest that may be charged on this estate loan.
particular kind of loan. For its part, BANCO FILIPINO maintained that the Escalation
In this connection, please be advised that the Monetary Board, in Clause signed by the BORROWER authorized it to increase the
its Resolution No. 1155 dated June 11, 1976, adopted the interest rate once a law was passed increasing the rate of interest
following guidelines to govern interest rate adjustments by banks and that its authority to increase was provided for by CIRCULAR
and non-banks performing quasi-banking functions on loans No. 494.
already existing as of January 3, 1976, in the light of Central Bank In its judgment, respondent Court nullified the Escalation Clause
Circulars Nos. 492-498: and ordered BANCO FILIPINO to desist from enforcing the
l. Only banks and non-bank financial intermediaries performing increased rate of interest on the BORROWER's loan. It reasoned
quasi-banking functions may increase interest rates on loans out that P.D. No. 116 does not expressly grant the Central Bank
already existings of January 2, 1976, provided that: authority to maximize interest rates with retroactive effect and
a. The pertinent loan contracts/documents contain escalation that BANCO FILIPINO cannot legally impose a higher rate of
clauses expressly authorizing lending bank or non-bank interest before the expiration of the 15-year period in which the
performing quasi-banking functions to increase the rate of loan is to be paid other than the 12% per annum in force at the
interest stipulated in the contract, in the event that any law or time of the execution of the loan.
Central Bank regulation is promulgated increasing the maximum It is from that Decision in favor of the BORROWER that BANCO
interest rate for loans; and FILIPINO has come to this instance on review by Certiorari. We
b. Said loans were directly granted by them and the remaining gave due course to the Petition, the question being one of law.
maturities thereof were more than 730 days as of January 2, On February 24, 1983, the parties represented by their
1976; and respective counsel, not only moved to withdraw the appeal on
2. The increase in the rate of interest can be effective only as of the ground that it had become moot and academic "because of
January 2, 1976 or on a later date. recent developments in the rules and regulations of the Central
The foregoing guidelines, however, shall not be understood as Bank," but also prayed that "the decision rendered in the Court of
precluding affected parties from questioning before a competent First Instance be therefore vacated and declared of no force and

effect as if the case was never filed," since the parties would like imposed or charged by petitioner does not exceed the ceiling
to end this matter once and for all." fixed by law or the Monetary Board; (2) the increase is made
However, "considering the subject matter of the controversy in effective not earlier than the effectivity of the law or regulation
which many persons similarly situated are interested and authorizing such an increase; and (3) the remaining maturities of
because of the need for a definite ruling on the question," the the loans are more than 730 days as of the effectivity of the law
Court, in its Resolution of February 24, 1983, impleaded the or regulation authorizing such an increase. However, with
Central Bank and required it to submit its Comment, and respect to loan agreements entered into,on or after March 17,
encouraged homeowners similarly situated as the BORROWER to 1980, such agreement, in order to be valid, must also include a
intervene in the proceedings. de-escalation clause as required by Presidential Decree No.
At the hearing on February 24, 1983, one Leopoldo Z. So, a 1684."3
mortgage homeowner at B.F. Resort Subdivision, was present The substantial question in this case is not really whether the
and manifested that he was in a similar situation as the Escalation Clause is a valid or void stipulation. There should be
BORROWER. Since then, he has written several letters to the no question that the clause is valid.
Court, pleading for early resolution of the case. The Court allowed Some contracts contain what is known as an "escalator clause,"
the intervention of Lolita Perono2 and issued a temporary which is defined as one in which the contract fixes a base price
restraining order enjoining the Regional Trial Court (Pasay City but contains a provision that in the event of specified cost
Branch) in the case entitled "Banco Filipino Savings and increases, the seller or contractor may raise the price up to a
Mortgage Bank vs. Lolita Perono" from issuing a writ of fixed percentage of the base. Attacks on such a clause have
possession over her mortgaged property. Also snowed to usually been based on the claim that, because of the open price-
intervene were Enrique Tabalon, Jose Llopis, et als., who had provision, the contract was too indefinite to be enforceable and
obtained loans with Identical escalation clauses from Apex did not evidence an actual meeting of the minds of the parties, or
Mortgage and Loans Corporation, apparently an affiliate of that the arrangement left the price to be determined arbitrarily
BANCO FILIPINO, Upon motion of Jose Llopis, a Temporary by one party so that the contract lacked mutuality. In most
Restraining Order was likewise issued enjoining the foreclosure instances, however, these attacks have been unsuccessful.4
of his real estate mortgage by BANCO FILIPINO. The Court further finds as a matter of law that the cost of living
The Court made it explicit, however, that intervention was index adjustment, or escalator clause, is not substantively
allowed only for the purpose of "joining in the discussion of the unconscionable.
legal issue involved in this proceedings, to wit, the validity of the Cost of living index adjustment clauses are widely used in
so-called "escalation clause," or its applicability to existing commercial contracts in an effort to maintain fiscal stability and
contracts of loan." to retain "real dollar" value to the price terms of long term
The Central Bank has submitted its Comment and Supplemental contracts. The provision is a common one, and has been
Comment and like BANCO FILIPINO, has taken the position that universally upheld and enforced. Indeed, the Federal government
the issuance of its Circulars is a valid exercise of its authority to has recognized the efficacy of escalator clauses in tying Social
scribe maximum rates of interest and that, based on general Security benefits to the cost of living index, 42 U.S.C.s 415(i).
principles of contract, the Escalation Clause is a valid provision in Pension benefits and labor contracts negotiated by most of the
the loan agreement provided that "(1) the increased rate major labor unions are other examples. That inflation, expected

or otherwise, will cause a particular bargain to be more costly in "any law."
terms of total dollars than originally contemplated can be of little The distinction is again recognized by P.D. No. 1684, promulgated
solace to the plaintiffs.5 on March 17, 1980, adding section 7-a to the Usury Law,
What should be resolved is whether BANCO FILIPINO can providing that parties to an agreement pertaining to a loan could
increase the interest rate on the LOAN from 12% to 17% per stipulate that the rate of interest agreed upon may be increased
annum under the Escalation Clause. It is our considered opinion in the event that the applicable maximum rate of interest is
that it may not. increased "by law or by the Monetary Board." To quote:
The Escalation Clause reads as follows: Sec. 7-a Parties to an agreement pertaining to a loan or
I/We hereby authorize Banco Filipino to correspondingly increase forbearance of money, goods or credits may stipulate that the
the interest rate stipulated in this contract without advance rate of interest agreed upon may be increased in the event that
notice to me/us in the event the applicable maximum rate of interest
a law is increased by law or by the Monetary Board:
increasing Provided, That such stipulation shall be valid only if there is also a
the lawful rates of interest that may be charged stipulation in the agreement that the rate of interest agreed upon
on this particular shall be reduced in the event that the applicable maximum rate of
kind of loan. (Paragraphing and emphasis supplied) interest is reduced by law or by the Monetary Board;
It is clear from the stipulation between the parties that the Provided, further, That the adjustment in the rate of interest
interest rate may be increased "in the event a law should be agreed upon shall take effect on or after the effectivity of the
enacted increasing the lawful rate of interest that may be charged increase or decrease in the maximum rate of interest.
on this particular kind of loan." " The Escalation Clause was (Paragraphing and emphasis supplied).
dependent on an increase of rate made by "law" alone. It is now clear that from March 17, 1980, escalation clauses to be
CIRCULAR No. 494, although it has the effect of law, is not a law. valid should specifically provide: (1) that there can be an
"Although a circular duly issued is not strictly a statute or a law, it increase in interest if increased by law or by the Monetary Board;
has, however, the force and effect of law."6 (Italics supplied). "An and (2) in order for such stipulation to be valid, it must include a
administrative regulation adopted pursuant to law has the force provision for reduction of the stipulated interest "in the event
and effect of law."7 "That administrative rules and regulations that the applicable maximum rate of interest is reduced by law or
have the force of law can no longer be questioned. "8 by the Monetary Board."
The distinction between a law and an administrative regulation is While P.D. No. 1684 is not to be given retroactive effect, the
recognized in the Monetary Board guidelines quoted in the letter absence of a de-escalation clause in the Escalation Clause in
to the BORROWER of Ms. Paderes of September 24, 1976 (supra). question provides another reason why it should not be given
According to the guidelines, for a loan's interest to be subject to effect because of its one-sidedness in favor of the lender.
the increases provided in CIRCULAR No. 494, there must be an 2. The Escalation Clause specifically stipulated that the increase
Escalation Clause allowing the increase "in the event that any law in interest rate was to be "on this particular kind of loan, "
or Central Bank regulation is promulgated increasing the meaning one secured by registered real estate mortgage.
maximum interest rate for loans." The guidelines thus Paragraph 7 of CIRCULAR No. 494 specifically directs that "loans
presuppose that a Central Bank regulation is not within the term or renewals continue to be governed by the Usury Law, as

amended." So do Circular No. 586 of the Central Bank, which The two sections read:
superseded Circular No. 494, and Circular No. 705, which SEC. 3. Section two of the same Act is hereby amended to read as
superseded Circular No. 586. The Usury Law, as amended by Acts follows:
Nos. 3291, 3998 and 4070, became effective on May 1, 1916. It SEC. 2. No person or corporation shall directly or indirectly take
provided for the maximum yearly interest of 12% for loans or receive in money or other property, real or personal, or choses
secured by a mortgage upon registered real estate (Section 2), in action, a higher rate of interest or greater sum or value,
and a maximum annual interest of 14% for loans covered by including commissions, premiums, fines and penalties, for the
security other than mortgage upon registered real estate (Section loan or renewal thereof or forbearance of money, goods, or
3). Significant is the separate treatment of registered real estate credits, where such loan or renewal or forbearance is secured in
loans and other loans not secured by mortgage upon registered whole or in part by a mortgage upon real estate the title to which
real estate. It appears clear in the Usury Law that the policy is to is duly registered or by any document conveying such real estate
make interest rates for loans guaranteed by registered real estate or an interest therein, than twelve per centum per annum or the
lower than those for loans guaranteed by properties other than maximum rate prescribed by the Monetary Board and in force at
registered realty. the time the loan or renewal thereof or forbearance is granted:
On June 15, 1948, Congress approved Republic Act No. 265, Provided, That the rate of interest under this section or the
creating the Central Bank, and establishing the Monetary Board. maximum rate of interest that may be prescribed by the
That law provides that "the Monetary Board may, within the Monetary Board under this section may likewise apply to loans
limits prescribed in the Usury law,9 fix the maximum rates of secured by other types of security as may be specified by the
interest which banks may charge for different types of loans and Monetary Board.
for any other credit operations, ... " and that "any modification in SEC. 4. Section three of the same Act is hereby amended to read
the maximum interest rates permitted for the borrowing or as follows:
lending operations of the banks shall apply only to future SEC. 3. No person or corporation shall directly or indirectly
operations and not to those made prior to the date on which the demand, take, receive, or agree to charge in money or other
modification becomes effective" (Section 109).1avvphi1 property, real or personal, a higher rate or greater sum or value
On January 29, 1973, P.D. No. 116 was promulgated amending for the loan or forbearance of money, goods, or credits, where
the Usury Law. The Decree gave authority to the Monetary Board such loan or forbearance is not secured as provided in Section
"to prescribe maximum rates of interest for the loan or renewal two hereof, than fourteen per centum per annum or the
thereof or the forbearance of any money goods or credits, and to maximum rate or rates prescribed by the Monetary Board and in
change such rate or rates whenever warranted by prevailing force at the time the loan or forbearance is granted.
economic and social conditions. In one section,10 the Monetary Apparent then is that the separate treatment for the two classes
Board could prescribe the maximum rate of interest for loans of loans was maintained. Yet, CIRCULAR No. 494 makes no
secured by mortgage upon registered real estate or by any distinction as to the types of loans that it is applicable to unlike
document conveying such real estate or an interest therein and, Circular No. 586 dated January 1, 1978 and Circular No. 705
in another separate section,11 the Monetary Board was also dated December 1, 1979, which fix the effective rate of interest
granted authority to fix the maximum interest rate for loans on loan transactions with maturities of more than 730 days to
secured by types of security other than registered real property. not exceeding 19% per annum (Circular No. 586) and not

exceeding 21% per annum (Circular No. 705) "on both secured PANGANIBAN, J.:p
and unsecured loans as defined by the Usury Law, as amended." May a bank unilaterally raise the interest rate on a housing loan
In the absence of any indication in CIRCULAR No. 494 as to which granted an employee, by reason of the voluntary resignation of
particular type of loan was meant by the Monetary Board, the the borrower?
more equitable construction is to limit CIRCULAR No. 494 to Such is the query raised in the petition for review on certiorari
loans guaranteed by securities other than mortgage upon now before us, which assails the Decision promulgated on June
registered realty. 19, 1991 by respondent Court of Appeals 1 in CA-G.R. CV No.
WHEREFORE, the Court rules that while an escalation clause like 24956, upholding the validity and enforceability of the escalation
the one in question can ordinarily be held valid, nevertheless, by private respondent Land Bank of the Philippines of the
petitioner Banco Filipino cannot rely thereon to raise the interest applicable interest rate on the housing loan taken out by
on the borrower's loan from 12% to 17% per annum because petitioner-spouses.
Circular No. 494 of the Monetary Board was not the "law" The Antecedent Facts
contemplated by the parties, nor should said Circular be held as Petitioners filed an action for Injunction with Damages docketed
applicable to loans secured by registered real estate in the as Civil Case No. 86-38146 before the Regional Trial Court of
absence of any such specific indication and in contravention of Manila, Branch XXII against respondent bank. Both parties, after
the policy behind the Usury Law. The judgment appealed from is, entering into a joint stipulation of facts, submitted the case for
therefore, hereby affirmed in so far as it orders petitioner Banco decision on the basis of said stipulation and memoranda. The
Filipino to desist from enforcing the increased rate of interest on stipulation reads in part: 2
petitioner's loan. 1. That (Petitioner) Gilda Florendo (was) an employee of
The Temporary Restraining Orders heretofore issued are hereby (Respondent Bank) from May 17, 1976 until August 16, 1984
made permanent if the escalation clauses are Identical to the one when she voluntarily resigned. However, before her resignation,
herein and the loans involved have applied the increased rate of she applied for a housing loan of P148,000.00, payable within 25
interest authorized by Central Bank Circular No. 494. years from (respondent bank's) Provident Fund on July 20, 1983;
SO ORDERED. 2. That (petitioners) and (respondent bank), through the latter's
Teehankee, C.J., Yap, Fernando, Narvasa, Gutierrez, Jr., Cruz, Paras, duly authorized representative, executed the Housing Loan
Feliciano, Gancayco, Padilla, Bidin, Sarmiento, Cortes, JJ., concur. Agreement, . . .;
3. That, together with the Housing Loan Agreement, (petitioners)
and (respondent bank), through the latter's authorized
representative, also executed a Real Estate Mortgage and
Promissory
121. G.R. No. 101771 December 17, 1996 Note, . . .;
SPOUSES MARIANO and GILDA FLORENDO, petitioners, 4. That the loan . . . was actually given to (petitioner) Gilda
vs. Florendo, . . ., in her capacity as employee of (respondent bank);
COURT OF APPEALS and LAND BANK OF THE 5. That on March 19, 1985, (respondent bank) increased the
PHILIPPINES, respondents. interest rate on (petitioner's) loan from 9% per annum to 17%,
the said increase to take effect on March 19, 1985;

6. That the details of the increase are embodied in (Landbank's) or any sum that may be due and payable under the said loan
ManCom Resolution No. 85-08 dated March 19, 1985, . . . , and in agreement remains outstanding, the borrower shall
a PF (Provident Fund) Memorandum Circular (No. 85-08, Series f) Comply with all the rules and regulations of the program
of 1985), . . .; imposed by the LENDER and to comply with all the rules and
7. That (respondent bank) first informed (petitioners) of the said regulations that the Central Bank of the Philippines has imposed
increase in a letter dated June 7, 1985, . . . . Enclosed with the or will impose in connection with the financing programs for
letter are a copy of the PF Memo Circular . . . and a Statement of bank officers and employees in the form of fringe benefits.
Account as of May 31, 1985, . . .; b. Paragraph (f) of the Real Estate Mortgage 4 which states:
8. That (petitioners) protested the increase in a letter dated June The rate of interest charged on the obligation secured by this
11, 1985 to which (respondent bank) replied through a letter mortgage. . ., shall be subject, during the life of this contract, to
dated July 1, 1985, . . . Enclosed with the letter is a Memorandum such an increase/decrease in accordance with prevailing rules,
dated June 26, 1985 of (respondent bank's) legal counsel, A.B. F. regulations and circulars of the Central Bank of the Philippines as
Gaviola, Jr., . . .; the Provident Fund Board of Trustees of the Mortgagee may
9. That thereafter, (respondent bank) kept on demanding that prescribe for its debtors and subject to the condition that the
(petitioner) pay the increased interest or the new monthly increase/decrease shall only take effect on the date of effectivity
installments based on the increased interest rate, but Plaintiff of said increase/decrease and shall only apply to the remaining
just as vehemently maintained that the said increase is unlawful balance of the loan.
and unjustifiable. Because of (respondent bank's) repeated c. and ManCom (Management Committee) Resolution No. 85-08,
demands, (petitioners) were forced to file the instant suit for together with PF (Provident Fund) Memorandum Circular No.
Injunction and Damages; 85-08, which escalated the interest rates on outstanding housing
10. That, just the same, despite (respondent bank's) demands loans of bank employees who voluntarily "secede" (resign) from
that (petitioners) pay the increased interest or increased the Bank; the range of rates varied depending upon the number
monthly installments, they (petitioners) have faithfully paid and of years service rendered by the employees concerned. The rates
discharged their loan obligations, more particularly the monthly were made applicable to those who had previously resigned from
payment of the original stipulated installment of P1,248.72. the bank as well as those who would be resigning in the future.
Disregarding (respondent bank's) repeated demand for The trial court ruled in favor of respondent bank, and held that
increased interest and monthly installment, (petitioners) are the bank was vested with authority to increase the interest rate
presently up-to-date in the payments of their obligations under (and the corresponding monthly amortizations) pursuant to said
the original contracts (Housing Loan Agreement, Promissory escalation provisions in the housing loan agreement and the
Note and Real Estate Mortgage) with (respondent bank); mortgage contract. The dispositive portion of the said decision
xxx xxx xxx reads: 5
The clauses or provisions in the Housing Loan Agreement and the WHEREFORE, judgment is hereby rendered denying the instant
Real Estate Mortgage referred to above as the basis for the suit for injunction and declaring that the rate of interest on the
escalation are: loan agreement in question shall be 17% per annum and the
a. Section I-F of Article VI of the Housing Loan Agreement, 3 monthly amortization on said loan properly raised to P2,064.75 a
which provides that, for as long as the loan or any portion thereof month, upon the finality of this judgment.

xxx xxx xxx error" in not nullifying the respondent bank's unilateral increase
Petitioners promptly appealed, arguing that, inter alia, the of the interest rate and monthly amortizations of the loan
increased rate of interest is onerous and was imposed 1. . . . (simply because of) a bare and unqualified stipulation that
unilaterally, without the consent of the borrower-spouses. the interest rate may be increased;
Respondent bank likewise appealed and contested the propriety 2. . . . on the ground that the increase has no basis in the contracts
of having the increased interest rate apply only upon the finality between the parties;
of the judgment and not from March 19, 1985. 3. . . . on the ground that the increase violates Section 7-A of the
The respondent Court subsequently affirmed with modification Usury Law;
the decision of the trial court, holding that: 6 4. . . . on the ground that the increase and the contractual
. . . Among the salient provisions of the mortgage is paragraph (f) provision that (respondent bank) relies upon for the increase are
which provides that the interest rate shall be subject, during the contrary to morals, good customs, public order and public policy.
term of the loan, to such increases/decreases as may be allowed 8
under the prevailing rules and/or circulars of the Central Bank The key issue may be simply presented as follows: Did the
and as the Provident Fund of the Bank may prescribe for its respondent bank have a valid and legal basis to impose an
borrowers. In other words, the spouses agreed to the escalation increased interest rate on the petitioners' housing loan?
of the interest rate on their original loan. Such an agreement is a The Court's Ruling
contractual one and the spouses are bound by it. Escalation Basis for Increased Interest Rate
clauses have been ruled to be valid stipulations in contracts in Petitioners argue that the HLA provision covers only
order to maintain fiscal stability and to retain the value of money administrative and other matters, and does not include interest
in long term contracts (Insular Bank of Asia and America vs. rates per se, since Article VI of the agreement deals with
Spouses Epifania Salazar and Ricardo Salazar, 159 SCRA 133). insurance on and upkeep of the mortgaged property. As for the
One of the conditions for the validity of an escalation clause such stipulation in the mortgage deed, they claim that it is vague
as the one which refers to an increase rate is that the contract because it does not state if the "prevailing" CB rules and
should also contain a proviso for a decrease when circumstances regulations referred to therein are those prevailing at the time of
so warrant it. Paragraph (f) referred to above contains such the execution of these contracts or at the time of the increase or
provision. decrease of the interest rate. They insist that the bank's authority
A contract is binding on the parties no matter that a provision to escalate interest rates has not been shown to be "crystal-clear
thereof later proves onerous and which on hindsight, a party as a matter of fact" and established beyond doubt. The contracts
feels he should not have agreed to in the first place. being "contracts of adhesion," any vagueness in their provisions
and disposed as follows: 7 should be interpreted in favor of petitioners.
WHEREFORE, the dispositive part of the decision is MODIFIED in We note that Section 1-F of Article VI of the HLA cannot be read
the sense that the interest of 17% on the balance of the loan of as an escalation clause as it does not make any reference to
the spouses shall be computed starting July 1, 1985. increases or decreases in the interest rate on loans. However,
Dissatisfied, the petitioners had recourse to this Court. paragraph (f) of the mortgage contract is clearly and indubitably
The Issues an escalation provision, and therefore, the parties were and are
Petitioners ascribe to respondent Court "a grave and patent bound by the said stipulation that "(t)he rate of interest charged

on the obligation secured by this mortgage . . ., shall be subject, Ameurfina M. Herrera, disallowed the bank from increasing the
during the life of this contract, to such an increase/decrease in interest rate on the subject loan from 12% to 17% despite an
accordance with prevailing rules, regulations and circulars of the escalation clause in the loan agreement authorizing the bank to
Central Bank of the Philippines as the Provident Fund Board of "correspondingly increase the interest rate stipulated in this
Trustees of the Mortgagee (respondent bank) may prescribe for contract without advance notice to me/us in the event a law
its debtors . . . ." 9 Contrary to petitioners' allegation, there is no should be enacted increasing the lawful rates of interest that may
vagueness in the aforequoted proviso; even their own arguments be charged on this particular kind of loan". In said case, the bank
(below) indicate that this provision is quite clear to them. had relied upon a Central Bank circular as authority to up its
In Banco Filipino Savings & Mortgage Bank vs. Navarro, 10 this rates. The Court ruled that CB Circular No. 494, although it has
Court in essence ruled that in general there is nothing inherently the effect of law, is not a law, but an administrative regulation.
wrong with escalation clauses. In IBAA vs. Spouses Salazar, 11 the In PNB vs. Court of Appeals, 14 this Court disallowed the increases
Court reiterated the rule that escalation clauses are valid in interest rate imposed by the petitioner-bank therein, on the
stipulations in commercial contracts to maintain fiscal stability ground, among others, that said bank relied merely on its own
and to retain the value of money in long term contracts. Board Resolution (No. 681), PNB Circular No. 40-79-84, and PNB
Application of the Escalation to Petitioners Circular No. 40-129-84, which were neither laws nor resolutions
Petitioners however insist that while ManCom Resolution No. 85- of the Monetary Board.
08 authorized a rate increase for resigned employees, it could not In the case at bar, the loan was perfected on July 20, 1983. PD No.
apply as to petitioner-employee because nowhere in the loan 116 became effective on January 29, 1973. CB Circular No. 416
agreement or mortgage contract is it provided that petitioner- was issued on July 29, 1974. CB Circ. 504 was issued February 6,
wife's resignation will be a ground for the adjustment of interest 1976. CB Circ. 706 was issued December 1, 1979. CB Circ. 905,
rates, which is the very bedrock of and the raison d'etre specified lifting any interest rate ceiling prescribed under or pursuant to
in said ManCom Resolution. the Usury Law, as amended, was promulgated in 1982. These and
They additionally contend that the escalation is violative of other relevant CB issuances had already come into existence
Section 7-A of the Usury Law (Act No. 2655, as amended) which prior to the perfection of the housing loan agreement and
requires a law or MB act fixing an increased maximum rate of mortgage contract, and thus it may be said that these regulations
interest, and that escalation upon the will of the respondent bank had been taken into consideration by the contracting parties
is contrary to the principle of mutuality of contracts, per when they first entered into their loan contract. In light of the CB
Philippine National Bank vs. Court of Appeals. 12 issuances in force at that time, respondent bank was fully aware
What is actually central to the disposition of this case is not really that it could have imposed an interest rate higher than 9% per
the validity of the escalation clause but the retroactive annum rate for the housing loans of its employees, but it did not.
enforcement of the ManCom Resolution as against petitioner- In the subject loan, the respondent bank knowingly agreed that
employee. In the case at bar, petitioners have put forth a telling the interest rate on petitioners' loan shall remain at 9% p.a.
argument that there is in fact no Central Bank rule, regulation or unless a CB issuance is passed authorizing an increase (or
other issuance which would have triggered an application of the decrease) in the rate on such employee loans and the Provident
escalation clause as to her factual situation. Fund Board of Trustees acts accordingly. Thus, as far as the parties
In Banco Filipino, 13 this Court, speaking through Mme. Justice were concerned, all other onerous factors, such as employee

resignations, which could have been used to trigger an in fact there was none) to increase the interest rate at will during
application of the escalation clause were considered barred or the term of the loan, that license would have been null and void
waived. If the intention were otherwise, they especially for being violative of the principle of mutuality essential in
respondent bank should have included such factors in their contracts. It would have invested the loan agreement with the
loan agreement. character of a contract of adhesion, where the parties do not
ManCom Resolution No. 85-08, which is neither a rule nor a bargain on equal footing, the weaker party's (the debtor)
resolution of the Monetary Board, cannot be used as basis for the participation being reduced to the alternative "to take it or leave
escalation in lieu of CB issuances, since paragraph (f) of the it" (Qua vs. Law Union & Rock Insurance Co., 95 Phil 85). Such a
mortgage contract very categorically specifies that any interest contract is a veritable trap for the weaker party whom the courts
rate increase be in accordance with "prevailing rules, regulations of justice must protect against abuse and imposition.
and circulars of the Central Bank . . . as the Provident Fund Board The respondent bank tried to sidestep this difficulty by averring
. . . may prescribe." The Banco Filipino and PNB doctrines are that petitioner Gilda Florendo as a former bank employee was
applicable four-square in this case. As a matter of fact, the said very knowledgeable concerning respondent bank's lending rates
escalation clause further provides that the increased interest rate and procedures, and therefore, petitioners were "on an equal
"shall only take effect on the date of effectivity of (the) footing" with respondent bank as far as the subject loan contract
increase/decrease" authorized by the CB rule, regulation or was concerned. That may have been true insofar as entering into
circular. Without such CB issuance, any proposed increased rate the original loan agreement and mortgage contract was
will never become effective. concerned. However, that does not hold true when it comes to
We have already mentioned (and now reiterate our holding in the determination and imposition of escalated rates of interest as
several unilaterally provided in the ManCom Resolution, where she had
cases 15) that by virtue of CB Circular 905, the Usury Law has no voice at all in its preparation and application.
been rendered ineffective. Thus, petitioners' contention that the To allay fears that respondent bank will inordinately be
escalation clause is violative of the said law is bereft of any merit. prejudiced by being stuck with this "sweetheart loan" at patently
On the other hand, it will not be amiss to point out that the concessionary interest rates, which according to respondent
unilateral determination and imposition of increased interest bank is the "sweetest deal" anyone could obtain and is an act of
rates by the herein respondent bank is obviously violative of the generosity considering that in 1985 lending rates in the banking
principle of mutuality of contracts ordained in Article 1308 of the industry were peaking well over 30% p.a., 17 we need only point
Civil Code. As this Court held in PNB: 16 out that the bank had the option to impose in its loan contracts
In order that obligations arising from contracts may have the the condition that resignation of an employee-borrower would be
force of law between the parties, there must be mutuality a ground for escalation. The fact is it did not. Hence, it must live
between the parties based on their essential equality. A contract with such omission. And it would be totally unfair to now impose
containing a condition which makes its fulfillment dependent said condition, not to mention that it would violate the principle
exclusively upon the uncontrolled will of one of the contracting of mutuality of consent in contracts. It goes without saying that
parties, is void (Garcia vs. Rita Legarda, Inc., 21 SCRA 555). such escalation ground can be included in future contracts not
Hence, even assuming that the . . . loan agreement between the to agreements already validly entered into.
PNB and the private respondent gave the PNB a license (although Let it be clear that this Court understands respondent bank's

position that the concessional interest rate was really intended as SERENO, CJ:
a means to remunerate its employees and thus an escalation due
to resignation would have been a valid stipulation. But no such Before us are consolidated Petitions for Review on Certiorari
stipulation was in fact made, and thus the escalation provision under Rule 45 of the Rules of Court assailing the Court of Appeals
could not be legally applied and enforced as against herein (CA) Decision1 dated 22 January 2009 and Resolution2 dated 18
petitioners. May 2009 in CA-G.R. CV No. 89483.
WHEREFORE, the petition is hereby GRANTED. The Court hereby
REVERSES and SETS ASIDE the challenged Decision of the Court The CA Decision ordered AMA Computer Learning Center, Inc.
of Appeals. The interest rate on the subject housing loan remains (AMA) to pay New World Developers and Management, Inc. (New
at nine (9) percent per annum and the monthly amortization at World) unpaid rentals for 2 months, as well asliquidated
P1,248.72. damages equivalent to 4 months rent. The CA Resolution denied
SO ORDERED. the separate motions for reconsideration filed by the parties.
Narvasa, C.J., Davide, Jr., Melo and Francisco, JJ., concur.
FACTS

New World is the owner of a commercial building located at No.
1104-1118 Espaa corner Paredes Streets, Sampaloc, Manila.3 In
1998, AMA agreed to lease the entire second floor of the building
122. G.R. No. 187930 February 23, 2015 for its computer learning center, and the parties entered into a
Contract of Lease4 covering the eight-year period from 15 June
NEW WORLD DEVELOPERS AND MANAGEMENT, INC., 1998 to 14 March 2006.
Petitioner,
vs. The monthly rental for the first year was set at P181,500, with an
AMA COMPUTER LEARNING CENTER, INC., Respondent. annual escalation rate equivalent to 15% for the succeeding
years.5 It was also provided that AMA may preterminate the
x - - - - - - - - - - - - - - - - - - - - - - - x contract by sending notice in writing to New World at least six
months before the intended date.6 In case of pretermination,
G.R. No. 188250 AMA shall be liable for liquidated damages in an amount
equivalent to six months of the prevailing rent.
AMA COMPUTER LEARNING CENTER, INC., Petitioner.
vs. In compliance with the contract, AMA paid New World the
NEW WORLD DEVELOPERS AND MANAGEMENT, INC., amount of P450,000 as advance rental and another P450,000 as
Respondent, security deposit.7
D E C I S I O N

For the first three years, AMA paid the monthly rent as stipulated On 27 October 2004, New World filed a complaint for a sum of
in the contract, with the required adjustment in accordance with money and damages against AMA before the Regional Trial Court
the escalation rate for the second and the third years.8 of Marikina City, Branch 156 (RTC).14
In a letter dated 18 March 2002, AMA requested the deferment of RULING OF THE RTC
the annual increase in the monthly rent by citing financial
constraints brought about by a decrease in its enrollment. New In a Decision15 dated 31 January 2007, the RTC ordered AMA to
World agreed to reduce the escalation rate by 50% for the next pay New World P466,620 as unpaid rentals plus 3% monthly
six months. The following year, AMA again requested the penalty interest until payment; P1,399,860 as liquidated
adjustment of the monthly rent and New World obliged by damages equivalent to six months rent, with the advance rental
granting a 45% reduction of the monthly rent and a 5% reduction and security deposit paid by AMA to be deducted therefrom;
of the escalation rate for the remaining term of the lease. For this P15,580 for the damage to the leased premises; P100,000 as
purpose, the parties entered into an Addendum to the Contract of attorneys fees; and costs of the suit.
Lease.9
According to the RTC, AMA never denied that it had arrearages
On the evening of 6 July 2004, AMA removed all its office equivalent to two months rent. Other than its allegation that it
equipment and furniture from the leased premises. The following did not participate in the preparation of the Statement of
day, New World received a letter from AMA dated 6 July 200410 Account, AMA did not proffer any evidence disputing the unpaid
stating that the former had decided to preterminate the contract rent. For its part, New World clearly explained the existence of
effective immediately on the ground of business losses due to a the arrears.
drastic decline in enrollment. AMA also demanded the refund of
its advance rental and security deposit. While sympathizing with AMA in view of its business losses, the
RTC ruled that AMA could not shirk from its contractual
New World replied in a letter dated 12 July 2004,11 to which was obligations, which provided that it had to pay liquidated damages
attached a Statement of Account12 indicating the following equivalent to six months rent in case of a pretermination of the
amounts to be paid by AMA: 1) unpaid two months rent in the lease.
amount of P466,620; 2) 3% monthly interest for the unpaid rent
in the amount of P67,426.59; 3) liquidated damages equivalent to The RTC provided no bases for awarding P15,580 for the damage
six months of the prevailing rent in the amount of P1,399,860; to the leased premises and P100,000 for attorneys fees, while
and 4) damage to the leased premises amounting to P15,580. The denying the prayer for exemplary and moral damages.
deduction of the advance rental and security deposit paid by
AMA still left an unpaid balance in the amount of P1,049,486.59. Upon the denial of its motion for reconsideration, AMA filed an
appeal before the CA.16
Despite the meetings between the parties, they failed to arrive at
a settlement regarding the payment of the foregoing amounts.13 RULING OF THE CA

In the assailed Decision dated 22 January 2009, the CA ordered Both parties filed their respective motions for reconsideration,
AMA to pay New World P466,620 for unpaid rentals and which were denied in the assailed Resolution dated 10 May 2009.
P933,240 for liquidated damages equivalent to four months rent,
with the advance rental and security deposit paid by AMA to be Hence, the present petitions for review on certiorari. On 3 August
deducted therefrom.17 2009, the Court resolved to consolidate the petitions, considering
that they involve the same parties and assail the same CA
The appellate court ruled that the RTC erred in imposing a 3% Decision and Resolution.23
monthly penalty interest on the unpaid rent, because there was
no stipulation either in the Contract of Lease or in the Addendum PARTIES POSITIONS
to the Contract of Lease concerning the imposition of interest in
the event of a delay in the payment of the rent.18 Thus, the CA According to New World, when parties freely stipulate on the
ruled that the rent in arrears should earn interest at the rate of manner by which one may preterminate the lease, that
6% per annum only, reckoned from the date of the extrajudicial stipulation has the force of law between them and should be
demand on 12 July 2004 until the finality of the Decision. complied with in good faith.24 Since AMA preterminated the
Thereafter, interest at the rate of12% per annum shall be lease, it became liable to liquidated damages equivalent to six
imposed until full payment. months rent. Furthermore, its failure to give notice to New
World six months prior to the intended pretermination of the
The CA also ruled that the RTCs imposition of liquidated contract and its leaving the leased premises in the middle of the
damages equivalent to six months rent was iniquitous.19 While night, with all its office equipment and furniture, smacked of
conceding that AMA was liable for liquidated damages for gross bad faith that renders it undeserving of sympathy from the
preterminating the lease, the CA also recognized that stipulated courts.25 Thus, the CA erred in reducing the liquidated damages
penalties may be equitably reduced by the courts based on its from an amount equivalent to six months rent to only four
sound discretion. Considering that the unexpired portion of the months.
term of lease was already less than two years, and that AMA had
suffered business losses rendering it incapable of paying for its New World also challenges the CA Decision and Resolution for
expenses, the CA deemed that liquidated damages equivalent to disallowing the imposition of the 3% monthly interest on the
four months rent was reasonable.20 unpaid rentals. It is argued that AMA never disputed the
imposition of the 3% monthly interest; rather, it only requested
The appellate court deleted the award for the damage to the that the interest rate be reduced.26
leased premises, because no proof other than the Statement of
Account was presented by New World.21 Furthermore, noting On the other hand, AMA assails the CA ruling for not recognizing
that the latter was already entitled to liquidated damages, and the fact that compensation took place between the unpaid rentals
that the trial court did not give any justification for attorneys and the advance rental paid by AMA.27 Considering that the
fees, the CA disallowed the award thereof.22 obligation of AMA as to the arrears has been extinguished by
operation of law, there would be no occasion for the imposition
of interest.28

AMA also prays for the further reduction of the liquidated This Court is, first and foremost, one of law. While we are also a
damages to an amount equivalent to one months rent up to one court of equity, we do not employ equitable principles when well-
and a half months, arguing that four months worth of rent is still established doctrines and positive provisions of the law clearly
iniquitous on account of the severe financial losses it suffered.29 apply.31
ISSUES The law does not relieve a party from the consequences of a
contract it entered into with all the required formalities.32 Courts
1. Whether AMA is liable to pay six months worth have no power to ease the burden of obligations voluntarily
of rent as liquidated damages. assumed by parties, just because things did not turn out as
expected at the inception of the contract.33 It must also be
2. Whether AMA remained liable for the rental emphasized that AMA is an entity that has had significant
arrears. business experience, and is not a mere babe in the woods.
OUR RULING Articles 1159 and 1306 of the Civil Code state:
I. Art. 1159. Obligations arising from contracts have the force of

law between the contracting parties and should be complied with
AMA is liable for six months worth of rent as liquidated damages. in good faith.
Item No. 14 of the Contract of Lease states: x x x x
That [AMA] may pre-terminate this Contract of Lease by notice in Art. 1306. The contracting parties may establish such
writing to [New World] at least six (6) months before the stipulations, clauses, terms and conditions as they may deem
intended date of pretermination, provided, however, that in such convenient, provided they are not contrary to law, morals, good
case, [AMA] shall be liable to [New World] for an amount customs, public order, or public policy.
equivalent to six (6) months current rental as liquidated
damages;30 The fundamental rule is that a contract is the law between the
parties. Unless it has been shown that its provisions are wholly or
Quite notable is the fact that AMA never denied its liability for the in part contrary to law, morals, good customs, public order, or
payment of liquidated damages in view of its pretermination of public policy, the contract will be strictly enforced by the
the lease contract with New World. What it claims, however, is courts.34
that it is entitled to the reduction of the amount due to the
serious business losses it suffered as a result of a drastic decrease In rebuttal, AMA invokes Article 2227 of the Civil Code, to wit:
in its enrollment.

Art. 2227. Liquidated damages, whether intended as an 3. Only after it had cleared the premises did it send
indemnity or a penalty, shall be equitably reduced if they are New World a notice of pretermination effective
iniquitous or unconscionable. immediately.
In Ligutan v. CA, we held that the resolution of the question of 4. It had the gall to demand a full refund of the
whether a penalty is reasonable, or iniquitous or unconscionable advance rental and security deposit, albeit without
would depend on factors including but not limited to the type, prejudice to their removal of the improvements
extent and purpose of the penalty; the nature of the obligation; introduced in the premises.
the mode of the breach and its consequences; the supervening
realities; and the standing and relationship of the parties.35 The We cannot understand the inability of AMA to be forthright with
appreciation of these factors is essentially addressed to the New World, considering that the former had been transparent
sound discretion of the court.36 about its business losses in its previous requests for the
reduction of the monthly rental. The drastic decrease in AMAs
It is quite easy to understand the reason why a lessor would enrollment had been unfolding since 2002. Thus, it cannot be
impose liquidated damages in the event of the pretermination of said that the business losses had taken it by surprise. It is also
a lease contract. Pretermination is effectively the breach of a highly unlikely that the decision to preterminate the lease
contract, that was originally intended to cover an agreed upon contract was made at the last minute. The cancellation of classes,
period of time. A definite period assures the lessor a steady the transfer of students, and administrative preparations for the
income for the duration. A pretermination would suddenly cut closure of the computer learning center and the removal of office
short what would otherwise have been a longer profitable equipment therefrom should take at least weeks, if not months, of
relationship. Along the way, the lessor is bound to incur losses logistic planning. Had AMA come clean about the impending
until it is able to find a new lessee, and it is this loss of income pretermination, measures beneficial to both parties could have
that is sought to be compensated by the payment of liquidated been arrived at, and the instant cases would not have reached
damages. this Court. Instead, AMA forced New World to share in the
formers losses, causing the latter to scramble for new lessees
There might have been other ways to work around its difficult while the premises remained untenanted and unproductive.
financial situation and lessen the impact of the pretermination to
both parties. However, AMA opted to do the following: In the sphere of personal and contractual relations governed by
laws, rules and regulations created to promote justice and
1. It preterminated the lease without notifying New fairness, equity is deserved, not demanded. The application of
World at least six months before the intended date. equity necessitates a balancing of the equities involved in a
case,37 for "[h]e who seeks equity must do equity, and he who
2. It removed all its office equipment and left the comes into equity must come with clean hands."38 Persons in dire
premises in the middle of the night. straits are never justified in trampling on other persons rights.
Litigants shall be denied relief if their conduct has been

inequitable, unfair and dishonest as to the controversy in issue.39 against such behaviour."40 As such, they may be awarded even
The actions of AMA smack of bad faith. when not pleaded or prayed for.41 In order to prevent the
commission of a similar act in the future, AMA shall pay New
We cannot abide by the prayer for the further reduction of the World exemplary damages in the amount of P100,000.
liquidated damages. We find that, in view of the surrounding
circumstances, the CA even erred in reducing the liquidated II.
damages to four months worth of rent. Under the terms of the
contract, and in light of the failure of AMA to show that it is AMAs liability for the rental arrears has already been
deserving of this Courts indulgence, the payment of liquidated extinguished.
damages in an amount equivalent to six months rent is proper.
AMA assails the CA ruling mainly for the imposition of legal
Also proper is an award of exemplary damages. Article 2234 of interest on the rent in arrears. AMA argues that the advance
the Civil Code provides: rental has extinguished its obligation as to the arrears. Thus, it
says, there is no more basis for the imposition of interest at the
Art. 2234. While the amount of the exemplary damages need not rate of 6% per annum from the date of extrajudicial demand on
be proved, the plaintiff must show that he is entitled to moral, 12 July 2004 until the finality of the Decision, plus interest at the
temperate or compensatory damages before the court may rate of 12% per annum from finality until full payment.
consider the question of whether or not exemplary damages
should be awarded. In case liquidated damages have been agreed At this juncture, it is necessary to look into the contract to
upon, although no proof of loss is necessary in order that such determine the purpose of the advance rental and security
liquidated damages may be recovered, nevertheless, before the deposit.
court may consider the question of granting exemplary in
addition to the liquidated damages, the plaintiff must show that Item Nos. 2, 3 and 4 of the Contract of Lease provide:
he would be entitled to moral, temperate or compensatory
damages were it not for the stipulation for liquidated damages. x x x x
(Emphasis supplied)
2. That [AMA] shall pay to [New World] in advance
In this case, it is quite clear that New World sustained losses as a within the first 5 days of each calendar month a
result of the unwarranted acts of AMA. Further, were it not for monthly rental in accordance with the following
the stipulation in the contract regarding the payment of schedule for the entire term of this Contract of
liquidated damages, we would be awarding compensatory Lease;
damages to New World.
PERIOD MONTHLY RENTAL
"Exemplary damages are designed by our civil law to permit the RATES
courts to reshape behaviour that is socially deleterious in its
consequence by creating negative incentives or deterrents Year 1 June 15, 1998 Mar 14, 181,500.00

1999 (P445,293.61) as monthly rental for the tenth [sic]
and last year of the lease term;
Year 2 Mar 15, 1999 Mar 14, P208,725.00
2000 4. Upon signing of the Contract, [AMA] shall pay
[New World] a Security Deposit in the amount of
Year 3 Mar 15, 2000 Mar 14, P240,033.75 FOUR HUNDRED FIFTY THOUSAND PESOS
2001 (P450,000.00) which shall be applied for any
Year 4 Mar 15, 2001 Mar 14, P276,038.81 unpaid rental balance and damages on the leased
2002 premises, and the balance of which shall be
refunded by [New World] to [AMA] within sixty
Year 5 Mar 15, 2002 Mar 14, P317,444.63 (60) days after the termination of the Contract, it
2003 being understood that such balance is being held
by [New World] in trust for [AMA].42
Year 6 Mar 15, 2003 Mar 14, P365,061.33
2004
Based on Item No. 4, the security deposit was paid precisely to
Year 7 Mar 15, 2004 Mar 14, P419,820.53 answer for unpaid rentals that may be incurred by AMA while the
2005 contract was in force. The security deposit was held in trust by
New World, and whatever may have been left of it after the
Year 8 Mar 15, 2005 Mar 14, P482,793.61 termination of the lease shall be refunded to AMA.
2006
Based on Item No. 3 in relation to Item No. 2, the parties divided
(P482,793.61 37,500 =
the advance rental of P450,000 by 12 months. They came up with
P445,293.61)
P37,500, which they intended to deduct from the monthly rental
to be paid by AMA for the last year of the lease term. Thus, unlike
The monthly rentals referred to above were the security deposit, no part of the advance rental was ever
computed at an escalation rate of Fifteen Percent meant to be refunded to AMA. Instead, the parties intended to
(15%) every year for the entire duration of this apply the advance rental, on a staggered basis, to a portion of the
lease contract. monthly rental in the last year of the lease term.
3. Upon signing of this Contract, [AMA] shall pay Considering the pretermination of the lease contract in the
advance rental in the amount of FOUR HUNDRED present case, this intent of the parties as regards the advance
FIFTY THOUSAND PESOS (P450,000.00); Said rental failed to take effect. The advance rental, however, retains
advance rental shall be applied as part of the rental its purpose of answering for the outstanding amounts that AMA
for the last year of the Contract with a remaining may owe New World.
balance of Four Hundred Forty Five Thousand Two
Hundred Ninety Three and 61/100 Pesos

We now delve into the actual application of the security deposit the imposition of 3% monthly penalty interest thereon. We quote
and the advance rental. with approval the ruling of the CA on this issue:
At the time of the pretermination of the contract of lease, the If the obligation consists in the payment of a sum of money, and
monthly rent stood at P233,310, inclusive of taxes;43 hence, the the debtor incurs in delay, the indemnity for damages, there
two-month rental arrears in the amount of P466,620. being no stipulation to the contrary, shall be the payment of the
interest agreed upon and in the absence of stipulation, the legal
Applying the security deposit of P450,000 to the arrears will interest, which is six per cent per annum.
leave a balance of P16,620 in New Worlds favor.1wphi1 Given
that we have found AMA liable for liquidated damages equivalent In the instant case, the Contract of Lease and the Addendum to
to six months rent in the amount of P1,399,860 (monthly rent of the Contract of Lease do not specify any interest in the event of
P233,310 multiplied by 6 months), its total liability to New World delay of payment of rentals. Accordingly, there being no
is P1,416,480. stipulation concerning interest, the trial court erred in imposing
3% interest per month on the two-month unpaid rentals.
We then apply the advance rental of P450,000 to this amount to
arrive at a total extinguishment of the liability for the unpaid [New World] argues that the said3% interest per month on the
rentals and a partial extinguishment of the liability for liquidated unpaid rentals was agreed upon by the parties as allegedly
damages. This shall leave AMA still liable to New World in the shown in Exhibits "A-4", "A-5", "A-6", "B-4", and "B-5".
amount of P966,480 (P1,416,480 total liability less P450,000
advance rental). We are not persuaded.
Not constituting a forbearance of money,44 this amount shall earn [New Worlds] letter dated 12 July 2004 to [AMA], Statement of
interest pursuant to Item II(2)45 of our pronouncement in Account dated 07 July 2004; and another Statement of Account
Eastern Shipping Lines v. CA.46 This item remained unchanged by dated 27 October 2004 were all prepared by [New World], with
the modification made in Nacar v. Gallery Frames.47 Interest at no participation or any indication of agreement on [AMAs] part.
the rate of 6% per annum is hereby imposed on the amount of The alleged proposal of [AMA] as contained in the Schedule of
966,480 from the time of extrajudicial demand on 12 July 2004 Receivable/Payable is just a computer print-out and does not
until the finality of this Decision. contain any signature showing [AMAs] conformity to the same.49
Thereafter this time pursuant to the modification in Nacar the Having relied on the Contract of Lease for its demand for
amount due shall earn interest at the rate of 6% per annum until payment of liquidated damages, New World should have also
satisfaction, this interim period being deemed to be by then referred to the contract to determine the proper application of
equivalent to a forbearance of credit.48 the advance rental and security deposit. Had it done so in the first
instance, it would have known that there is no occasion for the
Considering the foregoing, there was no occasion for the unpaid imposition of interest, 3% or otherwise, on the unpaid rentals.
two months rental to earn interest. Besides, we cannot sanction WHEREFORE, the Court of Appeals Decision dated 22 January

2009 and Resolution dated 10 May 2009 in CA-G.R. CV No. 89483 City, finding petitioner Aniceto G. Saludo, Jr. and Booklight, Inc.
is AFFIRMED with MODIFICATION. (Booklight) jointly and severally liable to Security Bank
Corporation (SBC).
AMA Computer Learning Center, Inc. is ordered to pay New
World Developers and Management, Inc. the amount of P966,480, The basic facts follow
with interest at the rate of 6% per annum from 12 July 2004 until
full payment. On 30 May 1996, Booklight was extended an omnibus line credit
facility by SBC in the amount of P10,000,000.00. Said loan was
In addition, AMA shall pay New World exemplary damages in the covered by a Credit Agreement and a Continuing Suretyship with
amount of P100,000, which shall earn interest at the rate of 6% petitioner as surety, both documents dated 1 August 1996, to
per annum from the finality of this Decision until full payment. secure full payment and performance of the obligations arising
from the credit accommodation.
SO ORDERED.
Booklight drew several availments of the approved credit facility
from 1996 to 1997 and faithfully complied with the terms of the
loan. On 30 October 1997, SBC approved the renewal of credit
facility of Booklight in the amount of P10,000,000.00 under the
prevailing security lending rate. From August 3 to 14, 1998,
Booklight executed nine (9) promissory notesin favor of SBC in
123. ANICETO G. SALUDO, JR., G.R. No. 184041
the aggregate amount of P9,652,725.00. For failure to settle the
Petitioner, loans upon maturity, demands were made on Booklight and
petitioner for the payment of the obligation but the duo failed to
pay. As of 15 May 2000, the obligation of Booklight stood at
SECURITY BANK CORPORATION, P10,487,875.41, inclusive of interest past due and penalty
Respondent.
On 16 June 2000, SBC filed against Booklight and herein
petitioner an action for collection of sum of money with the RTC.
Booklight initially filed a motion to dismiss, which was later on
D E C I S I O N denied for lack of merit. In his Answer, Booklight asserted that
the amount demanded by SBC was not based on the omnibus
PEREZ, J.: credit line facility of 30 May 1996, but rather on the amendment
of the credit facilities on 15 October 1996 increasing the loan line
Before this Court is a petition for review on certiorari from P8,000,000.00 to P10,000,000.00. Booklight denied
seeking the reversal of the Decision of the Court of Appeals in CA-
executing the promissory notes. It also claimed that it was not in
G.R. CV No. 88079 dated 24 January 2008 which affirmed the default as in fact, it paid the sum of P1,599,126.11 on 30
Decision Branch 149 of the Regional Trial Court (RTC) of Makati
September 1999 as a prelude to restructuring its loan for which it

earnestly negotiated for a mutually acceptable agreement until 5 PN No. Amount Interest Rate (per Beginnin
July 2000, without knowing that SBC had already filed the annum)
collection case. 74/787/98 P1,927,000.00 20.189% Novembe
74/788/98 913,545.00 20.189% Novembe
In his Answer to the complaint, herein petitioner alleged that 74/789/98 1,927,090.00 20.189% Novembe
under the Continuing Suretyship, it was the parties 74/791/98 500,000.0 20.178% Novembe
understanding that his undertaking and liability was merely as 74/792/98 800,000.00 20.178% Novembe
an accommodation guarantor of Booklight. He countered that he
74/793/98 665,000.00 20.178% Novembe
came to know that Booklight offered to pay SBC the partial
74/808/98 970,000.00 20.178% Novembe
payment of the loan and proposed the restructuring of the
obligation. Petitioner argued that said offer to pay constitutes a 74/822/98 975,000.00 20.178% Novembe
valid tender of payment which discharged Booklights obligation 74/823/98 975,000.00 20.178% Novembe
to the extent of the offer. Petitioner also averred that the
imposition of the penalty on the supposed due and unpaid with attorneys fee of P100,000.00 plus cost of suit
principal obligation based on the penalty rate of 2% per month is
clearly unconscionable.

On 7 March 2005, Booklight was declared in default. Petitioner filed a motion for reconsideration but it was denied by
Consequently, SBC presented its evidence ex-parte. The case the Court of Appeals on 7 August 2008.
against petitioner, however, proceeded and the latter was able to
present evidence on his behalf. Hence, the instant petition on the following arguments:

After trial, the RTC ruled that petitioner is jointly and solidarily The first credit facility has a one-year term from 30 June 1996 to
liable with Booklight under the Continuing Suretyship 30 June 1997 while the second credit facility runs from 30
Agreement. The dispositive portion reads: October 1997 to 30 October 1998.

WHEREFORE, in view of the foregoing considerations, When the first credit facility expired, its accessory contract, the
the Court hereby finds in favor of the plaintiff Continuing Surety agreement likewise expired.
against the defendants by ordering the
defendants Booklight, Inc. and Aniceto G. The second credit facility is not covered by the Continuing
Saludo, Jr., jointly and severally liable Suretyship, thus, availments made in 1998 by Booklight are not
(solidarily liable) to plaintiff [sic], the covered by the Continuing Suretyship.
following sums of Philippine Pesos:
The approval of the second credit facility necessitates the consent
of petitioner for the latters Continuing Suretyship to be effective.


The nine (9) promissory notes executed and drawn by Booklight restructurings, amendments or novations thereof, as well as
in 1998 did not specify that they were drawn against and subject (i) all obligations of the Debtor presently or hereafter owing to
to the Continuing Suretyship. Neither was it mentioned in the the Bank, as appears in the accounts, books and records of the
Continuing Suretyship that it was executed to serve as collateral Bank, whether direct or indirect, and (ii) any and all expenses
to the nine (9) promissory notes. which the Bank may incur in enforcing any of its rights, powers
and remedies under the Credit Instruments as defined
The Continuing Suretyship is a contract of adhesion and hereinbelow;
petitioners participation to it is his signing of his contract.
Whether the second credit facility is considered a
The approval of the second credit facility is considered a renewal of the first or a brand new credit facility altogether was
novation of the first sufficient to extinguish the Continuing indirectly answered by the trial court when it invoked paragraph
Suretyship and discharge petitioner. 10 of the Continuing Suretyship which provides:

The main derivative of these averments is the issue of 10. remain in full force and effect until full and due payment and
whether or not petitioner should be held solidarily liable for the performance of the Guaranteed Obligations. This Suretyship shall
second credit facility extended to Booklight. not be terminated by the partial payment to the Bank of
We rule in the affirmative. Guaranteed Obligations by any other surety or sureties of the
Guaranteed Obligations, even if the particular surety or sureties
There is no doubt that Booklight was extended two (2) are relieved of further liabilities.
credit facilities, each with a one-year term, by SBC. Booklight
availed of these two (2) credit lines. While Booklight was able to
comply with its obligation under the first credit line, it defaulted and concluded that the liability of petitioner did not expire upon
in the payment of the loan obligation amounting to the termination of the first credit facility.
P9,652,725.00 under the second credit line. There is likewise no
dispute that the first credit line facility, with a term from 30 June It cannot be gainsaid that the second credit facility was renewed
1996 to 30 June 1997, was covered by a Continuing Suretyship for another one-year term by SBC. The terms of renewal read:
with petitioner acting as the surety. The dispute is on the
coverage by the Continuing Suretyship of the loan contracted 30 October 1997
under the second credit facility.
BOOKLIGHT, INC.
Under the Continuing Suretyship, petitioner undertook x x x x
to guarantee the following obligations:
Gentlemen:
Guaranteed Obligations the obligations of the Debtor arising from
all credit accommodations extended by the Bank to the Debtor,
including increases, renewals, roll-overs, extensions,

x x x x.[
We are pleased to advise you that the Bank has approved
the renewal of your credit facility subject to the
terms and conditions set forth below:

This very renewal is explicitly covered by the guaranteed
obligations of the Continuing Suretyship.

Facility : Loan Line The essence of a continuing surety has been highlighted in the
case of Totanes v. China Banking Corporation in this wise:
Comprehensive or continuing surety agreements are, in
fact, quite commonplace in present day
Amount : P10,000,000.00 financial and commercial practice. A bank or
financing company which anticipates entering
into a series of credit transactions with a
particular company, normally requires the
Collateral : Existing JSS of Atty. Aniceto Saludo (marital projected principal debtor to execute a
consent waived) continuing surety agreement along with its
sureties. By executing such an agreement, the
principal places itself in a position to enter
into the projected series of transactions with
Term : 180 day Promissory Notes its creditor; with such suretyship agreement,
there would be no need to execute a separate
surety contract or bond for each financing or
credit accommodation extended to the
Interest Rate : Prevailing SBC lending rate; subject to principal debtor.
monthly setting and
payment

In Gateway Electronics Corporation v. Asianbank Corporation, the
Expiry : October 31, 1998 Court emphasized that [b]y its nature, a continuing suretyship
covers current and future loans, provided that, with respect to
future loan transactions, they are x x x within the description or
contemplation of the contract of guaranty.


Petitioner argues that the approval of the second credit facility Booklight pursuant to the credit agreement.
necessitates his consent considering the onerous and solidary
liability of a surety. This is contrary to the express waiver of his On these facts the novation argument advanced by
consent to such renewal, contained in paragraph 12 of the petitioner must fail.
Continuing Suretyship, which provides in part:
There is no novation to speak of. It is the first credit
12. Waivers by the Surety. The Surety hereby waives: x facility that expired and not the Credit Agreement. There was a
x x (v) notice or consent to any modification, second loan pursuant to the same credit agreement. The terms
amendment, renewal, extension or grace and conditions under the Credit Agreement continue to apply and
period granted by the Bank to the Debtor with the Continuing Suretyship continues to guarantee the Credit
respect to the Credit Instruments. Agreement.

The lameness of petitioners stand is pointed up by his
attempt to escape from liability by labelling the Continuing
Suretyship as a contract of adhesion.
Respondent, as last resort, harps on the novation of the A contract of adhesion is defined as
first credit facility to exculpate itself from liability from the one in which one of the parties imposes a
second credit facility. ready-made form of contract, which the other
party may accept or reject, but which the latter
At the outset, it must be pointed out that the Credit cannot modify. One party prepares the
Agreement is actually the principal contract and it covers all stipulation in the contract, while the other
credit facilities now or hereafter extended by [SBC] to party merely affixes his signature or his
[Booklight]; and that the suretyship agreement was executed adhesion thereto, giving no room for
precisely to guarantee these obligations, i.e., the credit facilities negotiation and depriving the latter of the
arising from the credit agreement. The principal contract is the opportunity to bargain on equal footing.[if
credit agreement covered by the Continuing Suretyship.

The two loan facilities availed by Booklight under the
credit agreement are the Omnibus Line amounting to
P10,000,000.00 granted to Booklight in 1996 and the other one is A contract of adhesion presupposes that the party
the Loan Line of the same amount in 1997. Petitioner however adhering to the contract is a weaker party. That cannot be said of
seeks to muddle the issue by insisting that these two availments petitioner. He is a lawyer. He is deemed knowledgeable of the
were two separate principal contracts, conveniently ignoring the legal implications of the contract that he is signing.
fact that it is the credit agreement which constitutes the principal
contract signed by Booklight in order to avail of SBCs credit It must be borne in mind, however,
facilities. The two credit facilities are but loans made available to that contracts of adhesion are not invalid per

se. Contracts of adhesion, where one party
imposes a ready-made form of contract on the
other, are not entirely prohibited. The one It is a hornbook doctrine in our criminal law that the
who adheres to the contract is, in reality, free criminal liability for estafa is not affected by a compromise, for it
to reject it entirely; if he adheres, he gives his is a public offense which must be prosecuted and punished by the
consent government on its own motion, even though complete reparation
[has] been made of the damage suffered by the private offended
party. Since a criminal offense like estafa is committed against
the State, the private offended party may not waive or extinguish
the criminal liability that the law imposes for the commission of
Finally, petitioner challenges the imposition of 20.189% the crime.
interest rate as unconscionable. We rule otherwise. In
Development Bank of the Philippines v. Family Foods This Petition for Review on Certiorari under Rule 45 of
Manufacturing Co. Ltd this Court upheld the validity of the the Rules of Court seeks the reversal of the Court of Appeals
imposition of 18% and 22% stipulated rates of interest in the two (CAs) Decisiondated October 21, 2002 in CA-G.R. SP No. 58548
(2) promissory notes. Likewise in Spouses Bacolor v. Banco and its further Resolution dated July 12, 2004 denying petitioners
Filipino Savings and Mortgage Bank,[ the 24% interest rate agreed Motion for Reconsideration
upon by parties was held as not violative of the Usury Law, as
amended by Presidential Decree No. 116. Factual Antecedents

WHEREFORE, the petition is DENIED. The Decision dated 24 On January 31, 1997, petitioner Metropolitan Bank and Trust
January 2008 of the Court of Appeals in CA-G.R. CV No. 88079 is Company charged respondents before the Office of the City
AFFIRMED in toto. Prosecutor of Manila with the crime of estafa under Article 315,
paragraph 1(b) of the Revised Penal Code. In the affidavit of
SO ORDERED. petitioners audit officer, Antonio Ivan S. Aguirre, it was alleged
that the special audit conducted on the cash and lending
operations of its Port Area branch uncovered
anomalous/fraudulent transactions perpetrated by respondents
in connivance with client Universal Converter Philippines, Inc.
124. METROPOLITANT BANK TRUST AND COMPANY vs (Universal); that respondents were the only voting members of
REYNADO AND ADRANDEA the branchs credit committee authorized to extend credit
accommodation to clients up to P200,000.00; that through the so-
D E C I S I O N called Bills Purchase Transaction, Universal, which has a paid-up
capital of only P125,000.00 and actual maintaining balance of
P5,000.00, was able to make withdrawals totaling
DEL CASTILLO, J.: P81,652,000.00[against uncleared regional checks deposited in

its account at petitioners Port Area branch; that, consequently, WHEREFORE, for insufficiency of evidence, it is respectfully
Universal was able to utilize petitioners funds even before the recommended that the case be dismissed
seven-day clearing period for regional checks expired; that
Universals withdrawals against uncleared regional check
deposits were without prior approval of petitioners head office;
that the uncleared checks were later dishonored by the drawee On December 9, 1997, petitioner appealed the Resolution of
bank for the reason Account Closed; and, that respondents acted Prosecutor Edad to the Department of Justice (DOJ) by means of a
with fraud, deceit, and abuse of confidence. Petition for Review

In their defense, respondents denied responsibility in the Ruling of the Department of Justice
anomalous transactions with Universal and claimed that they
only intended to help the Port Area branch solicit and increase its On June 22, 1998, the DOJ dismissed the petition ratiocinating
deposit accounts and daily transactions. that:
Meanwhile, on February 26, 1997, petitioner and Universal
entered into a Debt Settlement Agreementwhereby the latter It is evident that your client based on the same transaction chose
acknowledged its indebtedness to the former in the total amount to file estafa only against its employees and treat with kid gloves
of P50,990,976.27as of February 4, 1997 and undertook to pay its big time client Universal who was the one who benefited from
the same in bi-monthly amortizations in the sum of P300,000.00 this transaction and instead, agreed that it should be paid on
starting January 15, 1997, covered by postdated checks, plus installment basis.
balloon payment of the remaining principal balance and interest
and other charges, if any, on December 31, 2001

Findings of the Prosecutor
To allow your client to make the choice is to make an
Following the requisite preliminary investigation, Assistant City unwarranted classification under the law which will result in
Prosecutor Winnie M. Edad (Prosecutor Edad) in her Resolution grave injustice against herein respondents. Thus, if your client
dated July 10, 1997 found petitioners evidence insufficient to agreed that no estafa was committed in this transaction with
hold respondents liable for estafa. According to Prosecutor Edad: Universal who was the principal player and beneficiary of this
transaction[,] more so with herein respondents whose liabilities
The execution of the Debt Settlement Agreement puts are based only on conspiracy with Universal.
complainant bank in estoppel to argue that the liability is
criminal. Since the agreement was made even before the filing of
this case, the relations between the parties [have] change[d],
novation has set in and prevented the incipience of any criminal Equivocally, there is no estafa in the instant case as it was not
liability on the part of respondents. Thus, Prosecutor Edad clearly shown how respondents misappropriated the
recommended the dismissal of the case P53,873,500.00 which Universal owed your client after its checks

deposited with Metrobank were dishonored. Moreover, fraud is for estafa neither does restitution negate the offense already
not present considering that the Executive Committee and the committed
Credit Committee of Metrobank were duly notified of these
transactions which they approved. Further, no damage was Additionally, the OSG, in sharing the views of petitioner
caused to your client as it agreed [to] the settlement [with] contended that failure to implead other responsible individuals
Universal. in the complaint does not warrant its dismissal, suggesting that
the proper remedy is to cause their inclusion in the information.[
This notwithstanding, however, the CA disposed of the petition as
follows:
A Motion for Reconsideration was filed by petitioner, but the
same was denied on March 1, 2000 by then Acting Secretary of WHEREFORE, the petition is DENIED due course and,
Justice Artemio G. Tuquero. Aggrieved, petitioner went to the CA accordingly,DISMISSED. Consequently, the resolutions dated June
by filing a Petition for Certiorari & Mandamus 22, 1998 and March 1, 2000 of the Secretary of Justice are
AFFIRMED. SO ORDERED
Ruling of the Court of Appeals

Hence, this instant petition before the Court.
By Decision of October 21, 2002, the CA affirmed the twin
resolutions of the Secretary of Justice. Citing jurisprudence
wherein we ruled that while novation does not extinguish
criminal liability, it may prevent the rise of such liability as long On November 8, 2004, we required[respondents to file
as it occurs prior to the filing of the criminal information in court. Comment, not a motion to dismiss, on the petition
Hence, according to the CA, [j]ust as Universal cannot be held within 10 days from notice. The OSG filed a
responsible under the bills purchase transactions on account of Manifestation and Motion in Lieu of Comment while
novation, private respondents, who acted in complicity with the respondent Jose C. Adraneda (Adraneda) submitted his
former, cannot be made liable [for] the same transactionsThe CA Comment on the petition. The Secretary of Justice failed
added that [s]ince the dismissal of the complaint is founded on to file the required comment on the OSGs Manifestation
legal ground, public respondents may not be compelled by and Motion in Lieu of Comment and respondent Rogelio
mandamus to file an information in court Reynado (Reynado) did not submit any. For which
reason, we issued a show cause order on July 19, 2006.
Incidentally, the CA totally ignored the Commentof the Office of Their persistent non-compliance with our directives
the Solicitor General (OSG) where the latter, despite being the constrained us to resolve that they had waived the filing
statutory counsel of public respondent DOJ, agreed with of comment and to impose a fine of P1,000.00 on
petitioner that the DOJ erred in dismissing the complaint. It Reynado. Upon submission of the required
alleged that where novation does not extinguish criminal liability memorandum by petitioner and Adraneda, the instant

petition was submitted for resolution. The OSG, for its part, instead of contesting the
arguments of petitioner, even prayed before the CA to give due
course to the petition contending that DOJ indeed erred in
dismissing the complaint for estafa.

Issues Given the facts of the case, the basic issue presented before this
Court is whether the execution of the Debt Settlement Agreement
Petitioner presented the following main arguments for our precluded petitioner from holding respondents liable to stand
consideration: trial for estafa under Art. 315 (1)(b) of the Revised Penal Code.

Novation and undertaking to pay the amount embezzled do not Our Ruling
extinguish criminal liability.
We find the petition highly meritorious.
[It is the duty of the public prosecutor to implead all persons who
appear criminally liable for the offense charged. Novation not a mode of extinguishingcriminal liability for estafa;
Criminal liability for estafa not affected by compromise or novation
Petitioner persistently insists that the execution of the Debt of contract.
Settlement Agreement with Universal did not absolve private
respondents from criminal liability for estafa. Petitioner submits
that the settlement affects only the civil obligation of Universal Initially, it is best to emphasize that novation is not one
but did not extinguish the criminal liability of the respondents. of the grounds prescribed by the Revised Penal Code for the
Petitioner thus faults the CA in sustaining the DOJ which in turn extinguishment of criminal liability.
affirmed the finding of Prosecutor Edad for committing apparent
error in the appreciation and the application of the law on In a catena of cases, it was ruled that criminal liability for estafa is
novation. By petitioners claim, citing Metropolitan Bank and Trust not affected by a compromise or novation of contract. In Firaza v.
Co. v. Tonda, the negotiations pertain [to] and affect only the civil People and Recuerdo v. People this Court ruled that in a crime of
aspect of the case but [do] not preclude prosecution for the estafa, reimbursement or belated payment to the offended party
offense already committed. of the money swindled by the accused does not extinguish the
criminal liability of the latter. We also held in People v.
In his Comment, Adraneda denies being a privy to the Morenoand in People v. Ladera that criminal liability for estafa is
anomalous transactions and passes on the sole responsibility to not affected by compromise or novation of contract, for it is a
his co-respondent Reynado as the latter was able to conceal the public offense which must be prosecuted and punished by the
pertinent documents being the head of petitioners Port Area Government on its own motion even though complete reparation
branch. Nonetheless, he contends that because of the Debt should have been made of the damage suffered by the offended
Settlement Agreement, they cannot be held liable for estafa. party. Similarly in the case of Metropolitan Bank and Trust
Company v. Tonda cited by petitioner, we held that in a crime of

estafa, reimbursement of or compromise as to the amount
misappropriated, after the commission of the crime, affects only Under Article 1311 of the Civil Code, contracts take effect only
the civil liability of the offender, and not his criminal liability. between the parties, their assigns and heirs, except in case where
the rights and obligations arising from the contract are not
Thus, the doctrine that evolved from the aforecited cases is that a transmissible by their nature, or by stipulation or by provision of
compromise or settlement entered into after the commission of law. The civil law principle of relativity of contracts provides that
the crime does not extinguish accuseds liability for estafa. contracts can only bind the parties who entered into it, and it
Neither will the same bar the prosecution of said crime. cannot favor or prejudice a third person, even if he is aware of
Accordingly, in such a situation, as in this case, the complaint for such contract and has acted with knowledge thereof.
estafa against respondents should not be dismissed just because
petitioner entered into a Debt Settlement Agreement with In the case at bar, it is beyond cavil that respondents are
Universal. Even the OSG arrived at the same conclusion: not parties to the agreement. The intention of the parties thereto
not to include them is evident either in the onerous or in the
Contrary to the conclusion of public beneficent provisions of said agreement. They are not assigns or
respondent, the Debt Settlement Agreement heirs of either of the parties. Not being parties to the agreement,
entered into between petitioner and Universal respondents cannot take refuge therefrom to bar their
Converter Philippines extinguishes merely the anticipated trial for the crime they committed. It may do well for
civil aspect of the latters liability as a respondents to remember that the criminal action commenced
corporate entity but not the criminal liability by petitioner had its genesis from the alleged fraud,
of the persons who actually committed the unfaithfulness, and abuse of confidence perpetrated by them in
crime of estafa against petitioner Metrobank. x relation to their positions as responsible bank officers. It did not
x arise from a contractual dispute or matters strictly between
petitioner and Universal. This being so, respondents cannot rely
on subject settlement agreement to preclude prosecution of the
offense already committed to the end of extinguishing their
Unfortunately for petitioner, the above observation of criminal liability or prevent the incipience of any liability that
the OSG was wittingly glossed over in the body of the assailed may arise from the criminal offense. This only demonstrates that
Decision of the CA. the execution of the agreement between petitioner and Universal
has no bearing on the innocence or guilt of the respondents.
Execution of the Debt Settlement Agreement did not prevent the
incipience of criminal liability. Determination of the probable cause, a function belonging to the
public prosecutor; judicial review allowed where it has been clearly
established that the prosecutor committed grave abuse of
Even if the instant case is viewed from the standpoint of discretion.
the law on contracts, the disposition absolving the respondents
from criminal liability because of novation is still erroneous.

In a preliminary investigation, a public prosecutor
determines whether a crime has been committed and whether Equivocally, there is no estafa in the instant case as it was not
there is probable cause that the accused is guilty thereof. The clearly shown how respondents misappropriated the
Secretary of Justice, however, may review or modify the P53,873,500.00 which Universal owed your client after its checks
resolution of the prosecutor. deposited with Metrobank were dishonored. Moreover, fraud is
not present considering that the Executive Committee and the
Probable cause is defined as such facts and circumstances that Credit Committee of Metrobank were duly notified of these
will engender a well-founded belief that a crime has been transactions which they approved. Further, no damage was
committed and that the respondent is probably guilty thereof and caused to your client as it agreed [to] the settlement [with]
should be held for trial. Generally, a public prosecutor is afforded Universal.
a wide latitude of discretion in the conduct of a preliminary
investigation. By way of exception, however, judicial review is
allowed where respondent has clearly established that the
prosecutor committed grave abuse of discretion that is, when he The findings of the Secretary of Justice in sustaining the dismissal
has exercised his discretion in an arbitrary, capricious, whimsical of the Complaint are matters of defense best left to the trial
or despotic manner by reason of passion or personal hostility, courts deliberation and contemplation after conducting the trial
patent and gross enough as to amount to an evasion of a positive of the criminal case. To emphasize, a preliminary investigation
duty or virtual refusal to perform a duty enjoined by law. Tested for the purpose of determining the existence of probable cause is
against these guidelines, we find that this case falls under the not a part of the trial. A full and exhaustive presentation of the
exception rather than the general rule. parties evidence is not required, but only such as may engender a
well-grounded belief that an offense has been committed and that
A close scrutiny of the substance of Prosecutor Edads Resolution the accused is probably guilty thereof. A finding of probable
dated July 10, 1997 readily reveals that were it not for the Debt cause does not require an inquiry into whether there is sufficient
Settlement Agreement, there was indeed probable cause to indict evidence to procure a conviction. It is enough that it is believed
respondents for the crime charged. From her own assessment of that the act or omission complained of constitutes the offense
the Complaint-Affidavit of petitioners auditor, her preliminary charged So we held in Balangauan v. Court of Appeals.
finding is that Ordinarily, the offense of estafa has been
sufficiently established. Interestingly, she suddenly changed tack
and declared that the agreement altered the relation of the
parties and that novation had set in preventing the incipience of
any criminal liability on respondents. In light of the Applying the foregoing disquisition to the present petition, the
jurisprudence herein earlier discussed, the prosecutor should not reasons of DOJ for affirming the dismissal of the criminal
have gone that far and executed an apparent somersault. complaints for estafa and/or qualified estafa are determinative of
Compounding further the error, the DOJ in dismissing petitioners whether or not it committed grave abuse of discretion amounting
petition, ruled out estafa contrary to the findings of the to lack or excess of jurisdiction. In requiring hard facts and solid
prosecutor. Pertinent portion of the ruling reads: evidence as the basis for a finding of probable cause to hold
petitioners Bernyl and Katherene liable to stand trial for the

crime complained of, the DOJ disregards the definition of discretion in disposing of the case of petitioner, given the
probable cause that it is a reasonable ground of presumption that sufficiency of evidence on hand, we do not hesitate to rule in the
a matter is, or may be, well-founded, such a state of facts in the affirmative. We have previously ruled that grave abuse of
mind of the prosecutor as would lead a person of ordinary discretion may arise when a lower court or tribunal violates and
caution and prudence to believe, or entertain an honest or strong contravenes the Constitution, the law or existing jurisprudence.
suspicion, that a thing is so. The term does not mean actual and
positive cause nor does it import absolute certainty. It is merely Non-inclusion of officers of Universal not a ground for the dismissal
based on opinion and reasonable belief; that is, the belief that the of the complaint.
act or omission complained of constitutes the offense charged.
While probable cause demands more than bare suspicion, it
requires less than evidence which would justify conviction. The DOJ in resolving to deny petitioners appeal from
Herein, the DOJ reasoned as if no evidence was actually the resolution of the prosecutor gave another ground failure to
presented by respondent HSBC when in fact the records of the implead the officers of Universal. It explained:
case were teeming; or it discounted the value of such
substantiation when in fact the evidence presented was adequate To allow your client to make the
to excite in a reasonable mind the probability that petitioners choice is to make an unwarranted
Bernyl and Katherene committed the crime/s complained of. In classification under the law which will result
so doing, the DOJ whimsically and capriciously exercised its in grave injustice against herein respondents.
discretion, amounting to grave abuse of discretion, which Thus, if your client agreed that no estafa was
rendered its resolutions amenable to correction and annulment committed in this transaction with Universal
by the extraordinary remedy of certiorari. who was the principal player and beneficiary
of this transaction[,] more so with herein
respondents whose liabilities are based only
on conspiracy with Universal.
In the case at bar, as analyzed by the prosecutor, a
prima facie case of estafa exists against respondents. As perused
by her, the facts as presented in the Complaint-Affidavit of the
auditor are reasonable enough to excite her belief that
respondents are guilty of the crime complained of. In Andres v. The ratiocination of the Secretary of Justice conveys the
Justice Secretary Cuevas we had occasion to rule that the presence idea that if the charge against respondents rests upon the same
or absence of the elements of the crime is evidentiary in nature evidence used to charge co-accused (officers of Universal) based
and is a matter of defense that may be passed upon after a full- on the latters conspiratorial participation, the non-inclusion of
blown trial on the merits said co-accused in the charge should benefit the respondents.

Thus confronted with the issue on whether the public
prosecutor and the Secretary of Justice committed grave abuse of The reasoning of the DOJ is flawed.

discretion neither may it be issued to compel the exercise of
Suffice it to say that it is indubitably within the discretion of the discretion. Truly, it is a matter of discretion on the part of the
prosecutor to determine who must be charged with what crime prosecutor to determine which persons appear responsible for
or for what offense. Public prosecutors, not the private the commission of a crime. However, the moment he finds one to
complainant, are the ones obliged to bring forth before the law be so liable it becomes his inescapable duty to charge him
those who have transgressed it. therewith and to prosecute him for the same. In such a situation,
the rule loses its discretionary character and becomes
Section 2, Rule 110 of the Rules of Court mandates that all mandatory. Thus, where, as in this case, despite the sufficiency of
criminal actions must be commenced either by complaint or the evidence before the prosecutor, he refuses to file the
information in the name of the People of the Philippines against corresponding information against the person responsible, he
all persons who appear to be responsible therefor. Thus the law abuses his discretion. His act is tantamount to a deliberate refusal
makes it a legal duty for prosecuting officers to file the charges to perform a duty enjoined by law. The Secretary of Justice, on
against whomsoever the evidence may show to be responsible the other hand, gravely abused his discretion when, despite the
for the offense. The proper remedy under the circumstances existence of sufficient evidence for the crime of estafa as
where persons who ought to be charged were not included in the acknowledged by the investigating prosecutor, he completely
complaint of the private complainant is definitely not to dismiss ignored the latters finding and proceeded with the questioned
the complaint but to include them in the information. As the OSG resolution anchored on purely evidentiary matters in utter
correctly suggested, the proper remedy should have been the disregard of the concept of probable cause as pointed out in
inclusion of certain employees of Universal who were found to Balangauan. To be sure, findings of the Secretary of Justice are
have been in cahoots with respondents in defrauding petitioner. not subject to review unless shown to have been made with grave
The DOJ, therefore, cannot seriously argue that because the abuse. The present case calls for the application of the exception.
officers of Universal were not indicted, respondents themselves Given the facts of this case, petitioner has clearly established that
should not likewise be charged. Their non-inclusion cannot be the public prosecutor and the Secretary of Justice committed
perversely used to justify desistance by the public prosecutor grave abuse of discretion.
from prosecution of the criminal case just because not all of those
who are probably guilty thereof were charged. WHEREFORE, the petition is GRANTED. The assailed Decision of
the Court of Appeals in CA-G.R. SP No. 58548 promulgated on
Mandamus a proper remedy when resolution of public respondent October 21, 2002 affirming the Resolutions dated June 22, 1998
is tainted with grave abuse of discretion. and March 1, 2000 of the Secretary of Justice, and its Resolution
dated July 12, 2004 denying reconsideration thereon are hereby
REVERSED and SET ASIDE. The public prosecutor is ordered to
Mandamus is a remedial measure for parties aggrieved. It shall file the necessary information for estafa against the respondents.
issue when any tribunal, corporation, board, officer or person
unlawfully neglects the performance of an act which the law
specifically enjoins as a duty resulting from an office, trust or
station. The writ of mandamus is not available to control

125. PRUDENTIAL BANK AND TRUST them.
COMPANY (now BANK OF THE PHILIPPINE
ISLANDS, To guarantee the payment of the property, Corazon
Petitioner, executed on August 25, 1995 a Promissory Note for P2,448,960
in favor of respondent.
- versus -
By respondents claim, in October 1995, Mendiola
LIWAYWAY ABASOLO, advised her to transfer the properties first to Corazon for the
Respondent. immediate processing of Corazons loan application with
assurance that the proceeds thereof would be paid directly to her
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (respondent), and the obligation would be reflected in a bank
- x guarantee.

D E C I S I O N Heeding Mendiolas advice, respondent executed a Deed of
Absolute Sale over the properties in favor of Corazon following
CARPIO MORALES, J. which or on December 4, 1995, Transfer Certificates of Title Nos.
164159 and 164160 were issued in the name of Corazon.
Leonor Valenzuela-Rosales inherited two parcels of land situated
in Palanan, Sta. Cruz, Laguna (the properties), registered as Corazons application for a loan with PBTCs Tondo Branch was
Original Certificates of Title Nos. RO-527 and RO-528. After she approved on December 1995. She thereupon executed a real
passed away, her heirs executed on June 14, 1993 a Special estate mortgage covering the properties to secure the payment of
Power of Attorney (SPA) in favor of Liwayway Abasolo the loan. In the absence of a written request for a bank guarantee,
(respondent) empowering her to sell the properties. the PBTC released the proceeds of the loan to Corazon.

Sometime in 1995, Corazon Marasigan (Corazon) wanted to buy Respondent later got wind of the approval of Corazons loan
the properties which were being sold for P2,448,960, but as she application and the release of its proceeds to Corazon who,
had no available cash, she broached the idea of first mortgaging despite repeated demands, failed to pay the purchase price of the
the properties to petitioner Prudential Bank and Trust Company properties.
(PBTC), the proceeds of which would be paid directly to
respondent. Respondent agreed to the proposal. Respondent eventually accepted from Corazon partial
payment in kind consisting of one owner type jeepney and four
On Corazon and respondents consultation with PBTCs Head passenger jeepneys, plus installment payments, which, by the
Office, its employee, Norberto Mendiola (Mendiola), allegedly trial courts computation, totaled P665,000.
advised respondent to issue an authorization for Corazon to
mortgage the properties, and for her (respondent) to act as one In view of Corazons failure to fully pay the purchase
of the co-makers so that the proceeds could be released to both of price, respondent filed a complaint for collection of sum of money

and annulment of sale and mortgage with damages, against plaintiff ordering:
Corazon and PBTC (hereafter petitioner), before the Regional
Trial Court (RTC) of Sta. Cruz, Laguna.

In her Answer Corazon denied that there was an agreement that
the proceeds of the loan would be paid directly to respondent.
And she claimed that the vehicles represented full payment of the
properties, and had in fact overpaid P76,040.

Petitioner also denied that there was any arrangement between Defendant Corazon Marasigan to pay the plaintiff the
it and respondent that the proceeds of the loan would be released amount of P1,783,960.00 plus three percent
to her It claimed that it may process a loan application of the (3%) monthly interest per month from August
registered owner of the real property who requests that proceeds 25, 1995 until fully paid. Further, to pay the
of the loan or part thereof be payable directly to a third party plaintiff the sum equivalent to twenty percent
[but] the applicant must submit a letter request to the Bank five [sic] (25%) of P1,783,960.00 as attorneys
fees.
On pre-trial, the parties stipulated that petitioner was not a party
to the contract of sale between respondent and Corazon; that
there was no written request that the proceeds of the loan should
be paid to respondent; and that respondent received five vehicles Defendant Prudential Bank and Trust Company to pay
as partial payment of the properties. the plaintiff the amount of P1,783,960.00 or a
portion thereof plus the legal rate of interest
Despite notice, Corazon failed to appear during the trial to per annum until fully paid in the event that
substantiate her claims. Defendant Corazon Marasigan fails to pay
the said amount or a portion thereof. Other
By Decision of March 12, 2004, Branch 91 of the Sta. Cruz, Laguna damages claimed not duly proved are hereby
RTC rendered judgment in favor of respondent and against dismissed.
Corazon who was made directly liable to respondent, and against
petitioner who was made subsidiarily liable in the event that
Corazon fails to pay. Thus the trial court disposed:

WHEREFORE, premises considered, So Ordered.
finding the plaintiff has established her claim
against the defendants, Corazon Marasigan
and Prudential Bank and Trust Company,
judgment is hereby rendered in favor of the In finding petitioner subsidiarily liable, the trial court held that

petitioner breached its understanding to release the proceeds of ! affirmed the trial courts decision with modification on the
the loan to respondent: amount of the balance of the purchase price which was reduced
from P1,783,960 to P1,753,960. It disposed:
Liwayway claims that the bank should also be held responsible
for breach of its obligation to directly release to her the proceeds WHEREFORE, premises considered, the
of the loan or part thereof as payment for the subject lots. The assailed Decision dated March 12, 2004 of the Regional
evidence shows that her claim is valid. The Bank had such an Trial Court of Sta. Cruz, Laguna, Branch 91, is
obligation as proven by evidence. It failed to rebut the credible AFFIRMED WITH MODIFICATION as to the amount to
testimony of Liwayway which was given in a frank, spontaneous, be paid which is P1,753,960.00. SO ORDERED.
and straightforward manner and withstood the test of rigorous
cross-examination conducted by the counsel of the Bank. Her
credibility is further strengthened by the corroborative
testimony of Miguela delos Reyes who testified that she went Petitioners motion for reconsideration having been denied by the
with Liwayway to the bank for several times. In her presence, appellate court by Resolution of February 23, 2009, the present
Norberto Mendiola, the head of the loan department, instructed petition for review was filed
Liwayway to transfer the title over the subject lots to Corazon to
facilitate the release of the loan with the guarantee that
Liwayway will be paid upon the release of the proceeds.

The only issue petitioner raises is whether it is subsidiarily
liable.
Further, Liwayway would not have executed the deed of

sale in favor of Corazon had Norberto Mendiola did not
promise and guarantee that the proceeds of the loan The petition is meritorious.
would be directly paid to her. Based on ordinary human
experience, she would not have readily transferred the In the absence of a lender-borrower relationship between
title over the subject lots had there been no strong and petitioner and Liwayway, there is no inherent obligation of
reliable guarantee. In this case, what caused her to petitioner to release the proceeds of the loan to her.
transfer title is the promise and guarantee made by
Norberto Mendiola that the proceeds of the loan would To a banking institution, well-defined lending policies and sound
be directly paid to her. lending practices are essential to perform its lending function
effectively and minimize the risk inherent in any extension of
credit.

Thus, Section X302 of the Manual of Regulations for
On appeal, the Court of Appeals by Decision of January 14, 2008[if

Banks provides: the obligor before its revocation. A mere
incidental benefit or interest of a person is not
X-302. To ensure that timely and adequate management action is sufficient. The contracting parties must have
taken to maintain the quality of the loan portfolio and other risk clearly and deliberately conferred a favor
assets and that adequate loss reserves are set up and maintained upon a third person.
at a level sufficient to absorb the loss inherent in the loan
portfolio and other risk assets, each bank shall establish a system
of identifying and monitoring existing or potential problem loans
and other risk assets and of evaluating credit policies vis--vis For Liwayway to prove her claim against petitioner, a clear and
prevailing circumstances and emerging portfolio trends. deliberate act of conferring a favor upon her must be present. A
Management must also recognize that loss reserve is a stabilizing written request would have sufficed to prove this, given the
factor and that failure to account appropriately for losses or nature of a banking business, not to mention the amount
make adequate provisions for estimated future losses may result involved.
in misrepresentation of the banks financial condition.
In order to identify and monitor loans that a bank has Since it has not been established that petitioner had an
extended, a system of documentation is necessary. Under this obligation to Liwayway, there is no breach to speak of.
fold falls the issuance by a bank of a guarantee which is Liwayways claim should only be directed against Corazon.
essentially a promise to repay the liabilities of a debtor, in this Petitioner cannot thus be held subisidiarily liable.
case Corazon. It would be contrary to established banking
practice if Mendiola issued a bank guarantee, even if no request To the Court, Liwayway did not rely on Mendiolas
to that effect was made. representations, even if he indeed made them. The contract for
The principle of relativity of contracts in Article 1311 of Liwayway to sell to Corazon was perfected from the moment
the Civil Code supports petitioners cause: there was a meeting of minds upon the properties-object of the
contract and upon the price. Only the source of the funds to pay
Art. 1311. Contracts take effect only between the parties, their the purchase price was yet to be resolved at the time the two
assigns and heirs, except in case where the rights and obligations inquired from Mendiola. Consider Liwayways testimony:
arising from the contract are not transmissible by their nature, or
by stipulation or by provision of law. The heir is not liable Q: We are referring to the promissory note which you
beyond the value of the property he received from the decedent. aforementioned a while ago, why did this promissory note come
about?

If a contract should contain some stipulation in favor of

a third person, he may demand its fulfillment A: Because the negotiation was already completed, sir,
provided he communicated his acceptance to and the deed of sale will have to be

executed, I asked the defendant his authority lies on Liwayway. She, however, failed to discharge
(Corazon) to execute the the onus. It bears noting that Mendiola was not privy to the
promissory note first before I approval or disallowance of Corazons application for a loan nor
could execute a deed of absolute that he would benefit by the approval thereof.
sale, for assurance that she really
pay me, sir.[if !supportFootnotes][14][endif] Aside from Liwayways bare allegations, evidence is
(emphasis and underscoring wanting to show that there was collusion between Corazon and
supplied) Mendiola to defraud her. Even in Liwayways Complaint, the
allegation of fraud is specifically directed against Corazon.

IN FINE, Liwayways cause of action lies against only Corazon.

That it was on Corazons execution of a promissory note that WHEREFORE, the Decision of January 14, 2008 of the Court of
prompted Liwayway to finally execute the Deed of Sale is thus Appeals, in so far as it holds petitioner, Prudential Bank and
clear. Trust Company (now Bank of the Philippine Islands), subsidiary
liable in case its co-defendant Corazon Marasigan, who did not
The trial Courts reliance on the doctrine of apparent authority appeal the trial courts decision, fails to pay the judgment debt, is
that the principal, in this case petitioner, is liable for the REVERSED and SET ASIDE. The complaint against petitioner is
obligations contracted by its agent, in this case Mendiola, does accordingly DISMISSED.
not lie. Prudential Bank v. Court of Appeals[if !supportFootnotes][15][endif]
instructs: SO ORDERED.

[A] banking corporation is liable to innocent third persons where
the representation is made in the course of its business by an
agent acting within the general scope of his authority even
though, in the particular case, the agent is secretly abusing his 126. ASIAN CATHAY FINANCE AND LEASING
authority and attempting to perpetuate fraud upon his principal CORPORATION,
or some person, for his own ultimate benefit.[if Petitioner,
!supportFootnotes][16][endif] (underscoring supplied)
- versus -

SPOUSES CESARIO GRAVADOR and NORMA DE VERA
and SPOUSES EMMA CONCEPCION G. DUMIGPI and
FEDERICO L. DUMIGPI,
Respondents.
The onus probandi that attempt to commit fraud
attended petitioners employee Mendiolas acts and that he abused

NACHURA, J.: waiver of the mortgagors right of redemption, a provision that is
contrary to law and public policy. Respondents added that ACFLC
On appeal is the June 10, 2008 Decision of the Court of Appeals violated Republic Act No. 3765, or the Truth in Lending Act, in the
(CA) in CA-G.R. CV No. 83197, setting aside the April 5, 2004 disclosure statement that should be issued to the borrower.
decisionof the Regional Trial Court (RTC), Branch 9, Bulacan, as Respondents, thus, claimed that ACFLCs petition for foreclosure
well as its subsequent Resolutiondated February 11, 2009, lacked factual and legal basis, and prayed that the promissory
denying petitioners motion for reconsideration. note, real estate mortgage, and any certificate of sale that might
be issued in connection with ACFLCs petition for extrajudicial
On October 22, 1999, petitioner Asian Cathay Finance and foreclosure be declared null and void. In the alternative,
Leasing Corporation (ACFLC) extended a loan of Eight Hundred respondents prayed that the court fix their obligation at
Thousand Pesos (P800,000.00)to respondent Cesario Gravador, P800,000.00 if the mortgage could not be annulled, and declare
with respondents Norma de Vera and Emma Concepcion Dumigpi as null and void the provisions on the waiver of mortgagors right
as co-makers. The loan was payable in sixty (60) monthly of redemption and imposition of the liquidated damages.
installments of P24,400.00 each. To secure the loan, respondent Respondents further prayed for moral and exemplary damages,
Cesario executed a real estate mortgage over his property in Sta. as well as attorneys fees, and for the issuance of a TRO to enjoin
Maria, Bulacan, covered by Transfer Certificate of Title No. T- ACFLC from foreclosing their property.
29234.
Respondents paid the initial installment due in November 1999. On April 12, 2000, the RTC issued an Order, denying
However, they were unable to pay the subsequent ones. respondents application for TRO, as the acts sought to be
Consequently, on February 1, 2000, respondents received a letter enjoined were already fait accompli.
demanding payment of P1,871,480.00 within five (5) days from
receipt thereof. Respondents requested for an additional period On May 12, 2000, ACFLC filed its Answer, denying the
to settle their account, but ACFLC denied the request. Petitioner material allegations in the complaint and averring failure to state
filed a petition for extrajudicial foreclosure of mortgage with the a cause of action and lack of cause of action, as defenses. ACFLC
Office of the Deputy Sheriff of Malolos, Bulacan. claimed that it was merely exercising its right as mortgagor;
hence, it prayed for the dismissal of the complaint.
On April 7, 2000, respondents filed a suit for annulment
of real estate mortgage and promissory note with damages and After trial, the RTC rendered a decision, dismissing the
prayer for issuance of a temporary restraining order (TRO) and complaint for lack of cause of action. Sustaining the validity of the
writ of preliminary injunction. Respondents claimed that the real promissory note and the real estate mortgage, the RTC held that
estate mortgage is null and void. They pointed out that the respondents are well-educated individuals who could not feign
mortgage does not make reference to the promissory note dated naivet in the execution of the loan documents. It, therefore,
October 22, 1999. The promissory note does not specify the rejected respondents claim that ACFLC deceived them into
maturity date of the loan, the interest rate, and the mode of signing the promissory note, disclosure statement, and deed of
payment; and it illegally imposed liquidated damages. The real real estate mortgage. The RTC further held that the alleged
estate mortgage, on the other hand, contains a provision on the defects in the promissory note and in the deed of real estate

mortgage are too insubstantial to warrant the nullification of the
mortgage. It added that a promissory note is not one of the 1) Affirming the amount of the principal loan under the REM and
essential elements of a mortgage; thus, reference to a promissory Disclosure Statement both dated October 22, 1999 to be
note is neither indispensable nor imperative for the validity of P800,000.00, subject to:
the mortgage. The RTC also upheld the interest rate and the
penalty charge imposed by ACFLC, and the waiver of respondents a. 1% interest per month (12% per annum) on the
right of redemption provided in the deed of real estate mortgage. principal from November 23, 1999 until the date of the
foreclosure sale, less P24,000.00 paid by [respondents] as first
The RTC disposed thus: month amortization

WHEREFORE, on the basis of the evidence on record and the b. 1% penalty charge per month on the principal from
laws/jurisprudence applicable thereto, judgment is hereby December 23, 1999 until the date of the foreclosure sale.
rendered DISMISSING the complaint in the above-entitled case
for want of cause of action as well as the counterclaim of 2) Declaring par. 14 of the REM as null and void by reason of
[petitioner] Asian Cathay Finance & Leasing Corporation for public policy, and granting mortgagors a period of one year from
moral and exemplary damages and attorneys fees for abject lack the finality of this Decision within which to redeem the subject
of proof to justify the same. property by paying the redemption price as computed under
paragraph 1 hereof, plus one percent (1%) interest thereon from
SO ORDERED. the time of foreclosure up to the time of the actual redemption
pursuant to Section 28, Rule 39 of the 1997 Rules on Civil
Aggrieved, respondents appealed to the CA. On June 10, Procedure.
2008, the CA rendered the assailed Decision, reversing the RTC. It
held that the amount of P1,871,480.00 demanded by ACFLC from
respondents is unconscionable and excessive. Thus, it declared
respondents principal loan to be P800,000.00, and fixed the
interest rate at 12% per annum and reduced the penalty charge The claim of the [respondents] for moral and exemplary damages
to 1% per month. It explained that ACFLC could not insist on the and attorneys fees is dismissed for lack of merit.
interest rate provided on the note because it failed to provide
respondents with the disclosure statement prior to the SO ORDERED
consummation of the loan transaction. Finally, the CA invalidated
the waiver of respondents right of redemption for reasons of ACFLC filed a motion for reconsideration, but the CA
public policy. Thus, the CA ordered: denied it on February 11, 2009.

WHEREFORE, premises considered, the appealed decision is ACFLC is now before us, faulting the CA for reversing the
REVERSED AND SET ASIDE. Judgment is hereby rendered as dismissal of respondents complaint. It points out that
follows: respondents are well-educated persons who are familiar with the

execution of loan documents. Thus, they cannot be deceived into unjust. It is tantamount to a repugnant spoliation and an
signing a document containing provisions that they are not iniquitous deprivation of property, repulsive to the common
amenable to. ACFLC ascribes error on the part of the CA for sense of man. It has no support in law, in principles of justice, or
invalidating the interest rates imposed on respondents loan, and in the human conscience nor is there any reason whatsoever
the waiver of the right of redemption. which may justify such imposition as righteous and as one that
may be sustained within the sphere of public or private morals.
The appeal lacks merit.
Stipulations authorizing the imposition of iniquitous or
It is true that parties to a loan agreement have a wide unconscionable interest are contrary to morals, if not against the
latitude to stipulate on any interest rate in view of Central Bank law. Under Article 1409 of the Civil Code, these contracts are
Circular No. 905, series of 1982, which suspended the Usury Law inexistent and void from the beginning. They cannot be ratified
ceiling on interest rate effective January 1, 1983. However, nor the right to set up their illegality as a defense be waived. The
interest rates, whenever unconscionable, may be equitably nullity of the stipulation on the usurious interest does not,
reduced or even invalidated. In several cases,[if however, affect the lenders right to recover the principal of the
!supportFootnotes][10][endif] this Court had declared as null and void loan. Nor would it affect the terms of the real estate mortgage.
stipulations on interest and charges that were found excessive, The right to foreclose the mortgage remains with the creditors,
iniquitous and unconscionable. and said right can be exercised upon the failure of the debtors to
pay the debt due. The debt due is to be considered without the
Records show that the amount of loan obtained by stipulation of the excessive interest. A legal interest of 12% per
respondents on October 22, 1999 was P800,000.00. Respondents annum will be added in place of the excessive interest formerly
paid the installment for November 1999, but failed to pay the imposed. The nullification by the CA of the interest rate and the
subsequent ones. On February 1, 2000, ACFLC demanded penalty charge and the consequent imposition of an interest rate
payment of P1,871,480.00. In a span of three months, of 12% and penalty charge of 1% per month cannot, therefore, be
respondents obligation ballooned by more than P1,000,000.00. considered a reversible error.
ACFLC failed to show any computation on how much interest was
imposed and on the penalties charged. Thus, we fully agree with ACFLC next faults the CA for invalidating paragraph 14
the CA that the amount claimed by ACFLC is unconscionable. of the real estate mortgage which provides for the waiver of the
mortgagors right of redemption. It argues that the right of
In Spouses Isagani and Diosdada Castro v. Angelina de redemption is a privilege; hence, respondents are at liberty to
Leon Tan, Sps. Concepcion T. Clemente and Alexander C. Clemente, waive their right of redemption, as they did in this case.
Sps. Elizabeth T. Carpio and Alvin Carpio, Sps. Marie Rose T.
Soliman and Arvin Soliman and Julius Amiel Tan,[if Settled is the rule that for a waiver to be valid and
!supportFootnotes][11][endif] this Court held: effective, it must, in the first place, be couched in clear and
unequivocal terms which will leave no doubt as to the intention
The imposition of an unconscionable rate of interest on a money of a party to give up a right or benefit which legally pertains to
debt, even if knowingly and voluntarily assumed, is immoral and him. Additionally, the intention to waive a right or an advantage

must be shown clearly and convincingly. Unfortunately, ACFLC the mortgagor for reasons of public policy. A
failed to convince us that respondents waived their right of contract of adhesion may be struck down as
redemption voluntarily. void and unenforceable for being subversive
to public policy, when the weaker party is
As the CA had taken pains to demonstrate: completely deprived of the opportunity to
bargain on equal footing.
The supposed waiver by the mortgagors was contained
in a statement made in fine print in the REM. It
was made in the form and language prepared
by [petitioner]ACFLC while the [respondents]
merely affixed their signatures or adhesion In fine, when the redemptioner chooses to exercise his
thereto. It thus partakes of the nature of a right of redemption, it is the policy of the law to aid rather than to
contract of adhesion. It is settled that doubts defeat his right.Thus, we affirm the CA in nullifying the waiver of
in the interpretation of stipulations in the right of redemption provided in the real estate mortgage.
contracts of adhesion should be resolved
against the party that prepared them. This Finally, ACFLC claims that respondents complaint for
principle especially holds true with regard to annulment of mortgage is a collateral attack on its certificate of
waivers, which are not presumed, but which title. The argument is specious.
must be clearly and convincingly shown.
[Petitioner] ACFLC presented no evidence The instant complaint for annulment of mortgage was
hence it failed to show the efficacy of this filed on April 7, 2000, long before the consolidation of ACFLCs
waiver. title over the property. In fact, when respondents filed this suit at
the first instance, the title to the property was still in the name of
respondent Cesario. The instant case was pending with the RTC
when ACFLC filed a petition for foreclosure of mortgage and even
when a writ of possession was issued. Clearly, ACFLCs title is
subject to the final outcome of the present case.

WHEREFORE, the petition is DENIED. The assailed Decision and
Moreover, to say that the mortgagors Resolution of the Court of Appeals in CA-G.R. CV No. 83197 are
right of redemption may be waived through a AFFIRMED. Costs against petitioner.
fine print in a mortgage contract is, in the last
analysis, tantamount to placing at the SO ORDERED.
mortgagees absolute disposal the property
foreclosed. It would render practically
nugatory this right that is provided by law for

to settle their account, but ACFLC denied the request. Petitioner
filed a petition for extrajudicial foreclosure of mortgage with the
127. G.R. No. 186550 July 5, 2010 Office of the Deputy Sheriff of Malolos, Bulacan.
ASIAN CATHAY FINANCE AND LEASING On April 7, 2000, respondents filed a suit for annulment of real
CORPORATION, Petitioner, estate mortgage and promissory note with damages and prayer
vs. for issuance of a temporary restraining order (TRO) and writ of
SPOUSES CESARIO GRAVADOR and NORMA DE VERA preliminary injunction. Respondents claimed that the real estate
and SPOUSES EMMA CONCEPCION G. DUMIGPI and mortgage is null and void. They pointed out that the mortgage
FEDERICO L. DUMIGPI, Respondents. does not make reference to the promissory note dated October
22, 1999. The promissory note does not specify the maturity date
D E C I S I O N of the loan, the interest rate, and the mode of payment; and it
illegally imposed liquidated damages. The real estate mortgage,
NACHURA, J.: on the other hand, contains a provision on the waiver of the
mortgagors right of redemption, a provision that is contrary to
On appeal is the June 10, 2008 Decision1 of the Court of Appeals law and public policy. Respondents added that ACFLC violated
(CA) in CA-G.R. CV No. 83197, setting aside the April 5, 2004 Republic Act No. 3765, or the Truth in Lending Act, in the
decision2 of the Regional Trial Court (RTC), Branch 9, Bulacan, as disclosure statement that should be issued to the borrower.
well as its subsequent Resolution3 dated February 11, 2009, Respondents, thus, claimed that ACFLCs petition for foreclosure
denying petitioners motion for reconsideration. lacked factual and legal basis, and prayed that the promissory
note, real estate mortgage, and any certificate of sale that might
On October 22, 1999, petitioner Asian Cathay Finance and be issued in connection with ACFLCs petition for extrajudicial
Leasing Corporation (ACFLC) extended a loan of Eight Hundred foreclosure be declared null and void. In the alternative,
Thousand Pesos (P800,000.00)4 to respondent Cesario Gravador, respondents prayed that the court fix their obligation at
with respondents Norma de Vera and Emma Concepcion Dumigpi P800,000.00 if the mortgage could not be annulled, and declare
as co-makers. The loan was payable in sixty (60) monthly as null and void the provisions on the waiver of mortgagors right
installments of P24,400.00 each. To secure the loan, respondent of redemption and imposition of the liquidated damages.
Cesario executed a real estate mortgage5 over his property in Sta. Respondents further prayed for moral and exemplary damages,
Maria, Bulacan, covered by Transfer Certificate of Title No. T- as well as attorneys fees, and for the issuance of a TRO to enjoin
29234.6 ACFLC from foreclosing their property.
Respondents paid the initial installment due in November 1999. On April 12, 2000, the RTC issued an Order,7 denying
However, they were unable to pay the subsequent ones. respondents application for TRO, as the acts sought to be
Consequently, on February 1, 2000, respondents received a letter enjoined were already fait accompli.
demanding payment of P1,871,480.00 within five (5) days from
receipt thereof. Respondents requested for an additional period

On May 12, 2000, ACFLC filed its Answer, denying the material Aggrieved, respondents appealed to the CA. On June 10, 2008, the
allegations in the complaint and averring failure to state a cause CA rendered the assailed Decision, reversing the RTC. It held that
of action and lack of cause of action, as defenses. ACFLC claimed the amount of P1,871,480.00 demanded by ACFLC from
that it was merely exercising its right as mortgagor; hence, it respondents is unconscionable and excessive. Thus, it declared
prayed for the dismissal of the complaint. respondents principal loan to be P800,000.00, and fixed the
interest rate at 12% per annum and reduced the penalty charge
After trial, the RTC rendered a decision, dismissing the complaint to 1% per month. It explained that ACFLC could not insist on the
for lack of cause of action. Sustaining the validity of the interest rate provided on the note because it failed to provide
promissory note and the real estate mortgage, the RTC held that respondents with the disclosure statement prior to the
respondents are well-educated individuals who could not feign consummation of the loan transaction. Finally, the CA invalidated
naivet in the execution of the loan documents. It, therefore, the waiver of respondents right of redemption for reasons of
rejected respondents claim that ACFLC deceived them into public policy. Thus, the CA ordered:
signing the promissory note, disclosure statement, and deed of
real estate mortgage. The RTC further held that the alleged WHEREFORE, premises considered, the appealed decision is
defects in the promissory note and in the deed of real estate REVERSED AND SET ASIDE. Judgment is hereby rendered as
mortgage are too insubstantial to warrant the nullification of the follows:
mortgage. It added that a promissory note is not one of the
essential elements of a mortgage; thus, reference to a promissory 1) Affirming the amount of the principal loan under the
note is neither indispensable nor imperative for the validity of REM and Disclosure Statement both dated October 22,
the mortgage. The RTC also upheld the interest rate and the 1999 to be P800,000.00, subject to:
penalty charge imposed by ACFLC, and the waiver of
respondents right of redemption provided in the deed of real a. 1% interest per month (12% per annum) on the
estate mortgage. principal from November 23, 1999 until the date of
the foreclosure sale, less P24,000.00 paid by
The RTC disposed thus: [respondents] as first month amortization[;]
WHEREFORE, on the basis of the evidence on record and the b. 1% penalty charge per month on the principal
laws/jurisprudence applicable thereto, judgment is hereby from December 23, 1999 until the date of the
rendered DISMISSING the complaint in the above-entitled case foreclosure sale.
for want of cause of action as well as the counterclaim of
[petitioner] Asian Cathay Finance & Leasing Corporation for 2) Declaring par. 14 of the REM as null and void by reason
moral and exemplary damages and attorneys fees for abject lack of public policy, and granting mortgagors a period of one
of proof to justify the same. year from the finality of this Decision within which to
redeem the subject property by paying the redemption
SO ORDERED.8 price as computed under paragraph 1 hereof, plus one
percent (1%) interest thereon from the time of

foreclosure up to the time of the actual redemption P1,871,480.00. In a span of three months, respondents obligation
pursuant to Section 28, Rule 39 of the 1997 Rules on Civil ballooned by more than P1,000,000.00. ACFLC failed to show any
Procedure. computation on how much interest was imposed and on the
penalties charged. Thus, we fully agree with the CA that the
The claim of the [respondents] for moral and exemplary damages amount claimed by ACFLC is unconscionable.
and attorneys fees is dismissed for lack of merit.
In Spouses Isagani and Diosdada Castro v. Angelina de Leon Tan,
SO ORDERED.9 Sps. Concepcion T. Clemente and Alexander C. Clemente, Sps.
Elizabeth T. Carpio and Alvin Carpio, Sps. Marie Rose T. Soliman
ACFLC filed a motion for reconsideration, but the CA denied it on and Arvin Soliman and Julius Amiel Tan,11 this Court held:
February 11, 2009.
The imposition of an unconscionable rate of interest on a money
ACFLC is now before us, faulting the CA for reversing the debt, even if knowingly and voluntarily assumed, is immoral and
dismissal of respondents complaint. It points out that unjust. It is tantamount to a repugnant spoliation and an
respondents are well-educated persons who are familiar with the iniquitous deprivation of property, repulsive to the common
execution of loan documents. Thus, they cannot be deceived into sense of man. It has no support in law, in principles of justice, or
signing a document containing provisions that they are not in the human conscience nor is there any reason whatsoever
amenable to. ACFLC ascribes error on the part of the CA for which may justify such imposition as righteous and as one that
invalidating the interest rates imposed on respondents loan, and may be sustained within the sphere of public or private morals.
the waiver of the right of redemption.
Stipulations authorizing the imposition of iniquitous or
The appeal lacks merit. unconscionable interest are contrary to morals, if not against the
law. Under Article 1409 of the Civil Code, these contracts are
It is true that parties to a loan agreement have a wide latitude to inexistent and void from the beginning. They cannot be ratified
stipulate on any interest rate in view of Central Bank Circular No. nor the right to set up their illegality as a defense be waived. The
905, series of 1982, which suspended the Usury Law ceiling on nullity of the stipulation on the usurious interest does not,
interest rate effective January 1, 1983. However, interest rates, however, affect the lenders right to recover the principal of the
whenever unconscionable, may be equitably reduced or even loan. Nor would it affect the terms of the real estate mortgage.
invalidated. In several cases,10 this Court had declared as null and The right to foreclose the mortgage remains with the creditors,
void stipulations on interest and charges that were found and said right can be exercised upon the failure of the debtors to
excessive, iniquitous and unconscionable. pay the debt due. The debt due is to be considered without the
stipulation of the excessive interest. A legal interest of 12% per
Records show that the amount of loan obtained by respondents annum will be added in place of the excessive interest formerly
on October 22, 1999 was P800,000.00. Respondents paid the imposed.12 The nullification by the CA of the interest rate and the
installment for November 1999, but failed to pay the subsequent penalty charge and the consequent imposition of an interest rate
ones. On February 1, 2000, ACFLC demanded payment of

of 12% and penalty charge of 1% per month cannot, therefore, be nugatory this right that is provided by law for the mortgagor for
considered a reversible error. reasons of public policy. A contract of adhesion may be struck
down as void and unenforceable for being subversive to public
ACFLC next faults the CA for invalidating paragraph 14 of the real policy, when the weaker party is completely deprived of the
estate mortgage which provides for the waiver of the mortgagors opportunity to bargain on equal footing.14
right of redemption. It argues that the right of redemption is a
privilege; hence, respondents are at liberty to waive their right of In fine, when the redemptioner chooses to exercise his right of
redemption, as they did in this case. redemption, it is the policy of the law to aid rather than to defeat
his right.15 Thus, we affirm the CA in nullifying the waiver of the
Settled is the rule that for a waiver to be valid and effective, it right of redemption provided in the real estate mortgage.
must, in the first place, be couched in clear and unequivocal
terms which will leave no doubt as to the intention of a party to Finally, ACFLC claims that respondents complaint for annulment
give up a right or benefit which legally pertains to him. of mortgage is a collateral attack on its certificate of title. The
Additionally, the intention to waive a right or an advantage must argument is specious.
be shown clearly and convincingly.13 Unfortunately, ACFLC failed
to convince us that respondents waived their right of redemption The instant complaint for annulment of mortgage was filed on
voluntarily. April 7, 2000, long before the consolidation of ACFLCs title over
the property. In fact, when respondents filed this suit at the first
As the CA had taken pains to demonstrate: instance, the title to the property was still in the name of
respondent Cesario. The instant case was pending with the RTC
The supposed waiver by the mortgagors was contained in a when ACFLC filed a petition for foreclosure of mortgage and even
statement made in fine print in the REM. It was made in the form when a writ of possession was issued. Clearly, ACFLCs title is
and language prepared by [petitioner]ACFLC while the subject to the final outcome of the present case.1avvphi1
[respondents] merely affixed their signatures or adhesion
thereto. It thus partakes of the nature of a contract of adhesion. It WHEREFORE, the petition is DENIED. The assailed Decision and
is settled that doubts in the interpretation of stipulations in Resolution of the Court of Appeals in CA-G.R. CV No. 83197 are
contracts of adhesion should be resolved against the party that AFFIRMED. Costs against petitioner.
prepared them. This principle especially holds true with regard
to waivers, which are not presumed, but which must be clearly SO ORDERED.
and convincingly shown. [Petitioner] ACFLC presented no
evidence hence it failed to show the efficacy of this waiver.

Moreover, to say that the mortgagors right of redemption may be
waived through a fine print in a mortgage contract is, in the last
analysis, tantamount to placing at the mortgagees absolute 128. G.R. No. L-47544 January 28, 1980
disposal the property foreclosed. It would render practically PEPITO VELASCO, AMABLE LUMANLAN, RAMON

GALANG, FELIPE LUMBANG and APOLONIO DE LOS counsel, and We feel We can better serve the interests of justice
SANTOS, petitioners, by broadening the scope of Our inquiry, for as the record before
vs. Us stands, We see that there is enough basis for Us to end the
COURT OF APPEALS and GOVERNMENT SERVICE basic controversy between the parties here and now, dispensing,
INSURANCE SYSTEM, respondents. however, with procedural steps which would not anyway affect
Ocampo, Velasco, Sicat & Associate for petitioners. substantially the merits of their respective claims.
Manuel M. Lazaro for respondent GSIS. As a matter of fact, after our first study of this case, We already
announced Our intention in this direction at the hearing held on
BARREDO, J.: February 21, 1979, where Attys. Celestino T. Ocampo, Vicente
Petition for certiorari, erroneously citing Section I of Rule 65, for Sicat and Victoriano David appeared and argued for the
the review of the decision of the Special Division of Five of the petitioners and Justice Manuel Lazaro and Atty. Antonio F.
Court of Appeals dated December 6, 1977 in CA .G.R. No. 06152 Navarrete, for the GSIS. We reiterated said intention in Our
declaring, by a vote of four to one, null and void the order of the resolution of said date by requiring the parties "to INFORM the
Court of First Instance of Pampanga in Civil Case No. 4260 dated Court ... whether or not there are any issues of fact that the
December 2, 1976, which had declared the judgment of said court purported appeal of private respondent would involve and
in said case final and executory, directing in consequence, said whether or not petitioners controvert the same, with the end in
trial court to approve the record on appeal of herein respondent view of enabling this Court to take the necessary steps to convert
Government Service Insurance System (GSIS for short) and to this proceeding into an appeal ... (under) Republic Act 5440". To
give due course to its appeal, setting aside correspondingly the be sure, in its compliance dated April 10, 1979 with said
restraining order it had previously issued in the same case, the resolution, GSIS does enumerate certain allegedly "pivotal factual
Court of Appeals holding that, contrary to the ruling of the trial issues" its appeal "would involve." However, as will be explained
court, the motion for new trial of the GSIS admittedly filed on anon even the "pivotal factual issues" referred to may be justly
time is not pro-forma and, therefore, the period to appeal the trial resolved here without the need of returning this case to the trial
court's decision in question had been suspended by said motion, court. The exact position of the parties in respect to said issues
hence, said decision was still appealable. and the allegations of fact in their pleadings here and in the court
From the foregoing brief statement of the nature of the instant below as well as the undisputed evidence related thereto are so
case, it would appear that Our sole function in this proceeding clearly stated and comprehensively discussed by the parties in
should be to resolve the single issue of whether or not the Court their said pleadings that to conduct further proceedings or to
of Appeals erred in ruling that the motion for new trial of the await any other briefs from them would be superfluous and a
GSIS in question should indeed be deemed pro-forma. But going waste of time and effort. Accordingly, We now deem this case as
over the extended pleadings of both parties, the Court is submitted for Our decision as a duly made appeal under Republic
immediately impressed that substantial justice may not be timely Act 5440.
achieved, if We should decide this case upon such a technical According to GSIS:
ground alone. We have carefully read all the allegations and A Detailed Statement of Facts and of the Case
arguments of the parties, very ably and comprehensively It is not without reason to state that the ambience of a particular
expounded by evidently knowledgeable and unusually competent case has much to contribute to the resolution thereof. So it is with

the instant case. And for a better appreciation of the antecedents agreement and signature of the home buyers (Paragraph 6 of
which led to the decision of the Court of First Instance of Agreement, Exh. "GG") and that Laigo "shall pay for the houses on
Pampanga and subsequently the questioned decision of the a "turn-key" bases" (Paragraph 5 of Agreement, Exh. "GG"). The
respondent Court of Appeals, the environmental facts which parties to the agreement are, stated by the agreement itself, as
spawned them should thus be laid bare before this Honorable follows:
Court, the better to appreciate their factual significance and legal This Agreement, executed this 29th day of November, 1969, in
consequences. the City of Manila, by and between
1. Sometime on November 10, 1965, Alta Farms secured from the LAIGO REALTY CORPORATION, ...
GSIS a Three Million Two Hundred Fifty Five Thousand Pesos represented by its President,
(P3,255,000.00) loan and an additional loan of Five Million Sixty- RHODY E. LAIGO, ... hereinafter referred to as the FIRST PARTY
Two Thousand Pesos (P5,062,000.00) on October 5, 1967, to - and -
finance a piggery project. These loans were secured by two ... AMABLE G. LUMANLAN ... hereinafter referred to as the
mortgage (Exh. "B"). SECOND PARTY.
2. Alta Farms defaulted in the payment of its amortizations. it is And the signatories are -
presumably because of this that Alta Farms executed a Deed of IN WITNESS WHEREOF, the parties hereunto affixed their
Sale With Assumption of Mortgage with Asian Engineering signatures this 4th day of Dec. 1969 at Manila, Philippines.
Corporation on July 10, 1969 (Exh. "C"), but without the previous (Sgd) Illegible
consent or approval of the GSIS and in direct violation of the LAIGO REALTY CORPORATION ALEJANDRO Y. D
provisions of the mortgage contracts. BY: By:
3. Even without the approval of the Deed of Sale With (Sgd) RHODY E. LAIGO (Sgd) Illegible
Assumption of Mortgage by the GSIS, Asian Engineering (t) RHODY E. LAIGO AMABLE G. LUM
Corporation executed an Exclusive Sales Agency, Management - President -
and Administration Contract in favor of Laigo Realty Corporation, (Sgd) Illegible
with the intention of converting the piggery farm into a ANASTACIO F. D
subdivision (Exh. "D"). And on October 20, 1969, Asian (See Exh. "GG")
Engineering executed another contract with Laigo, whereby 5. Petitioner Lumanlan allegedly constructed 20 houses for the
Laigo was to undertake the development of the property into a home buyers and for which he claims a balance of P309,187.76
subdivision (Exh. "E"). Conformably with the two contracts (Exh from the home buyers and Laigo. This is reflected in Exhibit "X"
"D" and "E"), Laigo started the development of the lot into a of petitioners. However, in the letter of Lumanlan to the GSIS on
subdivision. January 7, 1972, he was collecting only P216,500.00 (Exh. "W"
Contract of Petitioner evidence of Lumanlan). Thus, even the evidence of Lumanlan on
Lumanlan and his admission what is due him is conflicting.
4. After developing the area, on December 4, 1969, Laigo entered 6. Out of his claim, petitioner Lumanlan admits that Mrs. Rhody
into a contract (Exh. "GG") with Amable Lumanlan, one of the Laigo paid him in several checks totalling P124,855.00 but which
petitioners, to construct for the home buyers, 20 houses on the checks were all dishonored when presented for payment. This is
subdivision. The contract provided that Laigo shall secure the Exhibit "X" of petitioners.

7. Thus, on November 7, 1970, petitioner Lumanlan wrote a letter Refund for expenses
to Laigo Realty Corporation (Exh. "Y", evidence of Lumanlan) in the execution of
which reads housing plans for the 1 ,455.00
I wish to inform you that I have received from Mrs. Rhody E. above houses. P 124,855.0
Laigo several bank checks which were either dishonored by the
bank or were cancelled at the request of Mrs. Rhody E. Laigo for It is significant to note that Exhibits "GG", "W" "X" and "Y" are
reasons of insufficient funds. part of the evidence of petitioners.
The following are the checks: 9. On December 17, 1970, Laigo acknowledged its dishonored
checks and promised to make good the same. This is reflected in
DATE SER. NO. AMOUNT BANK Exhibit "Y-l" of petitioners. The dishonored checks were all
May 20,1970 646371 P36,000.00 Prudential Bank
presented by petitioners and marked Exhibits "II-l" to "II-6".
June 10,1970 659907 9,000.00 " Contract of Petitioner
June 30, 1970 646397 20,000.00 " Velasco and his admissions
July 6, 1970 646398 19,800.00 " 10. On December 29, 1969, Laigo entered into a contract with
July 3, 1970 464399 11,250.00 " petitioner Pepito Velasco to construct houses for the home
Aug. 7,1970 659913 16,200.00 " buyers who agreed with Velasco on the prices and the
Aug. 14,1970 659914 12,605.00 " downpayment. Exhibits "HH" and "HH-l" for petitioners. The
Total P124,855.00 parties to the contract are -
LAIGO REALTY CORPORATION, ... as the FIRST PARTY
8. In the same letter, Exh, "Y", Lumanlan admits that the checks of - and -
Laigo that were dishonored were intended to pay 8 houses ... PEPITO VELASCO, ... jointly known as the SECOND PARTY;
occupied by home buyers, who caused the construction in 11. Petitioner Velasco constructed houses for various home
accordance with the Agreement of Laigo and Lumanlan (Exh. buyers, who individually agreed with Velasco, as to the prices
"GG"). The letter of Lumanlan also admits - and the downpayment to be paid by the individual home buyers.
This amount was intended to pay for eight (8) houses occupied When neither Laigo nor the individual home buyers paid for the
by the following home buyers: home constructed, Velasco wrote the GSIS to intercede for the
unpaid accounts of the home buyers (Exh. "AA" for petitioners).
1. Liborio Yalung P18,000.00
Exhibit "AA" admits that Pepito Velasco is one of the building
2. Caridad Pascua 13,500.00 contractors contracted by Laigo to construct houses for home
3. Antonio Candelaria 15,300.00 buyers. it states the names of the home buyers, the cost of houses
4. Alberto Rarela 11,800.00 agreed upon, the downpayment made by the buyers and their
5. Felomena Gonzales 16,200.00 respective balance to Velasco. Since the letter of Velasco, Exh.
6. Estelita Manalang 16,200.00 "AA", is a written admission that is highly revealing and
7. Rogelio Zabala 16,200.00 illuminating we feel it important and material to quote therefrom
8. Wilhelmina Paras 16,200.00 as follows.
P123,400.00
May I inform your good offices that the undersigned is one of the

building contractors contracted by the Laigo Realty Corporation to If these conditions above are acceptable to your good self, kindly
construct residential houses of lot buyers therein For your further signify your conformity below.
information the following are the names of the lot owners for Truly yours,
whom the undersigned have constructed houses for, including the (Sgd) Rhody E. Laigo
respective balances payable to me as of this date. (t) RHODY E. LAIGO
CONFORME
Name of Buyer Cost of House (Sgd) APOLONIO DE LOS SANTOS
Down Balances
1. Benjamin Cristobal P19,500.00 (Date) March 4, 1970
P1,950.00 17,550.00
2. Nehemiah Quipot 23,000.00 (Vide Exhibit "A" of petitioners)
2,300.00 20,700.00
3. Alberto Villalon 18,000.00 Contract of Petitioner
1,800.00 16,200.00
4. Luis Jacob 20,000.00 Galang and his admissions
2,000.00 18,000.00
5. Jose Salonga 20,000.00 14. Petitioner Ramon Galang also constructed a house for Victor
2,000.00 18,000.00
6. Antonio Jontillano 12,500.00 Coquilla
1,200.00
for an agreed price of 11,300.00
P14,000.00. Coquilla paid a
downpayment
of P1,400.00, thereby
P101,750.00
leaving a balance of
P12,600.00, which he wanted the GSIS to pay. Thus, in his letter
xxx xxx xxx to the GSIS (Exh "CC" for Petitioners) he admits -
Very respectfully yours, In connection with your Palos Verdes Estate Subdivision located in
(Sgd) Pepito Velasco Talipapa, Caloocan City and which was era d Realty Corporation I
(t) PEPITO VELASCO Contractor' wish to inform you that I have the Laigo Realty Corporation
This is the evidence of Velasco. constructed in the subdivision the following house, its owner and
12. Velasco admits that Laigo paid him in five (5) checks with the cost of construction
total amount of P35,000.00 but which all bounched or were
dishonored (Exh. "BB" of petitioners). It is interesting to note that Name Of Owner Cost of House Amou
in the same letter of Velasco to his lawyer, Velasco also named 1. Victor Coquilla P14,000.00 P1,40
the buyers of the houses for whom he constructed the houses and
the balance due from the home buyers (See Exh. "BB" of May I inform your good Offices further that the amount of
petitioners). P12,600.00 referred to above as the 'balance 'is payable to the
Con tract of Petitioner undersigned, Payment of which has been delayed for almost one
de los Santos and his and a half years now.
admissions Trusting that you give this letter your usual Prompt attention, I
13. On March 4, 1970, Laigo entered into a contract with beg to remain
petitioner Apolonio de los Santos whereby the latter agreed to Very respectfully yours,
construct houses for the home buyers and Laigo agreed to pay (Sgd.) Ramon R. Galang
the full purchase price of every house constructed ... based on a (t) RAMON R. GALANG
"turn- key arrangement". (Vide Exh. "A") The parties to the Contractor,
contract are shown as follows: (Vide Exh. "KK" for petitioners; emphasis supplied)

Contract of Petitioner between the home buyers and the contractors, the downpayment
Lumbang made by the home buyers to the contractors, and the balance of
15. Petitioner Felipe Lumbang also claims to have constructed for the home buyers due the contractors by reason of the contracts
the home buyers upon the instance of Laigo, four (4) houses with (Exhibits "EE-l" and "EE-2"). It is crystal clear from the letter of
the balance of P82,705.00. Lumanlan admits that he constructed the lawyer of the petitioners that the ones who caused the
the four houses for the home buyers who paid him a construction are home buyers through Laigo Realty Corporation,
downpayment but who still have outstanding balances Vide Exh. that the home buyers made downpayments to the contractors,
"LL" for the petitioners). and that the latter agreed to the price and the balance that were
16. The Deed of Sale With Assumption of Mortgage between Alta not paid by the home buyers This is certainly indubitable proof
Farms and Asian Engineering, for one reason or another, was not that the GSIS had nothing to do whatsoever in the construction of
approved by the GSIS. And when Alta Farms failed to liquidate its the houses by the petitioners.
accounts, GSIS foreclosed the properties including all 23. On August 12. 1974, the Assistant General Manager on A legal
improvements (the house in 1970. In November and December affairs - he GSIS categorically and specifically denied the an the
1971, the Certificate of Sale in favor of the GSIS were issued. firm and clear legal ground, among others, that the has no privity
17. While the properties were under foreclosure and even of contract with the petitioners (Exhibit "FF"). This denial of the
pending the consolidation of titles, certain lots were sold on claim of the negates, rebukes and belies any and all or on the
installment basis, for which Laigo received P985,000.00, and 63 other inter-office the GSIS.
houses in various stages were constructed, among which are the 24. On April 14, 1975, the petitioners filed a case against the GSIS
houses allegedly constructed by the petitioners. for the on of mm of money representing labor and materials used
xxx xxx xxx in the construction of houses caused by home buyers the
21. An along, from the time the contracts were entered into by intercession of Laigo Realty Corporation in the principal sum of
Laigo Realty Corporation, the petitioners had always directed P607,328.27. The complaint, docketed as Civil Case No. 4260 of
their claims against Laigo Realty Corporation as may be shown the Court of First Instance of Pampanga, prayed for -
by Exhibits "Z", "X", "Y" and "I-1"; Laigo would pay by checks to (1) The sum of SIX HUNDRED SEVEN THOUSAND THREE
the contractors; and when the checks were dishonored they HUNDRED TWENTY EIGHT & 271100 PESOS (P607,328.27) in its
would always file a protest with Laigo Realty Corporation. current value due to inflation with legal interest from the date of
Originally, an claims were addressed to Laigo Realty Corporation, extrajudicial demand;
being the party who executed the contracts (2) the sum of FIFTY THOUSAND (P50,000.00) PESOS as
22. When the petitioners could not collect from Laigo and the attorney's fees;
home buyers and after the GSIS foreclosed the subdivision (3) such sum for exemplary damages as may be assess by this
including the improvements (the houses constructed), the Honorable Court against the defendant; and
petitioners sent a letter of demand on August 3, 1974 (Exhibit (4) the costs of this suit (Vide pp. 91-95 of the instant Amended
"EE") for GSIS to pay for the indebtedness of Laigo Realty Petition)
Corporation. It is enlightening and interesting to note that the 25. On July 30, 1975, and within the extensions of time granted,
annexes to the letter specifies who are the home buyers who the GSIS filed its Answer traversing the claims and alleging,
caused the construction the agreed price of the construction among others, that the petitioners have no privity of contract

with the GSIS; that the petitioners have no cause of action; and principles upon which We believe the resolution of this
that Laigo Realty Corporation which entered into the contracts controversy should be based. It may be stated in this connection,
with the petitioners is a necessary and indispensable party who however, that the trial court made the following findings and
should be included as a party to properly ventilate the issues and conclusions as regards the amount petitioners are entitled to
to avoid multiplicity of suits (pp. 96-101 of the instant Amended recover:
Petition). The next issue that would then necessarily follow is: - How much
26. After pre-trial was terminated the petitioners presented their are the plaintiffs entitled to be paid?
evidence, and thereafter, under date of December 16, 1975, they Again, an examination of the plaintiffs' uncontroverted evidence
filed their Plaintiffs' Formal Offer of Evidence (pp. 103-113 of the disclose that as of the time they were ordered to 'cease and
instant Amended Petition). desist' from introducing any further improvement on the
27. On February 20, 1976, the petitioners and the GSIS filed their property, they had already constructed several houses valued (in
"Joint Manifestation" which in substance is a stipulation of facts common to them) in the total of P609,328.27 and for which
(pp. 114-116 of the instant Amended Petition). The petitioners amount representing the actual cost of construction of the houses
agreed that the witnesses of the GSIS to be presented would (materials and labor already considered) as of those years of
testify on the following- construction (1969-1970), they had not yet been fully paid; that
a. The execution of the Deed of Quitclaim dated May 7, 1970, upon consolidation of ownership of the entire Palos Verdes
executed in favor of defendant GSIS by Laigo Realty Estate Subdivision where said plaintiffs had introduced the
notwithstanding the followed ownership." GSIS if they were improvements aforesaid in the GSIS, they made written request
presented evidence." (Pp. 379-391, Record. Corporation freeing for payment of what was already then due them on the defendant
said defendant from any and all claims arising out of the GSIS - new owner of the premises but that their said request had
suppliers, contractors and house such as plaintiffs in the Palos fallen on deaf ears. Consequently, for having been compelled to
Verdes Estate which now constitutes the GSIS Hills Subdivision litigate and to incur unnecessary expenses instead of given the
b. At the time of the Extra-Judicial Foreclosure of the Estate opportunity of making use of the proceeds of their investment
Mortgage on November, 1971, conducted by defendant or Laigo and labor in further investments and work, said plaintiffs are
properties, plaintiff's claims are not registered; here now further invoking justice and equity on their side and
c. Plaintiffs' services were contracted by Laigo Corporation and praying that they be paid their afore-stated entitlement in the
not by the defendant GSIS; amount of P607,328.27 in the equivalent or present value of our
d That defendant up to the present has not collected the house Pesos as devaluated. Thus, through testimonial evidence now
owner of the 63 houses built by the plaintiffs proceedings and also standing on record unrebutted, said plaintiffs proceeded to
consolidation of ownership show to the Court the effect of such devaluation of the currency
The petitioners thus did not choose to cross-examine or dispute on the prices of materials, as well as on their rights and claims, as
what they had agreed upon as the testimonies of the witnesses of follow:
the to testify; hence, they stand as uncontroverted evidence. 1
Significantly, the trial court's conclusions of fact are substantially 1969-1970 1975
as alleged by the GSIS above, except as to certain details which MATERIAL Cost Cost
We deem immaterial in the light of the legal provisions and 1. White Sand Porac P9.00 per cu. m. P30.00 per cu. m

2. Crashed Gravel-Baliwag 15.00 per cu. m. 30.00 per cu. m.
193-195, Record.)
3. Cement 3.90 per bag 14.00 per bag Parenthetically, the following reprobation by the Court of
4. Lumber .36 to .42 per 1. 70 to 1.80 per
Appeals of the foregoing posture of the trial court reveals how
board foot board ft. much the same had evidently influenced said appellate court to
5. Nails . 75 per kilo 4.20 per kilo rule in favor of allowing respondent's appeal:
6. GI Sheets 1.00 per linear 4.20 to 4.50 per
This Court finds no compelling reason to bar appellate review of
foot linear foot the unprecedented judgment, mentioned at the outset, which
7. Paint 10.50 to 1 1.00 per 38.00 to 40.00 revalued upwards four-fold to repeat, four times the amount of
gallon per gallon plaintiffs' claim (as alleged in their complaint) representing
8. Iron bars 2.7 5 to 3. 00 15.00 actual costs of houses built by them for the former owner-
9. Toilet materials 110.00 to 120.00 410. 00 to 420. 00
mortgagor of the subdivision that, eventually, was acquired by
Water closet, Phil. the GSIS as highest bidder at the foreclosure sale.
Standard with seat cover It bears emphasis that "unjust enrichment", which was invoked
by plaintiffs in suing the GSIS instead of the former owner and/or
And indeed, this Court can take judicial notice of the fact that a the developer (which contracted with plaintiff in regard to the
house costing, say P10,000.00 in 1969-1970, would now cost no houses in question), is manifest in the judgment sought to be
less than P40,000.00. So that, considering that the generally elevated to this appellate court. For, under that judgment,
accepted standard or ratio in the determination of the costs of plaintiffs stand to receive, from and at the expense of the GSIS, as
materials and labor supplied and put in the construction by the new owner, and to keep for themselves as additional increment
builder-contractors that the latter (labor) is 30% of that of the more than P 1.8 million OVER and ABOVE actual costs of materials
former (cost of materials), a computation of plaintiffs dues as is, and labor that went into the building of said houses, according to
or P607,328,27, would give this: their own allegations and evidence. Whether or not the trial court
can, by the simple expedient of taking "judicial notice" of
a. Cost of materials P 467,175.50 inflation, quadruple the plaintiffs' claim, in the light of the Civil
b. Cost of labor 140,152 .50 Code provision (Art. 1250) authorizing revaluation only upon
Total 607,328.00 proof of "extraordinary inflation or deflation of the currency" and
of Republic Act No. 524 providing that obligation shall be
In effect, by considering the aforesaid four times increase in said discharged in the currency that is legal tender at the time of
materials costing P467,175.50, the same materials would now payment, is an important and far-reaching legal question that
cost P1,868,702.00. By adding 30% of said amount of deserves further examination or review not only by this court but
P1,868.702.00, or P560,610.60 for the cost of labor, to the said also, if need be, by the Supreme Court." (Pp. 31-32, Record.)
cost of materials, the total amount to which plaintiffs would Truth to tell however, contrary to the contention of GSIS, the trial
therefore, be justly and equitably entitled is the sum of court's four-fold award may not be said to be entirely baseless
P2,429,312.60. And the facts and circumstances as proven, in the and arbitrary, much less based on no more than the judicial
honest opinion of this Court as a court of law and equity, truly notice taken by His Honor that "a house costing, say P10,000 in
warrant that this said amount be awarded to the plaintiffs. (pp. 1969-1970, would now cost no less than P40,000." That the trial

court did not award more than what petitioners had demanded xxx xxx xxx
in their complaint is clearly evidenced by their allegation in 8. That the construction of houses and improvements has greatly
Paragraph 5 of their complaint regarding the effects of inflation increased the value of the aforesaid defendant's property. (Pp.
as wen as by their prayer that they be paid "the sum of Six 71-72, Record.)
Hundred Seven Thousand Three Hundred Twenty-Eight and The answer of GSIS to the foregoing allegations is as follows:
27/100 Pesos (P607,328.27) in its current value due to inflation", 5. It specifically denies the allegations in paragraph 5, the truth
as well as by the testimonial evidence referred to in detail in the being defendant is not liable for any of the materials, supplies
decision in question, as can be seen in the portions thereof We and labor allegedly furnished and supplied by plaintiffs to Palos
have quoted above. Verdes Estate Subdivision as the same pertain exclusively to
Thus, We find and hold that the material facts in this case are Laigo Realty Corporation, since on 7 May 1970, Laigo Realty
beyond dispute and the only issues We have to resolve are legal Corporation executed a Deed of Quitclaim and Undertaking,
ones. It is clear to Us that petitioners did construct, furnishing the xerox copy of which is hereto attached as Annex "1" and made an
materials and labor needed for the purpose the 63 houses that integral part hereof, holding free and harmless defendant from
now belong to or are owned by respondent GSIS. It is alleged in claims of materialmen, contractor or any other person arising out
Paragraphs 5 and 8 of petitioners' complaint that: of or having connection with the development of the said
5. That during the period of the joint venture agreement being subdivision. Thus the "NOW, THEREFORE" clause of said Deed of
negotiated by the Government Service Insurance System and the Quitclaim and Undertaking provides:
Laigo Realty Corporation, the plaintiffs herein constructed NO THEREFORE, for and in consideration of the above premises;
residential house and other improvements at the said GSIS His and in the event of disapproval by the GSIS of its proposal to
Subdivision, furnishing materials, supplies, labor and develop- the aforesaid property of ALTA FARMS, INC. into a
miscellaneous services at their own expense, which costs of mass subdivision, REALTY CORPORATION hereby forever quitclaims,
labor and miscellaneous services total the amount of releases and waives in favor of the GSIS its rights and interests in
P607,328.27, and which is broken down or itemized as follows: the aforesaid property of ALTA FARMS, INC. arising out of the
development of the aforesaid property into a subdivision, and
Amable C. Lumanlan ------------ P309,187.76
further shall answer and pay for any claim of or liability to any
Pepito Velasco -------------------- 142,510.00
contractor, material furnisher, lot buyer, or any other person
Apolonio de los Santos -------- 60,325.51
arising out of or having connection with said subdivision
Felipe Lumbang ------------------ 82,705.00
development. If the GSIS, for any reason, shall be held liable on
Ramon Galang -------------------- 12,600.00
any such claims or liabilities or otherwise its mortgage hen be
diminished, LAIGO REALTY CORPORATION further binds itself to
That the foregoing expenditures and- claims are computed on the indemnify the GSIS such sums corresponding to such claims or
basis of actual costs of ma and labor as of the time of the diminution.
construction; xxx xxx xxx
That owing to the inflation which is a matter of judicial notice, 8. It admits the allegations in paragraph 8.(Pp. 76-77, Record.)
such costs of materials and labor is now reasonably assessed at In other words, apart from- admitting expressly that "the
very much more than the above-mentioned amount constructions of houses and improvements has greatly increased

the value" of the subdivision it now owns, nowhere in its 17. While the properties were under foreclosure and even
statement of the material facts in Paragraph 5 of its answer pending the consolidation of titles, certain lots were sold to
relative to the allegations of the petitioners regarding the installment basis, for which Laigo received P985,000.00, and 63
construction by them of the houses in dispute and the cost houses in various stages were constructed, among which are the
thereof to each of them does respondent deny said facts as not houses allegedly constructed by the petitioners. (P. 387, Record.)
true. What GSIS limitedly alleged in its answer is the legal And in the Joint Manifestation filed by the parties with the trial
proposition that it is not liable therefor because of lack of court as late as February 20, 1976, GSIS made it clear that
contractual privity between it and petitioners. It may be safely "defendant (GSIS) up to the present has not collected from the
said then that it does not now lie in the lips of GSIS to maintain house owners of the 63 houses built by the plaintiffs
that petitioners did not build the houses in question and that the notwithstanding the foreclosure proceedings and consolidation
cost thereof is different from what petitioners have stated in 6f ownership." Again, it is thus obvious that GSIS assumed
their complaint. ownership of the houses built by petitioners and was benefited
What is more, the reliance of GSIS on the Deed of Quitclaim of by the same, and the fact that it has not collected any payment
May 7, 1970 is to Our mind misplaced. We have analyzed this from the "house owners" or the construction of the houses
document carefully, and We are of the considered view that it is respectively occupied by them is of no moment insofar as its
actually evidence against GSIS. Even if what is unnatural in liability to petitioners is concerned. Surely, it is not pretended
ordinary business or industrial experience were assumed, that is, that those "house owners" would be allowed to enrich
that GSIS was unaware all along during the period of their themselves at the expense of petitioners. Indeed, the term "house
construction of the work then being done by petitioners - albeit it owners" is inappropriate, if only because in Paragraph 16 of its
is possible there was no express consent given to - by and thru Comment on the petition herein, GSIS unequivocally state that
the aforementioned deed of quitclaim, GSIS agreed to receive and "GSIS foreclosed the properties including all improvements (the
did actually receive the benefits of what petitioners had houses in 1970" and, thereby, became the owner of said houses.
accomplished or would accomplish under their contracts with Upon the foregoing factual premises, the legal issue that arises is
Laigo., So much so, that the dispositive portion of the quitclaim whether or not GSIS is liable to the petitioners for the cost of the
dead does not really relieve GSIS from liability to petitioners. materials and labor furnished by them in construction of the 63
Properly viewed, GSIS virtually assumed under said deed, houses now owned by the GSIS and for the construction of which
liability in regard to claims like those of petitioners who might no payment has been made on the balance due petitioners. Our
not be paid by Laigo albeit said liability has been made subject to considered view is and We so hold that even in equity alone, GSIS
the reservation that it could seek indemnity from Laigo. should pay the petitioners. After all, it admits it has not collected
GSIS received Alta Farms' proposal about the conversion of their from the ones who appear to be the buyers thereof, albeit it must
piggery project into a subdivision (in which Laigo Realty's be collecting the installments on the lots. All it has to do then is to
participation was mentioned) as early as February 5, 1970. It was pass on to them what it has to pay petitioners. In law, GSIS is,
only in November, 1970 that it issued its "cease and desist" under the peculiar circumstances of this case, the owner of said
order. From all indications, the jobs of petitioners were already houses. Pursuant to Article 1729 of the Civil Code:
practically finished then. Thus, in Paragraph 17 of its Comment Those who put their labor upon or furnish materials for a piece of
on the petition herein, GSIS states: work undertaken by the contractor have an action against the

owner up to the amount owing from the latter to the contractor are given added protection by requiring contractors to file bonds
at the time the claim is made. However, the following shall not guaranteeing payment to them. And under Article 2242 of the
prejudice the laborers, employees and furnishers of materials: Civil Code, paragraphs (3) and (4), claims of laborers and
1) Payments made by the owner to the contractor before they are materialmen, respectively, enjoy preference among the creditors
due; of the owner in regard to specific immovable property.
2) Renunciation by the contractor of any amount due him from As regards Article 525 of the Civil Code also invoked by GSIS,
the owner. suffice it to say that this provision refers particularly to instances
This article is subject to the provisions of special laws. (1597a) where the bad faith or the good faith of the builder is the decisive
Laigo admittedly has not paid petitioners. The "bouncing" checks factor in determining liability. In the case at bar, there is no
issued by it in their favor is mentioned by GSIS itself in its necessity to pass on the question of whether petitioners acted in
statement of the facts. We hold that upon this premise it is a fair good faith or bad faith, for the simple reason that under the Deed
construction of the Deed of Quitclaim aforementioned, that GSIS of Quitclaim, GSIS freely accepted the benefits of what they have
can be held liable to petitioners, without prejudice to its securing accomplished.
corresponding indemnity from Laigo. It is obvious from the terms GSIS contends that Laigo should have been joined as defendant in
of said deed that GSIS contemplated the possibility of its being this case. While petitioners could have done so, they were not
liable for Laigo's account, otherwise, there was no need for the under such obligation mandatorily. Under the circumstances of
reservation. This is one such liability. In this connection while, this case, Laigo is only a necessary party, not an indispensable
indeed, Article 1729 refers to the laborers and materialmen one. And to allay GSIS, its right to secure reimbursement from
themselves, under the peculiar circumstances of this case, it is Laigo is hereby reserved.
but fair and just that petitioners be deemed as suing for the Coming now to the amount for which GSIS is liable, We reiterate
reimbursement of what they have already paid the laborers and that, to be sure, there is evidence in the record, uncontradicted at
materialmen, as otherwise they (petitioners) would be unduly that, regarding the lower value of money at the time the demand
prejudiced while either Laigo, GSIS or the occupants of the upon GSIS was made compared to that when petitioners
houses would enrich themselves at their expense. It is a bad law furnished the labor and materials in question. We are not,
that would allow such a result. however, inclined to go along with the trial court that the amount
At this juncture, We need to add only that Article 1311 of the Civil demanded should be multiplied four times. We believe that it
Code which GSIS invokes is not applicable where the situation being a matter of judicial notice that the prices of labor and
contemplated in Article 1729 obtains. The intention of the latter material have substantially risen since 1970, it would be fair
provision is to protect the laborers and the materialmen from enough to make respondent liable for interest on the amount of
being taken advantage of by unscrupulous contractors and from the demand, which is supported by evidence and not effectively
possible connivance between owners and contractors. Thus, a disputed by GSIS in its answer, at the rate of 12% per annum
constructive vinculum or contractual privity is created by this from the time petitioners filed their complaint below on April
provision, by way of exception to the principle underlying Article 14,1975.
1311 between the owner, on the one hand, and those who furnish In addition, We hold that our award to petitioners of attorney's
labor and/or materials, on the other. As a matter of fact, insofar fees in the amount of Fifty Thousand (P50,00.00) Pesos would
as the laborers are concerned, by a special law, Act No. 3959, they only be just and proper. As We view the position taken by GSIS in

this case, petitioners were compelled to litigate over a matter Barredo (Chairman), Antonio, Concepcion, Jr., Santos and Abad
that could have been justly and equitably settled without having Santos, JJ., concur.
to go to court, particularly, when it is considered that under the
Deed of Quitclaim several times mentioned earlier, GSIS freely
accepted from Laigo the benefits of the expenses for labor and Separate Opinions
material incurred by petitioners in the houses in question, hence,
as We have said above, GSIS had no legal basis for insisting that AQUINO, J., concurring:
Article 1729 of the Civil Code does not apply to this case, it being In the affirmance of the decision of the Court of Appeals but
indisputably the owner of said houses already. Besides, it must be dissents as to the resolution of the merits of the case which has
borne in mind that the claims of petitioners are in the nature of not been appealed to this Court.
claims of the laborers and materialmen themselves. Accordingly,
Article 2208, paragraphs 2, 7 and 11, are applicable hereto.
Indeed, the "house owners " or occupants who have not paid Separate Opinions
either petitioners or Laigo, or even the GSIS should not be
allowed to enrich themselves at the expense of petitioners, and AQUINO, J., concurring:
the most feasible way of avoiding such a result is for GSIS to Pay In the affirmance of the decision of the Court of Appeals but
Petitioners and then pass on to said "house owners" what it dissents as to the resolution of the merits of the case which has
would have to pay under this judgment. not been appealed to this Court.
IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered
affirming the decision appealed from, with the modification that
respondent GSIS shall pay petitioners the total amount of SIX Separate Opinions
HUNDRED SEVEN THOUSAND THREE HUNDRED TWENTY AQUINO, J., concurring:
EIGHT AND 27/100 PESOS (P607,328.27), plus interest at 8% In the affirmance of the decision of the Court of Appeals but
per annum from April 14, 1975 (which is less than that allowed dissents as to the resolution of the merits of the case which has
by Circular No. 416 of the Central Bank dated July 29, 1974) until not been appealed to this Court.
fully paid, the said sum to correspond separately to petitioners as
follows:

Amable C. Lumanlan P309,187.76 plus interest
Pepito Velasco 142,510.00 129. G.R. No. 16454 September 29, 1921
Apolonio de log Santos 60,325.51 GEORGE A. KAUFFMAN, plaintiff-appellee,
Felipe Lumbang 82,705.00 and vs.
Ramon Galang 12,600.00 THE PHILIPPINE NATIONAL BANK, defendant-appellant.
Roman J. Lacson for appellant. Ross and Lawrence for
plus Fifty Thousand (P50,000) Pesos as attorney's fees for an of appellee.
them and the costs.

STREET, J.: Payable through Philippine National Bank, New York. To G. A.
At the time of the transaction which gave rise to this litigation the Kauffman, New York. Total P90,355.50. Account of Philippine
plaintiff, George A. Kauffman, was the president of a domestic Fiber and Produce Company. Sold to Messrs. Philippine Fiber and
corporation engaged chiefly in the exportation of hemp from the Produce Company, Manila.
Philippine Islands and known as the Philippine Fiber and (Sgd.) Y LERMA,
Produce Company, of which company the plaintiff apparently Manager, Foreign Department.
held in his own right nearly the entire issue of capital stock. On On the same day the Philippine National Bank dispatched to its
February 5, 1918, the board of directors of said company, New York agency a cablegram to the following effect:
declared a dividend of P100,000 from its surplus earnings for the Pay George A. Kauffman, New York, account Philippine Fiber
year 1917, of which the plaintiff was entitled to the sum of Produce Co., $45,000. (Sgd.) PHILIPPINE NATIONAL BANK,
P98,000. This amount was accordingly placed to his credit on the Manila.
books of the company, and so remained until in October of the Upon receiving this telegraphic message, the bank's
same year when an unsuccessful effort was made to transmit the representative in New York sent a cable message in reply
whole, or a greater part thereof, to the plaintiff in New York City. suggesting the advisability of withholding this money from
In this connection it appears that on October 9, 1918, George B. Kauffman, in view of his reluctance to accept certain bills of the
Wicks, treasurer of the Philippine Fiber and Produce Company, Philippine Fiber and Produce Company. The Philippine National
presented himself in the exchange department of the Philippine Bank acquiesced in this and on October 11 dispatched to its New
National Bank in Manila and requested that a telegraphic transfer York agency another message to withhold the Kauffman payment
of $45,000 should be made to the plaintiff in New York City, upon as suggested.
account of the Philippine Fiber and Produce Company. He was Meanwhile Wicks, the treasurer of the Philippine Fiber and
informed that the total cost of said transfer, including exchange Produce Company, cabled to Kauffman in New York, advising him
and cost of message, would be P90,355.50. Accordingly, Wicks, as that $45,000 had been placed to his credit in the New York
treasurer of the Philippine Fiber and Produce Company, agency of the Philippine National Bank; and in response to this
thereupon drew and delivered a check for that amount on the advice Kauffman presented himself at the office of the Philippine
Philippine National Bank; and the same was accepted by the National Bank in New York City on October 15, 1918, and
officer selling the exchange in payment of the transfer in demanded the money. By this time, however, the message from
question. As evidence of this transaction a document was made the Philippine National Bank of October 11, directing the
out and delivered to Wicks, which is referred to by the bank's withholding of payment had been received in New York, and
assistant cashier as its official receipt. This memorandum receipt payment was therefore refused.
is in the following language: In view of these facts, the plaintiff Kauffman instituted the
October 9th, 1918. present action in the Court of First Instance of the city of Manila
CABLE TRANSFER BOUGHT FROM to recover said sum, with interest and costs; and judgment
PHILIPPINE NATIONAL BANK, having been there entered favorably to the plaintiff, the
Manila, P.I. Stamp P18 defendant appealed.
Foreign Amount Rate Among additional facts pertinent to the case we note the
$45,000. 3/8 % P90,337.50 circumstance that at the time of the transaction above-

mentioned, the Philippines Fiber and Produce Company did not provisions of the Negotiable Instruments Law can come into
have on deposit in the Philippine National Bank money adequate operation there must be a document in existence of the character
to pay the check for P90,355.50, which was delivered in payment described in section 1 of the Law; and no rights properly
of the telegraphic order; but the company did have credit to that speaking arise in respect to said instrument until it is delivered.
extent, or more, for overdraft in current account, and the check in In the case before us there was an order, it is true, transmitted by
question was charged as an overdraft against the Philippine Fiber the defendant bank to its New York branch, for the payment of a
and Produce Company and has remained on the books of the specified sum of money to George A. Kauffman. But this order
bank as an interest-bearing item in the account of said company. was not made payable "to order or "to bearer," as required in
It is furthermore noteworthy that no evidence has been subsection (d) of that Act; and inasmuch as it never left the
introduced tending to show failure of consideration with respect possession of the bank, or its representative in New York City,
to the amount paid for said telegraphic order. It is true that in the there was no delivery in the sense intended in section 16 of the
defendant's answer it is suggested that the failure of the bank to same Law. In this connection it is unnecessary to point out that
pay over the amount of this remittance to the plaintiff in New the official receipt delivered by the bank to the purchaser of the
York City, pursuant to its agreement, was due to a desire to telegraphic order, and already set out above, cannot itself be
protect the bank in its relations with the Philippine Fiber and viewed in the light of a negotiable instrument, although it affords
Produce Company, whose credit was secured at the bank by complete proof of the obligation actually assumed by the bank.
warehouse receipts on Philippine products; and it is alleged that Stated in bare simplicity the admitted facts show that the
after the exchange in question was sold the bank found that it did defendant bank for a valuable consideration paid by the
not have sufficient to warrant payment of the remittance. In view, Philippine Fiber and Produce Company agreed on October 9,
however, of the failure of the bank to substantiate these 1918, to cause a sum of money to be paid to the plaintiff in New
allegations, or to offer any other proof showing failure of York City; and the question is whether the plaintiff can maintain
consideration, it must be assumed that the obligation of the bank an action against the bank for the nonperformance of said
was supported by adequate consideration. undertaking. In other words, is the lack of privity with the
In this court the defense is mainly, if not exclusively, based upon contract on the part of the plaintiff fatal to the maintenance of an
the proposition that, inasmuch as the plaintiff Kauffman was not action by him?
a party to the contract with the bank for the transmission of this The only express provision of law that has been cited as bearing
credit, no right of action can be vested in him for the breach directly on this question is the second paragraph of article 1257
thereof. "In this situation," we here quote the words of the of the Civil Code; and unless the present action can be maintained
appellant's brief, "if there exists a cause of action against the under the provision, the plaintiff admittedly has no case. This
defendant, it would not be in favor of the plaintiff who had taken provision states an exception to the more general rule expressed
no part at all in the transaction nor had entered into any contract in the first paragraph of the same article to the effect that
with the plaintiff, but in favor of the Philippine Fiber and Produce contracts are productive of effects only between the parties who
Company, the party which contracted in its own name with the execute them; and in harmony with this general rule are
defendant." numerous decisions of this court (Wolfson vs. Estate of Martinez,
The question thus placed before us is one purely of law; and at 20 Phil., 340; Ibaez de Aldecoa vs. Hongkong and Shanghai
the very threshold of the discussion it can be stated that the Banking Corporation, 22 Phil., 572, 584; Manila Railroad Co. vs.

Compaia Trasatlantica and Atlantic, Gulf and Pacific Co., 38 Phil., stipulated for him." (Uy Tam and Uy Yet vs. Leonard, supra.)
873, 894.) In the light of the conclusion thus stated, the right of the plaintiff
The paragraph introducing the exception which we are now to to maintain the present action is clear enough; for it is
consider is in these words: undeniable that the bank's promise to cause a definite sum of
Should the contract contain any stipulation in favor of a third money to be paid to the plaintiff in New York City is a stipulation
person, he may demand its fulfillment, provided he has given in his favor within the meaning of the paragraph above quoted;
notice of his acceptance to the person bound before the and the circumstances under which that promise was given
stipulation has been revoked. (Art. 1257, par. 2, Civ. Code.) disclose an evident intention on the part of the contracting
In the case of Uy Tam and Uy Yet vs. Leonard (30 Phil., 471), is parties that the plaintiff should have the money upon demand in
found an elaborate dissertation upon the history and New York City. The recognition of this unqualified right in the
interpretation of the paragraph above quoted and so complete is plaintiff to receive the money implies in our opinion the right in
the discussion contained in that opinion that it would be idle for him to maintain an action to recover it; and indeed if the
us here to go over the same matter. Suffice it to say that Justice provision in question were not applicable to the facts now before
Trent, speaking for the court in that case, sums up its conclusions us, it would be difficult to conceive of a case arising under it.
upon the conditions governing the right of the person for whose It will be noted that under the paragraph cited a third person
benefit a contract is made to maintain an action for the breach seeking to enforce compliance with a stipulation in his favor must
thereof in the following words: signify his acceptance before it has been revoked. In this case the
So, we believe the fairest test, in this jurisdiction at least, plaintiff clearly signified his acceptance to the bank by
whereby to determine whether the interest of a third person in a demanding payment; and although the Philippine National Bank
contract is a stipulation pour autrui, or merely an incidental had already directed its New York agency to withhold payment
interest, is to rely upon the intention of the parties as disclosed when this demand was made, the rights of the plaintiff cannot be
by their contract. considered to as there used, must be understood to imply
If a third person claims an enforcible interest in the contract, the revocation by the mutual consent of the contracting parties, or at
question must be settled by determining whether the contracting least by direction of the party purchasing he exchange.
parties desired to tender him such an interest. Did they In the course of the argument attention was directed to the case
deliberately insert terms in their agreement with the avowed of Legniti vs. Mechanics, etc. Bank (130 N.E. Rep., 597), decided
purpose of conferring a favor upon such third person? In by the Court of Appeals of the State of New York on March 1,
resolving this question, of course, the ordinary rules of 1921, wherein it is held that, by selling a cable transfer of funds
construction and interpretation of writings must be observed. on a foreign country in ordinary course, a bank incurs a simple
(Uy Tam and Uy Yet vs. Leonard, supra.) contractual obligation, and cannot be considered as holding the
Further on in the same opinion he adds: "In applying this test to a money which was paid for the transfer in the character of a
stipulation pour autrui, it matters not whether the stipulation is specific trust. Thus, it was said, "Cable transfers, therefore, mean
in the nature of a gift or whether there is an obligation owing a method of transmitting money by cable wherein the seller
from the promise to the third person. That no such obligation engages that he has the balance at the point on which the
exists may in some degree assist in determining whether the payment is ordered and that on receipt of the cable directing the
parties intended to benefit a third person, whether they transfer his correspondent at such point will make payment to

the beneficiary described in the cable. All these transaction are latter as beneficiary. The automobile was thereafter insured on
matters of purchase and sale create no trust relationship." June 23, 1959 with the State Bonding & Insurance Co., Inc., and
As we view it there is nothing in the decision referred to decisive motor car insurance policy A-0615 was issued to Enrique Mora,
of the question now before us, wish is merely that of the right of the pertinent provisions of which read:
the beneficiary to maintain an action against the bank selling the 1. The Company (referring to the State Bonding & Insurance Co.,
transfer. Inc.) will, subject to the Limits of Liability, indemnify the Insured
Upon the considerations already stated, we are of the opinion against loss of or damages to the Motor Vehicle and its
that the right of action exists, and the judgment must be affirmed. accessories and spare parts whilst thereon; (a) by accidental
It is so ordered, with costs against the appellant. Interest will be collision or overturning or collision or overturning consequent
computed as prescribed in section 510 of the Code of Civil upon mechanical breakdown or consequent upon wear and tear,
Procedure. x x x x x x x x x
Johnson, Araullo, Avancea and Villamor, JJ., concur. 2. At its own option the Company may pay in cash the amount of
the loss or damage or may repair, reinstate, or replace the Motor
Vehicle or any part thereof or its accessories or spare parts. The
liability of the Company shall not exceed the value of the parts
whichever is the less. The Insured's estimate of value stated in
130. G.R. No. L-20853 May 29, 1967 the schedule will be the maximum amount payable by the
BONIFACIO BROS., INC., ET AL., plaintiffs-appellants, Company in respect of any claim for loss or damage.1wph1.t
vs. x x x x x x x x x
ENRIQUE MORA, ET AL., defendants-appellees. 4. The Insured may authorize the repair of the Motor Vehicle
G. Magsaysay for plaintiffs-appellants. Abad Santos and necessitated by damage for which the Company may be liable
Pablo for defendant-appellee H. E. Reyes, Inc.J. P. Santilla under this Policy provided that: (a) The estimated cost of such
and A. D. Hidalgo, Jr. for other defendant-appellee. repair does not exceed the Authorized Repair Limit, (b) A
detailed estimate of the cost is forwarded to the Company
CASTRO, J.: without delay, subject to the condition that "Loss, if any is
This is an appeal from the decision of the Court of First Instance payable to H.S. Reyes, Inc.," by virtue of the fact that said
of Manila, Branch XV, in civil case 48823, affirming the decision of Oldsmobile sedan was mortgaged in favor of the said H.S. Reyes,
the Municipal Court of Manila, declaring the H.S. Reyes, Inc. as Inc. and that under a clause in said insurance policy, any loss was
having a better right than the Bonifacio Bros., Inc. and the Ayala made payable to the H.S. Reyes, Inc. as Mortgagee;
Auto Parts Company, appellants herein, to the proceeds of motor x x x x x x x x x
insurance policy A-0615, in the sum of P2,002.73, issued by the During the effectivity of the insurance contract, the car met with
State Bonding & Insurance Co. Inc., and directing payment of the an accident. The insurance company then assigned the accident
said amount to the H. Reyes, Inc. to the Bayne Adjustment Co. for investigation and appraisal of the
Enrique Mora, owner of Oldsmobile sedan model 1956, bearing damage. Enrique Mora, without the knowledge and consent of the
plate No. QC- mortgaged the same to the H.S. Reyes, Inc., with the H.S. Reyes, Inc., authorized the Bonifacio Bros. Inc. to furnish the
condition that the former would insure the automobile with the labor and materials, some of which were supplied by the Ayala

Auto Parts Co. For the cost of labor and materials, Enrique Mora the one hand and the insurance company on the other. The
was billed at P2,102.73 through the H.H. Bayne Adjustment Co. appellants argue that the insurance company and Enrique Mora
The insurance company after claiming a franchise in the amount are parties to the repair of the car as well as the towage thereof
of P100, drew a check in the amount of P2,002.73, as proceeds of performed. The authority for this assertion is to be found, it is
the insurance policy, payable to the order of Enrique Mora or H.S. alleged, in paragraph 4 of the insurance contract which provides
Reyes,. Inc., and entrusted the check to the H.H. Bayne that "the insured may authorize the repair of the Motor Vehicle
Adjustment Co. for disposition and delivery to the proper party. necessitated by damage for which the company may be liable
In the meantime, the car was delivered to Enrique Mora without under the policy provided that (a) the estimated cost of such
the consent of the H.S. Reyes, Inc., and without payment to the repair does not exceed the Authorized Repair Limit, and (b) a
Bonifacio Bros. Inc. and the Ayala Auto Parts Co. of the cost of detailed estimate of the cost is forwarded to the company
repairs and materials. without delay." It is stressed that the H.H. Bayne Adjustment
Upon the theory that the insurance proceeds should be paid Company's recommendation of payment of the appellants' bill for
directly to them, the Bonifacio Bros. Inc. and the Ayala Auto Parts materials and repairs for which the latter drew a check for
Co. filed on May 8, 1961 a complaint with the Municipal Court of P2,002.73 indicates that Mora and the H.H. Bayne Adjustment Co.
Manila against Enrique Mora and the State Bonding & Insurance acted for and in representation of the insurance company.
Co., Inc. for the collection of the sum of P2,002.73 The insurance This argument is, in our view, beside the point, because from the
company filed its answer with a counterclaim for interpleader, undisputed facts and from the pleadings it will be seen that the
requiring the Bonifacio Bros. Inc. and the H.S. Reyes, Inc. to appellants' alleged cause of action rests exclusively upon the
interplead in order to determine who has better right to the terms of the insurance contract. The appellants seek to recover
insurance proceeds in question. Enrique Mora was declared in the insurance proceeds, and for this purpose, they rely upon
default for failure to appear at the hearing, and evidence against paragraph 4 of the insurance contract document executed by and
him was received ex parte. However, the counsel for the Bonifacio between the State Bonding & Insurance Company, Inc. and
Bros. Inc., Ayala Auto Parts Co. and State Bonding & Insurance Co. Enrique Mora. The appellants are not mentioned in the contract
Inc. submitted a stipulation of facts, on the basis of which are as parties thereto nor is there any clause or provision thereof
Municipal Court rendered a decision declaring the H.S. Reyes, Inc. from which we can infer that there is an obligation on the part of
as having a better right to the disputed amount and ordering the insurance company to pay the cost of repairs directly to them.
State Bonding & Insurance Co. Inc. to pay to the H. S. Reyes, Inc. It is fundamental that contracts take effect only between the
the said sum of P2,002.73. From this decision, the appellants parties thereto, except in some specific instances provided by law
elevated the case to the Court of First Instance of Manila which where the contract contains some stipulation in favor of a third
the stipulation of facts was reproduced. On October 19, 1962 the person.1 Such stipulation is known as stipulation pour autrui or a
latter court rendered a decision, affirming the decision of the provision in favor of a third person not a pay to the contract.
Municipal Court. The Bonifacio Bros. Inc. and the Ayala Auto Under this doctrine, a third person is allowed to avail himself of a
Parts Co. moved for reconsideration of the decision, but the trial benefit granted to him by the terms of the contract, provided that
court denied the motion. Hence, this appeal. the contracting parties have clearly and deliberately conferred a
The main issue raised is whether there is privity of contract favor upon such person.2 Consequently, a third person not a
between the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. on party to the contract has no action against the parties thereto,

and cannot generally demand the enforcement of the same.3 The favor of the appellants a right of action against the insurance
question of whether a third person has an enforcible interest in a company as such intention can never be inferred therefrom.
contract, must be settled by determining whether the contracting Another cogent reason for not recognizing a right of action by the
parties intended to tender him such an interest by deliberately appellants against the insurance company is that "a policy of
inserting terms in their agreement with the avowed purpose of insurance is a distinct and independent contract between the
conferring a favor upon such third person. In this connection, this insured and insurer, and third persons have no right either in a
Court has laid down the rule that the fairest test to determine court of equity, or in a court of law, to the proceeds of it, unless
whether the interest of a third person in a contract is a there be some contract of trust, expressed or implied between
stipulation pour autrui or merely an incidental interest, is to rely the insured and third person."5 In this case, no contract of trust,
upon the intention of the parties as disclosed by their contract.4 expressed or implied exists. We, therefore, agree with the trial
In the instant case the insurance contract does not contain any court that no cause of action exists in favor of the appellants in so
words or clauses to disclose an intent to give any benefit to any far as the proceeds of insurance are concerned. The appellants'
repairmen or materialmen in case of repair of the car in question. claim, if at all, is merely equitable in nature and must be made
The parties to the insurance contract omitted such stipulation, effective through Enrique Mora who entered into a contract with
which is a circumstance that supports the said conclusion. On the the Bonifacio Bros. Inc. This conclusion is deducible not only
other hand, the "loss payable" clause of the insurance policy from the principle governing the operation and effect of
stipulates that "Loss, if any, is payable to H.S. Reyes, Inc." insurance contracts in general, but is clearly covered by the
indicating that it was only the H.S. Reyes, Inc. which they express provisions of section 50 of the Insurance Act which read:
intended to benefit. The insurance shall be applied exclusively to the proper interests
We likewise observe from the brief of the State Bonding & of the person in whose name it is made unless otherwise
Insurance Company that it has vehemently opposed the assertion specified in the policy.
or pretension of the appellants that they are privy to the contract. The policy in question has been so framed that "Loss, if any, is
If it were the intention of the insurance company to make itself payable to H.S. Reyes, Inc.," which unmistakably shows the
liable to the repair shop or materialmen, it could have easily intention of the parties.
inserted in the contract a stipulation to that effect. To hold now The final contention of the appellants is that the right of the H.S.
that the original parties to the insurance contract intended to Reyes, Inc. to the insurance proceeds arises only if there was loss
confer upon the appellants the benefit claimed by them would and not where there is mere damage as in the instant case. Suffice
require us to ignore the indespensable requisite that a stipulation it to say that any attempt to draw a distinction between "loss"
pour autrui must be clearly expressed by the parties, which we and "damage" is uncalled for, because the word "loss" in
cannot do. insurance law embraces injury or damage.
As regards paragraph 4 of the insurance contract, a perusal Loss in insurance, defined. The injury or damage sustained by
thereof would show that instead of establishing privity between the insured in consequence of the happening of one or more of
the appellants and the insurance company, such stipulation the accidents or misfortune against which the insurer, in
merely establishes the procedure that the insured has to follow in consideration of the premium, has undertaken to indemnify the
order to be entitled to indemnity for repair. This paragraph insured. (1 Bouv. Ins. No. 1215; Black's Law Dictionary;
therefore should not be construed as bringing into existence in Cyclopedic Law Dictionary, cited in Martin's Phil. Commercial

Laws, Vol. 1, 1961 ed. p. 608). Ilocos Sur.
Indeed, according to sec. 120 of the Insurance Act, a loss may be The application alleged among other things that the applicants
either total or partial. are the common and pro-indiviso owners in fee simple of the said
Accordingly, the judgment appealed from is hereby affirmed, at land with the improvements existing thereon; that to the best of
appellants' cost. their knowledge and belief, there is no mortgage, lien or
Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, encumbrance of any kind whatever affecting said land, nor any
J.P., Zaldivar, Sanchez and Castro, JJ., concur. other person having any estate or interest thereon, legal or
equitable, remainder, reservation or in expectancy; that said
applicants had acquired the aforesaid land thru and by
inheritance from their predecessors in interest, lately from their
aunt, Doa Encarnacion Florentino who died in Vigan, Ilocos Sur
131. G.R. No. L-27696 September 30, 1977 in 1941, and for which the said land was adjudicated to them by
MIGUEL FLORENTINO, ROSARIO ENCARNACION de virtue of the deed of extrajudicial partition dated August 24,
FLORENTINO, MANUEL ARCE, JOSE FLORENTINO, 1947; that applicants Salvador Encarnacion, Jr. and Angel
VICTORINO FLORENTINO, ANTONIO FLORENTINO, Encarnacion acquired their respective shares of the land thru
REMEDION ENCARNACION and SEVERINA purchase from the original heirs, Jesus, Caridad, Lourdes and
ENCARNACION, petitioners-appellants, Dolores surnamed Singson one hand and from Asuncion
vs. Florentino on the other.
SALVADOR ENCARNACION, SR., SALVADOR After due notice and publication, the Court set the application for
ENCARNACION, JR., and ANGEL ENCARNACION, hearing. No Opposition whatsoever was filed except that of the
oppositors to encumbrance-petitioners-appelles. Director of Lands which was later withdrawn, thereby leaving the
Jose F. Singson and Miguel Florentino for appellants. option unopposed. Thereupon, an order of general default was
Pedro Singson for appellees. withdrawn against the whole world. Upon application of the
asets the Clerk Of court was commission will and to have the
GUERRERO, J.: evidence of the agents and or to submit the for the Court's for
Appeal from the decision of the Court of First Instance of Ilocos resolution.
Sur, acting as a land registration court, in Land Registration case The crucial point in controversy in this registration case is
No. N-310. centered in the stipulation marked Exhibit O-1 embodied in the
On May 22, 1964, the petitioners-appellants Miguel Florentino, deed of extrajudicial partition (Exhibit O) dated August 24, 1947
Remedios Encarnacion de Florentino, Manuel Arce, Jose which states:
Florentino, Victorino Florentino, Antonio Florentino, Remedior, Los productos de esta parcela de terreno situada en el Barrio
Encarnacion and Severina Encamacion, and the Petitiners- Lubong Dacquel Cabugao Ilocos Sur, se destination para costear
appellees Salvador Encamacion, Sr., Salvador Encamacion, Jr. and los tos de procesio de la Tercera Caida celebration y sermon de
Angel Encarnacion filed with the Court of First Instance of ilocos Siete Palbras Seis Estaciones de Cuaresma, procesion del Nino
Sur an application for the registration under Act 496 of a parcel Jesus, tilaracion y conservacion de los mismos, construction le
of agricultural land located at Barrio Lubong Dacquel Cabugao union camarin en conde se depositan los carros mesas y otras

cosas que seven para lot leiracion de Siete Palabras y otras cosas Spouses Miguel Florentino and Rosario Encarnacion de
mas Lo que sobra de lihos productos despues de descontados Florentino, both of legal age, Filipinos, and residents of Vigan,
todos los gastos se repartira nosotros los herederos. Ilocos Sur, consisting of an undivided 31/297 and 8.25/297
In his testimony during the trial, applicant Miguel Florentino portions, respectively;
asked the court to include the said stipulation (Exhibit O-1) as an Manuel Arce, of legal age, Filipino, married to Remedios Pichay
encumbrance on the land sought to be registered, and cause the and resident of Vigan, Ilocos Sur, consisting of an undivided
entry of the same on the face of the title that will finally be issued. 66/297 portion;
Opposing its entry on the title as an encumbrance, Salvador Encarnacion, Jr., of legal age, Filipino, married to
petitionersappellee Salvador Encamacion, Sr., Salvador Angelita Nagar and resident of Vigan, Ilocos Sur, consisting of an
Encarnaciori, Jr. and Angel Encarriacion filed on October 3, 1966 undivided 66/297; Jose Florentino, of legal age, Filipino, married
a manifestation seeking to withdraw their application on their to Salvacion Florendo and resident of 16 South Ninth Diliman,
respective shares of the land sought to be registered. The Quezon City, consisting of an undivided 33/297 portion;
withdrawal was opposed by the petitioners-appellants. Angel Encarnacion, of legal age, Filipino, single and resident of
The Court after hearing the motion for withdrawal and the 1514 Milagros St., Sta. Cruz, Manila, consisting of an undivided
opposition thereto issued on November 17, 1966 an order and 33/297 portion;
for the purpose of ascertaining and implifying the issues therein Victorino Florentino, of legal age, Filipino, married to Mercedes L.
stated that all the applicants admit the truth of the following; Encarnacion and resident of Vigan, Ilocos Sur, consisting of an
(1) That just after the death of Encarnacion FIorentino in 1941 undivided 17.5/297 portion;
up to last year and as had always been the case since time Antonio Florentino, of legal age, Filipino, single and resident of
immomorial the products of the land made subiect matter of this Vigan, Ilocos Sur, consisting of an undivided 17.5/297;
land has been used in answering for the payment for the religious Salvador Encarnacion, Sr., of legal age, Filipino, married to
functions specified in the Deed Extrajudicial Partition belated Dolores Singson, consisting of an undivided 8.25/297;
August 24, 1947: Remedios Encarnacion, of legal age, Filipino, single and resident
(2) That this arrangement about the products answering for the of Vigan, Ilocos Sur, consisting of an undivided 8.25/297 portion;
comment of experisence for religions functions as mentioned and
above was not registered in the office of the Register of Deeds Severina Encarnacion, of legal age, Filipino, single and resident of
under Act No 3344, Act 496 or and, other system of registration; Vigan, Ilocos Sur, consisting of 8.25/297 undivided portion.
(3) That all the herein applicants know of the existence of his The court, after ruling "that the contention of the proponents of
arrangement as specified in the Deed of Extra judicial Partition of encumbrance is without merit bemuse, taking the self-imposed
A adjust 24, 1947; arrangement in favor of the Church as a pure and simple
(4) That the Deed of Extrajudicial Partition of August 24, 194-, donation, the same is void for the that the donee here has riot
not signed by Angel Encarnacion or Salvador Encarnacion, Jr,. accepted the donation (Art. 745, Civil Code) and for the further
The court denied the petitioners-appellee motion to withdraw for that, in the case of Salvador Encarnacion, Jr. and Angel
lack of merit, and rendered a decision under date of November Encarnacion, they had made no oral or written grant at all (Art.
29, 1966 confirming the title of the property in favor of the f 748) as in fact they are even opposed to it," 1 held in the Positive
appoints with their respective shares as follows: portion, as follows:

In view of all these, therefore, and insofar as the question of incidental benefit or interest of a person is not sufficient. The
encumbrance is concerned, let the religious expenses as herein contracting parties must have clearly and deliberately conferred
specified be made and entered on the undivided shares, interests a favor upon a third person." No evide nee has ever been
and participations of all the applicants in this case, except that of submitted by the Church to show its clear acceptance of the grant
Salvador Encarnacion, Sr., Salvador Encarnacion, Jr. and Angel before its revocation by the oppositor Salvador Encarnacion, Sr.
Encarnacion. (or of the two other oppositors, Salvador Encarnacion, Jr. and
On January 3, 1967, petitioners-appellants filed their Reply to the Angel Encarnacion, who didn't even make any giant, in the first
Opposition reiterating their previous arguments, and also place), and so not even the movants who have officiously taken
attacking the junction of the registration court to pass upon the into themselves the right to enforce the grant cannot now
validity or invalidity of the agreement Exhibit O-1, alleging that maintain any action to compel compliance with it. (Bank of the
such is specified only in an ordinary action and not proper in a P.I. v. Concepcion y Hijos, Inc., 53 Phil. 806). Second, the Church in
land registration proceeding. whose favor the stipulation or grant had apparently been made
The Motion for Reconsideration and of New Trial was denied on ought to be the proper party to compel the herein three
January 14, 1967 for lack of merit, but the court modified its oppositors to abide with the stipulation. But it has not made any
earlier decision of November 29, 1966, to wit: appearance nor registered its opposition to the application even
This Court believes, and so holds, that the contention of the before Oct. 18, 1965 when an order of general default was issued.
movants (proponents of the encumbrance) is without merit Third, the movants are not, in the contemplation of Section 2,
because the arrangement, stipulation or grant as embodied in Rule 3 of the Rules of Court, the real party in interest to raise the
Exhibit O (Escritura de Particion Extrajudicial), by whatever present issue; and Fourth, the movants having once alleged in
name it may be (called, whether donation, usufruct or their application for registration that the land is without
ellemosynary gift, can be revoked as in fact the oppositors encumbrance (par. 3 thereof), cannot now be alloted by the rules
Salvador Encarnacion, Sr., who is the only one of the three of pleading to contradict said allegation of theirs. (McDaniel v.
oppositors who is a party to said Exhibit O (the two others, Apacible, 44 Phil. 248)
Salvador Encarnacion, Jr. and Angel Encarnacion no parties to it) SO ORDERED. 2
did revoke it as shown by acts accompanying his refusal to have After Motions for Reconsideration were denied by the court, the
the same appear as an encumbrance on the title to be issued. In petitioners- appellants appealed directly to this Court pursuant
fact, legally, the same can also be ignored or discararded by will to Rule 4 1, Rules of Court, raising the following assign of error:
the three oppositors. The reasons are: First, if the said stipulation I. The lower court erred in concluding that the stipulation
is pour bodies in Exhibit O-1 is to be viewed as a stipulation pour embodied in Exhibit O on religious expenses is just an
autrui the same cannot now be enforced because the Church in arrangement stipulation, or grant revocable at the unilateral
whose favor it was made has not communicated its acceptance to option of the coowners.
the oppositors before the latter revoked it. Says the 2nd par. of II. The lower court erred in finding and concluding that the
Art. 1311 of the New Civil Code: encumbrance or religious expenses embodied in Exhibit O, the
"If a contract should contain some stipulation in favor of a third extrajudicial partition between the co-heirs, is binding only on
person he may demand its fulfillment provided he communicated the appoints Miguel Florentino, Rosario Encarnacion de
his acceptance to the obligor before its revocation. A mere Florentino, Manuel Arce, Jose Florentino, Antonio Florentino,

Victorino Florentino, Remedios Encarnacion and Severina pour autrui. A stipulation pour autrui is a stipulation in favor of a
Encarnacion. third person conferring a clear and deliberate favor upon him,
III. The lower court as a registration court erred in passing upon and which stipulation is merely a part of a contract entered into
the merits of the encumbrance (Exhibit O-1) as the sanie was by the parties, neither of whom acted as agent of the third
never put to issue and as the question involved is an adjudication person, and such third person and demand its fulfillment
of rights of the parties. provoked that he communicates his to the obligor before it is
We find the first and second assignments of error impressed with revoked. 3 The requisites are: (1) that the stipulation in favor of a
merit and, therefore, tenable. The stipulation embodied in Exhibit third person should be a part, not the whole, of the contract; (2)
O-1 on religious expenses is not revocable at the unilateral option that the favorable stipulation should not be conditioned or
of the co-owners and neither is it binding only on the petitioners- compensated by any kind of obligation whatever; and (3) neither
appellants Miguel Florentino, Rosario Encarnacion de Florentino of the contracting bears the legal represented or authorization of
Manuel Arce, Jose Florentino, Victorino Florentino Antonio third person.
Florentino, Remedios Encarnacion and Severina E It is also To constitute a valid stipulation pour autrui it must be the
binding on the oppositors-appellees Angel Encarnacion, purpose and intent of the stipulating parties to benefit the third
The stipulation (Exhibit 411) in pan of an extrajudicial partition and it is not sufficient that the third person may be incidentally
(Exh. O) duly agreed and signed by the parties, hence the sanie benefited by the stipulation. The fairest test to determine
must bind the contracting parties thereto and its validity or whether the interest of third person in a contract is a stipulation
compliance cannot be left to the with of one of them (Art. 1308, pour autrui or merely an incidental interest, is to rely upon the
N.C.C.). Under Art 1311 of the New Civil Code, this stipulation intention of the parties as disclosed by their contract. In applying
takes effect between the parties, their assign and heirs. The this test, it meters not whether the stipulation is in the nature of a
article provides: gift or whether there is an obligation owing from the promisee to
Art. 1311. Contracts take effect only between the parties, their the third person. That no such obsorption exists may in some
assigns and heirs, except in cases where the rights and degree assist in determining whether the parties intended to
obligations arising from the contract are not transmissible by benefit a third person.4
their nature, or by stipulation or by provision of law. The heir is In the case at bar, the determining point is whether the co-
not liable beyond the value of the property he received from the owners intended to benefit the Church when in their extrajudicial
decedent. partition of several parcels of land inherited by them from Doa
If a contract should contain a stipulation in favor of a third Encarnacion Florendo they agreed that with respect to the land
person, he may demand its fulfillment provided he situated in Barrio Lubong Dacquel Cabugao Ilocos Sur, the fruits
communicated his acceptance to the obligor before its thereof shall serve to defray the religious expenses specified in
revocation. A mere incidental benefit or interest of a person is Exhibit O-1. The evidence on record shows that the true intent of
not sufficient. The contracting parties must have clearly and the parties is to confer a direct and material benefit upon the
deliberately conferred a favor upon a third person. Church. The fruits of the aforesaid land were used thenceforth to
The second paragraph of Article 1311 above-quoted states the defray the expenses of the Church in the preparation and
law on stipulations pour autrui. Consent the nature and purpose celebration of the Holy Week, an annual Church function. Suffice
of the motion (Exh. O-1), We hold that said stipulation is a station it to say that were it not for Exhibit O-1, the Church would have

necessarily expended for this religious occasion, the annual any of the stipulators at their own option. This must be so
relisgious procession during the Holy Wock and also for the because of Article 1257, Civil Code and the cardinal rule of
repair and preservation of all the statutes, for the celebration of contracts that it has the force of law between the parties. 8 Thus,
the Seven Last Word. this Court ruled in Garcia v. Rita Legarda, Inc., 9 "Article 1309 is a
We find that the trial court erred in holding that the stipulation, virtual reproduction of Article 1256 of the Civil Code, so phrased
arrangement or grant (Exhibit O-1) is revocable at the option of to emphasize that the contract must bind both parties, based on
the co-owners. While a stipulation in favor of a third person has the principles (1) that obligation arising from contracts have the
no binding effect in itself before its acceptance by the party force of law between the contracting parties; and (2) that there
favored, the law does not provide when the third person must must be mutuality between the parties based on their principle
make his acceptance. As a rule, there is no time at such third equality, to which is repugnant to have one party bound by the
person has after the time until the stipulation is revoked. Here, contract leaving the other free therefrom."
We find that the Church accepted the stipulation in its favor Consequently, Salvador Encarnacion, Sr. must bear with Exhibit
before it is sought to be revoked by some of the co-owners, O-1, being a signatory to the Deed of Extrajudicial Partition
namely the petitioners-appellants herein. It is not disputed that embodying such beneficial stipualtion. Likewise, with regards to
from the time of the with of Doa Encarnacion Florentino in Salvador, Jr. and Angel Encarnacion, they too are bound to the
1941, as had always been the case since time immemorial up to a agreement. Being subsequent purchasers, they are privies or
year before the firing of their application in May 1964, the successors in interest; it is axiomatic that contracts are
Church had been enjoying the benefits of the stipulation. The enforceable against the parties and their privies. 10 Furthermore,
enjoyment of benefits flowing therefrom for almost seventeen they are shown to have given their conformity to such agreement
years without question from any quarters can only be construed when they kept their peace in 1962 and 1963, having already
as an implied acceptance by the Church of the stipulation pour bought their respective shares of the subject land but did not
autrui before its revocation. question the enforcement of the agreement as against them. They
The acceptance does not have to be in any particular form, even are also shown to have knowledge of Exhibit O-1 as they had
when the stipulation is for the third person an act of liberality or admitted in a Deed of Real Mortgage executed by them on March
generosity on the part of the promisor or promise. 5 8, 1962 involving their shares of the subject land that, "This
It need not be made expressly and formally. Notification of parcel of land is encumbered as evidenced by the document No.
acceptance, other than such as is involved in the making of 420, page 94, Book 1, series 1947, executed by the heirs of the
demand, is unnecessary. 6 late Encarnacion Florentino, on August 26, 1947, before M.
A trust constituted between two contracting parties for the Francisco Ante, Notwy Public of Vigan, Ilocos Sur, in its page 10 of
benefit of a third person is not subject to the rules governing the said document of partition, and also by other documents."
donation of real property. The beneficiary of a trust may demand The annotation of Exhibit O-1 on the face of the title to be issued
performance of the obligation without having formally accepted in this case is merely a guarantee of the continued enforcement
the benefit of the this in a public document, upon mere and fulfillment of the beneficial stipulation. It is error for the
acquiescence in the formation of the trust and acceptance under lower court to rule that the petitioners-appellants are not the real
the second paragraph of Art. 1257 of the Civil Code. 7 parties in interest, but the Church. That one of the parties to a
Hence, the stipulation (Exhibit O-1) cannot now be revoked by contract pour autrui is entitled to bring an action for its

enforcement or to prevent its breach is too clear to need any limited jurisdiction of the registration court failed to do so but
extensive discussion. Upon the other hand, that the contract met the issues head-on.
involved contained a stipulation pour autrui amplifies this settled Secondly, for this very special reason, We win uphold the
rule only in the sense that the third person for whose benefit the actuation of the lower court in determining the conflicting
contract was entered into may also demand its fulfillment interests of the parties in the registration proceedings before it.
provoked he had communicated his acceptance thereof to the This case has been languishing in our courts for thirteen tong
obligor before the stipulation in his favor is revoked. 11 years. To require that it be remanded to the lower court for
Petitioners-appellants' third assignment of error is not well- another proceeding under its general jurisdiction is not in
taken. Firstly, the otherwise rigid rule that the jurisdiction of the consonance with our avowed policy of speedy justice. It would
Land Registration Court, being special and limited in character not be amiss to note that if this case be remanded to the lower
and proceedings thereon summary in nature, does not extend to court, and should appeal again be made, the name issues will
cases involving issues properly litigable in other independent once more be raised before us hence, Our decision to resolve at
suits or ordinary civil actions, has time and again been relaxed in once the issues in the instant petition.
special and exceptional circumstances. (See Government of the IN VIEW OF THE FOREGOING, the decision of the Court of First
Phil. Islands v. Serafica, 61 Phil. 93 (1934); Caoibes v. Sison, 102 Instance of Ilocos Sur in Land Registration Case No. N-310 is
Phil. 19 (1957); Luna v. Santos, 102 Phil. 588 (1957); Cruz v. Tan, affirmed but modified to allow the annotation of Exhibit O-1 as an
93 Phil. 348 (1953); Gurbax Singh Pabla & Co. v. Reyes, 92 Phil. encumbrance on the face of the title to be finally issued in favor
177 (1952). From these cases, it may be gleaned and gathered of all the applications (herein appellants and herein appellees) in
that the peculiarity of the exceptions is based not only on the fact the registration proceedings below.
that Land Registration Courts are likewise the same Courts of No pronouncement as to cost.
First Instance, but also the following premises (1) Mutual consent SO ORDERED.
of the parties or their acquired in submitting the at aforesaid Teehankee (Chairman), Muoz Palma, Fernandez, JJ., concur.
determination by the court in the registration; (2) Full
opportunity given to the parties in the presentation of their
respective skies of the issues and of the evidence in support
thereto; (3) Consideration by the court that the evidence already
of record is sufficient and adequate for rendering a decision upon 132. G.R. No. 74521 November 11, 1986
these issues. 12 In the case at bar, the records clearly show that BANK OF AMERICA NT & SA, petitioner,
the second and third premism enumerated abow are fully mt. vs.
With regards to first premise, the petioners-appellants cannot THE HON. FIRST CIVIL CASES DIVISION,
claim that the issues anent Exhibit O-1 were not put in issue INTERMEDIATE APPELLATE COURT and AIR CARGO
because this is contrary to their stand before the lower court AND TRAVEL CORPORATION, respondents.
where they took the initial step in praying for the court's Agcaoili & Associates for petitioner.
determination of the merits of Exhibit O-1 as an encumbrance to Marcelo P. Villanuea for respondents.
be annotated on the title to be issued by such court. On the other
hand, the petitioners-appellees who had the right to invoke the MELENCIO-HERRERA, J.:

As the Petition and the Comment submitted by private Kyowa Bank, Ltd. also based in Tokyo, Japan, for telegraphic
respondent Air Cargo and Travel Corporation (ACTC) have transfer of the sum of US$23,595.00 payable to ACTC's account
sufficiently argued the legal question involved in this case, the with BANKAMERICA, Manila.
Court has resolved to give due course to the Petition, with private When the tested telex was received on May 10, 1981, employees
respondent's Comment being its Answer, and to consider this of BANKAMERICA noted its patent ambiguity. Notwithstanding,
case submitted for decision. on the following day, BANKAMERICA credited the amount of
The basic relevant facts have been stated by respondent US$23,595.00 to the account of Minami. ACTC claimed that the
Appellate Court as follows: amount should have been credited to its account and demanded
Shorn of non-essentials, the facts are: Plaintiff Air Cargo and restitution, but BANKAMERICA refused.
Travel Corporation is the owner of Account Number 19842-01-2 On February 18, 1982, ACTC filed suit for damages against
with defendant Bank of America. Defendant Toshiyuki Minami, BANKAMERICA and Minami before the Trial Court in Pasig for
President of plaintiff corporation in Japan, is the owner of the failure of BANKAMERICA to restitute. Minami was declared in
Account Number 24506-01-7 with defendant Bank. default. Thereafter, judgment was rendered with the following
On March 10, 1981, the Bank received a tested telex advise from dispositive part:
Kyowa Bank of Japan stating, IN VIEW OF THE FOREGOING CONSIDERATIONS, the Court upon
ADVISE PAY USDLS 23,595. TO YOUR A/C NBR 24506-01-7 OF a judicious and fair assessment of the testimonial and
A. C. TRAVEL CORPORATION MR. TOSHIYUKO MINAMI. documentary evidences submitted by the parties is of the opinion
and the Bank Credited the amount of US$23,595.00 to Account and so holds that defendant Bank and defendant Minami must
Number 24506-07-1 (should be 24506-01-7) owned, as pay plaintiff, jointly and severally the following.
aforesaid, by Minami. 1. The sum of US$23,595.00 or in Philippine Currency at the
On March 12, 1981, Minami withdrew the sum of P180,000.00 current guiding rate of exchange which is P14.00 to the dollar, as
the equivalent in Philippine Pesos of the sum of US$23,595.00 and by way of actual damages with interest at the rate of twelve
from the Bank on his Account Number 24506-07-1 (should be (12%) per cent per annum from the filing of the complaint until
24506-01-7) fully paid;
It may be explained that the "tested" telex advice is a message 2. The sum of P50,000.00 as temperate and exemplary damages;
signed in "code". Evidently, there was a previous contractual 3. The sum of P10,000.00 as attorney's fees;;
agreement between Kyowa Bank of Japan (KYOWA) and 4. The costs of this suit.
Petitioner (BANKAMERICA) that, from time to time, KYOWA can SO ORDERED.
ask BANKAMERICA to pay amounts to a third party (beneficiary) Upon appeal taken by BANKAMERICA, Respondent Court
with BANKAMERICA afterwards billing KYOWA the indicated "affirmed in toto, " except that the dollar-peso rate of ex-change
amount given to the beneficiary. To assure itself that an Order would be that "at the time of payment." Said respondent Court:
received from KYOWA really comes from KYOWA, it is usually We must say that the Bank personnel were in fact confused or in
agreed that KYOWA's signature will be in accordance with a doubts as to the real payee.
confidential code. The Senior Clerk who initially received the tested telex had called
According to ACTC in its Comment, in the early part of 1981, it up Mr. Colegado, Mr. Ichiban, Miss Mayagama and Atty.
was Tokyo Tourist Corporation in Japan which applied with Villanueva, all of plaintiff-appellee, but he received "no

answer."(Exh. 3; pp. 9-10, t.s.n., Dec. 2, 1982). [1969]). Similarly, when KYOWA asked BANK-AMERICA to pay
Thereupon, the processor checked the alphabetical listings and an amount to a beneficiary (either ACTC or Minami), the contract
he saw that the payee, Account Number 24506-01-7, matched the was between KYOWA and BANK-AMERICA and it had a
name appearing in the tested telex advise (p. 10, t.s.n., Dec. 2, stipulation pour autrui.
1981). It should be recalled that the tested telex originated from KYOWA
The gross negligence then of appellant Bank may be sum (sic) up at the behest of Tokyo Tourist Corporation with whom ACTC had
as follows; The words "A.C. TRAVEL CORPORATION MR. business dealings. Minami, on the other hand, was the liaison
TOSHIYUKO MINAMI" engendered or cast doubt officer of ACTC in Japan. As the entity responsible for the tested
on the part of the Senior Clerk as to the real payee despite the telex was Tokyo Tourist Corporation, it can reasonably be
"A.C. NBR 24506-01-7" and concluded that if it had intended that the US$23,595.00 should be
should have consulted higher officials of plaintiff before giving credited to ACTC, upon learning that the amount was credited to
the advise to the processor who sent the same to the computer Minami, it should have gone, together with the representatives of
center for ultimate processing (p. 11, Appellant's Brief). ACTC, in protest to KYOWA and lodged a protest. Since that was
The processor verified that Account Number 24506-01-7 not done, it could well be that Tokyo Tourist Corporation had
belonged to TOSHIYUKO MINAMI' only and not to "A.C. TRAVEL really intended its remittance to be credited to Minami. The
CORPORATION MR. TOSHIYUKO MINAMI" and this circumstance identity of the beneficiary should be in accordance with the
should have moved the processor to be more prudent and to identification made by KYOWA, and ACTC cannot question that
consult higher officials instead of sending the advise to the identification as it is not a party to the arrangement between
computer center for processing or crediting the remittance to the KYOWA and BANKAMERICA (see Manila Railroad Co. vs.
account of Toshiyuko Minami, (Emphasis supplied) Compaia Trasatlantica, 38 Phil. 875 [1918]).
We are constrained to reverse. WHEREFORE, the Decision of Respondent Court, in its case AC-
It is our considered opinion that, in the tested telex, considered G.R. CV No. 03985, is hereby reversed in so far as Bank of
either as a patent ambiguity or as a latent ambiguity, the America, NT & SA is concerned.
beneficiary is Minami. The mention of Account No. 24506-01-7, Without pronouncement as to costs.
as well as the name of Minami, has to be given more weight than SO ORDERED.
the mention of the name of ACTC. BANKAMERICA could not have Yap (Chairman), Narvasa, Cruz and Paras, * JJ., concur.
very well disregarded that account number. It could also be that
the mention of ACTC's name was a further identification of
Minami, to prevent payment to a possible another "Toshiyuko
Minami" who may not be connected with ACTC. On the other
hand, it should be difficult to concede that, in the tested telex, 133. G.R. No. L-40234 December 14, 1987
Account No. 24506-01-7 was erroneously written and should be MARIMPERIO COMPAIA NAVIERA, S.A., petitioner,
substituted by Account No. 19842-01-2 in the name of ACTC. vs.
In Vargas Plow Factory, Inc. vs. Central Bank, it was held that "the COURT OF APPEALS and UNION IMPORT & EXPORT
opening of a letter of credit in favor of the exporter becomes CORPORATION and PHILIPPINES TRADERS
ultimately but the result of a stipulation pour autrui" (27 SCRA 84 CORPORATION, respondents.

Export Corporation entered into a joint business venture for the
PARAS, J.: purchase of copra from Indonesia for sale in Europe. James Liu
This is a petition for certiorari under Section 1, Rule 65 of the President and General Manager of the Union took charge of the
Rules of Court seeking the annulment and setting aside of the European market and the chartering of a vessel to take the copra
decision of the Court of Appeals * and promulgated on September to Europe. Peter Yap of Philippine on the other hand, found one
2, 1974 in CA-G.R. No. 48521-R entitled "Union Import and P.T. Karkam in Dumai Sumatra who had around 4,000 tons of
Export Corporation, et al., Plaintiffs-Appellees v. Marimperio copra for sale. Exequiel Toeg of Interocean was commissioned to
Compaia Naviera, S.A., Defendant-Appellant", ordering look for a vessel and he found the vessel "SS Paxoi" of
petitioner to pay respondent the total sum of US $265,482.72 Marimperio available. Philippine and Union authorized Toeg to
plus attorney's fees of US$100,000.00 and (b) the resolution of negotiate for its charter but with instructions to keep confidential
the said Court of Appeals in the same case, dated February 17, the fact that they are the real charterers.
1975 fixing the amount of attorney, s fees to Pl00,000.00 instead Consequently on March 21, 1965, in London England, a "Uniform
of $100,000.00 as erroneously stated in the decision but denying Time Charter" for the hire of vessel "Paxoi" was entered into by
petitioner's motion for reconsideration and/or new trial. the owner, Marimperio Compania Naviera, S.A. through its agents
The dispositive portion of the decision sought to be annulled N. & J. Vlassopulos Ltd. and Matthews Wrightson, Burbridge, Ltd.
(Rollo, p. 215) reads as follows: to be referred to simply as Matthews, representing Interocean
For all the foregoing, and in accordance therewith, let judgment Shipping Corporation, which was made to appear as charterer,
be entered (a) affirming the decision appealed from insofar as it although it merely acted in behalf of the real charterers, private
directs the defendant-appellant: (1) to pay plaintiffs the sum of respondents herein.
US $22,500.00 representing the remittance of plaintiffs to said The pertinent provisions or clauses of the Charter Party read:
defendant for the first 15-day hire of the vessel "SS PAXOI" 1. The owners let, and the Charterers hire the Vessel for a period
including overtime and an overpayment of US $254.00; (2) to pay of 1 (one) trip via safe port or ports Hong Kong, Philippine
plaintiffs the sum of US $16,000.00, corresponding to the Islands and/or INDONESIA from the time the Vessel is delivered
remittance of plaintiffs to defendant for the second 15-day hire of and placed at the disposal of the Charterers on sailing HSINKANG
the aforesaid vessel; (3) to pay plaintiffs the sum of US $6,982.72, ... .
representing the cost of bunker oil, survey and watering of the 4. The Charterers are to provide and pay for oil-fuel, water for
said vessel; (4) to pay plaintiffs the sum of US $100,000.00 as and boilers, port charges, pilotages ... .
for attorney's fees; and, (b) reversing the portion granting 6. The Charterers to pay as hire s.21 (Twenty-one Shillings per
commission to the intervenor-appellee and hereby dismissing the deadweights ton per 30 days or pro rata commencing in
complaint-in-intervention. The order of the court a quo denying accordance with Clause 1 until her redelivery to the owners.
the plaintiffs' Motion for Partial Reconsideration, is likewise, Payment of hire to be made in cash as per Clause 40 without
affirmed, without any special pronouncement as to costs. discount, every 15 days in advance.
The facts of the case as gathered from the amended decision of In default of payment of the Owners to have the right of
the lower court (Amended Record on Appeal, p. 352), are as withdrawing the vessel from the services of the Charterers,
follows: without noting any protest and without interference by any court
In 1964 Philippine Traders Corporation and Union Import and or any formality whatsoever and without prejudice the Owners

may otherwise have on the Charterers under the Charter. The Charterer was however twice in default in its payments
7. The Vessel to be redelivered on the expiration of the Charter in which were supposed to have been done in advance. The first 15-
the same good order as when delivered to the Charterers (fair day hire comprising the period from March 27 to April 1-1, 1965
wear and tear expected) in the Charterer's option in ANTWERP was paid despite follow-ups only on April 6, 1965 and the second
HAMBURG RANGE. 15-day hire for the period from April 12 to April 27, 1965 was
20. The Charterers to have the option of subletting the Vessel, paid also despite follow-ups only on April 26, 1965. On April 14,
giving due notice to the Owners, but the original Charterers 1965 upon representation of Toeg, the Esso Standard Oil
always to remain responsible to the Owners for due performance (Hongkong) Company supplied the vessel with 400 tons of
of the Charter. bunker oil at a cost of US $6,982.73.
29. Export and/or import permits for Charterers'cargo to the Although the late payments for the charter of the vessel were
Charterers'risk and expense. Charterers to obtain and be received and acknowledged by Vlassopulos without comment or
responsible for all the necessary permits to enter and/or trade in protest, said agent notified Matthews, by telex on April 23, 1965
and out of all ports during the currency of the Charter at their that the shipowners in accordance with Clause 6 of the Charter
risk and expense. ... Party were withdrawing the vessel from Charterer's service and
33. Charterers to pay as overtime, bonus and premiums to holding said Charterer responsible for unpaid hirings and all
Master, Officers and crew, the sum of 200 (Two Hundred Pounds) legal claims.
per month to be paid together with hire. On April 29, 1965, the shipowners entered into another charter
37. Bunkers on delivery as on board. Bunkers on redelivery agreement with another Charterer, the Nederlansche Stoomvart
maximum 110 tons. Prices of bunkers at 107' per long ton at both of Amsterdam, the delivery date of which was around May 3,
ends. 1965 for a trip via Indonesia to Antwep/Hamburg at an increase
38. Upon sailing from each loading port, Master to cable charter cost.
SEASHIPS MANILA advising the quantity loaded and the time of Meanwhile, the original Charterer again remitted on April 30,
completion. 1965, the amount corresponding to the 3rd 15-day hire of the
40. The hire shall be payable in external sterling or at Charterers' vessel "PAXOI" but this time the remittance was refused.
option in U.S. dollars in London; - Williams Deacon's Vlassopulos On May 3,1965, respondents Union Import and Export
Ltd., Account No. 861769. Corporation and Philippine Traders Corporation filed a
In view of the aforesaid Charter, on March 30, 1965 plaintiff complaint with the Court of First Instance of Manila, Branch VIII,
Charterer cabled a firm offer to P.T. Karkam to buy the 4,000 tons against the Unknown Owners of the Vessel "SS Paxoi" for specific
of copra for U.S.$180.00 per ton, the same to be loaded either in performance with prayer for preliminary attachment, alleging,
April or May, 1965. The offer was accepted and plaintiffs opened among other things, that the defendants (unknown owners)
two irrevocable letters of Credit in favor of P.T. Karkam through their duly authorized agent in London, the N & J
On March 29, 1965, the Charterer was notified by letter by Vlassopulos Ltd., ship brokers, entered into a contract of Uniform
Vlassopulos through Matthews that the vessel "PAXOI" had sailed Time-Charter with the Interocean Shipping Company of Manila
from Hsinkang at noontime on March 27, 196-5 and that it had through the latter's duly authorized broker, the Overseas
left on hire at that time and date under the Uniform Time- Steamship Co., Inc., for the Charter of the vessel SS PAXOI' under
Charter. the terms and conditions appearing therein ...; that, immediately

thereafter, the Interocean Shipping Company sublet,the said expenses of litigations (Amended Record on Appeal, p. 64).
vessel to the plaintiff Union Import & Export, Corporation which On March 16, 1966, respondent Interocean Shipping Corporation
in turn sublet the same to the other plaintiff, the Philippine filed a complaint-in-intervention to collect what it claims to be its
Traders Corporation (Amended Record on Appeal, p. 17). loss of income by way of commission and expenses in the amount
Respondents as plaintiffs in the complaint obtained a writ of of P15,000.00 and the sum of P2,000.00 for attorney's fees
preliminary attachment of vessel PAXOI' " which was anchored at (Amended Record on Appeal, p. 87). In its amended answer to the
Davao on May 5, 1969, upon the filing of the corresponding bond complaint-in-intervention petitioner, by way of special defenses
of P1,663,030.00 (Amended Record on Appeal, p. 27). However, alleged that (1) the plaintiff-in-intervention, being the charterer,
the attachment was lifted on May 15, 1969 upon defendant's did not notify the defendant shipowner, petitioner, herein, about
motion and filing of a counterbond for P1,663,030 (Amended any alleged sub-charter of the vessel "SS PAXOI" to the plaintiffs;
Record on Appeal, p. 62). consequently, there is no privity of contract between defendant
On May 11, 1965, the complaint was amended to Identify the and plaintiffs and it follows that plaintiff-in-intervention, as
defendant as Marimperio Compania Naviera S.A., petitioner charterer, is responsible for defendant shipowner for the proper
herein (Amended Record on Appeal, p. 38). In answer to the performance of the charter party; (2) that the charter party
amended complaint, by way of special defenses defendant provides that any dispute arising from the charter party should
(petitioner herein) alleged among others that the Charter Party be referred to arbitration in London; that Charterer plaintiff-in-
covering its vessel "SS PAXOI" was entered into by defendant intervention has not complied with this provision of the charter
with Interocean Shipping Co. which is not a party in the party; consequently its complaint-in intervention is premature;
complaint; that defendant has no agreement or relationship and (3) that the alleged commission of 2 1/2 and not become due
whatsoever with the plaintiffs; that plaintiffs are unknown to for the reason, among others, that the charterer violated the
defendant; that the charter party entered into by defendant with contract, and the full hiring fee due the shipowner was not paid
the Interocean Shipping Co. over the vessel "SS PAXOI" does not in accordance with the terms and conditions of the charter party.
authorize a sub-charter of said vessel to other parties; and that at By way of counterclaim defendant shipowner charged the
any rate, any such sub-charter was without the knowledge or plaintiff-in-intervention attorney's fees and expenses of litigation
consent of defendant or defendant's agent, and therefore, has no in the sum of P10,000.00 (Amended Record on Appeal, p. 123).
effect and/or is not binding upon defendant. By way of On November 22, 1969 the Court of First Instance of Manila,
counterclaim, defendant prayed that plaintiffs be ordered to pay Branch VIII rendered its decision ** in favor of defendant
defendant (1) the sum of 5,085.133d or its equivalent, in Marimperio Compania Naviera, S.A., petitioner herein, and
Philippine currency of P54,929.60, which the defendant failed to against plaintiffs Union Import and Export Corporation and
realize under the substitute charter, from May 3, 1965 to May 16, Philippine Traders Corporation, respondents herein, dismissing
1965, while the vessel was under attachment; (2) the sum of the amended complaint, and ordering said plaintiff on the
E68.7.10 or its equivalent of P7,132.83, Philippine currency, as counterclaim to pay defendant, jointly and severally, the amount
premium for defendant's counterbond for the first year, and such of f 8,011.38 or its equivalent in Philippine currency of
other additional premiums that will have to be paid by defendant P75,303.40, at the exchange rate of P9.40 to 1 for the unearned
for additional premiums while the case is pending; and (3) a sum charter hire due to the attachment of the vessel "PAXOI" in
of not less than P200,000.00 for and as attomey's fees and Davao, plus premiums paid on the counterbond as of April 22,

1968 plus the telex and cable charges and the sum of P10,000.00 intervention the amount of P15,450.44, representing the latter's
as attorney's fees and costs. The trial court dismissed the commission as broker, with interest thereon at 6% per annum
complaint-in-intervention, ordering the intervenor, on the from the date of the filing of the complaint-in-intervention, until
counterclaim, to pay defendant the sum of P10,000.00 as fully paid, plus the sum of P2,000.00 as attorney's fees.
attorney's fees, and the costs (Amended Record on Appeal, p. The Court finally orders the defendant to pay the costs.
315). In view of the above conclusion, the Court orders the dismissal of
Plaintiffs filed a Motion for Reconsideration and/or new trial of the counterclaims filed by defendant against the plaintiffs and
the decision of the trial court on December 23, 1969 (Amended plaintiff-in- intervention, as wen as its motion for the award of
Record on Appeal, p. 286); the intervenor filed its motion for damages in connection with the issuance of the writ of
reconsideration and/or new trial on January 7, 1970 (Amended preliminary attachment.
Record on Appeal, p. 315). Defendant (petitioner herein), filed a motion for reconsideration
Acting on the two motions for reconsideration, the trial court and/or new trial of the amended decision on February 19, 1970
reversed its stand in its amended decision dated January 24, (Amended Record on Appeal, p. 382). Meanwhile a new Judge
1978. The dispositive portion of the amended decision states: was assigned to the Trial Court (Amended Record on Appeal, p.
FOR ALL THE FOREGOING CONSIDERATIONS, the Court renders 541). On September 10, 1970 the trial court issued its order of
judgment for the plaintiffs Union Import & Export Corporation September 10, 1970 *** denying defendant's motion for
and Philin Traders Corporation, and plaintiff-in-intervention, reconsideration (Amended Record on Appeal, p. 583).
Interocean Shipping Corporation, and consequently orders the On Appeal, the Court of Appeals affirmed the amended decision
defendant, Marimperio Compania Naveria S.A.: of the lower court except the portion granting commission to the
(1) To pay plaintiffs the sum of US$22,500.00 representing the intervenor- appellee, which it reversed thereby dismissing the
remittance of plaintiffs to said defendant for the first 15-day hire complaint-in- intervention. Its two motions (1) for
of the vessel "SS PAXOI" including overtime and an overpayment reconsideration and/or new trial and (2) for new trial having
of US$254.00; been denied by the Court of Appeals in its Resolution of February
(2) To pay plaintiffs the sum of US$16,000.00 corresponding to 17, 1975 which, however, fixed the amount of attorney's fees at
the remittance of plaintiffs to defendant for the second 15-day P100,000.00 instead of $100,000.00 (Rollo, p. 81), petitioner filed
hire of the aforesaid vessel; with this Court its petition for review on certiorari on March 19,
(3) To pay plaintiffs the sum of US$6,982.72 representing the 197 5 (Rollo, p. 86).
cost of bunker oil, survey and watering of the said vessel; After deliberating on the petition, the Court resolved to require
(4) To pay plaintiffs the sum of US$220,0,00.00 representing the the respondents to comment thereon, in its resolution dated
unrealized profits; and April 2, 1975 (rollo, p. 225).
(5) To pay plaintiffs the sum of P100,000.00, as and for attorney's The comment on petition for review by certiorari was filed by
fees (Moran, Comments on the Rules of Court, Vol. III, 1957 5d respondents on April 21, 1975, praying that the petition for
644, citing Haussermann vs. Rahmayer, 12 Phil. 350; and others)" review by certiorari dated March 18, 1975 be dismissed for lack
(Francisco vs. Matias, G.R. No. L-16349, January 31, 1964; Sison of merit Rollo p. 226). The reply to comment was filed on May 8,
vs. Suntay, G.R. No. L-1000 . December 28, 1957). 1975 (Rollo, p. 259). The rejoinder to reply to comment was filed
The Court further orders defendant to pay plaintiff-in- on May 13, 197 5 (Rollo, p. 264).

On October 20, 1975, the Court resolved (a) to give due course to entered into between petitioner Marimperio Compaia Naviera,
the petition; (b) to treat the petition for review as a special civil S.A., through its duly authorized agent in London, the N & J
action; and (c) to require both parties to submit their respective Vlassopulos Ltd., and the Interocean Shipping Company of Manila
memoranda within thirty (30) days from notice hereof (Rollo, p. through the latter's duly authorized broker, the Overseas
27). Steamship Co., Inc., represented by Matthews, Wrightson
Respondents filed their memoranda on January 27, 1976 (Rollo, Burbridge Ltd., for the Charter of the 'SS PAXOI' (Amended
p. 290); petitioner, on February 26, 1976 (Rollo, p. 338). Complaint, Amended Record on Appeal, p. 33; Complaint-in-
Respondents' reply memorandum was filed on April 14, 1976 Intervention, Amended Record on Appeal, p. 87). It is also alleged
(Rollo, p. 413) and Rejoinder to respondents' reply memorandum in both the Complaint (Amended Record on Appeal 18) and the
was filed on May 28, 1976 (Rollo, p. 460). Amended Complaint (Amended Record on Appeal, p. 39) that the
On June 11, 1976, the Court resolved to admit petitioner's Interocean Shipping Company sublet the said vessel to
rejoinder to respondents' reply memorandum and to declare this respondent Union Import and Export Corporation which in turn
case submitted for decision (Rollo, p. 489). sublet the same to respondent Philippine Traders Corporation. It
The main issues raised by petitioner are: is admitted by respondents that the charterer is the Interocean
1. Whether or not respondents have the legal capacity to bring Shipping Company. Even paragraph 3 of the complaint-in-
the suit for specific performance against petitioner based on the intervention alleges that respondents were given the use of the
charter party, and vessel "pursuant to paragraph 20 of the Uniform Time Charter ..."
2. Whether or not the default of Charterer in the payment of the which precisely provides for the subletting of the vessel by the
charter hire within the time agreed upon gives petitioner a right charterer (Rollo, p. 24). Furthermore, Article 652 of the Code of
to rescind the charter party extra judicially. Commerce provides that the charter party shall contain, among
I. others, the name, surname, and domicile of the charterer, and if
According to Article 1311 of the Civil Code, a contract takes effect he states that he is acting by commission, that of the person for
between the parties who made it, and also their assigns and whose account he makes the contract. It is obvious from the
heirs, except in cases where the rights and obligations arising disclosure made in the charter party by the authorized broker,
from the contract are not transmissible by their nature, or by the Overseas Steamship Co., Inc., that the real charterer is the
stipulation or by provision of law. Since a contract may be Interocean Shipping Company (which sublet the vessel to Union
violated only by the parties, thereto as against each other, in an Import and Export Corporation which in turn sublet it to
action upon that contract, the real parties in interest, either as Philippine Traders Corporation).
plaintiff or as defendant, must be parties to said contract. In a sub-lease, there are two leases and two distinct judicial
Therefore, a party who has not taken part in it cannot sue or be relations although intimately connected and related to each
sued for performance or for cancellation thereof, unless he shows other, unlike in a case of assignment of lease, where the lessee
that he has a real interest affected thereby (Macias & Co. v. transmits absolutely his right, and his personality disappears;
Warner Barners & Co., 43 Phil. 155 [1922] and Salonga v. Warner there only remains in the juridical relation two persons, the
Barnes & Co., Ltd., 88 Phil. 125 [1951]; Coquia v. Fieldmen's lessor and the assignee who is converted into a lessee (Moreno,
Insurance Co., Inc., 26 SCRA 178 [1968]). Philippine Law Dictionary, 2nd ed., p. 594). In other words, in a
It is undisputed that the charter party, basis of the complaint, was contract of sub-lease, the personality of the lessee does not

disappear; he does not transmit absolutely his rights and person with whom he has contracted, as if the transaction were
obligations to the sub-lessee; and the sub-lessee generally does his own, except when the contract involves things belonging to
not have any direct action against the owner of the premises as the principal.
lessor, to require the compliance of the obligations contracted The provisions of this article shag be understood to be without
with the plaintiff as lessee, or vice versa (10 Manresa, Spanish prejudice to the actions between the principal and agent.
Civil Code, 438). While in the instant case, the true charterers of the vessel were
However, there are at least two instances in the Civil Code which the private respondents herein and they chartered the vessel
allow the lessor to bring an action directly (accion directa) through an intermediary which upon instructions from them did
against the sub-lessee (use and preservation of the premises not disclose their names. Article 1883 cannot help the private
under Art. 1651, and rentals under Article 1652). respondents, because although they were the actual principals in
Art. 1651 reads: the charter of the vessel, the law does not allow them to bring
Without prejudice to his obligation toward the sub-lessor, the any action against the adverse party and vice, versa.
sub-lessee is bound to the lessor for all acts which refer to the use II.
and preservation of the thing leased in the manner stipulated The answer to the question of whether or not the default of
between the lessor and the lessee. charterer in the payment of the charter hire within the time
Article 1652 reads: agreed upon gives petitioner a right to rescind the charter party
The sub-lessee is subsidiarily liable to the lessor for any rent due extrajudicially, is undoubtedly in the affirmative.
from the lessee. However, the sub-lessee shall not be responsible Clause 6 of the Charter party specifically provides that the
beyond the amount of rent due from him, in accordance with the petitioner has the right to withdraw the vessel fromthe service of
terms of the sub-lease, at the time of the extra-judicial demand by the charterers, without noting any protest and without
the lessor. interference of any court or any formality in the event that the
Payments of rent in advance by the sub-lessee shall be deemed charterer defaults in the payment of hire. The payment of hire
not to have been made, so far as the lessor's claim is concerned, was to be made every fifteen (1 5) days in advance.
unless said payments were effected in virtue of the custom of the It is undisputed that the vessel "SS PAXOI" came on hire on March
place. 27, 1965. On March 29, Vlassopulos notified by letter the
It will be noted however that in said two Articles it is not the sub- charterer through Matthews of that fact, enclosing therein
lessee, but the lessor, who can bring the action. In the instant owner's debit note for a 15-day hire payable in advance. On
case, it is clear that the sub-lessee as such cannot maintain the March 30, 1965 the shipowner again notified Matthews that the
suit they filed with the trial court (See A. Maluenda and Co. v. payment for the first 15-day hire was overdue. Again on April 2
Enriquez, 46 Phil. 916). the shipowner telexed Matthews insisting on the payment, but it
In the law of agency "with an undisclosed principal, the Civil Code was only on April 7 that the amount of US $22,500.00 was
in Article 1883 reads: remitted to Williams Deacons Bank, Ltd. through the Rizal
If an agent acts in his own name, the principal has no right of Commercial Banking Corporation for the account of Vlassopulos,
action against the persons with whom the agent has contracted; agent of petitioner, corresponding to the first 15-day hire from
neither have such persons against the principal. March 27 to April 11, 1965.
In such case the agent is the one directly bound in favor of the On April 8, 1965, Vlassopulos acknowledged receipt of the

payment, again with a debit note for the second 15-day hire and intervention; and (2) the original decision of the trial court is
overtime which was due on April 11, 1965. On April 23, 1965, hereby REINSTATED.
Vlassopulos notified Matthews by telex that charterers were in SO ORDERED.
default and in accordance with Clause 6 of the charter party, the Teehankee, C.J., Narvasa, Cruz and Gancayco, JJ., concur.
vessel was being withdrawn from charterer's service, holding
them responsible for unpaid hire and all other legal claims of the
owner. Respondents remitted the sum of US$6,000.00 and
US$10,000.00 to the bank only on April 26, 1965 representing
payment for the second 15-day hire from April 12 to April 27, 134. G.R. No. L-13505 February 4, 1919
1965, received and accepted by the payee, Vlassopulos without GEO. W. DAYWALT, plaintiff-appellant,
any comment or protest. vs.
Unquestionably, as of April 23, 1965, when Vlassopulos notified LA CORPORACION DE LOS PADRES AGUSTINOS
Matthews of the withdrawal of the vessel from the Charterers' RECOLETOS, ET AL., defendants-appellees.
service, the latter was already in default. Accordingly, under C. C. Cohn and Thos. D. Aitken for appellant.Crossfield &
Clause 6 of the charter party the owners had the right to O'Brien for appellee.
withdraw " SS PAXO I " from the service of charterers, which
withdrawal they did. STREET, J.:
The question that now arises is whether or not petitioner can In the year 1902, Teodorica Endencia, an unmarried woman,
rescind the charter party extra-judicially. The answer is also in resident in the Province of Mindoro, executed a contract whereby
the affirmative. A contract is the law between the contracting she obligated herself to convey to Geo. W. Daywalt, a tract of land
parties, and when there is nothing in it which is contrary to law, situated in the barrio of Mangarin, municipality of Bulalacao, now
morals, good customs, public policy or public order, the validity San Jose, in said province. It was agreed that a deed should be
of the contract must be sustained (Consolidated Textile Mills, Inc. executed as soon as the title to the land should be perfected by
v. Reparations Commission, 22 SCRA 674 [19681; Lazo v. proceedings in the Court of Land Registration and a Torrens
Republic Surety & Insurance Co., Inc., 31 SCRA 329 [1970]; Castro certificate should be produced therefore in the name of
v. Court of Appeals, 99 SCRA 722 [1980]; Escano v. Court of Teodorica Endencia. A decree recognizing the right of Teodorica
Appeals, 100 SCRA 197 [1980]). A judicial action for the as owner was entered in said court in August 1906, but the
rescission of a contract is not necessary where the contract Torrens certificate was not issued until later. The parties,
provides that it may be revoked and cancelled for violation of any however, met immediately upon the entering of this decree and
of its terms and conditions (Enrile v. Court of Appeals, 29 SCRA made a new contract with a view to carrying their original
504 [1969]; University of the Philippines v. De los Angeles, 35 agreement into effect. This new contract was executed in the
SCRA 102 [1970]; Palay, Inc. v. Clave, 124 SCRA 638 [1983]). form of a deed of conveyance and bears date of August 16, 1906.
PREMISES CONSIDERED, (1) the decision of the Court of Appeals The stipulated price was fixed at P4,000, and the area of the land
affirming the amended decision of the Court of First Instance of enclosed in the boundaries defined in the contract was stated to
Manila, Branch VIII, is hereby REVERSED and SET ASIDE except be 452 hectares and a fraction.
for that portion of the decision dismissing the complaint-in- The second contract was not immediately carried into effect for

the reason that the Torrens certificate was not yet obtainable and with management of these farms, was father Isidoro Sanz,
in fact said certificate was not issued until the period of himself a members of the order. Father Sanz had long been well
performance contemplated in the contract had expired. acquainted with Teodorica Endencia and exerted over her an
Accordingly, upon October 3, 1908, the parties entered into still influence and ascendency due to his religious character as well as
another agreement, superseding the old, by which Teodorica to the personal friendship which existed between them.
Endencia agreed upon receiving the Torrens title to the land in Teodorica appears to be a woman of little personal force, easily
question, to deliver the same to the Hongkong and Shanghai Bank subject to influence, and upon all the important matters of
in Manila, to be forwarded to the Crocker National Bank in San business was accustomed to seek, and was given, the advice of
Francisco, where it was to be delivered to the plaintiff upon father Sanz and other members of his order with whom she came
payment of a balance of P3,100. in contact.
The Torrens certificate was in time issued to Teodorica Endencia, Father Sanz was fully aware of the existence of the contract of
but in the course of the proceedings relative to the registration of 1902 by which Teodorica Endencia agreed to sell her land to the
the land, it was found by official survey that the area of the tract plaintiff as well as of the later important developments connected
inclosed in the boundaries stated in the contract was about 1.248 with the history of that contract and the contract substituted
hectares of 452 hectares as stated in the contract. In view of this successively for it; and in particular Father Sanz, as well as other
development Teodorica Endencia became reluctant to transfer members of the defendant corporation, knew of the existence of
the whole tract to the purchaser, asserting that she never the contract of October 3, 1908, which, as we have already seen
intended to sell so large an amount of land and that she had been finally fixed the rights of the parties to the property in question.
misinformed as to its area. When the Torrens certificate was finally issued in 1909 in favor
This attitude of hers led to litigation in which Daywalt finally of Teodorica Endencia, she delivered it for safekeeping to the
succeeded, upon appeal to the Supreme Court, in obtaining a defendant corporation, and it was then taken to Manila where it
decree for specific performance; and Teodorica Endencia was remained in the custody and under the control of P. Juan Labarga
ordered to convey the entire tract of land to Daywalt pursuant to the procurador and chief official of the defendant corporation,
the contract of October 3, 1908, which contract was declared to until the deliver thereof to the plaintiff was made compulsory by
be in full force and effect. This decree appears to have become reason of the decree of the Supreme Court in 1914.
finally effective in the early part of the year 1914.1 When the defendant corporation sold the San Jose Estate, it was
The defendant, La Corporacion de los Padres Recoletos, is a necessary to bring the cattle off of that property; and, in the first
religious corporation, with its domicile in the city of Manila. Said half of 1909, some 2,368 head were removed to the estate of the
corporation was formerly the owner of a large tract of land, corporation immediately adjacent to the property which the
known as the San Jose Estate, on the island of Mindoro, which plaintiff had purchased from Teodorica Endencia. As Teodorica
was sold to the Government of the Philippine Islands in the year still retained possession of said property Father Sanz entered
1909. The same corporation was at this time also the owner of into an arrangement with her whereby large numbers of cattle
another estate on the same island immediately adjacent to the belonging to the defendant corporation were pastured upon said
land which Teodorica Endencia had sold to Geo. W. Daywalt; and land during a period extending from June 1, 1909, to May 1, 1914.
for many years the Recoletos Fathers had maintained large herds Under the first cause stated in the complaint in the present action
of cattle on the farms referred to. Their representative, charged the plaintiff seeks to recover from the defendant corporation the

sum of P24,000, as damages for the use and occupation of the recovered possession of the land the plaintiff rented it to the
land in question by reason of the pasturing of cattle thereon defendant corporation for fifty centavos per hectares annually,
during the period stated. The trial court came to the conclusion the tenant to pay the taxes on the land, and this appears to be a
that the defendant corporation was liable for damages by reason reasonable rent. There is no reason to suppose that the land was
of the use and occupation of the premises in the manner stated; worth more for grazing purposes during the period from 1909 to
and fixed the amount to be recovered at P2,497. The plaintiff 1913, than it was at the later period. Upon this basis the plaintiff
appealed and has assigned error to this part of the judgment of is entitled to damages in the sum of p2,497, and is under no
the court below, insisting that damages should have been obligation to reimburse the defendants for the land taxes paid by
awarded in a much larger sum and at least to the full extent of either of them during the period the land was occupied by the
P24,000, the amount claimed in the complaint. defendant corporation. It may be mentioned in this connection
As the defendant did not appeal, the property of allowing that the Lontok tract adjoining the land in question and
damages for the use and occupation of the land to the extent o containing over three thousand hectares appears to have been
P2,497, the amount awarded, is not now in question an the only leased for only P1,000 a year, plus the taxes.
thing here to be considered, in connection with this branch of the From this it will be seen that the trial court estimated the rental
case, is whether the damages allowed under this head should be value of the land for grazing purposes at 50 centavos per hectare
increased. The trial court rightly ignored the fact that the per annum, and roughly adopted the period of four years as the
defendant corporation had paid Teodorica Endencia of ruse and time for which compensation at that rate should be made. As the
occupation of the same land during the period in question at the court had already found that the defendant was liable for these
rate of P425 per annum, inasmuch as the final decree of this damages from June, 1, 1909, to May 1, 1914, or a period of four
court in the action for specific performance is conclusive against years and eleven months, there seems some ground for the
her right, and as the defendant corporation had notice of the contention made in the appellant's first assignment of error that
rights of the plaintiff under this contract of purchase, it can not be the court's computation was erroneous, even accepting the rule
permitted that the corporation should escape liability in this upon which the damages were assessed, as it is manifest that at
action by proving payment of rent to a person other than the true the rate of 50 centavos per hectare per annum, the damages for
owner. four years and eleven months would be P3,090.
With reference to the rate of which compensation should be Notwithstanding this circumstance, we are of the opinion that the
estimated the trial court came to the following conclusion: damages assessed are sufficient to compensate the plaintiff for
As to the rate of the compensation, the plaintiff contends that the the use and occupation of the land during the whole time it was
defendant corporation maintained at leas one thousand head of used. There is evidence in the record strongly tending to show
cattle on the land and that the pasturage was of the value of forty that the wrongful use of the land by the defendant was not
centavos per head monthly, or P4,800 annually, for the whole continuous throughout the year but was confined mostly to the
tract. The court can not accept this view. It is rather improbable reason when the forage obtainable on the land of the defendant
that 1,248 hectares of wild Mindoro land would furnish sufficient corporation was not sufficient to maintain its cattle, for which
pasturage for one thousand head of cattle during the entire year, reason it became necessary to allow them to go over to pasture
and, considering the locality, the rate of forty centavos per head on the land in question; and it is not clear that the whole of the
monthly seems too high. The evidence shows that after having land was used for pasturage at any time. Considerations of this

character probably led the trial court to adopt four years as end contract with the plaintiff, with the result that the plaintiff
roughly being the period during which compensation should be was kept out of possession until the Wakefield project for the
allowed. But whether this was advertently done or not, we see no establishment of a large sugar growing and milling enterprise fell
sufficient reason, in the uncertainty of the record with reference through. In the light of what has happened in recent years in the
to the number of the cattle grazed and the period when the land sugar industry, we feel justified in saying that the project above
was used, for substituting our guess for the estimate made by the referred to, if carried into effect, must inevitably have proved a
trial court. great success.
In the second cause of action stated in the complaint the plaintiff The determination of the issue presented in this second cause of
seeks to recover from the defendant corporation the sum of action requires a consideration of two points. The first is whether
P500,000, as damages, on the ground that said corporation, for a person who is not a party to a contract for the sale of land
its own selfish purposes, unlawfully induced Teodorica Endencia makes himself liable for damages to the vendee, beyond the value
to refrain from the performance of her contract for the sale of the of the use and occupation, by colluding with the vendor and
land in question and to withhold delivery to the plaintiff of the maintaining him in the effort to resist an action for specific
Torrens title, and further, maliciously and without reasonable performance. The second is whether the damages which the
cause, maintained her in her defense to the action of specific plaintiff seeks to recover under this head are too remote and
performance which was finally decided in favor of the plaintiff in speculative to be the subject of recovery.
this court. The cause of action here stated is based on liability As preliminary to a consideration of the first of these questions,
derived from the wrongful interference of the defendant in the we deem it well it dispose of the contention that the members of
performance of the contract between the plaintiff and Teodorica the defendants corporation, in advising and prompting Teodorica
Endencia; and the large damages laid in the complaint were, Endencia not to comply with the contract of sale, were actuated
according to the proof submitted by the plaintiff, incurred as a by improper and malicious motives. The trial court found that
result of a combination of circumstances of the following nature: this contention was not sustained, observing that while it was
In 1911, it appears, the plaintiff, as the owner of the land which true that the circumstances pointed to an entire sympathy on the
he had bought from Teodorica Endencia entered into a contract part of the defendant corporation with the efforts of Teodorica
(Exhibit C) with S. B. Wakefield, of San Francisco, for the sale and Endencia to defeat the plaintiff's claim to the land, the fact that its
disposal of said lands to a sugar growing and milling enterprise, officials may have advised her not to carry the contract into effect
the successful launching of which depended on the ability of would not constitute actionable interference with such contract.
Daywalt to get possession of the land and the Torrens certificate It may be added that when one considers the hardship that the
of title. In order to accomplish this end, the plaintiff returned to ultimate performance of that contract entailed on the vendor, and
the Philippine Islands, communicated his arrangement to the the doubt in which the issue was involved to the extent that
defendant,, and made repeated efforts to secure the registered the decision of the Court of the First Instance was unfavorable to
title for delivery in compliance with said agreement with the plaintiff and the Supreme Court itself was divided the
Wakefield. Teodorica Endencia seems to have yielded her attitude of the defendant corporation, as exhibited in the conduct
consent to the consummation of her contract, but the Torrens of its procurador, Juan Labarga, and other members of the order
title was then in the possession of Padre Juan Labarga in Manila, of the Recollect Fathers, is not difficult to understand. To our
who refused to deliver the document. Teodorica also was in the mind a fair conclusion on this feature of the case is that father

Juan Labarga and his associates believed in good faith that the Lumley vs. Gye ([1853], 2 El. & Bl., 216). It there appeared that
contract cold not be enforced and that Teodorica would be the plaintiff, as manager of a theatre, had entered into a contract
wronged if it should be carried into effect. Any advice or with Miss Johanna Wagner, an opera singer,, whereby she bound
assistance which they may have given was, therefore, prompted herself for a period to sing in the plaintiff's theatre and nowhere
by no mean or improper motive. It is not, in our opinion, to be else. The defendant, knowing of the existence of this contract,
denied that Teodorica would have surrendered the documents of and, as the declaration alleged, "maliciously intending to injure
title and given possession of the land but for the influence and the plaintiff," enticed and produced Miss Wagner to leave the
promptings of members of the defendants corporation. But we do plaintiff's employment. It was held that the plaintiff was entitled
not credit the idea that they were in any degree influenced to the to recover damages. The right which was here recognized had its
giving of such advice by the desire to secure to themselves the origin in a rule, long familiar to the courts of the common law, to
paltry privilege of grazing their cattle upon the land in question the effect that any person who entices a servant from his
to the prejudice of the just rights of the plaintiff. employment is liable in damages to the master. The master's
The attorney for the plaintiff maintains that, by interfering in the interest in the service rendered by his employee is here
performance of the contract in question and obstructing the considered as a distinct subject of juridical right. It being thus
plaintiff in his efforts to secure the certificate of tittle to the land, accepted that it is a legal wrong to break up a relation of personal
the defendant corporation made itself a co-participant with service, the question now arose whether it is illegal for one
Teodorica Endencia in the breach of said contract; and inasmuch person to interfere with any contract relation subsisting between
as father Juan Labarga, at the time of said unlawful intervention others. Prior to the decision of Lumley vs. Gye [supra] it had been
between the contracting parties, was fully aware of the existence supposed that the liability here under consideration was limited
of the contract (Exhibit C) which the plaintiff had made with S. B. to the cases of the enticement of menial servants, apprentices,
Wakefield, of San Francisco, it is insisted that the defendant and others to whom the English Statutes of Laborers were
corporation is liable for the loss consequent upon the failure of applicable. But in the case cited the majority of the judges
the project outlined in said contract. concurred in the opinion that the principle extended to all cases
In this connection reliance is placed by the plaintiff upon certain of hiring. This doctrine was followed by the Court of Appeal in
American and English decisions in which it is held that a person Bowen vs. Hall ([1881], 6 Q. B., Div., 333); and in Temperton vs.
who is a stranger to contract may, by an unjustifiable Russell ([1893], Q. B., 715), it was held that the right of action for
interference in the performance thereof, render himself liable for maliciously procuring a breach of contract is not confined to
the damages consequent upon non-performance. It is said that contracts for personal services, but extends to contracts in
the doctrine of these cases was recognized by this court in general. In that case the contract which the defendant had
Gilchrist vs. Cuddy (29 Phil. Rep., 542); and we have been procured to be breached was a contract for the supply of building
earnestly pressed to extend the rule there enunciated to the material.
situation here presente. Malice in some form is generally supposed to be an essential
Somewhat more than half a century ago the English Court of the ingredient in cases of interference with contract relations. But
Queen's Bench saw its way clear to permit an action for damages upon the authorities it is enough if the wrong-doer, having
to be maintained against a stranger to a contract wrongfully knowledge of the existence of the contract relations, in bad faith
interfering in its performance. The leading case on this subject is sets about to break it up. Whether his motive is to benefit himself

or gratify his spite by working mischief to the employer is Bros. Com. Co., 138 Mo., 439.)
immaterial. Malice in the sense of ill-will or spite is not essential. It should be observed in this connection that, according to the
Upon the question as to what constitutes legal justification, a English and American authorities, no question can be made as to
good illustration was put in the leading case. If a party enters into the liability to one who interferes with a contract existing
contract to go for another upon a journey to a remote and between others by means which, under known legal cannons, can
unhealthful climate, and a third person, with a bona fide purpose be denominated an unlawful means. Thus, if performance is
of benefiting the one who is under contract to go, dissuades him prevented by force, intimidation, coercion, or threats, or by false
from the step, no action will lie. But if the advice is not or defamatory statements, or by nuisance or riot, the person
disinterested and the persuasion is used for "the indirect purpose using such unlawful means is, under all the authorities, liable for
of benefiting the defendant at the expense of the plaintiff," the the damage which ensues. And in jurisdictions where the
intermedler is liable if his advice is taken and the contract doctrine of Lumley vs. Gye [supra] is rejected, no liability can
broken. arise from a meddlesome and malicious interference with a
The doctrine embodied in the cases just cited has sometimes contract relation unless some such unlawful means as those just
been found useful, in the complicated relations of modern indicated are used. (See cases last above cited.)
industry, as a means of restraining the activities of labor unions This brings us to the decision made by this court in Gilchrist vs.
and industrial societies when improperly engaged in the Cuddy (29 Phil. Rep., 542). It there appeared that one Cuddy, the
promotion of strikes. An illustration of the application of the owner of a cinematographic film, let it under a rental contract to
doctrine in question in a case of this kind is found in South Wales the plaintiff Gilchrist for a specified period of time. In violation of
Miners Federation vs. Glamorgan Coal Co. ([1905]), A. C., 239). It the terms of this agreement, Cuddy proceeded to turn over the
there appeared that certain miners employed in the plaintiff's film also under a rental contract, to the defendants Espejo and
collieries, acting under the order of the executive council of the Zaldarriaga. Gilchrist thereupon restored to the Court of First
defendant federation, violated their contract with the plaintiff by Instance and produced an injunction restraining the defendants
abstaining from work on certain days. The federation and council from exhibiting the film in question in their theater during the
acted without any actual malice or ill-will towards the plaintiff, period specified in the contract of Cuddy with Gilchrist. Upon
and the only object of the order in question was that the price of appeal to this court it was in effect held that the injunction was
coal might thereby be kept up, a factor which affected the miner's not improperly granted, although the defendants did not, at the
wage scale. It was held that no sufficient justification was shown time their contract was made, know the identity of the plaintiff as
and that the federation was liable. the person holding the prior contract but did know of the
In the United States, the rule established in England by Lumley vs. existence of a contract in favor of someone. It was also said
Gye [supra] and subsequent cases is commonly accepted, though arguendo, that the defendants would have been liable in damages
in a few of the States the broad idea that a stranger to a contract under article 1902 of the Civil Code, if the action had been
can be held liable upon its is rejected, and in these jurisdictions brought by the plaintiff to recover damages. The force of the
the doctrine, if accepted at all, is limited to the situation where opinion is, we think, somewhat weakened by the criticism
the contract is strictly for personal service. (Boyson vs. Thorn, 98 contain in the concurring opinion, where it is said that the
Cal., 578; Chambers & Marshall vs. Baldwin 91 Ky., 121; Bourlier question of breach of contract by inducement was not really
vs. Macauley, 91 Ky., 135; Glencoe Land & Gravel Co. vs. Hudson involved in the case. Taking the decision upon the point which

was rally decided, it is authority for the proposition that one who their privies. In conformity with this it has been held that a
buys something which he knows has been sold to some other stranger to a contract has no right of action for the nonfulfillment
person can be restrained from using that thing to the prejudice of of the contract except in the case especially contemplated in the
the person having the prior and better right. second paragraph of the same article. (Uy Tam and Uy Yet vs.
Translated into terms applicable to the case at bar, the decision Leonard, 30 Phil. Rep., 471.) As observed by this court in Manila
in Gilchrist vs. Cuddy (29 Phil. Rep., 542), indicates that the Railroad Co. vs. Compaia Transatlantica, R. G. No. 11318 (38
defendant corporation, having notice of the sale of the land in Phil. Rep., 875), a contract, when effectually entered into between
question to Daywalt, might have been enjoined by the latter from certain parties, determines not only the character and extent of
using the property for grazing its cattle thereon. That the the liability of the contracting parties but also the person or
defendant corporation is also liable in this action for the damage entity by whom the obligation is exigible. The same idea should
resulting to the plaintiff from the wrongful use and occupation of apparently be applicable with respect to the person against
the property has also been already determined. But it will be whom the obligation of the contract may be enforced; for it is
observed that in order to sustain this liability it is not necessary evident that there must be a certain mutuality in the obligation,
to resort to any subtle exegesis relative to the liability of a and if the stranger to a contract is not permitted to sue to enforce
stranger to a contract for unlawful interference in the it, he cannot consistently be held liable upon it.
performance thereof. It is enough that defendant use the If the two antagonistic ideas which we have just brought into
property with notice that the plaintiff had a prior and better juxtaposition are capable of reconciliation, the process must be
right. accomplished by distinguishing clearly between the right of
Article 1902 of the Civil Code declares that any person who by an action arising from the improper interference with the contract
act or omission, characterized by fault or negligence, causes by a stranger thereto, considered as an independent act generate
damage to another shall be liable for the damage so done. of civil liability, and the right of action ex contractu against a
Ignoring so much of this article as relates to liability for party to the contract resulting from the breach thereof. However,
negligence, we take the rule to be that a person is liable for we do not propose here to pursue the matter further, inasmuch
damage done to another by any culpable act; and by "culpable as, for reasons presently to be stated, we are of the opinion that
act" we mean any act which is blameworthy when judged by neither the doctrine of Lumley vs. Gye [supra] nor the application
accepted legal standards. The idea thus expressed is undoubtedly made of it by this court in Gilchrist vs. Cuddy (29 Phil. Rep., 542),
broad enough to include any rational conception of liability for affords any basis for the recovery of the damages which the
the tortious acts likely to be developed in any society. Thus plaintiff is supposed to have suffered by reason of his inability to
considered, it cannot be said that the doctrine of Lumley vs. Gye comply with the terms of the Wakefield contract.
[supra] and related cases is repugnant to the principles of the Whatever may be the character of the liability which a stranger to
civil law. a contract may incur by advising or assisting one of the parties to
Nevertheless, it must be admitted that the codes and evade performance, there is one proposition upon which all must
jurisprudence of the civil law furnish a somewhat uncongenial agree. This is, that the stranger cannot become more extensively
field in which to propagate the idea that a stranger to a contract liable in damages for the nonperformance of the contract than
may sued for the breach thereof. Article 1257 of the Civil Code the party in whose behalf he intermeddles. To hold the stranger
declares that contracts are binding only between the parties and liable for damages in excess of those that could be recovered

against the immediate party to the contract would lead to results advantageously. Now, what is the measure of damages for the
at once grotesque and unjust. In the case at bar, as Teodorica wrongful detention of real property by the vender after the time
Endencia was the party directly bound by the contract, it is has come for him to place the purchaser in possession?
obvious that the liability of the defendant corporation, even The damages ordinarily and normally recoverable against a
admitting that it has made itself coparticipant in the breach of the vendor for failure to deliver land which he has contracted to
contract, can in no even exceed hers. This leads us to consider at deliver is the value of the use and occupation of the land for the
this point the extent of the liability of Teodorica Endencia to the time during which it is wrongfully withheld. And of course where
plaintiff by reason of her failure to surrender the certificate of the purchaser has not paid the purchaser money, a deduction
title and to place the plaintiff in possession. may be made in respect to the interest on the money which
It should in the first place be noted that the liability of Teodorica constitutes the purchase price. Substantially the same rule holds
Endencia for damages resulting from the breach of her contract with respect to the liability of a landlord who fails to put his
with Daywalt was a proper subject for adjudication in the action tenant in possession pursuant to contract of lease. The measure
for specific performance which Daywalt instituted against her in of damages is the value of the leasehold interest, or use and
1909 and which was litigated by him to a successful conclusion in occupation, less the stipulated rent, where this has not been paid.
this court, but without obtaining any special adjudication with The rule that the measure of damages for the wrongful detention
reference to damages. Indemnification for damages resulting of land is normally to be found in the value of use and occupation
from the breach of a contract is a right inseparably annexed to is, we believe, one of the things that may be considered certain in
every action for the fulfillment of the obligation (art. 1124, Civil the law (39 cyc., 1630; 24 Cyc., 1052 Sedgewick on Damages,
Code); and its is clear that if damages are not sought or recovered Ninth ed., sec. 185.) almost as wellsettled, indeed, as the rule
in the action to enforce performance they cannot be recovered in that the measure of damages for the wrongful detention of
an independent action. As to Teodorica Endencia, therefore, it money is to be found in the interest.
should be considered that the right of action to recover damages We recognize the possibility that more extensive damages may
for the breach of the contract in question was exhausted in the be recovered where, at the time of the creation of the contractual
prior suit. However, her attorneys have not seen fit to interpose obligation, the vendor, or lessor, is aware of the use to which the
the defense of res judicata in her behalf; and as the defendant purchaser or lessee desires to put the property which is the
corporation was not a party to that action, and such defense subject of the contract, and the contract is made with the eyes of
could not in any event be of any avail to it, we proceed to the vendor or lessor open to the possibility of the damage which
consider the question of the liability of Teodorica Endencia for may result to the other party from his own failure to give
damages without refernce to this point. possession. The case before us is not this character, inasmuch as
The most that can be said with refernce to the conduct of at the time when the rights of the parties under the contract were
Teodorica Endencia is that she refused to carry out a contract for determined, nothing was known to any to them about the San
the sale of certain land and resisted to the last an action for Francisco capitalist who would be willing to back the project
specific performance in court. The result was that the plaintiff portrayed in Exhibit C.
was prevented during a period of several years from exerting The extent of the liability for the breach of a contract must be
that control over the property which he was entitled to exert and determined in the light of the situation in existence at the time
was meanwhile unable to dispose of the property the contract is made; and the damages ordinarily recoverable are

in all events limited to such as might be reasonable are in all the new shaft would be returned, or that the new shaft could not
events limited to such as might be reasonably foreseen in the be manufactured at Greenwich until the broken one arrived to
light of the facts then known to the contracting parties. Where serve as a model. There was delay beyond the two days in
the purchaser desires to protect himself, in the contingency of the delivering the broken shaft at Greenwich, and a corresponding
failure of the vendor promptly to give possession, from the delay in starting the mill. No explanation of the delay was offered
possibility of incurring other damages than such as the incident by the carriers. The suit was brought to recover damages for the
to the normal value of the use and occupation, he should cause to lost profits of the mill, cause by the delay in delivering the broken
be inserted in the contract a clause providing for stipulated shaft. It was held that the plaintiff could not recover.
amount to the paid upon failure of the vendor to give possession; The discussion contained in the opinion of the court in that case
and not case has been called to our attention where, in the leads to the conclusion that the damages recoverable in case of
absence of such a stipulation, damages have been held to be the breach of a contract are two sorts, namely, (1) the ordinary,
recoverable by the purchaser in excess of the normal value of use natural, and in a sense necessary damage; and (2) special
and occupation. On the contrary, the most fundamental damages.
conceptions of the law relative to the assessment of damages are Ordinary damages is found in all breaches of contract where the
inconsistent with such idea. are no special circumstances to distinguish the case specially
The principles governing this branch of the law were profoundly from other contracts. The consideration paid for an unperformed
considered in the case Hadley vs. Baxendale (9 Exch., 341), promise is an instance of this sort of damage. In all such cases the
decided in the English Court of Exchequer in 1854; and a few damages recoverable are such as naturally and generally would
words relative to the principles governing will here be found result from such a breach, "according to the usual course of
instructive. The decision in that case is considered a leading things." In case involving only ordinary damage no discussion is
authority in the jurisprudence of the common law. The plaintiffs ever indulged as to whether that damage was contemplated or
in that case were proprietors of a mill in Gloucester, which was not. This is conclusively presumed from the immediateness and
propelled by steam, and which was engaged in grinding and inevitableness of the damage, and the recovery of such damage
supplying meal and flour to customers. The shaft of the engine follows as a necessary legal consequence of the breach. Ordinary
got broken, and it became necessarily that the broken shaft be damage is assumed as a matter of law to be within the
sent to an engineer or foundry man at Greenwich, to serve as a contemplation of the parties.
model for casting or manufacturing another that would fit into Special damage, on the other hand, is such as follows less directly
the machinery. The broken shaft could be delivered at Greenwich from the breach than ordinary damage. It is only found in case
on the second day after its receipts by the carrier it. It was where some external condition, apart from the actual terms to
delivered to the defendants, who were common carriers engaged the contract exists or intervenes, as it were, to give a turn to
in that business between these points, and who had told plaintiffs affairs and to increase damage in a way that the promisor,
it would be delivered at Greenwich on the second day after its without actual notice of that external condition, could not
delivery to them, if delivered at a given hour. The carriers were reasonably be expected to foresee. Concerning this sort of
informed that the mill was stopped, but were not informed of the damage, Hadley vs. Baxendale (1854) [supra] lays down the
special purpose for which the broken shaft was desired to definite and just rule that before such damage can be recovered
forwarded, They were not told the mill would remain idle until the plaintiff must show that the particular condition which made

the damage a possible and likely consequence of the breach was suffices in our opinion to demonstrate that the damages laid
known to the defendant at the time the contract was made. under the second cause of action in the complaint could not be
The statement that special damages may be recovered where the recovered from her, first, because the damages laid under the
likelihood of such damages flowing from the breach of the second cause of action in the complaint could not be recovered
contract is contemplated and foreseen by the parties needs to be from her, first, because the damages in question are special
supplemented by a proposition which, though not enunciated in damages which were not within contemplation of the parties
Hadley vs. Baxendale, is yet clearly to be drawn from subsequent when the contract was made, and secondly, because said
cases. This is that where the damage which a plaintiff seeks to damages are too remote to be the subject of recovery. This
recover as special damage is so far speculative as to be in conclusion is also necessarily fatal to the right of the plaintiff to
contemplation of law remote, notification of the special recover such damages from the defendant corporation, for, as
conditions which make that damage possible cannot render the already suggested, by advising Teodorica not to perform the
defendant liable therefor. To bring damages which would contract, said corporation could in no event render itself more
ordinarily be treated as remote within the category of extensively liable than the principle in the contract.
recoverable special damages, it is necessary that the condition Our conclusion is that the judgment of the trial court should be
should be made the subject of contract in such sense as to affirmed, and it is so ordered, with costs against the appellant.
become an express or implied term of the engagement. Horne vs. Arellano, C.J., Torres, Carson, Araullo, Malcolm, Avancea and Moir,
Midland R. Co. (L. R., 8 C. P., 131) is a case where the damage JJ., concur.
which was sought to be recovered as special damage was really
remote, and some of the judges rightly places the disallowance of
the damage on the ground that to make such damage
recoverable, it must so far have been within the contemplation of
the parties as to form at least an implied term of the contract. But 135. G.R. No. L-9356 February 18, 1915
others proceeded on the idea that the notice given to the C. S. GILCHRIST, plaintiff-appellee,
defendant was not sufficiently full and definite. The result was vs.
the same in either view. The facts in that case were as follows: E. A. CUDDY, ET AL., defendants.
The plaintiffs, shoe manufacturers at K, were under contract to JOSE FERNANDEZ ESPEJO and MARIANO
supply by a certain day shoes to a firm in London for the French ZALDARRIAGA, appellants.
government. They delivered the shoes to a carrier in sufficient C. Lozano for appellants. Bruce, Lawrence, Ross and Block
time for the goods to reach London at the time stipulated in the for appellee.
contract and informed the railroad agent that the shoes would be
thrown back upon their hands if they did not reach the TRENT, J.:
destination in time. The defendants negligently failed to forward An appeal by the defendants, Jose Fernandez Espejo and Mariano
the good in due season. The sale was therefore lost, and the Zaldarriaga, from a judgment of the Court of First Instance of
market having fallen, the plaintiffs had to sell at a loss. Iloilo, dismissing their cross-complaint upon the merits for
In the preceding discussion we have considered the plaintiff's damages against the plaintiff for the alleged wrongful issuance of
right chiefly against Teodorica Endencia; and what has been said a mandatory and a preliminary injunction.

Upon the application of the appellee an ex parte mandatory the same concern in Iloilo. There is in evidence in this case on the
injunction was issued on the 22d of May, 1913, directing the trial today as well as on the 26th of May, letters showing that the
defendant, E. A. Cuddy, to send to the appellee a certain Pathe Brothers in Manila advised this man on two different
cinematograph film called "Zigomar" in compliance with an occasions not to contend for this film Zigomar because the rental
alleged contract which had been entered into between these two price was prohibitive and assured him also that he could not get
parties, and at the time an ex parte preliminary injunction was the film for about six weeks. The last of these letters was written
issued restraining the appellants from receiving and exhibiting in on the 26th of April, which showed conclusively that he knew
their theater the Zigomar until further orders of the court. On the they had to get this film from Cuddy and from this letter that the
26th of that month the appellants appeared and moved the court agent in Manila could not get it, but he made Cuddy an offer
to dissolve the preliminary injunction. When the case was called himself and Cuddy accepted it because he was paying about three
for trial on August 6, the appellee moved for the dismissal of the times as much as he had contracted with Gilchrist for. Therefore,
complaint "for the reason that there is no further necessity for in the opinion of this court, the defendants failed signally to show
the maintenance of the injunction." The motion was granted the injunction against the defendant was wrongfully procured.
without objection as to Cuddy and denied as to the appellants in The appellants duly excepted to the order of the court denying
order to give them an opportunity to prove that the injunction their motion for new trial on the ground that the evidence was
were wrongfully issued and the amount of damages suffered by insufficient to justify the decision rendered. There is lacking from
reason thereof. the record before us the deposition of the defendant Cuddy,
The pertinent part of the trial court's findings of fact in this case which apparently throws light upon a contract entered into
is as follows: between him and the plaintiff Gilchrist. The contents of this
It appears in this case that Cuddy was the owner of the film deposition are discussed at length in the brief of the appellants
Zigomar and that on the 24th of April he rented it to C. S. Gilchrist and an endeavor is made to show that no such contract was
for a week for P125, and it was to be delivered on the 26th of entered into. The trial court, which had this deposition before it,
May, the week beginning that day. A few days prior to this Cuddy found that there was a contract between Cuddy and Gilchrist. Not
sent the money back to Gilchrist, which he had forwarded to him having the deposition in question before us, it is impossible to
in Manila, saying that he had made other arrangements with his say how strongly it militates against this findings of fact. By a
film. The other arrangements was the rental to these defendants series of decisions we have construed section 143 and 497 (2) of
Espejo and his partner for P350 for the week and the injunction the Code of Civil Procedure to require the production of all the
was asked by Gilchrist against these parties from showing it for evidence in this court. This is the duty of the appellant and, upon
the week beginning the 26th of May. his failure to perform it, we decline to proceed with a review of
It appears from the testimony in this case, conclusively, that the evidence. In such cases we rely entirely upon the pleadings
Cuddy willfully violated his contract, he being the owner of the and the findings of fact of the trial court and examine only such
picture, with Gilchrist because the defendants had offered him assigned errors as raise questions of law. (Ferrer vs. Neri
more for the same period. Mr. Espejo at the trial on the Abejuela, 9 Phil. Rep., 324; Valle vs. Galera, 10 Phil. Rep., 619;
permanent injunction on the 26th of May admitted that he knew Salvacion vs. Salvacion, 13 Phil. Rep., 366; Breta vs. Smith, Bell &
that Cuddy was the owner of the film. He was trying to get it Co., 15 Phil. Rep., 446; Arroyo vs. Yulo, 18 Phil. Rep., 236; Olsen &
through his agents Pathe Brothers in Manila. He is the agent of Co. vs. Matson, Lord & Belser Co., 19 Phil. Rep., 102; Blum vs.

Barretto, 19 Phil. Rep., 161; Cuyugan vs. Aguas, 19 Phil. Rep., 379; May 26, 1913; and that Cuddy willfully violate his contract in
Mapa vs. Chaves, 20 Phil. Rep., 147; Mans vs. Garry, 20 Phil. Rep., order that he might accept the appellant's offer of P350 for the
134.) It is true that some of the more recent of these cases make film for the same period. Did the appellants know that they were
exceptions to the general rule. Thus, in Olsen & Co. vs. Matson, inducing Cuddy to violate his contract with a third party when
Lord & Belser Co., (19 Phil. Rep., 102), that portion of the they induced him to accept the P350? Espejo admitted that he
evidence before us tended to show that grave injustice might knew that Cuddy was the owner of the film. He received a letter
result from a strict reliance upon the findings of fact contained in from his agents in Manila dated April 26, assuring him that he
the judgment appealed from. We, therefore, gave the appellant an could not get the film for about six weeks. The arrangement
opportunity to explain the omission. But we required that such between Cuddy and the appellants for the exhibition of the film
explanation must show a satisfactory reason for the omission, by the latter on the 26th of May were perfected after April 26, so
and that the missing portion of the evidence must be submitted that the six weeks would include and extend beyond May 26. The
within sixty days or cause shown for failing to do so. The other appellants must necessarily have known at the time they made
cases making exceptions to the rule are based upon peculiar their offer to Cuddy that the latter had booked or contracted the
circumstances which will seldom arise in practice and need not film for six weeks from April 26. Therefore, the inevitable
here be set forth, for the reason that they are wholly inapplicable conclusion is that the appellants knowingly induced Cuddy to
to the present case. The appellants would be entitled to violate his contract with another person. But there is no specific
indulgence only under the doctrine of the Olsen case. But from finding that the appellants knew the identity of the other party.
that portion of the record before us, we are not inclined to So we must assume that they did not know that Gilchrist was the
believe that the missing deposition would be sufficient to justify person who had contracted for the film.
us in reversing the findings of fact of the trial court that the The appellants take the position that if the preliminary injunction
contract in question had been made. There is in the record not had not been issued against them they could have exhibited the
only the positive and detailed testimony of Gilchrist to this effect, film in their theater for a number of days beginning May 26, and
but there is also a letter of apology from Cuddy to Gilchrist in could have also subleased it to other theater owners in the
which the former enters into a lengthy explanation of his reasons nearby towns and, by so doing, could have cleared, during the life
for leasing the film to another party. The latter could only have of their contract with Cuddy, the amount claimed as damages.
been called forth by a broken contract with Gilchrist to lease the Taking this view of the case, it will be unnecessary for us to
film to him. We, therefore, fail to find any reason for overlooking inquire whether the mandatory injunction against Cuddy was
the omission of the defendants to bring up the missing portion of properly issued or not. No question is raised with reference to
the evidence and, adhering to the general rule above referred to, the issuance of that injunction.
proceed to examine the questions of law raised by the appellants. The right on the part of Gilchrist to enter into a contract with
From the above-quoted findings of fact it is clear that Cuddy, a Cuddy for the lease of the film must be fully recognized and
resident of Manila, was the owner of the "Zigomar;" that Gilchrist admitted by all. That Cuddy was liable in an action for damages
was the owner of a cinematograph theater in Iloilo; that in for the breach of that contract, there can be no doubt. Were the
accordance with the terms of the contract entered into between appellants likewise liable for interfering with the contract
Cuddy and Gilchrist the former leased to the latter the "Zigomar" between Gilchrist and Cuddy, they not knowing at the time the
for exhibition in his (Gilchrist's) theater for the week beginning identity of one of the contracting parties? The appellants claim

that they had a right to do what they did. The ground upon which interference was malicious. The contrary view, however, is taken
the appellants base this contention is, that there was no valid and by the Supreme Court of the United States in the case of Angle vs.
binding contract between Cuddy and Gilchrist and that, therefore, Railway Co. (151 U. S., 1). The only motive for interference by the
they had a right to compete with Gilchrist for the lease of the film, third party in that case was the desire to make a profit to the
the right to compete being a justification for their acts. If there injury of one of the parties of the contract. There was no malice in
had been no contract between Cuddy and Gilchrist this defense the case beyond the desire to make an unlawful gain to the
would be tenable, but the mere right to compete could not justify detriment of one of the contracting parties.
the appellants in intentionally inducing Cuddy to take away the In the case at bar the only motive for the interference with the
appellee's contractual rights. Gilchrist Cuddy contract on the part of the appellants was a
Chief Justice Wells in Walker vs. Cronin (107 Mass., 555), said: desire to make a profit by exhibiting the film in their theater.
"Everyone has a right to enjoy the fruits and advantages of his There was no malice beyond this desire; but this fact does not
own enterprise, industry, skill and credit. He has no right to be relieve them of the legal liability for interfering with that contract
free from malicious and wanton interference, disturbance or and causing its breach. It is, therefore, clear, under the above
annoyance. If disturbance or loss come as a result of competition, authorities, that they were liable to Gilchrist for the damages
or the exercise of like rights by others, it is damnum absque caused by their acts, unless they are relieved from such liability
injuria, unless some superior right by contract or otherwise is by reason of the fact that they did not know at the time the
interfered with." identity of the original lessee (Gilchrist) of the film.
In Read vs. Friendly Society of Operative Stonemasons ([1902] 2 The liability of the appellants arises from unlawful acts and not
K. B., 88), Darling, J., said: "I think the plaintiff has a cause of from contractual obligations, as they were under no such
action against the defendants, unless the court is satisfied that, obligations to induce Cuddy to violate his contract with Gilchrist.
when they interfered with the contractual rights of plaintiff, the So that if the action of Gilchrist had been one for damages, it
defendants had a sufficient justification for their interference; . . . would be governed by chapter 2, title 16, book 4 of the Civil Code.
for it is not a justification that `they acted bona fide in the best Article 1902 of that code provides that a person who, by act or
interests of the society of masons,' i. e., in their own interests. Nor omission, causes damages to another when there is fault or
is it enough that `they were not actuated by improper motives.' I negligence, shall be obliged to repair the damage do done. There
think their sufficient justification for interference with plaintiff's is nothing in this article which requires as a condition precedent
right must be an equal or superior right in themselves, and that to the liability of a tort-feasor that he must know the identity of a
no one can legally excuse himself to a man, of whose contract he person to whom he causes damages. In fact, the chapter wherein
has procured the breach, on the ground that he acted on a wrong this article is found clearly shows that no such knowledge is
understanding of his own rights, or without malice, or bona fide, required in order that the injured party may recover for the
or in the best interests of himself, or even that he acted as an damage suffered.
altruist, seeking only good of another and careless of his own But the fact that the appellants' interference with the Gilchrist
advantage." (Quoted with approval in Beekman vs. Marsters, 195 contract was actionable did not of itself entitle Gilchrist to sue
Mass., 205.) out an injunction against them. The allowance of this remedy
It is said that the ground on which the liability of a third party for must be justified under section 164 of the Code of Civil
interfering with a contract between others rests, is that the Procedure, which specifies the circumstance under which an

injunction may issue. Upon the general doctrine of injunction we corporations, public service corporations, public officers, and
said in Devesa vs. Arbes (13 Phil. Rep., 273): others to restrain the commission of acts which would tend to
An injunction is a "special remedy" adopted in that code (Act No. injuriously affect the rights of person whose identity the
190) from American practice, and originally borrowed from respondents could not possibly have known beforehand. This
English legal procedure, which was there issued by the authority court has held that in a proper case injunction will issue at the
and under the seal of a court of equity, and limited, as in order instance of a private citizen to restrain ultra vires acts of public
cases where equitable relief is sought, to cases where there is no officials. (Severino vs. Governor-General, 16 Phil. Rep., 366.) So
"plain, adequate, and complete remedy at law," which "will not be we proceed to the determination of the main question of whether
granted while the rights between the parties are undetermined, or not the preliminary injunction ought to have been issued in
except in extraordinary cases where material and irreparable this case.
injury will be done," which cannot be compensated in damages, As a rule, injunctions are denied to those who have an adequate
and where there will be no adequate remedy, and which will not, remedy at law. Where the choice is between the ordinary and the
as a rule, be granted, to take property out of the possession of one extraordinary processes of law, and the former are sufficient, the
party and put it into that of another whose title has not been rule will not permit the use of the latter. (In re Debs, 158 U. S.,
established by law. 564.) If the injury is irreparable, the ordinary process is
We subsequently affirmed the doctrine of the Devesa case in inadequate. In Wahle vs. Reinbach (76 Ill., 322), the supreme
Palafox vs. Madamba (19 Phil., Rep., 444), and we take this court of Illinois approved a definition of the term "irreparable
occasion of again affirming it, believing, as we do, that the injury" in the following language: "By `irreparable injury' is not
indiscriminate use of injunctions should be discouraged. meant such injury as is beyond the possibility of repair, or
Does the fact that the appellants did not know at the time the beyond possible compensation in damages, nor necessarily great
identity of the original lessee of the film militate against injury or great damage, but that species of injury, whether great
Gilchrist's right to a preliminary injunction, although the or small, that ought not to be submitted to on the one hand or
appellant's incurred civil liability for damages for such inflicted on the other; and, because it is so large on the one hand,
interference? In the examination of the adjudicated cases, where or so small on the other, is of such constant and frequent
in injunctions have been issued to restrain wrongful interference recurrence that no fair or reasonable redress can be had therefor
with contracts by strangers to such contracts, we have been in a court of law." (Quoted with approval in Nashville R. R. Co. vs.
unable to find any case where this precise question was involved, McConnell, 82 Fed., 65.)
as in all of those cases which we have examined, the identity of The case at bar is somewhat novel, as the only contract which
both of the contracting parties was known to the tort-feasors. We was broken was that between Cuddy and Gilchrist, and the
might say, however, that this fact does not seem to have a profits of the appellee depended upon the patronage of the
controlling feature in those cases. There is nothing in section 164 public, for which it is conceded the appellants were at liberty to
of the Code of Civil Procedure which indicates, even remotely, complete by all fair does not deter the application of remarked in
that before an injunction may issue restraining the wrongful the case of the "ticket scalpers" (82 Fed., 65), the novelty of the
interference with contrast by strangers, the strangers must know facts does not deter the application of equitable principles. This
the identity of both parties. It would seem that this is not court takes judicial notice of the general character of a
essential, as injunctions frequently issue against municipal cinematograph or motion-picture theater. It is a quite modern

form of the play house, wherein, by means of an apparatus to carry out their illegal plans. As to whether or not the
known as a cinematograph or cinematograph, a series of views mandatory injunction should have been issued, we are not, as we
representing closely successive phases of a moving object, are have said, called upon to determine. So far as the preliminary
exhibited in rapid sequence, giving a picture which, owing to the injunction issued against the appellants is concerned, which
persistence of vision, appears to the observer to be in continuous prohibited them from exhibiting the Zigomar during the week
motion. (The Encyclopedia Britanica, vol. 6, p. 374.) The subjects which Gilchrist desired to exhibit it, we are of the opinion that the
which have lent themselves to the art of the photographer in this circumstances justified the issuance of that injunction in the
manner have increased enormously in recent years, as well as discretion of the court.
have the places where such exhibition are given. The attendance, We are not lacking in authority to support our conclusion that the
and, consequently, the receipts, at one of these cinematograph or court was justified in issuing the preliminary injunction against
motion-picture theaters depends in no small degree upon the the appellants. Upon the precise question as to whether
excellence of the photographs, and it is quite common for the injunction will issue to restrain wrongful interference with
proprietor of the theater to secure an especially attractive exhibit contracts by strangers to such contracts, it may be said that
as his "feature film" and advertise it as such in order to attract courts in the United States have usually granted such relief where
the public. This feature film is depended upon to secure a larger the profits of the injured person are derived from his contractual
attendance that if its place on the program were filled by other relations with a large and indefinite number of individuals, thus
films of mediocre quality. It is evident that the failure to exhibit reducing him to the necessity of proving in an action against the
the feature film will reduce the receipts of the theater. tort-feasor that the latter was responsible in each case for the
Hence, Gilchrist was facing the immediate prospect of diminished broken contract, or else obliging him to institute individual suits
profits by reason of the fact that the appellants had induced against each contracting party and so exposing him to a
Cuddy to rent to them the film Gilchrist had counted upon as his multiplicity of suits. Sperry & Hutchinson Co. vs. Mechanics'
feature film. It is quite apparent that to estimate with any decree Clothing Co. (128 Fed., 800); Sperry & Hutchinson Co. vs. Louis
of accuracy the damages which Gilchrist would likely suffer from Weber & Co. (161 Fed., 219); Sperry & Hutchinson Co. vs.
such an event would be quite difficult if not impossible. If he Pommer (199 Fed., 309); were all cases wherein the respondents
allowed the appellants to exhibit the film in Iloilo, it would be were inducing retail merchants to break their contracts with the
useless for him to exhibit it again, as the desire of the public to company for the sale of the latters' trading stamps. Injunction
witness the production would have been already satisfied. In this issued in each case restraining the respondents from interfering
extremity, the appellee applied for and was granted, as we have with such contracts.
indicated, a mandatory injunction against Cuddy requiring him to In the case of the Nashville R. R. Co. vs. McConnell (82 Fed., 65),
deliver the Zigomar to Gilchrist, and a preliminary injunction the court, among other things, said: "One who wrongfully
against the appellants restraining them from exhibiting that film interferes in a contract between others, and, for the purpose of
in their theater during the weeks he (Gilchrist) had a right to gain to himself induces one of the parties to break it, is liable to
exhibit it. These injunction saved the plaintiff harmless from the party injured thereby; and his continued interference may be
damages due to the unwarranted interference of the defendants, ground for an injunction where the injuries resulting will be
as well as the difficult task which would have been set for the irreparable."
court of estimating them in case the appellants had been allowed In Hamby & Toomer vs. Georgia Iron & Coal Co. (127 Ga., 792), it

appears that the respondents were interfering in a contract for proper remedy to prevent a wrongful interference with contract
prison labor, and the result would be, if they were successful, the by strangers to such contracts where the legal remedy is
shutting down of the petitioner's plant for an indefinite time. The insufficient and the resulting injury is irreparable. And where
court held that although there was no contention that the there is a malicious interference with lawful and valid contracts a
respondents were insolvent, the trial court did not abuse its permanent injunction will ordinarily issue without proof of
discretion in granting a preliminary injunction against the express malice. So, an injunction may be issued where the
respondents. complainant to break their contracts with him by agreeing to
In Beekman vs. Marsters (195 Mass., 205), the plaintiff had indemnify who breaks his contracts of employment may be
obtained from the Jamestown Hotel Corporation, conducting a adjoined from including other employees to break their contracts
hotel within the grounds of the Jamestown Exposition, a contract and enter into new contracts with a new employer of the servant
whereby he was made their exclusive agent for the New England who first broke his contract. But the remedy by injunction cannot
States to solicit patronage for the hotel. The defendant induced be used to restrain a legitimate competition, though such
the hotel corporation to break their contract with the plaintiff in competition would involve the violation of a contract. Nor will
order to allow him to act also as their agent in the New England equity ordinarily enjoin employees who have quit the service of
States. The court held that an action for damages would not have their employer from attempting by proper argument to persuade
afforded the plaintiff adequate relief, and that an injunction was others from taking their places so long as they do not resort to
proper compelling the defendant to desist from further force or intimidations on obstruct the public thoroughfares."
interference with the plaintiff's exclusive contract with the hotel Beekman vs. Marster, supra, is practically on all fours with the
company. case at bar in that there was only one contract in question and
In Citizens' Light, Heat & Power Co. vs. Montgomery Light & the profits of the injured person depended upon the patronage of
Water Power Co. (171 Fed., 553), the court, while admitting that the public. Hamby & Toomer vs. Georgia Iron & Coal Co., supra, is
there are some authorities to the contrary, held that the current also similar to the case at bar in that there was only one contract,
authority in the United States and England is that: the interference of which was stopped by injunction.
The violation of a legal right committed knowingly is a cause of For the foregoing reasons the judgment is affirmed, with costs,
action, and that it is a violation of a legal right to interfere with against the appellants.
contractual relations recognized by law, if there be no sufficient Arellano, C.J., Torres, Carson and Araullo, JJ., concur.
justification for the interference. (Quinn vs. Leatham, supra, 510;
Angle vs. Chicago, etc., Ry. Co., 151 U. S., 1; 14 Sup. Ct., 240; 38 L. Separate Opinions
Ed., 55; Martens vs. Reilly, 109 Wis., 464, 84 N. W., 840; Rice vs. MORELAND, J., concurring:
Manley, 66 N. Y., 82; 23 Am. Rep., 30; Bitterman vs. L. & N. R. R. The court seems to be of the opinion that the action is one for a
Co., 207 U. S., 205; 28 Sup. Ct., 91; 52 L. Ed., 171; Beekman vs. permanent injunction; whereas, under my view of the case, it is
Marsters, 195 Mass., 205; 80 N. E., 817; 11 L. R. A. [N. S.] 201; 122 one for specific performance. The facts are simple. C. S. Gilchrist,
Am. St. Rep., 232; South Wales Miners' Fed. vs. Glamorgan Coal the plaintiff, proprietor of the Eagle Theater of Iloilo, contracted
Co., Appeal Cases, 1905, p. 239.) with E. A. Cuddy, one of the defendants, of Manila, for a film
See also Nims on Unfair Business Competition, pp. 351- 371. entitled "Zigomar or Eelskin, 3d series," to be exhibited in his
In 3 Elliot on Contracts, section 2511, it is said: "Injunction is the theater in Iloilo during the week beginning May 26, 1913. Later,

the defendants Espejo and Zaldarriaga, who were also operating the 26th of May in accordance with the contract which he claimed
a theater in Iloilo, representing Pathe Freres, also obtained from to have made with Cuddy.
Cuddy a contract for the exhibition of the film aforesaid in their The defendants Espejo and Zaldarriaga having received due
theater in Iloilo during the same week. notice of the issuance of the mandatory injunction and
The plaintiff commenced this action against Cuddy and the restraining order of the 22d of May, appeared before the court on
defendants Espejo and Zaldarriaga for the specific performance the 26th of May and moved that the court vacate so much of the
of the contract with Cuddy. The complaint prays "that the court, order as prohibited them from receiving and exhibiting the film.
by a mandatory injunction, order Cuddy to deliver, on the 24th of In other words, while the order of the 22d of May was composed
May, 1913, in accordance with the aforesaid contract, the said of two parts, one a mandatory order for immediate specific
film 'Zigomar, 3d series, or Eelskin,' to the plaintiff Gilchrist, in performance of the plaintiff's contract with the defendant Cuddy,
accordance with the terms of the agreement, so that plaintiff can and the other a preliminary restraining order directed to Espejo
exhibit the same during the last week beginning May 26, 1913, in and Zaldarriaga prohibiting them from receiving and exhibiting
the Eagle Theater, in Iloilo; that the court issue a preliminary the film during the week beginning the 26th of May, their motion
injunction against the defendants Espejo and Zaldarriaga of the 26th of May referred exclusively to the injunction against
prohibiting them from receiving, exhibiting, or using said film in them and touched in no way that portion of the order which
Iloilo during the last week of May, 1913, or at any other time required the immediate performance by Cuddy of his contract
prior to the delivery to the plaintiff ; that, on the trial, said with Gilchrist. Indeed, the defendants Espejo and Zaldarriaga did
injunction be made perpetual and that Cuddy be ordered and not even except to the order requiring Cuddy to specifically
commanded to specifically perform his contract with the plaintiff ." perform his agreement with the plaintiff nor did they in any way
On the filing of the complaint the plaintiff made an application for make an objection to or show their disapproval of it. It was not
a mandatory injunction compelling the defendant Cuddy to excepted to or appealed from and is not before this court for
deliver to plaintiff the film in question by mailing it to him from review.
Manila on the 24th of May so that it would reach Iloilo for The motion of Espejo and Zaldarriaga to vacate the injunction
exhibition on the 26th; and for a preliminary restraining order restraining them from receiving the film was denied on the 26th
against the order two defendants prohibiting them from of May. After the termination of the week beginning May 26th,
receiving or exhibiting the said film prior to its exhibition by and after the exhibition of the film by the plaintiff in accordance
plaintiff. with the alleged contract with Cuddy, the plaintiff came into
The court, on this application, entered an order which provided court and moved that, in view of the fact that he had already
that Cuddy should "not send said film 'Zigomar, 3d series, or obtained all that he desired to obtain or could obtain by his
Eelskin,' to the defendants Espejo and Zaldarriaga and that he action, namely, the exhibition of the film in question during the
should send it to the plaintiff, Gilchrist, on the 24th day of May, week beginning May 26th, there was no reason for continuing it
1913, in the mail for Iloilo," This order was duly served on the and moved for its dismissal. To this motion Cuddy consented and
defendants, including Cuddy, in whose possession the film still the action was dismissed as to him. But the other defendants
was, and, in compliance therewith Cuddy mailed the film to the objected to the dismissal of the action on the ground that they
plaintiff at Iloilo on the 24th of May. The latter duly received it desired to present to the court evidence showing the damages
and exhibited it without molestation during the week beginning which they had suffered by reason of the issuance of the

preliminary injunction prohibiting them from receiving and without objection or exception to the order. The film having been
exhibiting the film in question during the week beginning May delivered to defendants' competitor, the plaintiff, under a decree
26. The court sustained their objection and declined to dismiss of the court to which they made no objection and took no
the action as to them, and, on the 8th of August, heard the exception and from which they have not appealed, what injury
evidence as to damages. He denied defendants the relief asked for can they show by reason of the injunction restraining them from
and dismissed their claim for damages. They thereupon took an making use of the film? If they themselves, by their conduct,
appeal from that order, and that is the appeal which we have now permitted the plaintiff to make it impossible for them to gain
before us and which is the subject of the opinion of the court with possession of the film and to use it, then the preliminary
which I am concurring. injunction produced no injury for the reason that no harm can
We thus have this strange condition: result from restraining a party from doing a thing which, without
An action for specific performance of a contract to deliver a film such restraint, it would be impossible for him to do. Moreover,
for exhibition during a given time. A preliminary mandatory the order for the delivery of the film to plaintiff was a complete
injunction ordering the delivery of the film in accordance with determination of the rights of the parties to the film which, while
the contract. The delivery of the film in accordance with the the court had no right to make, nevertheless, was valid and
preliminary mandatory injunction. The actual exhibition of the binding on all the parties, none of them objecting or taking
film during the time specified in the contract. No objection to the exception thereto. Being a complete determination of the rights
issuance of the mandatory injunction, to the delivery of the film, of the parties to the action, it should have been the first point
or to the ground that the plaintiff had obtained full relief by attacked by the defendants, as it foreclosed them completely and,
means of the so-called preliminary remedy by virtue of which the if left in force, eliminating every defense. This order was made on
contract was actually specifically performed before the action was May 22d and was not excepted to or appealed from. On the 8th of
tried. No objection or exception to the order requiring the specific August following the defendants appealed from the order
performance of the contract. dismissing their claim to damages but the order for the delivery
Under such conditions it is possible for the defendant Espejo and of the film to plaintiff was final at that time and is now conclusive
Zaldarriaga to secure damages for the wrongful issuance of the on this court.
preliminary injunction directed against them even though it be Section 143 of the Code of Civil Procedure, providing for appeals
admitted that it was erroneously issued and that there was no by bill of exceptions, provides that "upon the rendition of final
ground therefor whatever? It seems to me that it is not. At the judgment disposing of the action, either party shall have the right
time this action was begun the film, as we have seen, was in the to perfect a bill of exceptions for a review by the Supreme Court
possession of Cuddy and, while in his possession, he complied of all rulings, orders, and judgment made in the action, to which
with a command of the court to deliver it to plaintiff. In the party has duly excepted at the time of making such ruling,
pursuance of that command he delivered it to plaintiff, who used order, or judgment." While the order for the delivery of the film
it during the time specified in his contract with Cuddy; or, in to plaintiff was in one sense a preliminary order, it was in reality
other words, he made such use of it as he desired and then a final determination of the rights of the parties to the film, as it
returned it to Cuddy. This order and the delivery of the film ordered the delivery thereof to plaintiff for his use. If it had been
under it were made in an action in which the defendants Espejo duly excepted to, its validity could have been attacked in an
and Zaldarriaga were parties, without objection on their part and appeal from the final judgment thereafter entered in the action.

Not having been excepted to as required by the section just only after a trial of the action, nevertheless, such right having
referred to, it became final and conclusive on all the parties to the been granted before trial and none of the defendants having
action, and when, on the 8th day of August following, the made objection or taken exception thereto, and the order
defendants presented their claim for damages based on the granting them having become final, such order became a final
alleged wrongful issuance of a temporary restraining order, the determination of the action, by reason of the nature of the action
whole foundation of their claim had disappeared by virtue of the itself, the rights of the parties became thereby finally determined
fact that the execution of the order of the 22d of May had left and the defendants Espejo and Zaldarriaga, being parties to the
nothing for them to litigate. The trial court, on the 8th of August, action, were precluded from further litigation relative to the
would have been fully justified in refusing to hear the defendants subject matter of the controversy.
on their claim for damages. Their right thereto had been No damages are claimed by reason of the issuance of the
adjudicated on the 22d of May and that adjudication had been mandatory injunction under which the film was delivered to
duly put into execution without protest, objection or exception, plaintiff and used by him during the week beginning the 26th of
and was, therefore, final and conclusive on them on the 8th of May. While the opinion says in the first paragraph that the action
August. is "for damages against the plaintiff for the alleged wrongful
I have presented this concurring opinion in an attempt to prevent issuance of a mandatory and preliminary injunction," the opinion
confusion, if any, which might arise from the theory on which the also says in a latter portion that "It will be unnecessary for us to
court decides this case. It seems to me impossible that the action inquire whether the mandatory injunction against Cuddy was
can be one for a permanent injunction. The very nature of the properly issued or not. No question is raised with reference to
case demonstrates that a permanent injunction is out of the the issuance of that injunction;" and still later it is also stated that
question. The only thing that plaintiff desired was to be "as to whether or not the mandatory injunction should have been
permitted to use the film for the week beginning the 26th of May. issued, we are not, as we have said, called upon to determine." I
With the termination of that week his rights expired. After that repeat that no objection was made by the defendants to the
time Cuddy was perfectly free to turn the film over to the issuance of the mandatory injunction, no exception was taken to
defendants Espejo and Zaldarriaga for exhibition at any time. An the order on which it was issued and no appeal has been taken
injunction permanently prohibiting the defendants from therefrom. That order is now final and conclusive and was at the
exhibiting the film in Iloilo would have been unjustifiable, as it time this appeal was taken. That being so, the rights of the
was something that plaintiff did not ask and did not want; and defendants were foreclosed thereby. The defendants Espejo and
would have been an invasion of the rights of Cuddy as, after the Zaldarriaga cannot now be heard to say that they were damaged
termination of the week beginning May 26, he was at liberty, by the issuance of the preliminary restraining injunction issued
under his contract with plaintiff, to rent the film to the on the same day as the mandatory injunction.
defendants Espejo and Zaldarriaga and permit its exhibition in From what has been said it is clear, it seems to me, that the
Iloilo at any time. The plaintiff never asked to have defendants question of a breach of contract by inducement, which is
permanently enjoined from exhibiting the film in Iloilo and no substantially the only question discussed and decided, is not in
party to the action has suggested such thing. the case in reality and, in my judgment, should not be touched
The action is one for specific performance purely; and while the upon. Courts will not proceed with a litigation and discuss and
court granted plaintiff rights which should have been granted decided question which might possibly be involved in the case

when it clearly appears that there remains nothing about which thereof is in effect.
to litigate, the whole subject matter of the original action having Indemnity. The undersigned, jointly and severally, agree at all
been settled and the parties having no real controversy to times to indemnify the COMPANY and keep it indemnified and
present. At the time the defendants Espejo and Zaldarriaga hold and save it harmless from and against any and all damages,
offered their claim for damages arising out of the wrongful losses, costs, stamps, taxes, penalties, charges, and expenses of
issuance of the restraining order, there was nothing between whatsoever kind and nature which the COMPANY shall or may, at
them and the plaintiff to litigate, the rightfulness of plaintiff's any time sustain or incur in consequence of having become
demand having already been finally adjudicated and determined surety upon this bond or any extension, renewal, substitution or
in the same action. alteration thereof made at the instance of the undersigned or any
of them or any order executed on behalf of the undersigned or
any of them; chan roblesvirtualawlibraryand to pay, reimburse
and make good to the COMPANY, its successors and assigns, all
sums and amount of money which it or its representatives shall
136. [G.R. No. L-8437. November 28, 1956.] pay or cause to be paid, or become liable to pay, on account of the
ESTATE OF K. H. HEMADY, deceased, vs. LUZON undersigned or any of them, of whatsoever kind and nature,
SURETY CO., INC., claimant-Appellant. including 15% of the amount involved in the litigation or other
matters growing out of or connected therewith for counsel or
D E C I S I O N attorneys fees, but in no case less than P25. It is hereby further
REYES, J. B. L., J.: agreed that in case of extension or renewal of this ________ we
Appeal by Luzon Surety Co., Inc., from an order of the Court of equally bind ourselves for the payment thereof under the same
First Instance of Rizal, presided by Judge Hermogenes Caluag, terms and conditions as above mentioned without the necessity
dismissing its claim against the Estate of K. H. Hemady (Special of executing another indemnity agreement for the purpose and
Proceeding No. Q-293) for failure to state a cause of action. that we hereby equally waive our right to be notified of any
The Luzon Surety Co. had filed a claim against the Estate based renewal or extension of this ________ which may be granted under
on twenty different indemnity agreements, or counter bonds, this indemnity agreement.
each subscribed by a distinct principal and by the deceased K. H. Interest on amount paid by the Company. Any and all sums of
Hemady, a surety solidary guarantor) in all of them, in money so paid by the company shall bear interest at the rate of
consideration of the Luzon Surety Co.s of having guaranteed, the 12% per annum which interest, if not paid, will be
various principals in favor of different creditors. The twenty accummulated and added to the capital quarterly order to earn
counterbonds, or indemnity agreements, all contained the the same interests as the capital and the total sum thereof, the
following stipulations:chanroblesvirtuallawlibrary capital and interest, shall be paid to the COMPANY as soon as the
Premiums. As consideration for this suretyship, the COMPANY shall have become liable therefore, whether it shall
undersigned jointly and severally, agree to pay the COMPANY the have paid out such sums of money or any part thereof or not.
sum of ________________ (P______) pesos, Philippines Currency, in x x x x x x x x x
advance as premium there of for every __________ months or Waiver. It is hereby agreed upon by and between the
fractions thereof, this ________ or any renewal or substitution undersigned that any question which may arise between them by

reason of this document and which has to be submitted for claim cannot be considered contingent. This Court believes that
decision to Courts of Justice shall be brought before the Court of there is merit in this contention and finds support in Article 2046
competent jurisdiction in the City of Manila, waiving for this of the new Civil Code. It should be noted that a new requirement
purpose any other venue. Our right to be notified of the has been added for a person to qualify as a guarantor, that
acceptance and approval of this indemnity agreement is hereby is:chanroblesvirtuallawlibrary integrity. As correctly pointed out
likewise waived. by the Administratrix, integrity is something purely personal and
x x x x x x x x x is not transmissible. Upon the death of Hemady, his integrity was
Our Liability Hereunder. It shall not be necessary for the not transmitted to his estate or successors. Whatever loss
COMPANY to bring suit against the principal upon his default, or therefore, may occur after Hemadys death, are not chargeable to
to exhaust the property of the principal, but the liability his estate because upon his death he ceased to be a guarantor.
hereunder of the undersigned indemnitor shall be jointly and Another clear and strong indication that the surety company has
severally, a primary one, the same as that of the principal, and exclusively relied on the personality, character, honesty and
shall be exigible immediately upon the occurrence of such integrity of the now deceased K. H. Hemady, was the fact that in
default. (Rec. App. pp. 98- 102.) the printed form of the indemnity agreement there is a paragraph
The Luzon Surety Co., prayed for allowance, as a contingent entitled Security by way of first mortgage, which was expressly
claim, of the value of the twenty bonds it had executed in waived and renounced by the security company. The security
consideration of the counterbonds, and further asked for company has not demanded from K. H. Hemady to comply with
judgment for the unpaid premiums and documentary stamps this requirement of giving security by way of first mortgage. In
affixed to the bonds, with 12 per cent interest thereon. the supporting papers of the claim presented by Luzon Surety
Before answer was filed, and upon motion of the administratrix Company, no real property was mentioned in the list of
of Hemadys estate, the lower court, by order of September 23, properties mortgaged which appears at the back of the indemnity
1953, dismissed the claims of Luzon Surety Co., on two agreement. (Rec. App., pp. 407-408).
grounds:chanroblesvirtuallawlibrary (1) that the premiums due We find this reasoning untenable. Under the present Civil Code
and cost of documentary stamps were not contemplated under (Article 1311), as well as under the Civil Code of 1889 (Article
the indemnity agreements to be a part of the undertaking of the 1257), the rule is that
guarantor (Hemady), since they were not liabilities incurred after Contracts take effect only as between the parties, their assigns
the execution of the counterbonds; chan and heirs, except in the case where the rights and obligations
roblesvirtualawlibraryand (2) that whatever losses may occur arising from the contract are not transmissible by their nature, or
after Hemadys death, are not chargeable to his estate, because by stipulation or by provision of law.
upon his death he ceased to be guarantor. While in our successional system the responsibility of the heirs
Taking up the latter point first, since it is the one more far for the debts of their decedent cannot exceed the value of the
reaching in effects, the reasoning of the court below ran as inheritance they receive from him, the principle remains intact
follows:chanroblesvirtuallawlibrary that these heirs succeed not only to the rights of the deceased but
The administratrix further contends that upon the death of also to his obligations. Articles 774 and 776 of the New Civil Code
Hemady, his liability as a guarantor terminated, and therefore, in (and Articles 659 and 661 of the preceding one) expressly so
the absence of a showing that a loss or damage was suffered, the provide, thereby confirming Article 1311 already quoted.

ART. 774. Succession is a mode of acquisition by virtue of successors. The rule is a consequence of the progressive
which the property, rights and obligations to the extent of the depersonalization of patrimonial rights and duties that, as
value of the inheritance, of a person are transmitted through his observed by Victorio Polacco, has characterized the history of
death to another or others either by his will or by operation of these institutions. From the Roman concept of a relation from
law. person to person, the obligation has evolved into a relation from
ART. 776. The inheritance includes all the property, rights patrimony to patrimony, with the persons occupying only a
and obligations of a person which are not extinguished by his representative position, barring those rare cases where the
death. obligation is strictly personal, i.e., is contracted intuitu personae,
In Mojica vs. Fernandez, 9 Phil. 403, this Supreme Court in consideration of its performance by a specific person and by
ruled:chanroblesvirtuallawlibrary no other. The transition is marked by the disappearance of the
Under the Civil Code the heirs, by virtue of the rights of imprisonment for debt.
succession are subrogated to all the rights and obligations of the Of the three exceptions fixed by Article 1311, the nature of the
deceased (Article 661) and cannot be regarded as third parties obligation of the surety or guarantor does not warrant the
with respect to a contract to which the deceased was a party, conclusion that his peculiar individual qualities are contemplated
touching the estate of the deceased (Barrios vs. Dolor, 2 Phil. 44). as a principal inducement for the contract. What did the creditor
x x x x x x x x x Luzon Surety Co. expect of K. H. Hemady when it accepted the
The principle on which these decisions rest is not affected by the latter as surety in the counterbonds? Nothing but the
provisions of the new Code of Civil Procedure, and, in accordance reimbursement of the moneys that the Luzon Surety Co. might
with that principle, the heirs of a deceased person cannot be held have to disburse on account of the obligations of the principal
to be third persons in relation to any contracts touching the debtors. This reimbursement is a payment of a sum of money,
real estate of their decedent which comes in to their hands by resulting from an obligation to give; chan
right of inheritance; chan roblesvirtualawlibrarythey take such roblesvirtualawlibraryand to the Luzon Surety Co., it was
property subject to all the obligations resting thereon in the indifferent that the reimbursement should be made by Hemady
hands of him from whom they derive their rights. himself or by some one else in his behalf, so long as the money
(See also Galasinao vs. Austria, 51 Off. Gaz. (No. 6) p. 2874 and de was paid to it.
Guzman vs. Salak, 91 Phil., 265). The second exception of Article 1311, p. 1, is intransmissibility by
The binding effect of contracts upon the heirs of the deceased stipulation of the parties. Being exceptional and contrary to the
party is not altered by the provision in our Rules of Court that general rule, this intransmissibility should not be easily implied,
money debts of a deceased must be liquidated and paid from his but must be expressly established, or at the very least, clearly
estate before the residue is distributed among said heirs (Rule inferable from the provisions of the contract itself, and the text of
89). The reason is that whatever payment is thus made from the the agreements sued upon nowhere indicate that they are non-
estate is ultimately a payment by the heirs and distributees, since transferable.
the amount of the paid claim in fact diminishes or reduces the (b) Intransmisibilidad por pacto. Lo general es la
shares that the heirs would have been entitled to receive. transmisibilidad de darechos y obligaciones; chan
Under our law, therefore, the general rule is that a partys roblesvirtualawlibraryle excepcion, la intransmisibilidad.
contractual rights and obligations are transmissible to the Mientras nada se diga en contrario impera el principio de la

transmision, como elemento natural a toda relacion juridica, The lower court sought to infer such a limitation from Art. 2056,
salvo las personalisimas. Asi, para la no transmision, es menester to the effect that one who is obliged to furnish a guarantor must
el pacto expreso, porque si no, lo convenido entre partes present a person who possesses integrity, capacity to bind
trasciende a sus herederos. himself, and sufficient property to answer for the obligation
Siendo estos los continuadores de la personalidad del causante, which he guarantees. It will be noted, however, that the law
sobre ellos recaen los efectos de los vinculos juridicos creados requires these qualities to be present only at the time of the
por sus antecesores, y para evitarlo, si asi se quiere, es perfection of the contract of guaranty. It is self-evident that once
indespensable convension terminante en tal sentido. the contract has become perfected and binding, the supervening
Por su esencia, el derecho y la obligacion tienden a ir ms all de incapacity of the guarantor would not operate to exonerate him
las personas que les dieron vida, y a ejercer presion sobre los of the eventual liability he has contracted; chan
sucesores de esa persona; chan roblesvirtualawlibrarycuando no roblesvirtualawlibraryand if that be true of his capacity to bind
se quiera esto, se impone una estipulacion limitativa himself, it should also be true of his integrity, which is a quality
expresamente de la transmisibilidad o de cuyos tirminos mentioned in the article alongside the capacity.
claramente se deduzca la concresion del concreto a las mismas The foregoing concept is confirmed by the next Article 2057, that
personas que lo otorgon. (Scaevola, Codigo Civil, Tomo XX, p. runs as follows:chanroblesvirtuallawlibrary
541-542) (Emphasis supplied.) ART. 2057. If the guarantor should be convicted in first
Because under the law (Article 1311), a person who enters into a instance of a crime involving dishonesty or should become
contract is deemed to have contracted for himself and his heirs insolvent, the creditor may demand another who has all the
and assigns, it is unnecessary for him to expressly stipulate to qualifications required in the preceding article. The case is
that effect; chan roblesvirtualawlibraryhence, his failure to do so excepted where the creditor has required and stipulated that a
is no sign that he intended his bargain to terminate upon his specified person should be guarantor.
death. Similarly, that the Luzon Surety Co., did not require From this article it should be immediately apparent that the
bondsman Hemady to execute a mortgage indicates nothing more supervening dishonesty of the guarantor (that is to say, the
than the companys faith and confidence in the financial stability disappearance of his integrity after he has become bound) does
of the surety, but not that his obligation was strictly personal. not terminate the contract but merely entitles the creditor to
The third exception to the transmissibility of obligations under demand a replacement of the guarantor. But the step remains
Article 1311 exists when they are not transmissible by operation optional in the creditor:chanroblesvirtuallawlibrary it is his right,
of law. The provision makes reference to those cases where the not his duty; chan roblesvirtualawlibraryhe may waive it if he
law expresses that the rights or obligations are extinguished by chooses, and hold the guarantor to his bargain. Hence Article
death, as is the case in legal support (Article 300), parental 2057 of the present Civil Code is incompatible with the trial
authority (Article 327), usufruct (Article 603), contracts for a courts stand that the requirement of integrity in the guarantor or
piece of work (Article 1726), partnership (Article 1830 and surety makes the latters undertaking strictly personal, so linked
agency (Article 1919). By contract, the articles of the Civil Code to his individuality that the guaranty automatically terminates
that regulate guaranty or suretyship (Articles 2047 to 2084) upon his death.
contain no provision that the guaranty is extinguished upon the The contracts of suretyship entered into by K. H. Hemady in favor
death of the guarantor or the surety. of Luzon Surety Co. not being rendered intransmissible due to the

nature of the undertaking, nor by the stipulations of the contracts exhaustion of the assets of the principal debtor.
themselves, nor by provision of law, his eventual liability The foregoing ruling is of course without prejudice to the
thereunder necessarily passed upon his death to his heirs. The remedies of the administratrix against the principal debtors
contracts, therefore, give rise to contingent claims provable under Articles 2071 and 2067 of the New Civil Code.
against his estate under section 5, Rule 87 (2 Moran, 1952 ed., p. Our conclusion is that the solidary guarantors liability is not
437; chan roblesvirtualawlibraryGaskell & Co. vs. Tan Sit, 43 Phil. extinguished by his death, and that in such event, the Luzon
810, 814). Surety Co., had the right to file against the estate a contingent
The most common example of the contigent claim is that which claim for reimbursement. It becomes unnecessary now to discuss
arises when a person is bound as surety or guarantor for a the estates liability for premiums and stamp taxes, because
principal who is insolvent or dead. Under the ordinary contract of irrespective of the solution to this question, the Luzon Suretys
suretyship the surety has no claim whatever against his principal claim did state a cause of action, and its dismissal was erroneous.
until he himself pays something by way of satisfaction upon the Wherefore, the order appealed from is reversed, and the records
obligation which is secured. When he does this, there instantly are ordered remanded to the court of origin, with instructions to
arises in favor of the surety the right to compel the principal to proceed in accordance with law. Costs against the Administratrix-
exonerate the surety. But until the surety has contributed Appellee. SO ORDERED.
something to the payment of the debt, or has performed the
secured obligation in whole or in part, he has no right of action
against anybody no claim that could be reduced to judgment.
(May vs. Vann, 15 Pla., 553; chan roblesvirtualawlibraryGibson
vs. Mithell, 16 Pla., 519; chan roblesvirtualawlibraryMaxey vs. 137. G.R. No. 120554 September 21, 1999
Carter, 10 Yarg. [Tenn.], 521 Reeves vs. Pulliam, 7 Baxt. [Tenn.], SO PING BUN, petitioner,
119; chan roblesvirtualawlibraryErnst vs. Nou, 63 Wis., 134.) vs.
For Defendant administratrix it is averred that the above doctrine COURT OF APPEALS, TEK HUA ENTERPRISES CORP.
refers to a case where the surety files claims against the estate of and MANUEL C. TIONG, respondents.
the principal debtor; chan roblesvirtualawlibraryand it is urged
that the rule does not apply to the case before us, where the late QUISUMBING, J.:
Hemady was a surety, not a principal debtor. The argument This petition for certiorari challenges the Decision 1 of the Court
evinces a superficial view of the relations between parties. If of Appeals dated October 10, 1994, and the Resolution 2 dated
under the Gaskell ruling, the Luzon Surety Co., as guarantor, June 5, 1995, in CA-G.R. CV No. 38784. The appellate court
could file a contingent claim against the estate of the principal affirmed the decision of the Regional Trial Court of Manila,
debtors if the latter should die, there is absolutely no reason why Branch 35, except for the award of attorney's fees, as follows:
it could not file such a claim against the estate of Hemady, since WHEREFORE, foregoing considered, the appeal of respondent-
Hemady is a solidary co-debtor of his principals. What the Luzon appellant So Ping Bun for lack of merit is DISMISSED. The
Surety Co. may claim from the estate of a principal debtor it may appealed decision dated April 20, 1992 of the court a quo is
equally claim from the estate of Hemady, since, in view of the modified by reducing the attorney's fees awarded to plaintiff Tek
existing solidarity, the latter does not even enjoy the benefit of Hua Enterprising Corporation from P500,000.00 to P200,000.00.

3 Dear Mr. So,
The facts are as follows: Due to my closed (sic) business associate (sic) for three decades
In 1963, Tek Hua Trading Co, through its managing partner, So with your late grandfather Mr. So Pek Giok and late father, Mr. So
Pek Giok, entered into lease agreements with lessor Dee C. Chuan Chong Bon, I allowed you temporarily to use the warehouse of
& Sons Inc. (DCCSI). Subjects of four (4) lease contracts were Tek Hua Enterprising Corp. for several years to generate your
premises located at Nos. 930, 930-Int., 924-B and 924-C, Soler personal business.
Street, Binondo, Manila. Tek Hua used the areas to store its Since I decided to go back into textile business, I need a
textiles. The contracts each had a one-year term. They provided warehouse immediately for my stocks. Therefore, please be
that should the lessee continue to occupy the premises after the advised to vacate all your stocks in Tek Hua Enterprising Corp.
term, the lease shall be on a month-to-month basis. Warehouse. You are hereby given 14 days to vacate the premises
When the contracts expired, the parties did not renew the unless you have good reasons that you have the right to stay.
contracts, but Tek Hua continued to occupy the premises. In Otherwise, I will be constrained to take measure to protect my
1976, Tek Hua Trading Co. was dissolved. Later, the original interest.
members of Tek Hua Trading Co. including Manuel C. Tiong, Please give this urgent matter your preferential attention to
formed Tek Hua Enterprising Corp., herein respondent avoid inconvenience on your part.
corporation. Very truly yours,
So Pek Giok, managing partner of Tek Hua Trading, died in 1986. (Sgd) Manuel C. Tiong
So Pek Giok's grandson, petitioner So Ping Bun, occupied the MANUEL C. TIONG
warehouse for his own textile business, Trendsetter Marketing. President 4
On August 1, 1989, lessor DCCSI sent letters addressed to Tek Petitioner refused to vacate. On March 4, 1992, petitioner
Hua Enterprises, informing the latter of the 25% increase in rent requested formal contracts of lease with DCCSI in favor
effective September 1, 1989. The rent increase was later on Trendsetter Marketing. So Ping Bun claimed that after the death
reduced to 20% effective January 1, 1990, upon other lessees' of his grandfather, So Pek Giok, he had been occupying the
demand. Again on December 1, 1990, the lessor implemented a premises for his textile business and religiously paid rent. DCCSI
30% rent increase. Enclosed in these letters were new lease acceded to petitioner's request. The lease contracts in favor of
contracts for signing. DCCSI warned that failure of the lessee to Trendsetter were executed.
accomplish the contracts shall be deemed as lack of interest on In the suit for injunction, private respondents pressed for the
the lessee's part, and agreement to the termination of the lease. nullification of the lease contracts between DCCSI and petitioner.
Private respondents did not answer any of these letters. Still, the They also claimed damages.
lease contracts were not rescinded. After trial, the trial court ruled:
On March 1, 1991, private respondent Tiong sent a letter to WHEREFORE, judgment is rendered:
petitioner which reads as follows: 1. Annulling the four Contracts of Lease (Exhibits A, A-1 to A-3,
March 1, 1991 inclusive) all dated March 11, 1991, between defendant So Ping
Mr. So Ping Bun Bun, doing business under the name and style of "Trendsetter
930 Soler Street Marketing", and defendant Dee C. Chuan & Sons, Inc. over the
Binondo, Manila premises located at Nos. 924-B, 924-C, 930 and 930, Int.,

respectively, Soler Street, Binondo Manila; and damages.
2. Making permanent the writ of preliminary injunction issued by Damage is the loss, hurt, or harm which results from injury, and
this Court on June 21, 1991; damages are the recompense or compensation awarded for the
3. Ordering defendant So Ping Bun to pay the aggrieved party, damage suffered. 6 One becomes liable in an action for damages
plaintiff Tek Hua Enterprising Corporation, the sum of for a nontrespassory invasion of another's interest in the private
P500,000.00, for attorney's fees; use and enjoyment of asset if (a) the other has property rights
4. Dismissing the complaint, insofar as plaintiff Manuel C. Tiong is and privileges with respect to the use or enjoyment interfered
concerned, and the respective counterclaims of the defendant; with, (b) the invasion is substantial, (c) the defendant's conduct
5. Ordering defendant So Ping Bun to pay the costs of this is a legal cause of the invasion, and (d) the invasion is either
lawsuit; intentional and unreasonable or unintentional and actionable
This judgment is without prejudice to the rights of plaintiff Tek under general negligence rules. 7
Hua Enterprising Corporation and defendant Dee C. Chuan & The elements of tort interference are: (1) existence of a valid
Sons, Inc. to negotiate for the renewal of their lease contracts contract; (2) knowledge on the part of the third person of the
over the premises located at Nos. 930, 930-Int., 924-B and 924-C existence of contract; and (3) interference of the third person is
Soler Street, Binondo, Manila, under such terms and conditions as without legal justification or excuse. 8
they agree upon, provided they are not contrary to law, public A duty which the law of torts is concerned with is respect for the
policy, public order, and morals. property of others, and a cause of action ex delicto may be
SO ORDERED. 5 predicated upon an unlawful interference by one person of the
Petitioner's motion for reconsideration of the above decision was enjoyment by the other of his private
denied. property. 9 This may pertain to a situation where a third person
On appeal by So Ping Bun, the Court of Appeals upheld the trial induces a party to renege on or violate his undertaking under a
court. On motion for reconsideration, the appellate court contract. In the case before us, petitioner's Trendsetter
modified the decision by reducing the award of attorney's fees Marketing asked DCCSI to execute lease contracts in its favor, and
from five hundred thousand (P500,000.00) pesos to two hundred as a result petitioner deprived respondent corporation of the
thousand (P200,000.00) pesos. latter's property right. Clearly, and as correctly viewed by the
Petitioner is now before the Court raising the following issues: appellate court, the three elements of tort interference above-
I. WHETHER THE APPELLATE COURT ERRED IN AFFIRMING mentioned are present in the instant case.
THE TRIAL COURT'S DECISION FINDING SO PING BUN GUILTY Authorities debate on whether interference may be justified
OF TORTUOUS INTERFERENCE OF CONTRACT? where the defendant acts for the sole purpose of furthering his
II. WHETHER THE APPELLATE COURT ERRED IN AWARDING own financial or economic interest. 10 One view is that, as a
ATTORNEY'S FEES OF P200,000.00 IN FAVOR OF PRIVATE general rule, justification for interfering with the business
RESPONDENTS. relations of another exists where the actor's motive is to benefit
The foregoing issues involve, essentially, the correct himself. Such justification does not exist where his sole motive is
interpretation of the applicable law on tortuous conduct, to cause harm to the other. Added to this, some authorities
particularly unlawful interference with contract. We have to believe that it is not necessary that the interferer's interest
begin, obviously, with certain fundamental principles on torts outweigh that of the party whose rights are invaded, and that an

individual acts under an economic interest that is substantial, not While we do not encourage tort interferers seeking their
merely de minimis, such that wrongful and malicious motives are economic interest to intrude into existing contracts at the
negatived, for he acts in self-protection. 11 Moreover justification expense of others, however, we find that the conduct herein
for protecting one's financial position should not be made to complained of did not transcend the limits forbidding an
depend on a comparison of his economic interest in the subject obligatory award for damages in the absence of any malice. The
matter with that of others. 12 It is sufficient if the impetus of his business desire is there to make some gain to the detriment of
conduct lies in a proper business interest rather than in wrongful the contracting parties. Lack of malice, however, precludes
motives. 13 damages. But it does not relieve petitioner of the legal liability for
As early as Gilchrist vs. Cuddy, 14 we held that where there was no entering into contracts and causing breach of existing ones. The
malice in the interference of a contract, and the impulse behind respondent appellate court correctly confirmed the permanent
one's conduct lies in a proper business interest rather than in injunction and nullification of the lease contracts between DCCSI
wrongful motives, a party cannot be a malicious interferer. and Trendsetter Marketing, without awarding damages. The
Where the alleged interferer is financially interested, and such injunction saved the respondents from further damage or injury
interest motivates his conduct, it cannot be said that he is an caused by petitioner's interference.
officious or malicious intermeddler. 15 Lastly, the recovery of attorney's fees in the concept of actual or
In the instant case, it is clear that petitioner So Ping Bun compensatory damages, is allowed under the circumstances
prevailed upon DCCSI to lease the warehouse to his enterprise at provided for in Article 2208 of the Civil Code. 16 One such
the expense of respondent corporation. Though petitioner took occasion is when the defendant's act or omission has compelled
interest in the property of respondent corporation and benefited the plaintiff to litigate with third persons or to incur expenses to
from it, nothing on record imputes deliberate wrongful motives protect his interest. 17 But we have consistently held that the
or malice on him. award of considerable damages should have clear factual and
Sec. 1314 of the Civil Code categorically provides also that, "Any legal bases. 18 In connection with attorney's fees, the award
third person who induces another to violate his contract shall be should be commensurate to the benefits that would have been
liable for damages to the other contracting party." Petitioner derived from a favorable judgment. Settled is the rule that
argues that damage is an essential element of tort interference, fairness of the award of damages by the trial court calls for
and since the trial court and the appellate court ruled that private appellate review such that the award if far too excessive can be
respondents were not entitled to actual, moral or exemplary reduced. 19 This ruling applies with equal force on the award of
damages, it follows that he ought to be absolved of any liability, attorney's fees. In a long line of cases we said, "It is not sound
including attorney's fees. policy to place in penalty on the right to litigate. To compel the
It is true that the lower courts did not award damages, but this defeated party to pay the fees of counsel for his successful
was only because the extent of damages was not quantifiable. We opponent would throw wide open the door of temptation to the
had a similar situation in Gilchrist, where it was difficult or opposing party and his counsel to swell the fees to undue
impossible to determine the extent of damage and there was proportions." 20
nothing on record to serve as basis thereof. In that case we Considering that the respondent corporation's lease contract, at
refrained from awarding damages. We believe the same the time when the cause of action accrued, ran only on a month-
conclusion applies in this case. to-month basis whence before it was on a yearly basis, we find

even the reduced amount of attorney's fees ordered by the Court within two (2) years from said date with the understanding that
of Appeals still exorbitant in the light of prevailing jurisprudence. said option shall be deemed "terminated and elapsed," if
21 Consequently, the amount of two hundred thousand "Sanchez shall fail to exercise his right to buy the property"
(P200,000.00) awarded by respondent appellate court should be within the stipulated period. Inasmuch as several tenders of
reduced to one hundred thousand (P100,000.00) pesos as the payment of the sum of Pl,510.00, made by Sanchez within said
reasonable award or attorney's fees in favor of private period, were rejected by Mrs. Rigos, on March 12, 1963, the
respondent corporation. former deposited said amount with the Court of First Instance of
WHEREFORE, the petition is hereby DENIED. The assailed Nueva Ecija and commenced against the latter the present action,
Decision and Resolution of the Court of Appeals in CA-G.R. CV No. for specific performance and damages.
38784 are hereby AFFIRMED, with MODIFICATION that the After the filing of defendant's answer admitting some
award of attorney's fees is reduced from two hundred thousand allegations of the complaint, denying other allegations thereof,
(P200,000.00) to one hundred thousand (P100,000.00) pesos. No and alleging, as special defense, that the contract between the
pronouncement as to costs. parties "is a unilateral promise to sell, and the same being
SO ORDERED. unsupported by any valuable consideration, by force of the New
Civil Code, is null and void" on February 11, 1964, both
parties, assisted by their respective counsel, jointly moved for a
judgment on the pleadings. Accordingly, on February 28, 1964,
the lower court rendered judgment for Sanchez, ordering Mrs.
138. G.R. No. L-25494 June 14, 1972 Rigos to accept the sum judicially consigned by him and to
NICOLAS SANCHEZ, plaintiff-appellee, execute, in his favor, the requisite deed of conveyance. Mrs. Rigos
vs. was, likewise, sentenced to pay P200.00, as attorney's fees, and
SEVERINA RIGOS, defendant-appellant. other costs. Hence, this appeal by Mrs. Rigos.
Santiago F. Bautista for plaintiff-appellee. This case admittedly hinges on the proper application of Article
Jesus G. Villamar for defendant-appellant. 1479 of our Civil Code, which provides:
ART. 1479. A promise to buy and sell a determinate thing for a
CONCEPCION, C.J.:p price certain is reciprocally demandable.
Appeal from a decision of the Court of First Instance of Nueva An accepted unilateral promise to buy or to sell a determinate
Ecija to the Court of Appeals, which certified the case to Us, upon thing for a price certain is binding upon the promissor if the
the ground that it involves a question purely of law. promise is supported by a consideration distinct from the price.
The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez In his complaint, plaintiff alleges that, by virtue of the option
and defendant Severina Rigos executed an instrument entitled under consideration, "defendant agreed and committed to sell"
"Option to Purchase," whereby Mrs. Rigos "agreed, promised and and "the plaintiff agreed and committed to buy" the land
committed ... to sell" to Sanchez the sum of P1,510.00, a parcel of described in the option, copy of which was annexed to said
land situated in the barrios of Abar and Sibot, municipality of San pleading as Annex A thereof and is quoted on the margin. 1 Hence,
Jose, province of Nueva Ecija, and more particularly described in plaintiff maintains that the promise contained in the contract is
Transfer Certificate of Title No. NT-12528 of said province, "reciprocally demandable," pursuant to the first paragraph of

said Article 1479. Although defendant had really "agreed, (3) Upon the other hand, defendant explicitly averred in her
promised and committed" herself to sell the land to the plaintiff, answer, and pleaded as a special defense, the absence of said
it is not true that the latter had, in turn, "agreed and committed consideration for her promise to sell and, by joining in the
himself " to buy said property. Said Annex A does not bear out petition for a judgment on the pleadings, plaintiff has impliedly
plaintiff's allegation to this effect. What is more, since Annex A admitted the truth of said averment in defendant's answer.
has been made "an integral part" of his complaint, the provisions Indeed as early as March 14, 1908, it had been held, in
of said instrument form part "and parcel" 2 of said pleading. Bauermann v. Casas, 3 that:
The option did not impose upon plaintiff the obligation to One who prays for judgment on the pleadings without offering
purchase defendant's property. Annex A is not a "contract to buy proof as to the truth of his own allegations, and without giving
and sell." It merely granted plaintiff an "option" to buy. And both the opposing party an opportunity to introduce evidence, must
parties so understood it, as indicated by the caption, "Option to be understood to admit the truth of all the material and relevant
Purchase," given by them to said instrument. Under the allegations of the opposing party, and to rest his motion for
provisions thereof, the defendant "agreed, promised and judgment on those allegations taken together with such of his own
committed" herself to sell the land therein described to the as are admitted in the pleadings. (La Yebana Company vs. Sevilla,
plaintiff for P1,510.00, but there is nothing in the contract to 9 Phil. 210). (Emphasis supplied.)
indicate that her aforementioned agreement, promise and This view was reiterated in Evangelista v. De la Rosa 4 and Mercy's
undertaking is supported by a consideration "distinct from the Incorporated v. Herminia Verde. 5
price" stipulated for the sale of the land. Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic
Relying upon Article 1354 of our Civil Code, the lower court Gulf & Pacific Co., 6 from which We quote:
presumed the existence of said consideration, and this would The main contention of appellant is that the option granted to
seem to be the main factor that influenced its decision in appellee to sell to it barge No. 10 for the sum of P30,000 under
plaintiff's favor. It should be noted, however, that: the terms stated above has no legal effect because it is not
(1) Article 1354 applies to contracts in general, whereas the supported by any consideration and in support thereof it invokes
second paragraph of Article 1479 refers to "sales" in particular, article 1479 of the new Civil Code. The article provides:
and, more specifically, to "an accepted unilateral promise to buy "ART. 1479. A promise to buy and sell a determinate thing for a
or to sell." In other words, Article 1479 is controlling in the case price certain is reciprocally demandable.
at bar. An accepted unilateral promise to buy or sell a determinate thing
(2) In order that said unilateral promise may be "binding upon for a price certain is binding upon the promisor if the promise is
the promisor, Article 1479 requires the concurrence of a supported by a consideration distinct from the price."
condition, namely, that the promise be "supported by a On the other hand, Appellee contends that, even granting that the
consideration distinct from the price." Accordingly, the promisee "offer of option" is not supported by any consideration, that
can not compel the promisor to comply with the promise, unless option became binding on appellant when the appellee gave
the former establishes the existence of said distinct notice to it of its acceptance, and that having accepted it within
consideration. In other words, the promisee has the burden of the period of option, the offer can no longer be withdrawn and in
proving such consideration. Plaintiff herein has not even alleged any event such withdrawal is ineffective. In support this
the existence thereof in his complaint. contention, appellee invokes article 1324 of the Civil Code which

provides: obligation to sell its barge to appellee and the option has been
"ART. 1324. When the offerer has allowed the offeree a certain exercised in accordance with its terms, and there appears to be
period to accept, the offer may be withdrawn any time before no valid or justifiable reason for appellant to withdraw its offer,
acceptance by communicating such withdrawal, except when the this Court cannot adopt a different attitude because the law on the
option is founded upon consideration as something paid or matter is clear. Our imperative duty is to apply it unless modified
promised." by Congress.
There is no question that under article 1479 of the new Civil Code However, this Court itself, in the case of Atkins, Kroll and Co., Inc.
"an option to sell," or "a promise to buy or to sell," as used in said v. Cua Hian Tek, 8 decided later that Southwestern Sugar &
article, to be valid must be "supported by a consideration distinct Molasses Co. v. Atlantic Gulf & Pacific Co., 9 saw no distinction
from the price." This is clearly inferred from the context of said between Articles 1324 and 1479 of the Civil Code and applied the
article that a unilateral promise to buy or to sell, even if accepted, former where a unilateral promise to sell similar to the one sued
is only binding if supported by consideration. In other words, "an upon here was involved, treating such promise as an option
accepted unilateral promise can only have a binding effect if which, although not binding as a contract in itself for lack of a
supported by a consideration which means that the option can separate consideration, nevertheless generated a bilateral
still be withdrawn, even if accepted, if the same is not supported contract of purchase and sale upon acceptance. Speaking through
by any consideration. It is not disputed that the option is without Associate Justice, later Chief Justice, Cesar Bengzon, this Court
consideration. It can therefore be withdrawn notwithstanding the said:
acceptance of it by appellee. Furthermore, an option is unilateral: a promise to sell at the price
It is true that under article 1324 of the new Civil Code, the fixed whenever the offeree should decide to exercise his option
general rule regarding offer and acceptance is that, when the within the specified time. After accepting the promise and before
offerer gives to the offeree a certain period to accept, "the offer he exercises his option, the holder of the option is not bound to
may be withdrawn at any time before acceptance" except when buy. He is free either to buy or not to buy later. In this case,
the option is founded upon consideration, but this general rule however, upon accepting herein petitioner's offer a bilateral
must be interpreted as modified by the provision of article 1479 promise to sell and to buy ensued, and the respondent ipso facto
above referred to, which applies to "a promise to buy and sell" assumed the obligation of a purchaser. He did not just get the
specifically. As already stated, this rule requires that a promise to right subsequently to buy or not to buy. It was not a mere option
sell to be valid must be supported by a consideration distinct then; it was a bilateral contract of sale.
from the price. Lastly, even supposing that Exh. A granted an option which is not
We are not oblivious of the existence of American authorities binding for lack of consideration, the authorities hold that:
which hold that an offer, once accepted, cannot be withdrawn, "If the option is given without a consideration, it is a mere offer of
regardless of whether it is supported or not by a consideration a contract of sale, which is not binding until accepted. If, however,
(12 Am. Jur. 528). These authorities, we note, uphold the general acceptance is made before a withdrawal, it constitutes a binding
rule applicable to offer and acceptance as contained in our new contract of sale, even though the option was not supported by a
Civil Code. But we are prevented from applying them in view of sufficient consideration. ... . (77 Corpus Juris Secundum, p. 652.
the specific provision embodied in article 1479. While under the See also 27 Ruling Case Law 339 and cases cited.)
"offer of option" in question appellant has assumed a clear "It can be taken for granted, as contended by the defendant, that

the option contract was not valid for lack of consideration. But it Molasses Co. case should be deemed abandoned or modified.
was, at least, an offer to sell, which was accepted by letter, and of WHEREFORE, the decision appealed from is hereby affirmed,
the acceptance the offerer had knowledge before said offer was with costs against defendant-appellant Severina Rigos. It is so
withdrawn. The concurrence of both acts the offer and the ordered.
acceptance could at all events have generated a contract, if Reyes, J.B.L., Makalintal, Zaldivar, Teehankee, Barredo and
none there was before (arts. 1254 and 1262 of the Civil Code)." Makasiar, JJ., concur.Castro, J., took no part.
(Zayco vs. Serra, 44 Phil. 331.)
In other words, since there may be no valid contract without a
cause or consideration, the promisor is not bound by his promise
and may, accordingly, withdraw it. Pending notice of its
withdrawal, his accepted promise partakes, however, of the 139. G.R. No. 73918 December 21, 1987
nature of an offer to sell which, if accepted, results in a perfected TONG BROTHERS CO., petitioner,
contract of sale. vs.
This view has the advantage of avoiding a conflict between INTERMEDIATE APPELLATE COURT and JULIANO AND
Articles 1324 on the general principles on contracts and COMPANY, respondents.
1479 on sales of the Civil Code, in line with the cardinal rule
of statutory construction that, in construing different provisions GUTIERREZ, JR., J.:
of one and the same law or code, such interpretation should be This is a petition to review on certiorari the decision and order of
favored as will reconcile or harmonize said provisions and avoid the then Intermediate Appellate Court, now Court of Appeals, in
a conflict between the same. Indeed, the presumption is that, in AC-G.R. No. 68505 which awarded a total amount of P907,220.66
the process of drafting the Code, its author has maintained a as damages, including attorney's fees, in favor of the private
consistent philosophy or position. Moreover, the decision in respondent.
Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 10 The petitioner is a registered general partnership engaged in the
holding that Art. 1324 is modified by Art. 1479 of the Civil Code, construction and repair of vessels with drydocking facilities at
in effect, considers the latter as an exception to the former, and Recodo Zamboanga del Sur while the private respondent is a
exceptions are not favored, unless the intention to the contrary is domestic corporation engaged in the coastwise shipping industry
clear, and it is not so, insofar as said two (2) articles are operating for that purpose the vessel M/S Zamboanga-J.
concerned. What is more, the reference, in both the second Sometime in December, 1974, the private respondent allegedly
paragraph of Art. 1479 and Art. 1324, to an option or promise contracted with the petitioner the annual drydocking and repair
supported by or founded upon a consideration, strongly suggests of the Zamboanga-J. On the ground that the petitioner did not
that the two (2) provisions intended to enforce or implement the complete and execute all the work necessary, essential and
same principle. indispensable to rendering the vessel seaworthy resulting in its
Upon mature deliberation, the Court is of the considered opinion deterioration and total loss, the private respondent filed a
that it should, as it hereby reiterates the doctrine laid down in the complaint against the petitioner for specific performance and
Atkins, Kroll & Co. case, and that, insofar as inconsistent damages with the Court of First Instance of Cotabato.
therewith, the view adhered to in the Southwestern Sugar & The petitioner denied that there was a perfected contract to

repair Zamboanga-J between the two parties. instructions from, and based on specifications of the defendant
To prove its case against the petitioner, the private respondent (Exhs. D, E, F, G, and all submarkings, t.s.n., February 14, 1978,
tried to establish the following facts: pp. 25-30, pp. 31-34).
xxx xxx xxx For some excuse or other, the defendant did not continue the job
... As the need arose, the plaintiff had its vessels drydocked for on the Zamboanga-J. Instead, it undocked the vessel on February
repairs at the dockyard of the defendant-appellant in Zamboanga 4, 1975 and left it exposed to the elements where it remained
City. This business relationship started in 1960's (t.s.n., March 11, until it became a total loss. This suit was therefore filed to call the
1980, p. 7). The procedure was for these vessels to be drydocked defendant- appellant to account for its failure to comply with its
and repaired and after each job, a statement of account would be obligation to repair the plaintiff-appellee's vessel which failure
sent to the plaintiff-appellee, which remitted payments to the resulted in damages to the plaintiff- appellee. (pp. 36-37, Rollo)
defendant-appellant in varying amounts (Exh. 9). Although On the other hand, the petitioner denied responsibility for the
Exhibit 9 consolidates the accounts pertaining to the Cotabato J total loss of the vessel M/S Zamboanga-J and stated the facts as
and the Zamboanga-J, in point of fact, statements were separately follows:
prepared for said vessels. xxx xxx xxx
Because the business relationship between the parties herein had ... Its business name is VARADERO DE RECODO. It used to repair
continued for over 10 years, the plaintiff-appellee enjoyed credit the vessels owned by plaintiff-appellee. The last vessel of
facilities from the defendant-appellant and the defendant plaintiff-appellee which was drydocked at the VARADERO DE
performed repair work on the plaintiff's vessel without need of a RECODO was Zamboanga- J. It was drydocked on December 27,
formal written contract. On the strength of this relationship, the 1974, after plaintiff-appellee paid P15,000.00, representing
plaintiff, sometime in December, 1974 brought the Zamboanga-J partial payment of its old accounts. Conformably with the written
to the defendant-appellant's dockyard. The defendant- appellant application filed by plaintiff-appellee with the Coast Guard,
asked for a deposit of P15,000.00 but even without having Zamboanga City, inspector Anton Casimero inspected the vessel
received this amount that it had requested, the defendant- Zamboanga-J on January 2, 1975. Present during the inspection
appellant drydocked the vessel on December 27, 1974 (t.s.n., were Messrs. Ricardo Tong and Joaquin Tong, representatives of
March 11, 1980, p. 8). The sum of P15,000.00 was received by the defendant- appellant and Mr. Luis Canto representative of
defendant on December 28, 1974 for which it issued two plaintiff-appellee. While admittedly the man of plaintiff-appellee
receipts, one for P5,000.00 and the other for P10,000.00 (Exhs. in Zamboanga City, Mr. Luis Canto had no authority to enter into
"A" and "B"). a contract with defendant-appellant for the repair of Zamboanga-
With this payment, the defendant commenced work on the J. Because of the extensive repair to be done on the vessel,
Zamboanga-J by removing the rudders, pulled out tail shafts with defendant-appellant prepared a written contract for the
propellers, etc., removed bottom hull planking in way of signature of plaintiff-appellee's authorized representative. In said
inspecting ribs, and replaced same with new plankings, etc. (t. s. written contract, plaintiff-appellee was to have deposited with
n. Ibid, pp. 112, 126,134,135) defendant-appellant the amount of P50,000.00, among others.
The plaintiff, even before the Zamboanga-J was drydocked, also Mr. Luis Canto man of plaintiff-appellee's in Zamboanga City, was
shipped various lumber materials to Zamboanga City to the informed on several occasions by defendant- appellant to get in
defendant-appellant, through Luis Canto in accordance with touch with his employer in Cotabato City, the purpose being was

(sic) for plaintiff-appellee's representative to see for himself the SIX CENTAVOS (P 542,220.66) which is the unrealized net
extent of the deterioration of the vessel and to sign the written income of the ZAMBOANGA-J had the defendant repaired the
contract prepared by defendant-appellant. No authorized same and finished the job;
representative of plaintiff-appellee came to Zamboanga City. It 3. To reimburse plaintiff the sum of TEN THOUSAND PESOS
sent, however, several telegrams to defendant-appellant (P10,000.00) as reimbursement for what plaintiff had paid its
demanding, among others, that defendant-appellant repair the counsel;
Zamboanga-J, there being an earlier agreement between 4. To reimburse plaintiff the sum of FIVE THOUSAND PESOS
defendant-appellant and Mr. Protacio Juliano, authorized (P5,000.00) as reimbursement for the expenses incurred by the
representative of plaintiff-appellee. On the other hand, plaintiff in prosecuting the case and
defendant- appellant advised plaintiff- appellee to send its 5. To pay the costs of this suit. (Rollo,pp.34-35)
authorized representative to Zamboanga City to see for himself Upon appeal, the then Intermediate Appellate Court affirmed the
the extent of the deterioration of the vessel Zamboanga-J, and lower court's decision but reduced the value of the boat to
insisted, among others, that it had no contract with plaintiff- P350,000.00.
appellee for the repair of Zamboanga-J. In addition thereto, We initially denied the petition in a resolution dated May 5, 1986.
plaintiff- appellee never bothered to secure the JOB ORDER from Upon a motion for reconsideration, we set aside the resolution
the Coast Guard, it being its duty to do so. The vessel was and gave due course to the petition.
undocked on February 4, 1975, and the following day, defendant- The petitioner assigns the following errors:
appellant sent plaintiff-appellee a Statement of Account in the I
amount of P13,134.95. Of this amount P9,800.00 represented THE RESPONDENT INTERMEDIATE APPELLATE COURT ERRED
expenses for dock rental and for the docking and undocking of IN FINDING THAT THERE WAS A PERFECTED CONTRACT FOR
the vessel. The balance of the amount represented expenses for THE REPAIR OF THE VESSEL ZAMBOANGA-J AND THAT THE
labor and materials used in closing the open sections of the PROXIMATE CAUSE OF THE LOSS OF THE VESSEL WAS
vessel. Without these latter expenses, the vessel Zamboanga-J PETITIONER'S VIOLATION THEREOF.
could not have been REFLOATED. Zamboanga-J was not repaired II
and it is now a total loss. (pp. 2-4, Appellant's Brief). THE RESPONDENT INTERMEDIATE APPELLATE COURT ERRED
The lower court ruled in favor of the private respondent. The IN AWARDING EXCESSIVE DAMAGES TO PRIVATE RESPONDENT
dispositive portion of the decision reads: CONSIDERING THAT THE SUBJECT VESSEL WAS A WORLD WAR
WHEREFORE, the judgment is hereby entered in favor of 11 DERELICT AND CONSIDERING FURTHER THAT THE
JULIANO & COMPANY INCORPORATED and against the RESPONDENT APPELLATE COURT FOUND AS A FACT THAT THE
defendant TONG BROTHERS AND COMPANY who (sic) is ordered OWNER OF THE VESSEL WAS ALSO AT FAULT IN NOT
to pay the plaintiff the following: MINIMIZING ITS LOSSES.
1. To pay plaintiff the sum of FOUR HUNDRED AND FIFTY III
THOUSAND PESOS (P450,000.00), which is the value of the THE RESPONDENT INTERMEDIATE APPELLATE COURT ERRED
Zamboanga-J which is now a total loss; IN FINDING THAT PETITIONER FAILED TO CONSIGN THE
2. To pay the plaintiff the sum of FIVE HUNDRED FORTY TWO VESSEL UPON THE REFUSAL OF ITS OWNER TO ACCEPT ITS
THOUSAND TWO HUNDRED AND TWENTY PESOS AND SIXTY RETURN INSPITE OF THE EVIDENCE THAT THE VESSEL HAD

ALWAYS BEEN UNDER THE FULL CONTROL AND DIRECTION OF and revising the errors of law imputed to it, its findings of facts
ITS OWNER. (Rollo, pp. 17-18). being conclusive. (Community Savings and Loan Association, Inc.,
The decisive issue is whether or not there was a perfected et al. v. Court of Appeals, et al., G.R. No. 75786, August 31, 1987,
contract between the petitioner and the private respondent to citing De Gala-Sison v. Manalo, 8 SCRA 595; Goduco v. Court of
repair the vessel Zamboanga-J. Appeals, 14 SCRA 282; Ramirez Telephone Corporation v. Bank of
The applicable laws on work done upon a vessel are the general America, 29 SCRA 171; Chua v. Court of Appeals, 33 SCRA 373.)
rules on contract. A contract may be entered into in whatever There are, however, exceptions to this rule as when:
form except where the law requires a document or other special ... (1) the conclusion is a finding grounded entirely on
form as in the contracts enumerated in Article 1388 of the Civil speculation, surmise and conjectures; (2) the inference made is
Code. The general rule, therefore, is that a contract may be oral or manifestly mistaken; (3) there is grave abuse of discretion; (4)
written. (Royal Lines, Inc. v. Court of Appeals, 143 SCRA 608). the judgment is based on misapprehension of facts; (5) the Court
The appellate court, adopting the findings and conclusions of the of Appeals went beyond the issues of the case and its findings are
lower court, ruled that there was a perfected contract for the contrary to the admission of both appellant and appellees [Roque
repair of the vessel Zamboanga-J. It based its ruling on the v. Buan, L-22459, Oct. 31, 1967, 21 SCRA 6481; (6) the findings of
following circumstances: 1) The previous transactions and facto of the Court of Appeals are contrary to those of the trial
business relationship between the two parties showed that they court; (7) said findings of facts are conclusions without citation of
never executed written contracts for the repair of vessels owned specific evidence on which they are based; (8) the facts set forth
by the private respondent; 2) The procedure for necessary in the petition as wen as in the petitioner's main and reply briefs
repairs of the private respondent's vessels consisted only in the are not disputed by the respondents [Garcia v. CA, L-26490, June
drydocking of the vessel at the petitioner's shipyard to be 30, 1970, 33 SCRA 6221; and (9) when the finding of facts of the
repaired by the latter after which the bill would be sent to the Court of Appeals is premised on the absence of evidence and is
former for the payment; 3) In the case of the contract to repair contradicted by evidence on record [Salazar v. Gutierrez, L-
Zamboanga-J, this vessel was accepted by the petitioner and it 21727, May 29, 1970, 33 SCRA 2431. (Tolentino v. De Jesus, 56
was drydocked on December 27, 1974; 4) A day after, or on SCRA 167)
December 28, 1974, the private respondent paid P15,000.00 in The fact that the parties' previous contracts for the repair of the
the form of two (2) checks as initial deposit for the repair of private respondent's vessels were an oral and that the procedure
Zamboanga-J; 5) There was a job order from the Coast Guard as consisted merely in the vessels being drydocked at the
evidenced by the application for drydocking (Exhibit C) and the petitioner's shipyard and after repair the petitioner would just
admitted inspection of the vessel by the Coast Guard in the send the bin to the private respondent, does not necessarily
presence of Mr. Joaquin Tong, a managing partner of the result in a conclusive presumption that all subsequent contracts
Veradero de Recodo the business name of the petitioner, and 6) between the parties of similar or allied nature should also be oral
The petitioner actually commenced the repair of the vessel when and the procedure be the same.
it removed the rudders and pulled out the tail shafts and did An examination of the records reveals that there are
other things. circumstances overlooked by the appellate court which support
The general rule is that the "jurisdiction of this Court in cases the petitioner's contentions that 1) there was no perfected
brought to us from the Court of Appeals is limited to reviewing contract between the parties to repair Zamboanga-J, and 2) the

proximate cause of the total loss of Zamboanga-J was the Following this reasoning, and concededly since the work on the
abandonment of the vessel by the private respondent. Zamboanga-J had not yet even commenced, then the P15,000
On January 2, 1975, during the inspection made by the Coast payment on December 28, 1974 could only pertain to the partial
Guard inspector, Anton Casimero in the presence of Mr. Luis settlement of private respondent's previous unpaid accounts. It is
Canto the private respondent's representative, and Mr. Joaquin for this reason that the two receipts marked as Exhibits A and B
Tong, managing partner of the petitioner, it was found that the issued on December 28,1974 for P15,000 made no specific
wooden boat had so deteriorated that in order to repair it, all the mention that these were in payment for the repairs of the
original ribs of the boat and the plankings must be removed and Zamboanga-J. As a matter of fact, private respondent admits that
that, in effect, the repair would be a construction of a new boat. It no such downpayment had been required for past repairs with the
was also established that the private respondent never paid on shipyard.
time during the parties' previous transactions and when the Petitioner's submission is further strengthened when we
Zamboanga-J was drydocked at the petitioner's shipyard, the consider that no estimate of the expenses for repairs to be
private respondent still owed P28,000.00 for previous jobs. In incurred had as yet been made on the vessel Zamboanga-J on
fact, the petitioner had filed a collection suit, Civil Case No. 281 December 28, 1974 (one day after the vessel was admitted for
(1728), against the private respondent with the Court of First drydocking) and petitioner would have no basis for requesting an
Instance of Cotabato. immediate downpayment. The evidence shows that it was only
These undisputed facts give credence to the petitioner's on January 2, 1975 when a Coast Guard inspector conducted an
contention that before accepting the job request to repair ocular inspection of the vessel in the presence of Luis Canto
Zamboanga-J, it wanted to have the private respondent sign a private respondent's representative. Logically it was only at that
written contract with an initial downpayment of P50,000.00. time (January 2, 1975) that the shipyard was appraised of the
According to the petitioner, the P15,000.00 was partial work to be done on the vessel and for this reason, said petitioner
settlement of previous accounts. Taking into consideration the demanded for a P50,000 downpayment, not P15,000 as claimed
petitioner's previous experiences together with the private by private respondent. (p. 24, Rollo)
respondent's allegations, it is equally likely that the P15,000.00 Contrary to the findings of the appellate court, there was actually
paid by the latter on December 28, 1974 was only a condition no job order issued by the Coast Guard. Exhibit "C" is merely the
precedent to the acceptance of Zamboanga-J for drydocking and petitioner's application for an inspection of the boat addressed to
not a downpayment for its repair. We agree with the petitioner in the Coast Guard. Moreover, the removal of the rudders and
its contentions: pulling out of the tail shafts with propellers, done even before
... That the payment of P15,000 on December 28, 1974 could not January 2, 1975, were standard operating procedures on the part
have possibly been for the repairs of the Zamboanga-J is of the petitioner to inspect the condition of the tail shafts and also
confirmed no less than by the very findings of the trial court the state of the rudders. This did not amount to a commencement
when it stated that 'the procedure that was followed was for the of the repair of the vessel or a partial compliance with a contract
vessels of plaintiff (herein private respondent) to be drydocked to repair the vessel.
and repaired and after (sic) job, the statements of account will be Between January 14, 1975 to January 28, 1975, the two parties
sent to plaintiff and in turn, the plaintiff will remit payment to the communicated with each other through telegrams.
defendant (herein petitioner) in varying amounts' (p. 182, R.A.) On January 14, 1975, Protacio Juliano, owner of the respondent

company sent the following telegram to the petitioner: In reply, Atty. Badoy, representing the private respondent, sent a
PLEASE ADVISE EXTENT OF REPAIR FOR DRYDOCK telegram to the petitioner on January 23, 1975, to wit:
ZAMBOANGA-J PER OUR AGREEMENT WIRE REPLY RE-ZAMBOANGA-J PARTY CONCERNED OUT OF CITY ANYTHING
JULIANO (Exhibit J-2, p. 20, YOU DO NOT IN ACCORDANCE WITH AGREEMENT IS SOLELY AT
Folder of Exhibits) YOUR OWN RISK REGARDS
On January 16, 1975 Juliano again sent the following telegram to ATTY. BADOY (Exhibit A, p. 23,
the petitioner: Folder of Exhibits)
URGENTLY REQUIRE STATUS REPAIR ZAMBOANGA-J ADVISE On January 28, 1975, the petitioner sent another telegram to
COLLECT Juliano, to wit:
JULIANO (Exhibit J-3, p. 20, REURTEL JANUARY 23 NO AGREEMENT AS TO THE EXTENT OF
Folder of Exhibits) REPAIRS AND PAYMENT WILL UNDOCK VESSEL
On January 17, 1975, the petitioner in turn sent the following VARADERO DE RECODO (Exhibit J-7, p. 21,
telegram to Juliano Folder of Exhibits)
NEED YOUR PRESENCE BEFORE WE START THE REPAIR FOR These series of communications show that there was no
EVALUATION REGARDS perfected contract to repair the vessel Zamboanga-J. The parties
VARADERO (Exhibit J-4, p. 20, were aware of where they stood.
Folder of Exhibits) Article 1315 of the Civil Code provides:
On January 18, 1975, Juliano sent the following telegram to the Contracts are perfected by mere consent, and from that moment
petitioner: the parties are bound not only to the fulfillment of what has been
"REUR JAN 17 INSISTING ON PREVIOUS AGREEMENT MY expressly stipulated but also to all the consequences which,
PRESENCE NO LONGER NECESSARY PLEASE REPLY according to their nature, may be in keeping with good faith,
TOTO JULIANO (Exhibit J-5, p. 20, usage and law.
Folder of Exhibits) while Article 1319 thereof provides:
In reply to Juliano, the petitioner sent the following telegram in Consent is manifested by the meeting of the offer and the
January 20, 1975: acceptance upon the thing and the cause which are to constitute
WE CANNOT START THE JOB ORDER WITHOUT YOUR the contract. The offer must be certain and the acceptance
PRESENCE TO DETERMINE THE EXTENT OF WORK absolute. A qualified acceptance constitutes a counter-offer.
VARADERO DE RECODO (Exhibit J-4, As can be gleaned from the exchange of telegrams between the
p. 21, Folder of Exhibits) two parties, there was not yet a meeting of the minds as to the
On January 22, 1975, the petitioner sent another telegram to cause of the contract. The cause of a contract has been defined "as
Protacio Juliano as follows: the essential reason which moves the contracting parties to enter
YOUR PRESENCE BADLY NEEDED UP TO FRIDAY IF NOT into it (8 Manresa, 5th Edition, p. 450). In other words, the cause
ARRIVED PRESUME NOT INTERESTED WITH THE REPAIR OF is the immediate, direct and proximate reason which justifies the
ZBGA-J STOP WILL COVER OPENED SECTION AND UNDOCK creation of an obligation thru the will of the contracting parties
VARADERO DE RECODO (Exhibit 5-B, p. 23, (3 Castan, 4th Edition, p. 347)." (General Enterprises, Inc. v.
Folder of Exhibits Lianga Bay Logging Co., Inc., 11 SCRA 733, 739). For the private

respondent, the cause of the contract was the repair of its vessel respondent. Breach of contract by the appellant could not have
Zamboanga-J while for the petitioner the cause would be its been the proximate cause as there was no perfected contract
commitment to repair the vessel and make it seaworthy. The between the parties to repair Zamboanga-J. Hence, the private
telegrams dated January 17, January 20, and January 28, 1975 respondent is not entitled to recover damages against the private
sent by the petitioner to the private respondent, however, respondent.
indicate that the former had not accepted the repair of We agree with the petitioner that:
Zamboanga-J, the reason being that the extent of the repair to be The loss of the vessel can be attributed only to the immediate and
made necessitated a major expense so that the petitioner insisted proximate negligence of private respondent who failed to
on the presence of the private respondent for evaluation before it exercise the diligence of a good father of a family. Because after
accepted the repair of the wooden vessel. That the petitioner had the undocking on February 4, 1974: (1) the officers and the crew
not yet consented to the contract is evident when on January 28, were allowed to depart; (2) no measures were taken to have the
1975, it sent a telegram stating: "... NO AGREEMENT AS TO THE EX vessel repaired; (3) the vessel was left to the elements; (4) a
TENT OF REPAIRS AND PAYMENT WILL UNDOCK VESSEL." The marine surveyor was hired only six months later when the ship
fact that the private respondent who received this telegram was already beyond repair, the subsequent loss can be attributed
ignored it, confirms that there was no perfected contract to solely to the negligence of the owner. Consequently, petitioner
repair Zamboanga-J. should be totally absolved of any liability for the loss of
It is to be noted that despite its knowledge of Zamboanga-J Zamboanga-J as so provided under Article 2179 of the Civil Code.
having been undocked as early as February 7, 1975 when the ART. 2179. When the plaintiff's own negligence was the immediate
petitioner sent a telegram advising that Zamboanga-J undocked and proximate cause of his injury, he cannot recover damages. But
already, " the private respondent took no action to save its vessel. if his negligence was only contributory, the immediate and
Instead, its officers and crew were ordered ashore and the vessel proximate cause of the injury being the defendant's lack of due
was left to rot and decay in the sea of Zamboanga. It was only on care, shall mitigate the damages to be awarded. (Emphasis
July 28, 1975, after the lapse of almost six months, that the supplied)
private respondent tried to recover the value of its vessel from The private respondent, as the shipowner, was in actual
the petitioner. This prompted the petitioner to send another possession of the vessel all along even when it was on drydock
telegram to the private respondent on August 1, 1975, to wit: and after it had been undocked. This is shown by the affidavit
AS EARLY AS JANUARY VARADERO DEMANDED ZAMBOANGA-J dated September 20, 1985 of the petitioner attached as Annex A
OFFICERS YOUR MR CANTO TAKE ZAMBOANGA J OUT to the Supplement to Motion for Reconsideration dated
VARADERO PREMISES BUT YOUR OFFICERS CREW ABANDONED September 25, 1985 (Annex 1, Petition) and by the fact that the
SAME PRESENTLY VARADERO PAYING SECURITY GUARDS AND vessel had a thousand items by value to be safeguarded such as
DEMANDING REIMBURSEMENT nautical instruments, bedding, kitchen utensil and the like. As a
ATTORNEY JESUS AQUINO matter of fact, the crew of the vessel was on board when the
COUNSEL VARADERO RECODO Zamboanga-J was released from petitioner's shipyard on
(Exhibit 5-C, p. 23, Folder of Exhibits) February 4, 1975. Respondent's witness Luis Canto even
Under the circumstances, we rule that the proximate cause of the admitted that the subject vessel was afloat. For several months,
total loss of Zamboanga-J was the negligence of the private private respondent allowed the Zamboanga-J to rot and

deteriorate by exposing it to the elements. The private
respondent did not take any measure to save the ship but even CASTRO, J.:
ordered its crew to abandon it. The marine surveyor was This is a petition for certiorari and mandamus filed by Lorenzo
dispatched only on September 1976 to inspect the Zamboanga-J Velasco and Socorro J. Velasco (hereinafter referred to as the
which at that time was already a total loss. (p. 27, Rollo) petitioners) against the resolution of the Court of Appeals dated
The private respondent did not bother from January, 1975 to June 28, 1969 in CA-G.R. 42376, which ordered the dismissal of
September, 1976 or for almost two years, to find out what the appeal interposed by the petitioners from a decision of the
happened to its vessel inspite of its full knowledge that the boat Court of First Instance of Quezon City on the ground that they
had been undocked and to take concrete steps to save and had failed seasonably to file their printed record on appeal.
rehabilitate it. It relied completely on an alleged verbal Under date of November 3, 1968, the Court of First Instance of
understanding in order to get from the petitioner the full value of Quezon City, after hearing on the merits, rendered a decision in
a functioning vessel and the income it claimed would have been civil case 7761, dismissing the complaint filed by the petitioners
earned for the next five years. Not only was a written agreement against the Magdalena Estate, Inc. (hereinafter referred to as the
for the repair of the vessel, missing in this case but the petitioner respondent) for the purpose of compelling specific performance
formally refused to accept the job and to enter into the contract by the respondent of an alleged deed of sale of a parcel of
unless certain terms were met. Under the circumstances, we are residential land in favor of the petitioners. The basis for the
constrained to rule that the respondent court committed dismissal of the complaint was that the alleged purchase and sale
reversible error. agreement "was not perfected".
WHEREFORE, the instant petition is hereby GRANTED. The On November 18, 1968, after the perfection of their appeal to the
questioned decision is REVERSED AND SET ASIDE. The complaint Court of Appeals, the petitioners received a notice from the said
in Civil Case No. 2446 of the then Court of First Instance of court requiring them to file their printed record on appeal within
Cotabato is DISMISSED. sixty (60) days from receipt of said notice. This 60-day term was
SO ORDERED. to expire on January 17, 1969.
Fernan (Chairman), Feliciano, Bidin and Cortes, JJ., concur. Allegedly under date of January 15, 1969, the petitioners
allegedly sent to the Court of Appeals and to counsel for the
respondent, by registered mail allegedly deposited personally by
its mailing clerk, one Juanito D. Quiachon, at the Makati Post
Office, a "Motion For Extension of Time To File Printed Record on
140. G.R. No. L-31018 June 29, 1973 Appeal." The extension of time was sought on the ground "of
LORENZO VELASCO AND SOCORRO J. VELASCO, mechanical failures of the printing machines, and the voluminous
petitioners, printing jobs now pending with the Vera Printing Press. ..."
vs. On February 10, 1969, the petitioners filed their printed record
HONORABLE COURT OF APPEALS and MAGDALENA on appeal in the Court of Appeals. Thereafter, the petitioners
ESTATE, INC., respondents. received from the respondent a motion filed on February 8, 1969
Napoleon G. Rama for petitioners. praying for the dismissal of the appeal on the ground that the
Dominador L. Reyes for private respondent. petitioners had failed to file their printed record on appeal on

time. Acting on the said motion to dismiss the appeal, the Court of of which reads as follows:
Appeals, on February 25, 1969, issued the following resolution: WHEREFORE, the motion for reconsideration filed on March 11,
Upon consideration of the motion of counsel for defendant- 1969 is granted and appeal interposed by plaintiff-appellants
appellee praying on the grounds therein stated that the appeal be from the judgment of the court below is hereby dismissed for
dismissed in accordance with Rules of Court, and of the their failure to file their printed Record on Appeal within the
opposition thereto filed by counsel for plaintiff-appellants, the period authorized by this Court. Atty. Patrocino R. Corpuz
Court RESOLVED to DENY the said motion to dismiss. [counsel of the petitioner] is required to show cause within ten
Upon consideration of the registry-mailed motion of counsel for (10) days from notice why he should not be suspended from the
plaintiffs appellants praying on the grounds therein stated for an practice of his necessary investigation against Juanito D.
extension of 30 days from January 15, 1969 within which to file Quiachon of the Salonga, Ordoez, Yap, Sicat & Associates Law
the printed record on appeal, the Court RESOLVED to GRANT the Office, Suite 319 337 Rufino Building, Ayala Avenue, Makati Post
said motion and the printed record on appeal which has already Office, to file the appropriate criminal action against them as may
been filed is ADMITTED. be warranted in the premises, and to report to this Court within
On March 11, 1969, the respondent prayed for a reconsideration thirty (30) days the action he has taken thereon.
of the above-mentioned resolution, averring that the Court of The foregoing desposition was based on the following findings of
Appeals had been misled bythe petitioners' "deceitful allegation the Court of Appeals:
that they filed the printed record on appeal within the An examination of the Rollo of this case, particularly the letter
reglementary period," because according to a certification issued envelope on page 26 thereof, reveals that on January 15, 1969,
by the postmaster of Makati, Rizal, the records of the said post plaintiffs supposedly mailed via registered mail from the Post
office failed to reveal that on January 15, 1969 the date when Office of Makati, Rizal their motion for extension of 30 days from
their motion for extension of time to file the printed record on that date to file their printed Record on Appeal, under registered
appeal was supposedly mailed by the petitioners there was letter No. 0216. However, in an official certification, the
any letter deposited there by the petitioners' counsel. The Postmaster of Makati states that the records of his office disclose:
petitioners opposed the motion for reconsideration. They (a) that there were no registered letters Nos. 0215 and 0216
submitted to the appellate court the registry receipts (numbered from the Salonga, Ordoez, Yap, Sicat & Associates addressed to
0215 and 0216), both stampled January 15, 1969, which were Atty. Abraham F. Sarmiento, 202 Magdalena Building, Espaa
issued by the receiving clerk of the registry section of the Makati Ext., Quezon City, and to the Court of Appeals, Manila,
Post Office covering the mails for the disputed motion for respectively, that were posted in the Post Office of Makati, Rizal,
extension of time to file their printed record on appeal and the on January 15, 1969; (b) that there is a registered letter
affidavit of its mailing clerk Juanito D. Quiachon, to prove that numbered 215 but that the same was posted on January 3, 1969
their motion for extension was timely filed and served on the by Enriqueta Amada of 7 Angel, Pasillo F-2, Cartimar, Pasay City,
Court of Appeals and the respondent, respectively. After several as sender, and Giral Amasan of Barrio Cabuniga-an, Sto. Nio,
other pleadings and manifestations were filed by the parties Samar, as addressee; and that there is also a registered letter
relative to the issue raised by the respondent's above-mentioned numbered 216; but that the same was likewise posted on January
motion for reconsideration, the Court of Appeals promulgated on 3, 1969 with E.B.A. Construction of 1049 Belbar Building,
June 28, 1969, its questioned resolution, the dispositive portion Metropolitan, Pasong Tamo, Makati, as sender, and Pres. R.

Nakaya of the United Pacific Trading Co., Ltd., 79, 6 Chamo, important and that his only concern was to have them post
Nakatu, Yokohari, Japan, as addressee; (c) that on January 15, maker January 15, 1969;
1969, the registered letters posted at the Makati Post Office were 'That believing the word of JUANITO D. QUIACHON that the
numbered consecutively from 1001-2225, inclusive, and none of letters were not really important I agreed to his request;
these letters was addressed to Atty. Abraham F. Sarmiento of to whereupon, I got two (2) registry receipts from an old registry
the Court of Appeals; (d) that in Registry Bill Book No. 30 for receipt booklet which is no longer being used and I numbered
Quezon City as well as that Manila, corresponding to February 7, them 0215 for the letter addressed to Atty. Abraham Sarmiento
1969, there are entries covering registered letters Nos. 0215 and in Quezon City and 0216 for the letter addressed to the Court of
0216 for dispatch to Quezon City and Manila, respectively; Appeals, Manila; that I placed the same numbering on the
however, such registry book for February 7, 1969 shows no respective envelopes containing the letters; and that I also post
letters with such numbers posted on the said date. maker them January 15, 1969;
The Acting Postmaster of the Commercial Center Post Office of 'That to the best of my recollection I wrote the correct date of
Makati, Rizal, further certifies that "Registry Receipts Nos. 0215 posting, February 7, 1969, on the back of one or both of the
and 0216 addressed to Atty. Abraham F. Sarmiento of the registry receipts above mentioned;
Magdalena Estate, Quezon City and the Honorable Court of 'That the correct date of posting, February 7, 1969 also appears
Appeals, respectively, does not appear in our Registry Record in the Registry Bill Books for Quezon City and Manila where I
Book which was allegedly posted at this office on January 15, entered the subject registered letters;
1969." Of course, plaintiff's counsel denies the sworn statement of
From the foregoing, it is immediately apparent that the motion Malindog and even presented the counter-affidavit of one of his
for extension of time to file their Record on Appeal supposedly clerk by the name of Juanito D. Quiachon. But between Malindog,
mailed by the plaintiffs on January 15, 1969 was not really mailed whose sworn statement is manifestly a declaration against
on that date but evidently on a date much later than January 15, interest since he can be criminally prosecuted for falsification on
1969. This is further confirmed by the affidavit of Flaviano the basis thereof, and that of Quiachon, whose statement is self-
Malindog, a letter carrier of the Makati Post Office, which serving, we are very much inclined to give greater weight and
defendant attached as Annex 1 to its supplemental reply to credit to the former. Besides, plaintiffs have not refuted the facts
plaintiffs' opposition to the motion for reconsideration. In his disclosed in the two (2) official certifications above mentioned by
said affidavit, Malindog swore among others: the Postmakers of Makati, Rizal. These two (2) certifications
'That on February 7, 1969, between 12:00 o'clock noon and 1:00 alone, even without to move this Court to reconsider its
o'clock in the afternoon, JUANITO D. QUIACHON approached me resolution of February 25, 1969 and order the dismissal of this
at the Makati Post Office and talked to me about certain letters appeal.
which his employer had asked him to mail and that I should help On September 5, 1969, after the rendition of the foregoing
him do something about the matter; but I asked him what they resolution, the Court of Appeals promulgated another, denying
were all about, and he told me that they were letters for the Court the motion for reconsideration of the petitioner, but, at the same
of Appeals and for Atty. Abraham Sarmiento and that his purpose time, accepting as satisfactory the explanation of Atty. Patrocino
was to show that they were posted on January 15, 1969; that I R. Corpuz why he should not be suspended from the practice of
inquired further, and he said that the letters were not so the legal profession.

On September 20, 1969, the First Assistant Fiscal of Rizal notified appeal was not mailed on January 15, 1969, when, in fact, it was
the Court of Appeals that he had found a prima facie case against mailed on the record on appeal was filed only on February 10,
Flaviano C. Malindog and would file the corresponding 1969, beyond the time authorized by the appellate court, when
information for falsification of public documents against him. The the truth is that the said date of filing was within the 30-day
said fiscal, however, dismissed the complaint against Quiachon extension granted by it; (c) the adverse conclusion of the
for lack of sufficient evidence. The information subsequently filed appellate court are not supported by the records of the case,
against Malindog by the first Assistance Fiscal of Rizal reads as because the said court ignored the affidavit of the mailing clerk of
follow: the petitioners' counsel, the registry receipts and postmarked
That on or about the 7th day of February 1969, in the envelopes (citing Henning v. Western Equipment, 62 Phil. 579,
municipality of Makati, province of Rizal, and a place within the and Caltex Phil., Inc. v. Katipunan Labor Union, 52 O.G. 6209),
jurisdiction of this Honorable Court, the above-named accused, and, instead, chose to rely upon the affidavit of the mail carrier
conspiring and confederating together and mutually helping and Malindog, which affidavit was prepared by counsel for the
aiding with John Doe, whose true identity and present respondent at the affiant himself so declared at the preliminary
whereabout is still unknown, did then and there willfully, investigation at the Fiscal's office which absolved the petitioners'
unlawfully and feloniously falsify two registry receipts which are counsel mailing clerk Quiachon from any criminal liability; (d)
public documents by reason of the fact that said registry receipts section 1, Rule 50 of the Rules of Court, which enumerates the
are printed in accordance with the standard forms prescribed by grounds upon which the Court of Appeals may dismiss an appeal,
the Bureau of Posts, committed as follows: the above-named does not include as a ground the failure to file a printed record on
accused John Doe, on the date above-mentioned approached and appeal; (e) the said section does not state either that the
induced the accused Malindog, a letter-carrier at the Makati Post mismailing of a motion to extend the time to file the printed
Office, to postmark on Abraham Sarmiento in Quezon City, and record on appeal, assuming this to be the case, may be a basis for
the other to the Court of Appeals, Manila, and the accused the dismissal of the appeal; (f) the Court of Appeals has no
Malindog, acceding to the inducement of, and in conspiracy with, jurisdiction to revoke the extention of time to file the printed
his co-accused John Doe, did then and there willfully and record on appeal it had granted to the petitioners based on a
feloniously falsify said registry receipts of the Makati Post Office ground not specified in section 1, Rule 50 of the Rules of Court;
on January 15, 1969, thereby making it appear that the said and (g) the objection to an appeal may be waived as when the
sealed envelopes addressed to Atty. Sarmiento and the Court of appellee has allowed the record on appeal to be printed and
Appeals were actually posted, and causing it to appear that the approved (citing Moran, Vol. II, p. 519).
Postmaster of Makati participated therein by posting said mail Some of the objections raised by the petitioners to the questioned
matters on January 15, 1969, when in truth and in fact he did not resolution of the Court of Appeals are obviously matters
so participate. involving the correct construction of our rules of procedure and,
The petitioner contend that in promulgating its questioned consequently, are proper subjects of an appeal by way of
resolution, the Court of Appeals acted without or in excess of certiorari under Rule 45 of the Rules of Court, rather than a
jurisdiction, or with such whimsical and grave abuse of discretion special civil action for certiorari under Rule 65. The petitioners,
as to amount to lack of jurisdiction, because (a) it declared that however, have correctly appreciated the nature of its objections
the motion for extension of time to file the printed record on and have asked this Court to treat the instant petition as an

appeal by way of certiorari under Rule 45 "in the event ... that this receipts, contrary to what he declared in his affidavit, is of no
Honorable Supreme Court should deem that an appeal is an moment since the findings of the inquest fiscal as reflected in the
adequate remedy ..." The nature of the case at bar permits, in our information for falsification filed against Malindog indicate that
view, a disquisition of both types of assignments. someone did induce Malindog to make and issue false registry
We do not share the view of the petitioners that the Court of receipts to the counsel for the petitioners.
Appeals acted without or in excess of jurisdiction or gravely This Court held in Bello vs. Fernando 1 that the right to appeal is
abused its discretion in promulgating the questioned resolution. nota natural right nor a part of due process; it is merely a
While it is true that stamped on the registry receipts 0215 and statutory privilege, and may be exercised only in the manner
0215 as well as on the envelopes covering the mails in question is provided by law. In this connection, the Rule of Court expressly
the date "January 15, 1969," this, by itself, does not establish an makes it the duty of an appellant to file a printed record on
unrebuttable presumption of the fact of date of mailing. Henning appeal with the Court of Appeals within sixty (60) record on
and Caltex, cited by the petitioners, are not in point because the appeal approved by the trial court has already been received by
specific adjective issue resolved in those cases was whether or the said court. Thus, section 5 of Rule 46 states:
not the date of mailing a pleading is to be considered as the date Sec. 5. Duty of appellant upon receipt of notice. It shall be the
of its filing. The issue in the case at bar is whether or not the duty of the appellant within fifteen (15) days from the date of the
motion of the petitioners for extension of time to file the printed notice referred to in the preceding section, to pay the clerk of the
record on appeal was, in point of fact, mailed (and, therefore, Court of Appeals the fee for the docketing of the appeal, and
filed) on January 15, 1969. within sixty (60) days from such notice to submit to the court
In resolving this issue in favor of the respondent, this Court finds, forty (40) printed copies of the record on appeal, together with
after a careful study and appraisal of the pleadings, admissions proof of service of fifteen (15) printed copies thereof upon the
and denials respectively adduced and made by the parties, that appelee.
the Court of Appeals did not gravely abuse its discretion and did As the petitioners failed to comply with the above-mentioned
not act without or in excess of its jurisdiction. We share the view duty which the Rules of Court enjoins, and considering that, as
of the appellate court that the certifications issued by the two found by the Court of Appeals, there was a deliberate effort on
postmasters of Makati, Rizal and the sworn declaration of the their part to mislead the said Court in grating them an extension
mail carrier Malindog describing how the said registry receipts of time within which to file their printed record on appeal, it
came to be issued, are worthy of belief. It will be observed that stands to reason that the appellate court cannot be said to have
the said certifications explain clearly and in detail how it was abused its discretion or to have acted without or in excess of its
improbable that the petitioners' counsel in the ordinary course of jurisdiction in ordering the dismissal of their appeal.
official business, while Malindog's sworn statement, which Our jurisprudence is replete with cases in which this Court
constitutes a very grave admission against his own interest, dismissed an appeal on grounds not mentioned specifically in
provides ample basis for a finding that where official duty was Section 1, Rule 50 of the Rules of Court. (See, for example, De la
not performed it was at the behest of a person interested in the Cruz vs. Blanco, 73 Phil. 596 (1942); Government of the
petitioners' side of the action below. That at the preliminary Philippines vs. Court of Appeals, 108 Phil. 86 (1960); Ferinion vs.
investigation at the Fiscal's office, Malindog failed to identify Sta. Romana, L-25521, February 28, 1966, 16 SCRA 370, 375).
Quiachon as the person who induced him to issue falsified It will likewise be noted that inasmuch as the petitioners' motion

for extension of the period to file the printed record on appeal New Manila, this City, for the total purchase price of P100,000.00.
was belated filed, then, it is as though the same were non- It is alleged by the plaintiff that the agreement was that the
existent, since as this Court has already stated in Baquiran vs. plaintiff was to give a down payment of P10,000.00 to be
Court of Appeals, 2 "The motion for extension of the period for followed by P20,000.00 and the balance of P70,000.00 would be
filing pleadings and papers in court must be made before the paid in installments, the equal monthly amortization of which
expiration of the period to be extended." The soundness of this was to be determined as soon as the P30,000.00 down payment
dictum in matters of procedure is self-evident. For, were the had been completed. It is further alleged that the plaintiff paid
doctrine otherwise, the uncertainties that would follow when down payment of P10,000.00 on November 29, 1962 as per
litigants are left to determine and redetermine for themselves receipt No. 207848 (Exh. "A")and that when on January 8, 1964
whether to seek further redress in court forthwith or take their he tendered to the defendant the payment of the additional
own sweet time will result in litigations becoming more unreable P20,000.00 to complete the P30,000.00 the defendant refused to
than the very grievances they are intended to redness. accept and that eventually it likewise refused to execute a formal
The argument raised by the petitioner that the objection to an deed of sale obviously agreed upon. The plaintiff demands
appeal maybe waived, as when the appellee allows the record on P25,000.00 exemplary damages, P2,000.00 actual damages and
appeal to be printed and approved is likewise not meritorious P7,000.00 attorney's fees.
considering that the respondent did file a motion in the Court of The defendant, in its Answer, denies that it has had any direct
Appeals on February 8, 1969 praying for the dismissal of the dealings, much less, contractual relations with the plaintiff
below of the petitioners had not yet filed their record on appeal regarding the property in question, and contends that the alleged
and, therefore, must be considered to have abandoned their contract described in the document attached to the complaint as
appeal. Annex A is entirely unenforceable under the Statute of Frauds;
In further assailing the questioned resolution of the Court of that the truth of the matter is that a portion of the property in
Appeals, the petitioners also point out that on the merits the question was being leased by a certain Socorro Velasco who, on
equities of the instant case are in their favor. A reading of the November 29, 1962, went to the office of the defendant indicated
record, however, persuades us that the judgment a quo is her desire to purchase the lot; that the defendant indicated its
substantially correct and morally just. willingness to sell the property to her at the price of P100,000.00
The appealed decision of the court a quo narrates both the under the condition that a down payment of P30,000.00 be made,
alleged and proven facts of the dispute between the petitioners P20,000.00 of which was to be paid on November 31, 1962, and
and the respondent, as follows: that the balance of P70,000.00 including interest a 9% per annum
This is a suit for specific performance filed by Lorenzo Velasco was to be paid on installments for a period of ten years at the rate
against the Magdalena Estate, Inc. on the allegation that on of P5,381.32 on June 30 and December of every year until the
November 29, 1962 the plaintiff and the defendant had entered same shall have been fully paid; that on November 29, 1962
into a contract of sale (Annex A of the complaint) by virtue of Socorro Velasco offered to pay P10,000.00 as initial payment
which the defendant offered to sell the plaintiff and the plaintiff instead of the agreed P20,000.00 but because the amount was
in turn agreed to buy a parcel of land with an area of 2,059 short of the alleged P20,000.00 the same was accepted merely as
square meters more particularly described as Lot 15, Block 7, deposited and upon request of Socorro Velasco the receipt was
Psd-6129, located at No. 39 corner 6th Street and Pacific Avenue, made in the name of her brother-in-law the plaintiff herein; that

Socorro Velasco failed to complete the down payment of Lorenzo Velasco thru Socorro Velasco made the P10,000.00
P30,000.00 and neither has she paid any installments on the deposit or, in the language of the defendant 'earnest money or
balance of P70,000.00 up to the present time; that it was only on down payment' as evidenced by Exhibit A. The only matter that
January 8, 1964 that Socorro Velasco tendered payment of remains to be decided is whether the talks between the
P20,000.00, which offer the defendant refused to accept because Magdalena Estate, Inc. and Lorenzo Velasco either directly or
it had considered the offer to sell rescinded on account of her thru his sister-in-law Socorro Velasco ever ripened into a
failure to complete the down payment on or before December 31, consummated sale. It is the position of the defendant (1) that the
1962. sale was never consummated and (2) that the contract is
The lone witness for the plaintiff is Lorenzo Velasco, who exhibits unenforceable under the Statute of Frauds.
the receipt, Exhibits A, issued in his favor by the Magdalena The court a quo agreed with the respondent's (defendant
Estate, Inc., in the sum of P10,000.00 dated November 29, 1962. therein) contention that no contract of sale was perfected
He also identifies a letter (Exh. B)of the Magdalena Estate, Inc. because the minds of the parties did not meet "in regard to the
addressed to him and his reply thereto. He testifies that Socorro manner of payment." The court a quo appraisal of this aspect of
Velasco is his sister-in-law and that he had requested her to make the action below is correct. The material averments contained in
the necessary contacts with defendant referring to the purchase the petitioners' complaint themselves disclose a lack of complete
of the property in question. Because he does not understand "agreement in regard to the manner of payment" of the lot in
English well, he had authorized her to negotiate with the question. The complaint states pertinently:
defendant in her whenever she went to the office of the 4. That plaintiff and defendant further agreed that the total down
defendant, and as a matter of fact, the receipt for the P10,000.00 payment shall by P30,000.00, including the P10,000.00 partial
down payment was issued in his favor. The plaintiff also depends payment mentioned in paragraph 3 hereof, and that upon
on Exhibit A to prove that there was a perfected follows: "Earnest completion of the said down payment of P30,000.00, the balance
money for the purchase of Lot 15, Block 7, Psd-6129, Area 2,059 of P70,000.00 shall be said by the plaintiff to the defendant in 10
square meters including improvements thereon P10,000.00." years from November 29, 1962;
At the bottom of Exhibit A the following appears: "Agreed price: 5. That the time within the full down payment of the P30,000.00
P100,000.00, P30,000.00 down payment, bal. in 10 years." was to be completed was not specified by the parties but the
To prove that the Magdalena Estate, Inc. had been dealing all defendant was duly compensated during the said time prior to
along with him and not with his sister-in-law and that the completion of the down payment of P30,000.00 by way of lease
Magdalena Estate, Inc. knew very well that he was the person rentals on the house existing thereon which was earlier leased by
interested in the lot in question and not his sister-in-law, the defendant to the plaintiff's sister-in-law, Socorro J. Velasco, and
plaintiff offers in evidence five checks all drawn by him in favor which were duly paid to the defendant by checks drawn by
of Magdalena Estate, Inc. for payment of the lease of the property. plaintiff.
.... It is not difficult to glean from the aforequoted averments that
There does not seem to be any dispute regarding the fact that the the petitioners themselves admit that they and the respondent
Velasco family was leasing this property from the Magdalena still had to meet and agree on how and when the down-payment
Estate, Inc. since December 29, 1961; that the Velasco family and the installment payments were to be paid. Such being the
sometime in 1962 offered to purchase the lot as a result of which situation, it cannot, therefore, be said that a definite and firm

sales agreement between the parties had been perfected over the deeds of absolute sale executed between petitioner and Adela de
lot in question. Indeed, this Court has already ruled before that a Guzman Shotwell ("Adela"), her grandmother, are void and
definite agreement on the manner of payment of the purchase inexistent for being simulated and lacking consideration. The CA
price is an essential element in the formation of a binding and affirmed the Decision of the Regional Trial Court (RTC) of Quezon
unforceable contract of sale. 3 The fact, therefore, that the City, Branch 89, but deleted the holding of the latter that an
petitioners delivered to the respondent the sum of P10,000 as implied trust existed.
part of the down-payment that they had to pay cannot be
considered as sufficient proof of the perfection of any purchase The Facts
and sale agreement between the parties herein under article
1482 of the new Civil Code, as the petitioners themselves admit Adela owned three (3) adjoining parcels of land in Scout Ojeda
that some essential matter the terms of payment still had to Street, Diliman, Quezon City, subdivided as Lots 32, 34 and 35-B
be mutually covenanted. (the "Properties"). Among the improvements on the Properties
ACCORDINGLY, the instant petitioner is hereby denied. No was Adela's house (also referred to as the "big house"). During
pronouncement as to costs. her lifetime, Adela allowed her children, namely, Annie Shotwell
Jalandoon, Carlos G. Shotwell ("Carlos Sr."), Anselmo G. Shotwell
and Corazon S. Basset, and her grandchildren,4 the use and
possession of the Properties and its improvements.5

Sometime in 1985 and 1987, Adela simulated the transfer of Lots
141. G.R. No. 175483, October 14, 2015 32 and Lot 34 to her two grandsons from Carlos Sr., namely,
Carlos V. Shotwell, Jr. ("Carlos Jr.") and Dennis V. Shotwell.6 As a
VALENTINA S. CLEMENTE, Petitioner, v. THE COURT OF consequence, Transfer Certificate of Title (TCT) No. 338708/PR
APPEALS, ANNIE SHOTWELL JALANDOON, ET AL., 9421 was issued over Lot 32 under the name of Carlos Jr., while
Respondents. TCT No. 366256/PR 9422 was issued over Lot 34 under the
name of Dennis.7 On the other hand, Lot 35-B remained with
D E C I S I O N Adela and was covered by TCT No. 374531. It is undisputed that
the transfers were never intended to vest title to Carlos Jr. and
JARDELEZA, J.: Dennis who both will return the lots to Adela when requested.8

This is a Petition for Review on Certiorari under Rule 45 of the
1 On April 18, 1989, prior to Adela and petitioner's departure for
Revised Rules of Court filed by Valentina S. Clemente the United States, Adela requested Carlos Jr. and Dennis to
("petitioner") from the Decision of August 23, 2005 and the
2 execute a deed of reconveyance9 over Lots 32 and 34. The deed of
Resolution3 dated November 15, 2006 of the Court of Appeals reconveyance was executed on the same day and was registered
(CA) Eighth Division in CA-G.R. CV No. 70918. with the Registry of Deeds on April 24, 1989.10

Petitioner assails the Decision of the CA which ruled that two (2) On April 25, 1989, Adela executed a deed of absolute sale11 over
Lots 32 and 34, and their improvements, in favor of petitioner,

bearing on its face the price of P250,000.00. On the same day, Lot 35-B.23
Adela also executed a special power of attorney12 (SPA) in favor
of petitioner. Petitioner's authority under the SPA included the In their amended complaint, private respondents sought
power to administer, take charge and manage, for Adela's benefit, nullification of the Deeds of Absolute Sale. They alleged that
the Properties and all her other real and personal properties in Adela only wanted to help petitioner travel to the United States,
the Philippines.13 The deed of absolute sale and the SPA were by making it appear that petitioner has ownership of the
notarized on the same day by Atty. Dionilo D. Marfil in Quezon Properties. They further alleged that similar to the previous
City.14 simulated transfers to Carlos Jr. and Dennis, petitioner also
undertook and warranted to execute a deed of reconveyance in
On April 29, 1989, Adela and petitioner left for the United favor of the deceased over the Properties, if and when Adela
States.15 When petitioner returned to the Philippines, she should demand the same. They finally alleged that no
registered the sale over Lots 32 and 34 with the Registry of consideration was given by petitioner to Adela in exchange for
Deeds on September 25, 1989. TCT No. 19811 and TCT No. the simulated conveyances.24
19809 were then issued in the name of petitioner over Lots 32
and 34, respectively.16 On October 3, 1997, Carlos Sr. died and was substituted only by
Dennis.25 In an order dated June 18, 1999, the case was dismissed
On January 14, 1990, Adela died in the United States and was with respect to Annie after she manifested her intention to
succeeded by her four children.17 withdraw as a party-plaintiff.26 Anselmo Shotwell also died
without any compulsory heir on September 7, 2000.
Soon thereafter, petitioner sought to eject Annie and Carlos Sr.,
who were then staying on the Properties. Only then did Annie On February 26, 2001, the trial court promulgated a Decision27 in
and Carlos Sr. learn of the transfer of titles to petitioner. Thus, on favor of private respondents. Its decretal portion
July 9, 1990, Annie, Carlos Sr. and Anselmo, represented by reads:cralawlawlibrary
Annie, ("private respondents") filed a complaint for
reconveyance of property18 against petitioner before Branch 89 WHEREFORE, premises considered, judgment is hereby rendered
of the RTC of Quezon City. It was docketed as Civil Case No. Q-90- as follows:
6035 and titled "Annie S. Jalandoon, et al. v. Valentino. Clemente"19
1. Declaring null and void the Deeds of Absolute Sale both
In the course of the trial, private respondents discovered that dated April 25, 1989 between the late Adela De Guzman
Adela and petitioner executed another deed of absolute sale20 Shotwell and the defendant;ChanRoblesVirtualawlibrary
over Lot 35-B on April 25, 1989 (collectively with the deed of
absolute sale over Lots 32 and 34, "Deeds of Absolute Sale"), 2. Ordering the cancellation of Transfer Certificates of Title
bearing on its face the price of F60,000.00.21 This was notarized Nos. 19809, 19811 and 26558, all of the Registry of Deeds
on the same date by one Orancio Generoso in Manila, but it was of Quezon City and in the name of defendant Valentina
registered with the Registry of Deeds only on October 5, 1990.22 Clemente; and
Thus, private respondents amended their complaint to include

3. Ordering the defendant to execute a Deed of late grandmother over the Properties are simulated and without
Reconveyance in favor of the estate of the late Adela de consideration, and hence, void and inexistent.35
Guzman Shotwell over the three (3) subject lots,
respectively covered by Transfer Certificates of Title Nos. Ruling of the Court
19809, 19811 and 26558 of the Registry of Deeds of
Quezon City;
We deny the petition.
With costs against defendant.
In a Petition for Review on Certiorari
SO ORDERED.28chanrobleslaw under Rule 45, only questions of law
may be entertained.
On appeal, the CA affirmed with modification the Decision. The
CA ruled that the Deeds of Absolute Sale were simulated. It also Whether or not the CA erred in affirming the decision of the RTC
ruled that the conveyances of the Properties to petitioner were that the Deeds of Absolute Sale between petitioner and her late
made without consideration and with no intention to have legal grandmother are simulated and without consideration, and
effect.29 hence, void and inexistent, is a question of fact which is not
within the province of a petition for review on certiorari under
The CA agreed with the trial court that the contemporaneous and Rule 45 of the Revised Rules of Court.
subsequent acts of petitioner and her grandmother are enough to
render the conveyances null and void on the ground of being Section 1, Rule 45 of the Revised Rules of Court states that the
simulated.30 The CA found that Adela retained and continued to petition filed shall raise only questions of law, which must be
exercise dominion over the Properties even after she executed distinctly set forth. We have explained the difference between a
the conveyances to petitioner.31 By contrast, petitioner did not question of fact and a question of law, to wit:cralawlawlibrary
exercise control over the properties because she continued to
honor the decisions of Adela. The CA also affirmed the court a A question of law arises when there is doubt as to what the law is
quo's finding that the conveyances were not supported by any on a certain state of facts, while there is a question of fact when
consideration.32 the doubt arises as to the truth or falsity of the alleged facts. For a
question to be one of law, the same must not involve an
Petitioner filed a Motion for Reconsideration33 dated September examination of the probative value of the evidence presented by
12, 2005 but this was denied by the CA in its Resolution34 dated the litigants or any of them. The resolution of the issue must rest
November 15, 2006. solely on what the law provides on the given set of
circumstances. Once it is clear that the issue invites a review of
Hence, this petition. The petition raises the principal issue of the evidence presented, the question posed is one of
whether or not the CA erred in affirming the decision of the trial fact.36chanrobleslaw
court, that the Deeds of Absolute Sale between petitioner and her
Most of the issues raised by petitioner are questions of fact that
invite a review of the evidence presented by the parties below.

We have repeatedly ruled that the issue on the genuineness of a provides that there is no contract unless the following requisites
deed of sale is essentially a question of fact.37 We are not a trier of concur:cralawlawlibrary
facts and do not normally undertake the re-examination of the
evidence presented by the contending parties during the trial of (1) Consent of the contracting parties;
the case.38 This is especially true where the trial court's factual (2) Object certain which is the subject matter of the contract; and
findings are adopted and affirmed by the CA as in the present (3) Cause of the obligation which is established.chanrobleslaw
case.39 Factual findings of the trial court affirmed by the CA are
final and conclusive and may not be reviewed on appeal.40 While All these elements must be present to constitute a valid contract;
it is true that there are recognized exceptions41 to the general the absence of one renders the contract void. As one of the
rule that only questions of law may be entertained in a Rule 45 essential elements, consent when wanting makes the contract
petition, we find that there is none obtaining in this case. non-existent. Consent is manifested by the meeting of the offer
and the acceptance of the thing and the cause, which are to
Nevertheless, and to erase any doubt on the correctness of the constitute the contract.44 A contract of sale is perfected at the
assailed ruling, we examined the records below and have arrived moment there is a meeting of the minds upon the thing that is the
at the same conclusion. Petitioner has not been able to show that object of the contract, and upon the price.45
the lower courts committed error in appreciating the evidence of
record. Here, there was no valid contract of sale between petitioner and
Adela because their consent was absent. The contract of sale was
The Deeds of Absolute Sale between a mere simulation.
petitioner and the late Adela Shotwell
are null and void for lack of consent Simulation takes place when the parties do not really want the
and consideration. contract they have executed to produce the legal effects
expressed by its wordings.46 Article 1345 of the Civil Code
While the Deeds of Absolute Sale appear to be valid on their face, provides that the simulation of a contract may either be absolute
the courts are not completely precluded to consider evidence or relative. The former takes place when the parties do not
aliunde in determining the real intent of the parties. This is intend to be bound at all; the latter, when the parties conceal
especially true when the validity of the contracts was put in issue their true agreement. The case of Heirs of Policronio M. Ureta, Sr.
by one of the parties in his pleadings.42 Here, private respondents v. Heirs of Liberate M. Ureta47 is instructive on the matter of
assail the validity of the Deeds of Absolute Sale by alleging that absolute simulation of contracts, viz:cralawlawlibrary
they were simulated and lacked consideration.
In absolute simulation, there is a colorable contract but it has
A. Simulated contract no substance as the parties have no intention to be bound by it.
The main characteristic of an absolute simulation is that the
The Civil Code defines a contract as a meeting of minds between apparent contract is not really desired or intended to produce
two persons whereby one binds himself, with respect to the legal effect or in any way alter the juridical situation of the
other, to give something or to render some service.43 Article 1318 parties. As a result, an absolutely simulated or fictitious
contract is void, and the parties may recover from each other

what they may have given under the contract...48 (Emphasis be in charge of the Properties; that she has no "say" when it
supplied)chanrobleslaw comes to the Properties; that she does not intend to claim
exclusive ownership of Lot 35-B; and that she is aware that the
In short, in absolute simulation there appears to be a valid ownership and control of the Properties are intended to be
contract but there is actually none because the element of consolidated in Dennis.
consent is lacking.49 This is so because the parties do not actually
intend to be bound by the terms of the contract. c) The SPA executed on the same day as the Deeds of Absolute
Sale appointing petitioner as administratrix of Adela's properties,
In determining the true nature of a contract, the primary test is including the Properties, is repugnant to petitioner's claim that
the intention of the parties. If the words of a contract appear to the ownership of the same had been transferred to her.
contravene the evident intention of the parties, the latter shall
prevail. Such intention is determined not only from the express d) The previous sales of the Properties to Dennis and Carlos, Jr.
terms of their agreement, but also from the contemporaneous were simulated. This history, coupled with Adela's treatment of
and subsequent acts of the parties.50 This is especially true in a petitioner, and the surrounding circumstances of the sales,
claim of absolute simulation where a colorable contract is strongly show that Adela only granted petitioner the same favor
executed. she had granted to Dennis and Carlos Jr.

In ruling that the Deeds of Absolute Sale were absolutely The April 18, 1989 letter to Dennis convincingly shows Adela's
simulated, the lower courts considered the totality of the prior, intention to give him the Properties. Part of the letter reads:
contemporaneous and subsequent acts of the parties. The "Dennis, the two lot [sic] 32-34 at your said lower house will be at
following circumstances led the RTC and the CA to conclude that name yours [sic] plus the 35 part of Cora or Teens [sic] house are
the Deeds of Absolute Sale are simulated, and that the transfers all under your name"54 Petitioner claims this letter was not
were never intended to affect the juridical relation of the properly identified and is thus, hearsay evidence. The records,
parties:chanRoblesvirtualLawlibrary however, show that the letter was admitted by the trial court in
its Order dated February 24, 1993.55 While it is true that the
a) There was no indication that Adela intended to alienate her letter is dated prior (or six days before to be exact) to the
properties in favor of petitioner. In fact, the letter of Adela to execution of the Deeds of Absolute Sale and is not conclusive that
Dennis dated April 18, 198951 reveals that she has reserved the Adela did not change her mind, we find that the language of the
ownership of the Properties in favor of Dennis. letter is more consistent with the other pieces of evidence that
show Adela never intended to relinquish ownership of the
b) Adela continued exercising acts of dominion and control over Properties to petitioner. In this regard, we see no compelling
the properties, even after the execution of the Deeds of Absolute reason to depart from the findings of the trial court as there
Sale, and though she lived abroad for a time. In Adela's letter appears no grave abuse of discretion in its admission and
dated August 25, 198952 to a certain Candy, she advised the latter consideration of the letter.
to stay in the big house. Also, in petitioner's letter to her cousin
Dennis dated July 3, 1989,53 she admitted that Adela continued to Petitioner's letter to her cousin Dennis dated July 3, 1989 also

sufficiently establishes that Adela retained control over the Clearly, the submission of petitioner to the orders of Adela does
Properties, even after the execution of the Deeds of Absolute Sale. not only show that the latter retained dominion over the
Petitioner herself admitted that she was only following the Properties, but also that petitioner did not exercise acts of
orders of Adela, and that she has no claim over the Properties. ownership over it. If at all, her actions only affirm the conclusion
We quote in verbatim the relevant part of the that she was merely an administratrix of the Properties by virtue
letter:cralawlawlibrary of the SPA.

...Now, before I left going back here in Mla. Mommy Dela ask me On the SPA, petitioner claims the lower courts erred in holding
to read your letter about the big house and lot, and I explained it that it is inconsistent with her claim of ownership. Petitioner
to her. Now Mommy and Mommy Dela wants that the house is for claims that she has sufficiently explained that the SPA is not for
everyone who will need to stay, well that is what they say. Alam the administration of the Properties, but for the reconstitution of
mo naman, I have no "say" esp. when it comes with their titles.
properties & you know that. Now kung ano gusto nila that
goes. Now, to be honest Mommy was surprise [sic] bakit daw We agree with the lower courts that the execution of an SPA for
kailangan mawalan ng karapatan sa bahay eh Nanay daw nila the administration of the Properties, on the same day the Deeds
iyon at tayo apo lang, Eh wala akong masasabi dyan, to be of Absolute Sale were executed, is antithetical to the
truthful to you, I only get the orders... Tapos, sinisingil pa ako relinquishment of ownership. The SPA shows that it is so worded
ng P1,000 --para sa gate napinapagawa nya sa lot 35-B, eh hindi as to leave no doubt that Adela is appointing petitioner as the
na lang ako kiimibo pero nagdamdam ako, imagine minsan na administratrix of her properties in Scout Ojeda. Had the SPA been
lang sya nakagawa ng bien sa akin at wala sa intention ko na intended only to facilitate the processing of the reconstitution of
suluhin ang 35-B, ganyan pa sya... Now tungkol sa iyo, alam ko the titles, there would have been no need to confer other powers
meron ka rin lupa tapos yung bahay na malaki ikaw rin ang of administration, such as the collection of debts, filing of suit,
titira at magmamahala sa lahat. Anyway, itong bahay ko sa etc., to petitioner.59 In any case, the explanation given by
iyo rin, alam mo naman na I'm just making the kids grow a little petitioner that the SPA was executed so as only to facilitate the
older then we have to home in the states...56 (Emphasis supplied) reconstitution of the titles of the Properties is not inconsistent
chanrobleslaw with the idea of her being the administratrix of the Properties. On
the other hand, the idea of assigning her as administratrix is not
Moreover, Adela's letter to petitioner's cousin Candy dated only inconsistent, but also repugnant, to the intention of selling
August 25, 1989 shows Adela's retention of dominion over the and relinquishing ownership of the Properties.
Properties even after the sales. In the letter, Adela even
requested her granddaughter Candy to stay in the house rent and Petitioner next questions the lower courts' findings that the
expense free.57 Petitioner claims that Candy and the house Deeds of Absolute Sale are simulated because the previous
referred to in the letter were not identified. Records show, transfers to Adela's other grandchildren were also simulated. It
however, that petitioner has testified she has a cousin named may be true that, taken by itself, the fact that Adela had
Candy Shotwell who stayed at the "big house" since February previously feigned the transfer of ownership of Lots 32 and 34 to
1989.58 her other grandchildren would not automatically mean that the


subject Deeds of Absolute Sale are likewise void. The lower a simulated contract may set up its inexistence. In this instant
courts, however, did not rely solely on this fact, but considered it case, it does not matter if the contest is made by one, some or all
with the rest of the evidence, the totality of which reveals that of the heirs.
Adela's intention was merely to feign the transfer to petitioner.
Neither would the existence of other contracts which remain
The fact that unlike in the case of Dennis and Carlos, Jr., she was unquestioned deter an action for the nullity of an instrument. A
not asked by Adela to execute a deed of reconveyance, is of no contract is rendered meaningful and forceful by the intention of
moment. There was a considerable lapse of time from the the parties relative thereto, and such intention can only be
moment of the transfer to Dennis and Carlos, Jr. of Lots 32 and 34 relevant to that particular contract which is produced or, as in
in 1985 and in 1987, respectively, and until the execution of the this case, to that which is not produced. That the deed of sale in
deed of reconveyance in 1989. Here, the alleged Deeds of [petitioner's] favor has been held to be simulated is not indicative
Absolute Sale were executed in April 1989. Adela died in January of the simulation of any other contract executed by the deceased
1990 in the United States. Given the short period of time between Adela de Guzman Shotwell during her lifetime.60chanrobleslaw
the alleged execution of the Deeds of Absolute Sale and the
sudden demise of Adela, the fact that petitioner was not asked to To this we add that other alleged transactions made by Adela
execute a deed of reconveyance is understandable. This is cannot be used as evidence to prove the validity of the
because there was no chance at all to do so. Thus, the fact that conveyances to petitioner. For one, we are not aware of any of
she did not execute a deed of reconveyance does not help her these transactions or whether there are indeed other
case. transactions. More importantly, the validity of these transactions
does not prove directly or indirectly the validity of the
We affirm the conclusion reached by the RTC and the CA that the conveyances in question.
evidence presented below prove that Adela did not intend to
alienate the Properties in favor of petitioner, and that the B. No consideration for the sale
transfers were merely a sham to accommodate petitioner in her
travel abroad. We also find no compelling reason to depart from the court a
quo's finding that Adela never received the consideration
Petitioner claims that we should consider that there is only one stipulated in the simulated Deeds of Absolute Sale.
heir of the late Adela who is contesting the sale, and that out of
the many transactions involving the decedent's other properties, Although on their face, the Deeds of Absolute Sale appear to be
the sale to petitioner is the only one being questioned. We are not supported by valuable consideration, the RTC and the CA found
convinced that these are material to the resolution of the case. As that there was no money involved in the sale. The consideration
aptly passed upon by the CA in its assailed in the Deeds of Absolute Sale was superimposed on the spaces
Resolution:cralawlawlibrary therein, bearing a font type different from that used in the rest of
the document.61 The lower courts also found that the duplicate
In a contest for the declaration of nullity of an instrument for originals of the Deeds of Absolute Sale bear a different entry with
being simulated, the number of contestants is not determinative regard to the price.62
of the propriety of the cause. Any person who is prejudiced by

of petitioner. That which is inexistent cannot give life to anything
Article 1471 of the Civil Code provides that "if the price is at all.70
simulated, the sale is void." Where a deed of sale states that the
purchase price has been paid but in fact has never been paid, the Article 1453 contemplates that legal titles were validly vested in
deed of sale is null and void for lack of consideration.63 Thus, petitioner. Considering, however, that the sales lack not only the
although the contracts state that the purchase price of element of consent for being absolutely simulated, but also the
P250,000.00 and P60,000.00 were paid by petitioner to Adela for element of consideration, these transactions are void and
the Properties, the evidence shows that the contrary is true, inexistent and produce no effect. Being null and void from the
because no money changed hands. Apart from her testimony, beginning, no transfer of title, both legal and beneficial, was ever
petitioner did not present proof that she paid for the Properties. effected to petitioner.

There is no implied trust. In any case, regardless of the presence of an implied trust, this
will not affect the disposition of the case. As void contracts do not
We also affirm the CA's deletion of the pronouncement of the trial produce any effect, the result will be the same in that the
court as to the existence of an implied trust. The trial court found Properties will be reeonveyed to the estate of the late Adela de
that a resulting trust, a form of implied trust based on Article Guzman Shotwell.
145364 of the Civil Code, was created between Adela and
petitioner. WHEREFORE, the petition is DENIED.,

Resulting trusts65 arise from the nature or circumstances of the SO ORDERED.chanroblesvirtuallawlibrary
consideration involved in a transaction whereby one person
becomes invested with legal title but is obligated in equity to hold
his title for the benefit of another.66 It is founded on the equitable
doctrine that valuable consideration and not legal title is
determinative of equitable title or interest and is always
presumed to have been contemplated by the parties.67 Since the 142. PENTACAPITAL INVESTMENT CORPORATION, G.R.
intent is not expressed in the instrument or deed of conveyance, Petitioner,
it is to be found in the nature of the parties' transaction.68
Resulting trusts are thus describable as intention-enforcing - versus -
trusts.69 An example of a resulting trust is Article 1453 of the Civil
Code. MAKILITO B. MAHINAY,
Respondent.
We, however, agree with the CA that no implied trust can be
generated by the simulated transfers because being fictitious or DECISION
simulated, the transfers were null and void ab initio from the
very beginning and thus vested no rights whatsoever in favor NACHURA, J.:


127,708 square meters, were sold at P400.00 per sq m. As the
Molino Properties were the subject of a pending case,
Pentacapital Realty paid only the down payment amounting to
Before us are two consolidated petitions for review on certiorari P12,000,000.00. CRDI allegedly instructed Pentacapital Realty to
under Rule 45 of the Rules of Court filed by petitioner pay the formers creditors, including respondent who thus
Pentacapital Investment Corporation. In G.R. No. 171736, received a check worth P1,715,156.90. It was further agreed that
petitioner assails the Court of Appeals (CA) Decision dated the balance would be payable upon the submission of an Entry of
December 20, 2005 and Resolution dated March 1, 2006 in CA- Judgment showing that the case involving the Molino Properties
G.R. SP No. 74851; while in G.R. No. 181482, it assails the CA had been decided in favor of CRDI.
Decision dated October 4, 2007 and Resolution dated January 21,
2008 in CA-G.R. CV No. 86939. Respondent, Pentacapital Realty and CRDI allegedly
agreed that respondent had a charging lien equivalent to 20% of
The Facts the total consideration of the sale in the amount of
P10,277,040.00. Pending the submission of the Entry of
Petitioner filed a complaint for a sum of money against Judgment and as a sign of good faith, respondent purportedly
respondent Makilito Mahinay based on two separate loans returned the P1,715,156.90 check to Pentacapital Realty.
obtained by the latter, amounting to P1,520,000.00 and However, the Molino Properties continued to be haunted by the
P416,800.00, or a total amount of P1,936,800.00. These loans seemingly interminable court actions initiated by different
were evidenced by two promissory notes dated February 23, parties which thus prevented respondent from collecting his
1996. Despite repeated demands, respondent failed to pay the commission.
loans, hence, the complaint.
On motion of respondent, the Regional Trial Court
In his Answer with Compulsory Counterclaim, respondent (RTC) allowed him to file a Third Party Complaint against CRDI,
claimed that petitioner had no cause of action because the subject to the payment of docket fees.
promissory notes on which its complaint was based were subject Admittedly, respondent earlier instituted an action for
to a condition that did not occur. While admitting that he indeed Specific Performance against Pentacapital Realty before the RTC
signed the promissory notes, he insisted that he never took out a of Cebu City, Branch 57, praying for the payment of his
loan and that the notes were not intended to be evidences of commission on the sale of the Molino Properties. In an Amended
indebtedness. By way of counterclaim, respondent prayed for the Complaint, respondent referred to the action he instituted as one
payment of moral and exemplary damages plus attorneys fees. of Preliminary Mandatory Injunction instead of Specific
Performance. Acting on Pentacapital Realtys Motion to Dismiss,
Respondent explained that he was the counsel of Ciudad Real the RTC dismissed the case for lack of cause of action. The
Development Inc. (CRDI). In 1994, Pentacapital Realty dismissal became final and executory.
Corporation (Pentacapital Realty) offered to buy parcels of land
known as the Molino Properties, owned by CRDI, located in With the dismissal of the aforesaid case, respondent
Molino, Bacoor, Cavite. The Molino Properties, with a total area of filed a Motion to Permit Supplemental Compulsory Counterclaim.

In addition to the damages that respondent prayed for in his WHETHER RESPONDENT MAHINAY IS BARRED FROM
compulsory counterclaim, he sought the payment of his ASSERTING THE CLAIM CONTAINED IN HIS SUPPLEMENTAL
commission amounting to P10,316,640.00, plus interest at the COMPULSORY COUNTERCLAIM ON THE GROUNDS OF (1) RES
rate of 16% per annum, as well as attorneys fees equivalent to JUDICATA, (2) WILLFUL AND DELIBERATE FORUM SHOPPING,
12% of his principal claim. Respondent claimed that Pentacapital AND (3) FAILURE TO INTERPOSE SUCH CLAIM ON TIME
Realty is a 100% subsidiary of petitioner. Thus, although PURSUANT TO SECTION 2 OF RULE 9 OF THE RULES OF COURT.
petitioner did not directly participate in the transaction between
Pentacapital Realty, CRDI and respondent, the latters claim
against petitioner was based on the doctrine of piercing the veil
of corporate fiction. Simply stated, respondent alleged that
petitioner and Pentacapital Realty are one and the same entity B
belonging to the Pentacapital Group of Companies.

Over the opposition of petitioner, the RTC, in an Order
dated August 22, 2002, allowed the filing of the supplemental
counterclaim. Aggrieved, petitioner sought recourse in the CA WHETHER RESPONDENT MAHINAYS SUPPLEMENTAL
through a specialcivil action for certiorari, seeking to reverse COMPULSORY COUNTERCLAIM IS ACTUALLY A THIRD-PARTY
and set aside the RTC Order. The case was docketed as CA-G.R. SP COMPLAINT AGAINST PENTACAPITAL REALTY, THE
No. 74851. On December 20, 2005, the CA rendered the assailed INTRODUCTION OF WHICH REQUIRES THE PAYMENT OF THE
Decision dismissing the petition. The appellate court sustained NECESSARY DOCKET FEES;
the allowance of the supplemental compulsory counterclaim
based on the allegations in respondents pleading. The CA further
concluded that there was a logical relationship between the
claims of petitioner in its complaint and those of respondent in
his supplemental compulsory counterclaim. The CA declared that C.
it was inconsequential that respondent did not clearly allege the
facts required to pierce the corporate separateness of petitioner
and its subsidiary, the Pentacapital Realty.

ASSUMING FOR THE SAKE OF PURE ARGUMENT THAT IT IS
Petitioner now comes before us in G.R. No. 171736,
PROPER TO PIERCE THE CORPORATE VEIL AND TO ALLOW
raising the following issues:
RESPONDENT MAHINAY TO LODGE A SUPPLEMENTAL

COMPULSORY COUNTERCLAIM AGAINST HEREIN PETITIONER
A.
PENTACAPITAL INVESTMENT FOR AN ALLEGED OBLIGATION
OF ITS SUBSIDIARY, PENTACAPITAL REALTY, ON THE THEORY
THAT THEY ARE ONE AND THE SAME COMPANY, WHETHER
PENTACAPITAL REALTY SHOULD HAVE AT LEAST BEEN MADE

A PARTY TO THE CASE AS RULED BY THIS HONORABLE COURT OBLIGATION AND FACILITATE PROCEDURAL WRONGDOING;
IN FILMERCO COMMERCIAL CO., INC. VS. INTERMEDIATE AND
APPELLATE COURT;

F.
D.
WHETHER PETITIONER PENTACAPITAL INVESTMENT

WHETHER RESPONDENT MAHINAY SHOULD BE ALLOWED TO COMMITTED FORUM SHOPPING WHEN IT FILED THE PRESENT
PRESENT EVIDENCE ON HIS SO-CALLED SUPPLEMENTAL PETITION DURING THE PENDENCY OF THE MOTION FOR
COMPULSORY COUNTERCLAIM INASMUCH AS (1) RESPONDENT RECONSIDERATION IT FILED BEFORE THE COURT A QUO AND,
MAHINAYS PLEADINGS ARE BEREFT OF ANY ALLEGATIONS TO SUBSEQUENTLY, OF THE APPEAL BEFORE THE COURT OF
BUTTRESS THE MERGING OF PENTACAPITAL REALTY AND APPEALS TO QUESTION THE JUDGMENT OF THE COURT A QUO.
PENTACAPITAL INVESTMENT INTO ONE ENTITY AND THE
CONSEQUENT IMPUTATION ON THE LATTER OF THE FORMERS
SUPPOSED LIABILITY ON RESPONDENT MAHINAYS
SUPPLEMENTAL COMPULSORY COUNTERCLAIM, AND (2) THE
INCIDENTS ALLEGEDLY PERTAINING TO, AND WHICH WOULD
THEREBY SUPPORT, THE PIERCING OF CORPORATE VEIL ARE
NOT EVIDENTIARY MATTERS MATERIAL TO THE PROCEEDINGS
BEFORE THE COURT A QUO CONSIDERING THAT THE SAME ARE
BEYOND THE SCOPE OF THE PLEADINGS;
There being no writ of injunction or Temporary
Restraining Order (TRO), the proceedings before the RTC
continued and respondent was allowed to present his evidence
on his supplemental compulsory counterclaim. After trial on the
merits, the RTC rendered a decision dated March 20, 2006, the
E. dispositive portion of which reads:

WHEREFORE, PREMISES
CONSIDERED, plaintiffs complaint is hereby
WHETHER THE DOCTRINE OF PIERCING THE CORPORATE VEIL ordered dismissed for lack of merit. This court,
MAY BE INVOKED AND APPLIED IN ORDER TO EVADE AN instead, finds that defendant was able to prove

by a clear preponderance of evidence his 4. Php 50,000.00 litigation expenses, plus costs of suit.
cause of action against plaintiff as to
defendants compulsory and supplemental
counterclaims. That, therefore, this court
hereby orders the plaintiff to pay unto This court finds it unnecessary to
defendant the following sums, to wit: rule on the third party complaint, the relief
prayed for therein being dependent on the
possible award by this court of the relief of
plaintiffs complaint.
1. P1,715,156.90 representing the amount plaintiff is
obligated to pay defendant as
provided for in the deed of sale and
the supplemental agreement, plus
interest at the rate of 16% per On appeal, the CA, in CA-G.R. CV No. 86939, affirmed in
annum, to be computed from toto the above decision. The CA found no basis for petitioner to
September 23, 1998 until the said collect the amount demanded, there being no perfected contract
amount shall have been fully paid; of loan for lack of consideration. As to respondents supplemental
compulsory counterclaim, quoting the findings of the RTC, the
appellate court held that respondent was able to prove by
preponderance of evidence that it was the intent of Pentacapital
2. Php 10,316,640.00 representing defendants share of Group of Companies and CRDI to give him P10,316,640.00 and
the proceeds of the sale of the Molino P1,715,156.90. The CA likewise affirmed the award of interest at
property (defendants charging lien) the rate of 16% per annum, plus damages.
plus interest at the rate of 16% per
annum, to be computed from Unsatisfied, petitioner moved for reconsideration of the
September 23, 1998 until the said aforesaid Decision, but it was denied in a Resolutiondated
amount shall have been fully paid; January 21, 2008. Hence, the present petition in G.R. No. 181482,
anchored on the following arguments:

A.
3. Php 50,000.00 as attorneys fees based on quantum Considering that the inferences made in the present case are
meruit; manifestly absurd, mistaken or impossible, and are even contrary
to the admissions of respondent Mahinay, and inasmuch as the
judgment is premised on a misapprehension of facts, this
Honorable Court may validly take cognizance of the errors

relative to the findings of fact of both the Honorable Court of 1.The findings of fact as well as the conclusions arrived at by the
Appeals and the court a quo. Court of Appeals in its decision were based on mistaken
assumptions and on erroneous appreciation of the evidence on
record.

2.There is no evidence on record to support the merging of
B. PentaCapital Realty and petitioner PentaCapital Investment into
Respondent Mahinay is liable to petitioner PentaCapital one entity and the consequent imputation on the latter of the
Investment for the PhP1,936,800.00 loaned to him as well as for formers supposed liability on respondent Mahinays
damages and attorneys fees. supplemental compulsory counterclaim.

3.
Inasmuch as the claim of respondent Mahinay is supposedly
against PentaCapital Realty, and considering that petitioner
PentaCapital Investment is a separate, distinct entity from
1. The Honorable Court of Appeals erred in concluding that PentaCapital Realty, the latter should have been impleaded as it
respondent Mahinay failed to receive the money he borrowed is an indispensable party.
when there is not even any dispute as to the fact that respondent
Mahinay did indeed receive the PhP1,936,800.00 from petitioner D.
PentaCapital Investment. Assuming for the sake of pure argument that it is proper to
disregard the corporate fiction and to consider herein petitioner
2.. The Promissory Notes executed by respondent Mahinay are PentaCapital Investment and its subsidiary, PentaCapital Realty,
valid instruments and are binding upon him. as one and the same entity, respondent Mahinays supplemental
compulsory counterclaim must still necessarily fail.

1.The cause of action of respondent Mahinay, as contained in his
supplemental compulsory counterclaim, is already barred by a
prior judgment (res judicata).

2. Considering that the dismissal on the merits by the RTC Cebu
of respondent Mahinays complaint against PentaCapital Realty
C. for attorneys fees has attained finality, respondent Mahinay
Petitioner PentaCapital Investment cannot be held liable on the committed a willful act of forum shopping when he interposed
supposed supplemental compulsory counterclaim of respondent the exact same claim in the proceedings a quo as a supposed
Mahinay. supplemental compulsory counterclaim against what he claims to
be one and the same company.

thereto within ten (10) days from notice of the
3.Respondent Mahinays supplemental compulsory counterclaim order admitting the supplemental pleading.
is actually a third party complaint against PentaCapital Realty;
the filing thereof therefore requires the payment of the necessary
docket fees.

E. As a general rule, leave will be granted to a party who
The doctrine of piercing the corporate veil is an equitable remedy desires to file a supplemental pleading that alleges any material
which cannot and should not be invoked, much less applied, in fact which happened or came within the partys knowledge after
order to evade an obligation and facilitate procedural the original pleading was filed, such being the office of a
wrongdoing. supplemental pleading. The application of the rule would ensure
that the entire controversy might be settled in one action, avoid
unnecessary repetition of effort and unwarranted expense of
Simply put, the issues for resolution are: 1) whether the litigants, broaden the scope of the issues in an action owing to the
admission of respondents supplemental compulsory light thrown on it by facts, events and occurrences which have
counterclaim is proper; 2) whether respondents counterclaim is accrued after the filing of the original pleading, and bring into
barred by res judicata; and (3) whether petitioner is guilty of record the facts enlarging or charging the kind of relief to which
forum-shopping. plaintiff is entitled. It is the policy of the law to grant relief as far
as possible for wrongs complained of, growing out of the same
The Courts Ruling transaction and thus put an end to litigation.

Admission of Respondents In his Motion to Permit Supplemental Compulsory
Supplemental Compulsory Counterclaim Counterclaim, respondent admitted that, in his Answer with
Compulsory Counterclaim, he claimed that, as one of the
corporations composing the Pentacapital Group of Companies,
The pertinent provision of the Rules of Court is Section petitioner is liable to him for P10,316,640.00, representing 20%
6 of Rule 10, which reads: attorneys fees and share in the proceeds of the sale transaction
between Pentacapital Realty and CRDI. In the same pleading, he
Sec. 6. Supplemental pleadings. Upon further admitted that he did not include this amount in his
motion of a party, the court may, upon compulsory counterclaim because he had earlier commenced
reasonable notice and upon such terms as are another action for the collection of the same amount against
just, permit him to serve a supplemental Pentacapital Realty before the RTC of Cebu. With the dismissal of
pleading setting forth transactions, the RTC-Cebu case, there was no more legal impediment for
occurrences or events which have happened respondent to file the supplemental counterclaim.
since the date of the pleading sought to be
supplemented. The adverse party may plead Moreover, in his Answer with Compulsory

Counterclaim, respondent already alleged that he demanded and the event did not happen. He further insisted that he did not
from Pentacapital Group of Companies to which petitioner receive the proceeds of the loan.
supposedly belongs, the payment of his 20% commission. This, in
fact, was what prompted respondent to file a complaint before To ascertain whether or not respondent is bound by the
the RTC-Cebu for preliminary mandatory injunction for the promissory notes, it must be established that all the elements of a
release of the said amount. contract of loan are present. Like any other contract, a contract of
loan is subject to the rules governing the requisites and validity
Given these premises, it is obvious that the alleged of contracts in general. It is elementary in this jurisdiction that
obligation of petitioner already existed and was known to what determines the validity of a contract, in general, is the
respondent at the time of the filing of his Answer with presence of the following elements: (1) consent of the contracting
Counterclaim. He should have demanded payment of his parties; (2) object certain which is the subject matter of the
commission and share in the proceeds of the sale in that Answer contract; and (3) cause of the obligation which is established.
with Compulsory Counterclaim, but he did not. He is, therefore,
proscribed from incorporating the same and making such In this case, respondent denied liability on the ground
demand via a supplemental pleading. The supplemental pleading that the promissory notes lacked consideration as he did not
must be based on matters arising subsequent to the filing of the receive the proceeds of the loan.
original pleading related to the claim or defense presented
therein, and founded on the same cause of action. Supplemental We cannot sustain his contention.
pleadings must state transactions, occurrences or events which
took place since the time the pleading sought to be supplemented Under Article 1354 of the Civil Code, it is presumed that
was filed. consideration exists and is lawful unless the debtor proves the
contrary. Moreover, under Section 3, Rule 131 of the Rules of
Even on the merits of the case, for reasons that will be Court, the following are disputable presumptions: (1) private
discussed below, respondents counterclaim is doomed to fail. transactions have been fair and regular; (2) the ordinary course
of business has been followed; and (3) there was sufficient
Petitioners Complaint consideration for a contract. A presumption may operate against
an adversary who has not introduced proof to rebut it. The effect
In its complaint for sum of money, petitioner prayed of a legal presumption upon a burden of proof is to create the
that respondent be ordered to pay his obligation amounting to necessity of presenting evidence to meet the legal presumption
P1,936,800.00 plus interest and penalty charges, and attorneys or the prima facie case created thereby, and which, if no proof to
fees. This obligation was evidenced by two promissory notes the contrary is presented and offered, will prevail. The burden of
executed by respondent. Respondent, however, denied liability proof remains where it is, but by the presumption, the one who
on the ground that his obligation was subject to a condition that has that burden is relieved for the time being from introducing
did not occur. He explained that the promissory notes were evidence in support of the averment, because the presumption
dependent upon the happening of a remote event that the parties stands in the place of evidence unless rebutted.
tried to anticipate at the time they transacted with each other,

In the present case, as proof of his claim of lack of consideration, As the records of the case show, at the time of the execution of
respondent denied under oath that he owed petitioner a single the promissory notes, the Molino properties were subject of
centavo. He added that he did not apply for a loan and that when various court actions commenced by different parties. Thus, the
he signed the promissory notes, they were all blank forms and all sale of the properties and, consequently, the payment of
the blank spaces were to be filled up only if the sale transaction respondents commissions were put on hold. The non-payment of
over the subject properties would not push through because of a his commissions could very well be the reason why he obtained a
possible adverse decision in the civil cases involving them (the loan from petitioner.
properties). He thus posits that since the sale pushed through,
the promissory notes did not become effective. In Sierra v. Court of Appeals, we held that:

Contrary to the conclusions of the RTC and the CA, we find such A promissory note is a solemn
proof insufficient to overcome the presumption of consideration. acknowledgment of a debt and a formal
The presumption that a contract has sufficient consideration commitment to repay it on the date and under
cannot be overthrown by the bare, uncorroborated and self- the conditions agreed upon by the borrower
serving assertion of respondent that it has no consideration. The and the lender. A person who signs such an
alleged lack of consideration must be shown by preponderance of instrument is bound to honor it as a legitimate
evidence. obligation duly assumed by him through the
signature he affixes thereto as a token of his
As it now appears, the promissory notes clearly stated that good faith. If he reneges on his promise
respondent promised to pay petitioner P1,520,000.00 and without cause, he forfeits the sympathy and
P416,800.00, plus interests and penalty charges, a year after their assistance of this Court and deserves instead
execution. Nowhere in the notes was it stated that they were its sharp repudiation.
subject to a condition. As correctly observed by petitioner,
respondent is not only a lawyer but a law professor as well. He is,
therefore, legally presumed not only to exercise vigilance over his
concerns but, more importantly, to know the legal and binding
effects of promissory notes and the intricacies involving the Aside from the payment of the principal obligation of
execution of negotiable instruments including the need to P1,936,800.00, the parties agreed that respondent pay interest at
execute an agreement to document extraneous collateral the rate of 25% from February 17, 1997 until fully paid. Such
conditions and/or agreements, if truly there were such. This rate, however, is excessive and thus, void. Since the stipulation on
militates against respondents claim that there was indeed such the interest rate is void, it is as if there was no express contract
an agreement. Thus, the promissory notes should be accepted as thereon. To be sure, courts may reduce the interest rate as reason
they appear on their face. and equity demand. In this case, 12% interest is reasonable.

Respondents liability is not negated by the fact that he has The promissory notes likewise required the payment of
uncollected commissions from the sale of the Molino properties. a penalty charge of 3% per month or 36% per annum. We find

such rates unconscionable. This Court has recognized a penalty
clause as an accessory obligation which the parties attach to a Respondents Counterclaim and Supplemental Counterclaim
principal obligation for the purpose of ensuring the performance
thereof by imposing on the debtor a special prestation (generally The RTC, affirmed by the CA, granted respondents counterclaims
consisting of the payment of a sum of money) in case the as it applied the doctrine of piercing the veil of corporate fiction.
obligation is not fulfilled or is irregularly or inadequately fulfilled. It is undisputed that the parties to the contract of sale of the
However, a penalty charge of 3% per month is unconscionable; subject properties are Pentacapital Realty as the buyer, CRDI as
hence, we reduce it to 1% per month or 12% per annum, the seller, and respondent as the agent of CRDI. Respondent
pursuant to Article 1229 of the Civil Code which states: insisted, and the RTC and the CA agreed, that petitioner, as the
parent company of Pentacapital Realty, was aware of the sale
Art. 1229. The judge shall equitably reduce the penalty transaction, and that it was the former who paid the
when the principal obligation has been partly consideration of the sale. Hence, they concluded that the two
or irregularly complied with by the debtor. corporations should be treated as one entity.
Even if there has been no performance, the
penalty may also be reduced by the courts if it is Petitioner assails the CA Decision sustaining the grant
iniquitous or unconscionable. of respondents counterclaim and supplemental counterclaim on
the following grounds: first, respondents claims are barred by res
judicata, the same having been adjudicated with finality by the
RTC-Cebu in Civil Case No. CEB-25032; second, piercing the veil
of corporate fiction is without basis; third, the case is dismissible
Lastly, respondent promised to pay 25% of his outstanding for failure to implead Pentacapital Realty as indispensable party;
obligations as attorneys fees in case of non-payment thereof. and last, respondents supplemental counterclaim is actually a
Attorneys fees here are in the nature of liquidated damages. As third party complaint against Pentacapital Realty, the filing
long as said stipulation does not contravene law, morals, or thereof requires the payment of the necessary docket fees.
public order, it is strictly binding upon respondent. Nonetheless,
courts are empowered to reduce such rate if the same is Petitioners contentions are meritorious.
iniquitous or unconscionable pursuant to the above-quoted
provision.This sentiment is echoed in Article 2227 of the Civil Res judicata means a matter adjudged; a thing judicially acted
Code, to wit: upon or decided; a thing or matter settled by judgment. It lays the
rule that an existing final judgment or decree rendered on the
Art. 2227. Liquidated damages, whether intended as an merits, without fraud or collusion, by a court of competent
indemnity or a penalty, shall be equitably reduced if they are jurisdiction, upon any matter within its jurisdiction, is conclusive
iniquitous or unconscionable. of the rights of the parties or their privies, in all other actions or
suits in the same or any other judicial tribunal of concurrent
jurisdiction on the points and matters in issue in the first suit.
Hence, we reduce the stipulated attorneys fees from 25% to 10%.

The requisites of res judicata are: corporate fiction. Obviously, after the dismissal of his complaint
before the RTC-Cebu, he now proceeds
The former judgment or order must be final; against petitioner, through a counterclaim, on the basis of the
same cause of action. Thus, if we follow respondents contention
It must be a judgment on the merits; that petitioner and Pentacapital Realty are one and the same
entity, the latter being a subsidiary of the former, respondent is
It must have been rendered by a court having jurisdiction over barred from instituting the present case based on the principle of
the subject matter and the parties; and bar by prior judgment. The RTC-Cebu already made a definitive
conclusion that Pentacapital Realty is not a privy to the contract
There must be between the first and second actions, identity of between respondent and CRDI. It also categorically stated that it
parties, subject matter, and cause of action. was CRDI which agreed to pay respondents commission
equivalent to 20% of the proceeds of the sale. With these
These requisites are present in the instant case. It is findings, and considering that petitioners alleged liability stems
undisputed that respondent instituted an action for Preliminary from its supposed relation with Pentacapital Realty, logic dictates
Mandatory Injunction against Pentacapital Realty, before the RTC that the findings of the RTC-Cebu, which had become final and
of Cebu City, docketed as Civil Case No. CEB-25032. On motion of executory, should bind petitioner.
Pentacapital Realty, in an Order dated August 15, 2001, the court
dismissed the complaint on two grounds: 1) non-payment of the It is well-settled that when material facts or questions
correct filing fee considering that the complaint was actually a in issue in a former action were conclusively settled by a
collection of sum of money although denominated as Preliminary judgment rendered therein, such facts or questions constitute res
Mandatory Injunction; and 2) lack of cause of action. The court judicata and may not again be litigated in a subsequent action
treated the complaint as a collection suit because respondent was between the same parties or their privies regardless of the form
seeking the payment of his unpaid commission or share in the of the latter.Absolute identity of parties is not required, and
proceeds of the sale of the Molino Properties. Additionally, the where a shared identity of interest is shown by the identity of the
RTC found that respondent had no cause of action against relief sought by one person in a prior case and the second person
Pentacapital Realty, there being no privity of contract between in a subsequent case, such was deemed sufficient.There is
them. Lastly, the court held that it was CRDI which agreed that identity of parties not only when the parties in the cases are the
20% of the total consideration of the sale be paid and delivered same, but also between those in privity with them.
to respondent. Instead of assailing the said Order, respondent
filed his supplemental compulsory counterclaim, demanding No other procedural law principle is indeed more
again the payment of his commission, this time, against petitioner settled than that once a judgment becomes final, it is no longer
in the instant case. The Order, therefore, became final and subject to change, revision, amendment, or reversal, except only
executory. for correction of clerical errors, or the making of nunc pro tunc
entries which cause no prejudice to any party, or where the
Respondents supplemental counterclaim against judgment itself is void. The underlying reason for the rule is two-
petitioner is anchored on the doctrine of piercing the veil of fold: (1) to avoid delay in the administration of justice and thus

make orderly the discharge of judicial business; and (2) to put different fora upon the same issues.
judicial controversies to an end, at the risk of occasional errors,
inasmuch as controversies cannot be allowed to drag on Forum-shopping can be committed in three ways: (1)
indefinitely and the rights and obligations of every litigant must by filing multiple cases based on the same cause of action and
not hang in suspense for an indefinite period of time. with the same prayer, the previous case not having been resolved
yet (where the ground for dismissal is litis pendentia); (2) by
In view of the foregoing disquisitions, we find no necessity to filing multiple cases based on the same cause of action and with
discuss the other issues raised by petitioner. the same prayer, the previous case having been finally resolved
(where the ground for dismissal is res judicata); and (3) by filing
Forum Shopping multiple cases based on the same cause of action but with
different prayers (splitting of causes of action, where the ground
For his part, respondent adopts the conclusions made for dismissal is also either litis pendentia or res judicata).
by the RTC and the CA in granting his counterclaims. He adds that
the petition should be dismissed on the ground of forum- More particularly, the elements of forum-shopping are: (a)
shopping. He argues that petitioner is guilty of forum-shopping identity of parties or at least such parties that represent the same
by filing the petition for review (G.R. No. 181482), assailing the interests in both actions; (b) identity of rights asserted and
CA Decision dated October 4, 2007, despite the pendency of G.R. reliefs prayed for, the relief being founded on the same facts; (c)
No. 171736 assailing the CA Decision dated December 20, 2005. identity of the two preceding particulars, such that any judgment
rendered in the other action will, regardless of which party is
We do not agree with respondent. successful, amount to res judicata in the action under
consideration.
Forum-shopping is the act of a litigant who repetitively
availed of several judicial remedies in different courts, These elements are not present in this case. In G.R. No. 171736,
simultaneously or successively, all substantially founded on the petitioner assails the propriety of the admission of respondents
same transactions and the same essential facts and supplemental compulsory counterclaim; while in G.R. No.
circumstances, and all raising substantially the same issues, 181482, petitioner assails the grant of respondents supplemental
either pending in or already resolved adversely by some other compulsory counterclaim. In other words, the first case
court, to increase his chances of obtaining a favorable decision if originated from an interlocutory order of the RTC, while the
not in one court, then in another. second case is an appeal from the decision of the court on the
merits of the case. There is, therefore, no forum-shopping for the
What is important in determining whether forum-shopping exists simple reason that the petition and the appeal involve two
is the vexation caused the courts and parties-litigants by a party different and distinct issues.
who asks different courts and/or administrative agencies to rule
on the same or related causes and/or grant the same or WHEREFORE, premises considered, the petitions are hereby
substantially the same reliefs, in the process creating the GRANTED. The Decisions and Resolutions of the Court of Appeals
possibility of conflicting decisions being rendered by the dated December 20, 2005 and March 1, 2006, in CA-G.R. SP No.

74851, and October 4, 2007 and January 21, 2008, in CA-G.R. CV found. According to petitioner, it was only after reacting
No. 86939, are REVERSED and SET ASIDE. indignantly to the loss that the matter was attended to by the
porter clerk, Maximo Gomez, which, however, the latter denies,
Respondent Makilito B. Mahinay is ordered to pay petitioner At about 3:00 o'clock P.M., PAL Butuan, sent a message to PAL,
Pentacapital Investment Corporation P1,936,800.00 plus 12% Cebu, inquiring about the missing luggage, which message was, in
interest per annum, and 12% per annum penalty charge, starting turn relayed in full to the Mactan Airport teletype operator at
February 17, 1997. He 3:45 P.M. (Exh. "2") that same afternoon. It must have been
transmitted to Manila immediately, for at 3:59 that same
is likewise ordered to pay 10% of his outstanding obligation as afternoon, PAL Manila wired PAL Cebu advising that the luggage
attorneys fees. No pronouncement as to costs. had been over carried to Manila aboard Flight No. 156 and that it
would be forwarded to Cebu on Flight No. 345 of the same day.
SO ORDERED. Instructions were also given that the luggage be immediately
forwarded to Butuan City on the first available flight (Exh. "3"). At
143. G.R. No. L-40597 June 29, 1979 5:00 P.M. of the same afternoon, PAL Cebu sent a message to PAL
AGUSTINO B. ONG YIU, petitioner, Butuan that the luggage would be forwarded on Fright No. 963
vs. the following day, August 27, 196'(. However, this message was
HONORABLE COURT OF APPEALS and PHILIPPINE AIR not received by PAL Butuan as all the personnel had already left
LINES, INC., respondents. since there were no more incoming flights that afternoon.
In the meantime, petitioner was worried about the missing
MELENCIO-HERRERA, J.: luggage because it contained vital documents needed for trial the
In this Petition for Review by Certiorari, petitioner, a practicing next day. At 10:00 o'clock that evening, petitioner wired PAL
lawyer and businessman, seeks a reversal of the Decision of the Cebu demanding the delivery of his baggage before noon the next
Court of Appeals in CA-G.R. No. 45005-R, which reduced his claim day, otherwise, he would hold PAL liable for damages, and stating
for damages for breach of contract of transportation. that PAL's gross negligence had caused him undue
The facts are as follows: inconvenience, worry, anxiety and extreme embarrassment (Exh.
On August 26, 1967, petitioner was a fare paying passenger of "B"). This telegram was received by the Cebu PAL supervisor but
respondent Philippine Air Lines, Inc. (PAL), on board Flight No. the latter felt no need to wire petitioner that his luggage had
463-R, from Mactan Cebu, bound for Butuan City. He was already been forwarded on the assumption that by the time the
scheduled to attend the trial of Civil Case No. 1005 and Spec. message reached Butuan City, the luggage would have arrived.
Procs. No. 1125 in the Court of First Instance, Branch II, thereat, Early in the morning of the next day, August 27, 1967, petitioner
set for hearing on August 28-31, 1967. As a passenger, he went to the Bancasi Airport to inquire about his luggage. He did
checked in one piece of luggage, a blue "maleta" for which he was not wait, however, for the morning flight which arrived at 10:00
issued Claim Check No. 2106-R (Exh. "A"). The plane left Mactan o'clock that morning. This flight carried the missing luggage. The
Airport, Cebu, at about 1:00 o'clock P.M., and arrived at Bancasi porter clerk, Maximo Gomez, paged petitioner, but the latter had
airport, Butuan City, at past 2:00 o'clock P.M., of the same day. already left. A certain Emilio Dagorro a driver of a "colorum" car,
Upon arrival, petitioner claimed his luggage but it could not be who also used to drive for petitioner, volunteered to take the

luggage to petitioner. As Maximo Gomez knew Dagorro to be the This is with reference to your September 5, 1967, letter to Mr.
same driver used by petitioner whenever the latter was in Ricardo G. Paloma, Acting Manager, Southern Philippines.
Butuan City, Gomez took the luggage and placed it on the counter. First of all, may we apologize for the delay in informing you of the
Dagorro examined the lock, pressed it, and it opened. After result of our investigation since we visited you in your office last
calling the attention of Maximo Gomez, the "maleta" was opened, August 31, 1967. Since there are stations other than Cebu which
Gomez took a look at its contents, but did not touch them. are involved in your case, we have to communicate and await
Dagorro then delivered the "maleta" to petitioner, with the replies from them. We regret to inform you that to date we have
information that the lock was open. Upon inspection, petitioner not found the supposedly lost folder of papers nor have we been
found that a folder containing certain exhibits, transcripts and able to pinpoint the personnel who allegedly pilferred your
private documents in Civil Case No. 1005 and Sp. Procs. No. 1126 baggage.
were missing, aside from two gift items for his parents-in-law. You must realize that no inventory was taken of the cargo upon
Petitioner refused to accept the luggage. Dagorro returned it to loading them on any plane. Consequently, we have no way of
the porter clerk, Maximo Gomez, who sealed it and forwarded the knowing the real contents of your baggage when same was
same to PAL Cebu. loaded.
Meanwhile, petitioner asked for postponement of the hearing of We realized the inconvenience you encountered of this incident
Civil Case No. 1005 due to loss of his documents, which was but we trust that you will give us another opportunity to be of
granted by the Court (Exhs. "C" and "C-1"). Petitioner returned to better service to you.
Cebu City on August 28, 1967. In a letter dated August 29, 1967 Very truly yours,
addressed to PAL, Cebu, petitioner called attention to his PHILIPPINE AIR LINES, INC.
telegram (Exh. "D"), demanded that his luggage be produced (Sgd) JEREMIAS S. AGUSTIN
intact, and that he be compensated in the sum of P250,000,00 for Branch Supervisor
actual and moral damages within five days from receipt of the Cebu
letter, otherwise, he would be left with no alternative but to file (Exhibit G, Folder of Exhibits) 1
suit (Exh. "D"). On September 13, 1967, petitioner filed a Complaint against PAL
On August 31, 1967, Messrs. de Leon, Navarsi, and Agustin, all of for damages for breach of contract of transportation with the
PAL Cebu, went to petitioner's office to deliver the "maleta". In Court of First Instance of Cebu, Branch V, docketed as Civil Case
the presence of Mr. Jose Yap and Atty. Manuel Maranga the No. R-10188, which PAL traversed. After due trial, the lower
contents were listed and receipted for by petitioner (Exh. "E"). Court found PAL to have acted in bad faith and with malice and
On September 5, 1967, petitioner sent a tracer letter to PAL Cebu declared petitioner entitled to moral damages in the sum of
inquiring about the results of the investigation which Messrs. de P80,000.00, exemplary damages of P30,000.00, attorney's fees of
Leon, Navarsi, and Agustin had promised to conduct to pinpoint P5,000.00, and costs.
responsibility for the unauthorized opening of the "maleta" (Exh. Both parties appealed to the Court of Appeals petitioner in so
"F"). far as he was awarded only the sum of P80,000.00 as moral
The following day, September 6, 1967, PAL sent its reply damages; and defendant because of the unfavorable judgment
hereinunder quoted verbatim: rendered against it.
Dear Atty. Ong Yiu: On August 22, 1974, the Court of Appeals,* finding that PAL was

guilty only of simple negligence, reversed the judgment of the plaintiff's baggage. The trial court saw evidence of bad faith
trial Court granting petitioner moral and exemplary damages, but because PAL sent the telegraphic message to Mactan only at 3:00
ordered PAL to pay plaintiff the sum of P100.00, the baggage o'clock that same afternoon, despite plaintiff's indignation for the
liability assumed by it under the condition of carriage printed at non-arrival of his baggage. The message was sent within less than
the back of the ticket. one hour after plaintiff's luggage could not be located. Efforts had
Hence, this Petition for Review by Certiorari, filed on May 2, to be exerted to locate plaintiff's maleta. Then the Bancasi airport
1975, with petitioner making the following Assignments of Error: had to attend to other incoming passengers and to the outgoing
I. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING passengers. Certainly, no evidence of bad faith can be inferred
RESPONDENT PAL GUILTY ONLY OF SIMPLE NEGLIGENCE AND from these facts. Cebu office immediately wired Manila inquiring
NOT BAD FAITH IN THE BREACH OF ITS CONTRACT OF about the missing baggage of the plaintiff. At 3:59 P.M., Manila
TRANSPORTATION WITH PETITIONER. station agent at the domestic airport wired Cebu that the baggage
II. THE HONORABLE COURT OF APPEALS MISCONSTRUED THE was over carried to Manila. And this message was received in
EVIDENCE AND THE LAW WHEN IT REVERSED THE DECISION Cebu one minute thereafter, or at 4:00 P.M. The baggage was in
OF THE LOWER COURT AWARDING TO PETITIONER MORAL fact sent back to Cebu City that same afternoon. His Honor stated
DAMAGES IN THE AMOUNT OF P80,000.00, EXEMPLARY that the fact that the message was sent at 3:59 P.M. from Manila
DAMAGES OF P30,000.00, AND P5,000.00 REPRESENTING and completely relayed to Mactan at 4:00 P.M., or within one
ATTORNEY'S FEES, AND ORDERED RESPONDENT PAL TO minute, made the message appear spurious. This is a forced
COMPENSATE PLAINTIFF THE SUM OF P100.00 ONLY, reasoning. A radio message of about 50 words can be completely
CONTRARY TO THE EXPLICIT PROVISIONS OF ARTICLES 2220, transmitted in even less than one minute depending upon
2229, 2232 AND 2234 OF THE CIVIL CODE OF THE PHILIPPINES. atmospheric conditions. Even if the message was sent from
On July 16, 1975, this Court gave due course to the Petition. Manila or other distant places, the message can be received
There is no dispute that PAL incurred in delay in the delivery of within a minute. that is a scientific fact which cannot be
petitioner's luggage. The question is the correctness of questioned. 3
respondent Court's conclusion that there was no gross negligence Neither was the failure of PAL Cebu to reply to petitioner's rush
on the part of PAL and that it had not acted fraudulently or in bad telegram indicative of bad faith, The telegram (Exh. B) was
faith as to entitle petitioner to an award of moral and exemplary dispatched by petitioner at around 10:00 P.M. of August 26, 1967.
damages. The PAL supervisor at Mactan Airport was notified of it only in
From the facts of the case, we agree with respondent Court that the morning of the following day. At that time the luggage was
PAL had not acted in bad faith. Bad faith means a breach of a already to be forwarded to Butuan City. There was no bad faith,
known duty through some motive of interest or ill will. 2 It was therefore, in the assumption made by said supervisor that the
the duty of PAL to look for petitioner's luggage which had been plane carrying the bag would arrive at Butuan earlier than a reply
miscarried. PAL exerted due diligence in complying with such telegram. Had petitioner waited or caused someone to wait at the
duty. Bancasi airport for the arrival of the morning flight, he would
As aptly stated by the appellate Court: have been able to retrieve his luggage sooner.
We do not find any evidence of bad faith in this. On the contrary, In the absence of a wrongful act or omission or of fraud or bad
We find that the defendant had exerted diligent effort to locate faith, petitioner is not entitled to moral damages.

Art. 2217. Moral damages include physical suffering, mental or damaged baggage of the passenger is LIMITED TO P100.00 for
anguish, fright, serious anxiety, besmirched reputation, wounded each ticket unless a passenger declares a higher valuation in
feelings, moral shock, social humiliation, and similar injury. excess of P100.00, but not in excess, however, of a total valuation
Though incapable of pecuniary computation, moral damages may of P1,000.00 and additional charges are paid pursuant to
be recovered if they are the proximate result of the defendant's Carrier's tariffs.
wrongful act of omission. There is no dispute that petitioner did not declare any higher
Art. 2220. Willful injury to property may be a legal ground for value for his luggage, much less did he pay any additional
awarding moral damages if the court should find that, under the transportation charge.
circumstances, such damages are justly due. The same rule But petitioner argues that there is nothing in the evidence to
applies to breaches of contract where the defendant acted show that he had actually entered into a contract with PAL
fraudulently or in bad faith. limiting the latter's liability for loss or delay of the baggage of its
Petitioner is neither entitled to exemplary damages. In contracts, passengers, and that Article 1750* of the Civil Code has not been
as provided for in Article 2232 of the Civil Code, exemplary complied with.
damages can be granted if the defendant acted in a wanton, While it may be true that petitioner had not signed the plane
fraudulent, reckless, oppressive, or malevolent manner, which ticket (Exh. "12"), he is nevertheless bound by the provisions
has not been proven in this case. thereof. "Such provisions have been held to be a part of the
Petitioner further contends that respondent Court committed contract of carriage, and valid and binding upon the passenger
grave error when it limited PAL's carriage liability to the amount regardless of the latter's lack of knowledge or assent to the
of P100.00 as stipulated at the back of the ticket. In this regulation". 5 It is what is known as a contract of "adhesion", in
connection, respondent Court opined: regards which it has been said that contracts of adhesion wherein
As a general proposition, the plaintiff's maleta having been one party imposes a ready made form of contract on the other, as
pilfered while in the custody of the defendant, it is presumed that the plane ticket in the case at bar, are contracts not entirely
the defendant had been negligent. The liability, however, of PAL prohibited. The one who adheres to the contract is in reality free
for the loss, in accordance with the stipulation written on the to reject it entirely; if he adheres, he gives his consent. 6 And as
back of the ticket, Exhibit 12, is limited to P100.00 per baggage, held in Randolph v. American Airlines, 103 Ohio App. 172, 144
plaintiff not having declared a greater value, and not having N.E. 2d 878; Rosenchein vs. Trans World Airlines, Inc., 349 S.W.
called the attention of the defendant on its true value and paid 2d 483, "a contract limiting liability upon an agreed valuation
the tariff therefor. The validity of this stipulation is not does not offend against the policy of the law forbidding one from
questioned by the plaintiff. They are printed in reasonably and contracting against his own negligence.
fairly big letters, and are easily readable. Moreover, plaintiff had Considering, therefore, that petitioner had failed to declare a
been a frequent passenger of PAL from Cebu to Butuan City and higher value for his baggage, he cannot be permitted a recovery
back, and he, being a lawyer and businessman, must be fully in excess of P100.00.Besides, passengers are advised not to place
aware of these conditions. 4 valuable items inside their baggage but "to avail of our V-cargo
We agree with the foregoing finding. The pertinent Condition of service " (Exh. "1"). I t is likewise to be noted that there is nothing
Carriage printed at the back of the plane ticket reads: in the evidence to show the actual value of the goods allegedly
8. BAGGAGE LIABILITY ... The total liability of the Carrier for lost lost by petitioner.

There is another matter involved, raised as an error by PAL vs.
the fact that on October 24, 1974 or two months after the COURT OF APPEALS (Second Division) and MANUEL
promulgation of the Decision of the appellate Court, petitioner's CANCIO, respondents.
widow filed a Motion for Substitution claiming that petitioner
died on January 6, 1974 and that she only came to know of the CORTES, J.:
adverse Decision on October 23, 1974 when petitioner's law The present controversy arose from the construction of the Gay
partner informed her that he received copy of the Decision on Theater building on the corner of Herran and Singalong Streets in
August 28, 1974. Attached to her Motion was an Affidavit of Manila. Petitioner WELDON CONSTRUCTION CORPORATION
petitioner's law partner reciting facts constitutive of excusable sued the private respondent Manuel Cancio in the then Court of
negligence. The appellate Court noting that all pleadings had First Instance of Manila to recover P62,378.82 Pesos, which is ten
been signed by petitioner himself allowed the widow "to take per (10%) of the total cost of construction of the building, as
such steps as she or counsel may deem necessary." She then filed commission, and P23,788.32 Pesos as cost of additional works
a Motion for Reconsideration over the opposition of PAL which thereon.
alleged that the Court of Appeals Decision, promulgated on The basis for the claim for commission is an alleged contract of
August 22, 1974, had already become final and executory since supervision of construction between the theater owner Manuel
no appeal had been interposed therefrom within the Cancio, herein private respondent, and the petitioner's
reglementary period. predecessors-in-interest, Weldon Construction, which the
Under the circumstances, considering the demise of petitioner petitioner seeks to enforce. The private respondent refused to
himself, who acted as his own counsel, it is best that technicality pay the amounts demanded on the ground that the Gay Theater
yields to the interests of substantial justice. Besides, in the 'last building was constructed by Weldon Construction for the
analysis, no serious prejudice has been caused respondent PAL. stipulated price of P600,000.00 Pesos which has already been
In fine, we hold that the conclusions drawn by respondent Court fully paid. The irreconcilable positions taken by the parties
from the evidence on record are not erroneous. brought the controversy before the courts.
WHEREFORE, for lack of merit, the instant Petition is hereby Two documents, Exhibit "A" and Exhibit "5," were produced by
denied, and the judgment sought to be reviewed hereby affirmed the plaintiff and the defendant, respectively, before the trial
in toto. court. Plaintiff, herein petitioner sought the enforcement of the
No costs. alleged contract of supervision contained in Exhibit "A," which is
SO ORDERED. quoted below:
Teehankee, (Chairman), Makasiar, Fernandez, Guerrero and De March 7, 1961
Castro, JJ., concur. Mr. & Mrs. Manuel Cancio
c/o Goodwill Trading Co.
Rizal Avenue, Manila
Dear Mr. & Mrs. Cancio:
We have the pleasure to offer your goodselves our services for
144. G.R. No. L-35721 October 12, 1987 the construction of your theater and office budding at Singalong
WELDON CONSTRUCTION CORPORATION, petitioner, corner Herran St., Manila per plans and specifications of Engr.

Filomeno Nunez. Transportation of said construction plants, costs of loading and
We shall handle the administration of the construction of your unloading, cost of installation and removing thereof, and minor
building under the following conditions: repairs and replacements of parts during its use on the work, in
1. The Owner shall transfer or advance an amount of TEN accordance with the terms of the said rental agreement.
THOUSAND PESOS (P10,000.00) to serve as a revolving fund and 2. That the Owner shall not reimburse from us the following
to be replenished from time to time to take care of the cost and expenditures:
expenditures incurred for the proper prosecution of the work. a. Salary of any person employed in our main office or in any
Such cost to include the following items and to be at rates not regular established branch office, during the execution of the
higher than the standard paid in the locality of the work except work;
with prior consent of the Owner: b. Overhead or general expenses of any kind, except as those
a. All materials necessary for the work; which maybe expressly included in this Contract;
b. All payrolls including social security and other taxes related c. Interest on capital employed either in plant or in expenditures
thereto; on the work except as maybe expressly included in this contract.
c. Salaries of employees stationed at the field office in whatever 3. That we shall be under the direct supervision of the Owner,
capacity employed. Employees engaged in expediting works or and shad provide facilities for the Owner's representative to have
transportation of materials shall be considered as stationed in access or inspection of the work whether it is in preparation or
the field office; progress.
d. Traveling expenses of adrniniqtrator or employees incurred in 4. That we shall continuously maintain adequate protection of all
discharging duties connected with this work; works from damage and shall protect the Owner's property from
e. Permit fees, royalties, damages for infringement of patents, and injury or loss. We shall protect adjacent properties as provided
cost of defending suits therefore and for deposits lost; by law.
f. Losses and expenses not compensated by insurance provided 5. That we shall receive a commission of Ten Percent (10%) of
they have resulted from causes other than our fault or neglect. No the total cost, to be paid upon submission of statement of cost.
such losses and expenses shall be included in the cost of the work If the above conditions are satisfactory to you, you may sign your
for the purpose of determining the commission. In the event of approval at the left corner provided for in this page.
loss from fire, flood, or other fortuitous events, we shall be put in We shall submit an estimate of the whole project based on the
charge of reconstruction and be paid for a fee proportionate to plans as soon as possible. In as much (sic) as time is of the
the work done; essence, may we proceed right away under the administrative
g. Minor expense, such as telegrams, telephone services and (sic) basis.
similar petty cash items; Respectfully yours,
h. The amount of all subscontracts; WELDON CONSTRUCTION
i. Premiums on all bonds and insurance policies caned for the (Sgd.) ANTONIO C. WONG
execution of the work; Office Manager
j. Rentals of all construction plant or parts thereof neressary in Private respondent Cancio resisted the petitioner's claims for
the execution of the work in accordance with rental agreements commission and for the cost of "extra works" by producing
approved by the owner. Exhibit "5", a building contract providing for the construction of

the building in question for the stipulated price of P600,000.00 (l) Doors for Store Space (to be provided by tenant)
pesos which said private respondent had already paid to the (m) Third Storey (store space up to 2nd floor only)
petitioner's predecessor-in-interest. Exhibit "5" is reproduced as 2. The contractor shall supply the corresponding labor and
follows: materials on said construction which shall include plumbing,
BUILDING CONTRACT tinsmith, masonry, concreting, electrical, carpentry and painting,
KNOW ALL MEN BY THESE PRESENTS: in accordance with the aformentioned plans and specifications
This contract, made and executed in the City of Manila, (except as noted in Art. 1 above.)
Philippines, this 30th day of March 1961 by and between: 3. The building permit shall be paid for by the Owner.
MR. MANUEL CANCIO, of legal age, married and residing at 711 4. The Owner shall pay the Contractor the full amount of SIX
Rizal Avenue, Manila, Philippines, hereinafter referred to as the HUNDRED THOUSAND (P600,000.00) PESOS, Philippine
Owner, Currency, which payment the Owner shall pay in the basis of
- and - work accomplished based on the breakdown attached herewith
WELDON CONSTRUCTION, a construction firm, with main office marked Annex "B" and "C." Such payment shall be paid on the
at No. 1262 Rizal Avenue Extension, Caloocan, Rizal, Philippines, tenth day of every month. Ten percent retention of every
represented herein by its General Manager and proprietor Lucio payment shall be retained by the owner, to be paid upon
Lee, hereinafter referred to as the Contractor, witnesseth: completion of the project.
That, the Owner and the Contractor have agreed to the following 5. The Contractor recognizes that time is an essential element of
terms and conditions: this contract and, on this basis, agrees to finish the construction
1. The Contractor shall erect and build in a workmanlike manner of the said Commercial-Cinema Building by November 30, 1961.
and to the best of its ability a Cinema and Commercial Building Should the contractor fail to finish the said building by that date,
located at Herran corner Singalong, Manila, in accordance with he (the Contractor) shall indemnify the Owner the sum of SIX
the plans and specifications agreed upon by the Owner and the HUNDRED PESOS (P600.00) for each day of delay, as liquidated
Contractor, the latter being made an integral part hereof as damages. Any extensions of the date of completion due to delays
Annex "A"; except the following: caused by force majeure or due to decision of Owner to hold in
(a) Electrical Fixtures abeyance certain portions of work must be approved in writing
(b) Water pumps & Sump pumps by the Owner.
(c) Drinking Fountains 6. The Contractor shall secure from the proper authorities the
(d) Fire Fighting Equipments certificate of final approval of the work completed in accordance
(e) Neon Lights with the plans and specifications, the same shall be given to the
(f) Air Conditioning Owner upon the turnover of the work so completed.
(g) Chair IN WITNESS WHEREOF, the parties have signed this Building
(h) Curtain & Curtain Motors Contract this 30th day of March, 1961, at Manila, Philippines.
(i) Screen (Sgd.) MANUEL CANCIO (Sgd.) LUCIO A. LEE
(j) Mezzanine along Singalong (Except that marked on plans Owner Contractor
noted.) With Marital Consent:
(k) Contractors's Sales Tax (Sgd.) JUANA CANCIO

SIGNED IN THE PRESENCE OF: Not satisfied with the Resolution of its Second Motion for
__________________ ______________________ Reconsideration, plaintiff-appellee WELDON CONSTRUCTION
The then Court of First, instance of Manila ruled that the CORPORATION elevated its case to this Tribunal by certiorari
agreement between the parties is a contract of supervision of under Rule 45 of the Rules of Court.
construction found in Exhibit "A" and ordered the theater-owner 1. The Court is called upon to ascertain whether or not a
Cancio to pay the ten per cent (10%) supervision fee or commission of ten per cent (10%) of the total cost of
commission provided for in said contract (Record on Appeal, p. construction of the Gay Theater building should be paid by the
91). On appeal by the defendant Cancio, the Court of Appeals private respondent pursuant to the alleged contract of
reversed the lower court's Decision and dismissed the Complaint. supervision of construction which the petitioner seeks to enforce.
The appellate court held that the transaction between the parties Stated otherwise, the principal issue presented is whether the
is a construction contract for a stipulated price contained in agreement between the parties is a contract of supervision of
Exhibit "5" (Rollo, pp. 53-62 [Court of Appeals Decision]) The construction on commission basis, in which the case commission
dispositive portion of the Court of Appeals Decision promulgated will be legally demandable, or a construction contract for a
on December 23, 1971 reads: stipulated price which has already been consummated. The
WHEREFORE, the judgment appealed from is reversed and set ancillary issue is whether or not the petitioner can recover the
aside. Let another issue dismissing plaintiff's complaint and cost of additional works on the building. The task at hand entails
ordering ph&tiff to pay defendant-appellant P5,000.00 as moral the interpretation of the true agreement between the parties,
damages, P4,000.00 as exemplary damages, and P4,000.00 as which is in effect an inquiry into the "law" imposed by the parties
attorney's fees. Costs against plaintiff-appellee in both instances. upon their contractual relations. Since a contract is in the nature
SO ORDERED. (Rollo, p. 64) of "law" as between the parties and their successors-in-interest
Both parties moved for the reconsideration of the aforesaid its interpretation necessarily involves a question of law (Melliza
Decision. Plaintiff-appellee WELDON CONSTRUCTION v. City of Iloilo, L-24732, April 30, 1968, 23 SCRA 477, 481)
CORPORATION assailed the Decision as a whole and reiterated its properly raised in this certiorari proceeding under Rule 45.
claims. Defendant-appellant sought an increase in the amount of 2. The facts are not disputed. It appears from the records that in
damages and attomey's fees awarded. In a Resolution dated 1961 Lucio Lee, whose name was later changed to Lucio Lee
February 7, 1972, the same division of the Court of Appeals Rodriguez, was doing business under the trade name Weldon
denied the two Motions for Reconsideration. Upon a Second Construction, the predecessor-in-interest of the herein petitioner,
Motion for Reconsideration filed by the plaintiff-appellee, the WELDON CONSTRUCTION CORPORATION. The latter
Court of Appeals modified its Decision of December 23, 1971 as corporation was incorporated in July, 1963 as a closed
follows: corporation composed of Lucio Tee (owner of Weldon
IN VIEW OF THE FOREGOING CONSIDERATIONS, We hereby Construction), his wife, his sister and the latter's husband, and a
maintain the decision of December 23, 1971, dismissing the cousin. The assets of Weldon Construction were transferred to,
plaintiff's complaint, with the modification that defendant's and its liabilities assumed by the new corporation. Hence, the
counterclaim are also dismissed, without pronouncement as to instant case was brought by WELDON CONSTRUCTION
attorney's fees and costs. CORPORATION as successor-in-interest of Weldon Construction
SO ORDERED. (Resolution, October 18, 1972; [Rollo, p. 124]) and Lucio Lee.

Prior to March 7, 1961, Lucio Lee drafted plans for a theater- cent (3%) contractor's tax. (Court of Appeals Decision, Rollo, p.
apartment building which private respondent Cancio intended to 59). The invoices, receipts of payment, vouchers and payrolls
put up. Thereafter, on March 7, 1961, he submitted to the latter a were not surrendered to the owner but were kept by the
proposal (Exhibit "A") for the supervision of the construction of contractor. (Id. p. 57).
said building on commission basis. The proposal was signed not Shortly after the completion of the theater building and its
by Lee but by his office manager, Antonio Wong. The private delivery to the owner, the latter completed the payment of the
respondent never affixed his signature on the document. P600,000.00 contract price (CA Decision, Rollo, p. 59). However,
Among the provisions Contained in the proposal was the setting Weldon Construction demanded the payment of P62,378.83
up of a revolving fund of P10,000.00 Pesos for the costs and Pesos, as a commission of ten per cent (10%) of the total cost of
expenditures to be incurred in the construction of the building, construction and of P23,788.32 Pesos as the cost of the "extra
such as materials and labor among others (Exhibit "A", par. 1). works" on the building. The owner Cancio denied the existence of
The fund was to be replenished by the owner of the building from any agreement on the payment of commission and refused to pay
time to time (Id). The proposal also provided for the payment to the amounts demanded. Hence, this suit initiated by the WELDON
Weldon Construction of a commission of ten per cent (10%) of CONSTRUCTION CORPORATION, the successor-in-interest of
the total cost of the building (Id., par. 5) Lucio Lee and Weldon Construction.
Without having signed the proposal Exhibit "A" or any written 3. A careful scrutiny of each and every term and stipulation in the
agreement on the construction of the building, private two documents Exhibit "A" and Exhibit ""5" revealed two
respondent Cancio gave an advance payment of P10,000.00 differences between them which are crucial to this case. One
Pesos. Then, on March 28, 1961, Lee submitted another proposal basic difference between the two agreements lies in the proposed
(Exhibit "4") this time for the construction of the same building at consideration for the administration or supervision services.
the stipulated price of P600,000.00 Pesos. Two days after, Lee Proposed under Exhibit "A" was Ten Per cent (10%) of the total
sent the private respondent a prepared "Building Contract" cost of construction (Exh. "A", par. 5) without a maximum
(Exhibit "5") signed by him for the signature of the latter and amount set as a limit on that cost. In contrast, Exhibit "5" sets the
those of the witnesses. Private respondent did not return the stipulated price of the construction of the building at
document to Lee, but the petitioner started the construction of P600,000.00 Pesos, which is the consideration of the contract
the building. When the document (Exhibit "5") was later (Exhibit "5" par. 4). The other point of divergence is the manner
presented in court, it contained the signatures of Lee, as well as in which the expenses for labor and materials are provided for.
the signatures of Manuel Cancio, that of his wife, giving her Exhibit "A", sets up a revolving fund of P10,000.00 Pesos to be
marital consent, and those of two witnesses. paid by the Owner and to be replenished by him from time to
As the construction of the theater building shifted to high gear, time, which fund shall answer for the various costs of
subsequent payments were made by respondent Cancio to construction including labor and materials (Exh. "A" par. 1). No
Weldon Construction as per accomplishment in the varying such fund is provided for in Exhibit "5" since the Contractor
amounts of P70,000.00 Pesos (Court of Appeals Decision, Rollo, p. Weldon Construction binds itself to supply the labor and
56; Exhibits "8-18"). The materials were bought and paid for by materials (Exh. "5", par. 2).
the contractor, although the invoices were in the name of the The first proposal submitted by Weldon Construction for
owner, evidently to avoid payment by the former of the three per rendering service under a contract of supervision (Exhibit "A") is

simply that, a proposal. It never attained perfection as the thereunder and their respective signatures and those of their
contract between the parties. Only an absolute or unqualified witnesses appear upon the face of the document.
acceptance of a definite offer manifests the consent necessary to Thus, even as that the Building Contract in Exhibit "5", was
perfect a contract (Article 1319, New Civil Code). The advance signed by the private respondent only after the Gay Theater
payment of P10,000.00 Pesos was not an unqualified acceptance building had been completed and the stipulated price of
of the offer contained in the first proposal (Exhibit "A") as in fact P600,000.00 Pews fully paid, such fact can no longer negate the
an entirely new proposal (Exhibit "4") was submitted by Weldon binding effect of that agreement if its existence and especially, its
Construction subsequently. If, as claimed by the petitioner, the consummation can be established by other evidence, e.g. by the
parties had already agreed upon a contract of supervision under contemporaneous acts of the parties and their having performed
Exhibit "A," why then was a second proposal made? Res ipsa their respective obligations pursuant to the agreement. As held in
loquitur. The existence of the second proposal belies the Kriedt v. E.C. McCullough & Co., 37 Phil. 474,480 (1918)
perfection of any contract arising from the first proposal . . . . Acts done by the parties to a contract in the course of its
With regard to the second proposal (Exhibit "4") for the performance am admissible in evidence upon the question of its
construction of the building at a stipulated price, the same was meaning as being their own contemporaneous interpretation of
closely followed by the "Building Contract" (Exhibit "5") signed its terms. (Cited in Manila Electric Company v. Court of Appeals,
by Lee, setting forth m detail the proposed terms and L-33794, May 31, 1982, 114 SCRA 173, 181)
stipulations. Although the petitioner claims that the contract was A similar pronouncement was made by the Court in Shell
never returned to its predecessors-in-interest, it appears upon Company of the Philippines, Ltd. v. Firemen's Insurance CO. of
the face of the document (Exhibit "5") that the same was signed Newark, 100 Phil. 757 (1957), to wit:
by the contracting parties and their witnesses. Petitioner does To determine the nature of a contract courts do not have or are
not question the authenticity of the signature of its predecessors- not bound to rely upon the name or title given it by the
in-interest, Lucio Lee, appearing on the document (Exhibit "5"). contracting parties, should there be a controversy as to what they
Lee himself has admitted said signature as his. Petitioner, really had intended to enter into, but the way the contracting
however, impugns the binding effect of the Building Contract parties do or perform their respective obligations, stipulated or
(Exhibit "5") by assailing its due execution. It cans the attention agreed upon may be shown and inquired into, and should such
of the Court to the conclusion of the trial court that the signature performance conflict with the name given the contract by the
of the defendant (herein private respondent) and that of the parties, the former must prevail over the latter (cited in
witness Martinez were affixed on said contract after its Borromeo v. Court of Appeals, L-22962, September 28, 1972, 47
purported date of execution on March 30, 1961 (Record on SCRA 65, 74).
Appeal, pp. 89-90). Thus, the manner in which the parties conducted their
Petitioner's position is untenable. Once a contract is shown to transactions relating to the construction of the Gay Theater
have been consummated or fully performed by the parties building indicates whether the parties had intended to be bound
thereto, its existence and binding effect can no longer be by a construction contract for a stipulated price or by any other
disputed. It is irrelevant and immaterial to dispute the due agreement. The demandability of the amounts sought to be
execution of a contract. i.e.. the date of signing by one of the recovered by the petitioner will depend on the nature of that
parties, if bath of them have in fact performed their obligations agreement.

In this case, the Court finds that the parties adhered to the terms binds himself to execute a piece of work for the employer, in
and stipulations of the Building Contract (Exhibit "5"). After said consideration of a certain price or compensation. The contractor
contract hewing the signature of the contractor Lee was may either employ only his labor or skill or also furnish the
submitted for the signature of the respondent Cancio, subsequent materials.
payments were made by the latter in amounts ranging from In view of all the foregoing considerations this Court finds that
P25,000.00 Pesos to P70,000.00 Pesos. Even granting that the the agreement between the parties is the contract of construction
P10,000.00 Pesos advance payment by the owner was set up as a for a stipulated price contained in Exhibit "5" which is akin to a
revolving fund, these relatively large amounts could hardly be contract for a piece of work defined in the aforequoted article.
considered as mere replenishments of said initial amount. As Both parties having fully performed their reciprocal obligations
correctly reasoned out in the Decision of the Court of Appeal in accordance with said contract, petitioner is estopped from
(Rollo, p. 56), replenishments of the P10,000.00 - peso revolving invoking an entirely different agreement so as to demand
fund could not exceed that amount. The remittances made by the additional consideration. Once a contract has been consummated,
building owner were actually partial payments of the contract there is nothing left to be done or to be demanded by the parties
price of P600,000.00 Pesos, the amount having been based on the thereto. All obligations arising from the contract are
actual accomplishment of the construction during the period extinguished.
covered by the payment. Thus, the receipts issued by Weldon As set by the parties, the consideration for the construction of the
Construction contained the words, "as per accomplishment" Gay Theater building is P600,000.00 Pesos which amount has
(Exhibits "8"-"18"). The aforecited acts of the parties with respect been fully paid by the private respondent. There is no basis for
to said remittances are in consonance with paragraph 4 of the the petitioner's demand for the payment of P62,378.83 Pesos as
Building Contract (Exhibit "5"), to wit: commission of ten per cent (10%) of the total cost of
xxx xxx xxx construction. The denial of petitioner's claim for said amount is
4. The Owner shall pay the Contractor the full amount of SIX affirmed.
HUNDRED THOUSAND (PM,000.00) PESOS Philippine Currency, 4. Since the contract between the parties has been established as
which payment the Owner shall pay in (sic) the basis of work a contract for a piece of work for a stipulated price the right of
accomplished based on breakdowns attached herewith marked the contractor to recover the cost of additional works must be
Annex "B" and "C". Such payments shall be paid on the tenth of governed by Article 1724 quoted as follows:
every month. Ten per cent retention of every payment shall be ART. 1724. The contractor who undertakes to build a structure or
retained by the Owner, to be paid upon the completion of the any other work for a stipulated price, in conformity with plans
project; and specifications agreed upon with the landowner can neither
xxx xxx xxx withdraw from the contract or demand an increase in the price
The inescapable conclusion is that Weldon Construction assumed on account of the higher cost of labor or materials, save when
the obligation to construct the building at the price fixed by the there has been a change in the plans and specifications, provided:
parties and to furnish both the labor and materials required for (1) Such change has been authorized by the proprietor in writing;
the project. It acted as an independent contractor within the and
meaning of Article 1713 of the New Civil Code, which states: (2) The additional price to be paid to the contractor had been
ART. 1713. By the contract for a piece of work the contractor determined in writing by both parties.

This Court has found occasion to expound upon the nature of the works." While the trial court may have found in the instant case
requisites prescribed by Article 1724 in the case of San Diego v. that the private respondent admitted his having requested the
Sayson, L-16258, August 31, 1961, 2 SCRA 1175, 1178-1179, "extra works" done by the contractor (Record an Appeal, p. 66
which is in point: [C.F.I. Decision]), this does not save the day for the petitioner.
xxx xxx xxx The private respondent claims that the contractor agreed to
It will be noted that whereas under the old article recovery for make the additions without additional cost. Expectedly, the
additional costs in a construction contract can be had if petitioner vigorously denies said claim of the private respondent.
authorization to make such additions tan be proved, the This is precisely a misunderstanding between parties to a
amendment evidently requires that instead of merely' proving construction agreement which the lawmakers sought to avoid in
authorization, such authorization must be made in writing. The prescribing the two requisites under Article 1724 (Report of the
evident purpose of the amendment is to prevent litigation for Code Commission, p. 148). And this case is a perfect example of a
additional costs incurred by reason of additions or changes in the tedious litigation which had ensued between the parties as a
original plans. Is this additional requirement of a written result of such misunderstanding. Again, this is what the law
authorization, to be considered as a mere extension of the Statute endeavors to prevent (San Diego v. Sayson, supra).
of Frauds, or is it a substantive provision? That the requirement In the absence of a written authority by the owner for the
for a written authorization is not merely to prohibit admission or changes in the plans and specifications of the building and of a
oral testimony against the objection of the adverse party, can be written agreement between the parties on the additional price to
inferred from the fact that the provision is not included among be paid to the contractor, as required by Article 1724, the claim
those specified in the Statute of Frauds, Article 1403 of the Civil for the cost of additional works on the Gay Theater building must
Code. As it does not appear to have been intended as an be denied.
extension of the Statute of Frauds, it must have been adopted as a WHEREFORE, the judgment of the Court of Appeals in its
substantive provision or a condition precedent to recovery. Decision of December 23, 1971 which was upheld in its
xxx xxx xxx Resolution of October 18, 1972 dismissing the complaint filed by
In addition to the owner's authorization for any change in the Weldon Construction Corporation is AFFIRMED. The
plans and specifications, Article 1724 requires that the additional modification by the Court of Appeals of said Decision in its
price to be paid for the contractor be likewise reduced in writing. Resolution of October 18, 1972 which dismissed the defendant's
Compliance with the two requisites in Article 1724, a specific counterclaims is likewise AFFIRMED. Petition DISMISSED for lack
provision governing additional works, is a condition precedent to of merit.
recovery (San Diego v. Sayson, supra). The absence of one or the SO ORDERED.
other bars the recovery of additional costs. Neither the authority
for the changes made nor the additional price to be paid therefor
may be proved by any other evidence for purposes of recovery.
In the case before this Court, the records do not yield any written
authority for the changes made on the plans and specifications of 145. G.R. No. L-28360 January 27, 1983
the Gay Theater building. Neither can there be found any written C & C COMMERCIAL CORPORATION, plaintiff-appellee,
agreement on the additional price to be paid for said "extra vs.

ANTONIO C. MENOR, as Acting General Manager of the participate in public biddings or in any contract with the
National Waterworks and Sewerage Authority, and Government or any of its subdivisions, branches or
MEMBERS OF THE COMMITTEE ON PRE- instrumentalities. including government-owned or controlled
QUALIFICATION, NAWASA, defendants-appellants. corporations, until after such case or cases are terminated in his
Nicolas T. Benedicto, Jr., for plaintiff-appellee. or its favor, or unless the Secretary of Finance shall certify that
Gov't. Corporate Counsel for defendants-appellants. such cases are pending and not decided without fault on the part
of the taxpayer and the taxpayer submits bond for payment of
AQUINO, J.: taxes that may be assessed against him.
This case is about the requirement of a tax clearance certificate Government offices entities and instrumentalities and local
as a prerequisite for taking part in public biddings or contracts to governments shall impose this condition and shall require, in
sell supplies to any government agency. addition, the latest certified copy of BIR Letter of Confirmation
Judge Cloribel of the Court of First Instance of Manila in his Form No. 19.65-E-I and BIR tax clearance Form No. 1761 as
decision dated March 1, 1967 in Civil Case No. 66750, a prerequisites to participation in any public bidding or execution
mandamus case, ordered the Acting General Manager of the of any contract with them. Violation of this order shall be a
National Waterworks and Sewerage Authority and the members ground for administrative action. (pp. 8-9, Brief for defendants-
of the Committee on Pre-Qualification to allow C & C Commercial appellants).
Corporation to participate as a qualified bidder in the public Menor said that the requirement as to the tax clearance
bidding for the supply of asbestos cement pressure pipes to the certificate was mandatory as held by the Government Corporate
Nawasa in spite of the fact that it had a pending tax case and had Counsel in his Opinion No. 159, Series of 1967.
no tax clearance certificate. On that same date, July 25, 1967, or long after Judge Cloribel's
By virtue of that judgment, which became final because the judgment had been executed and when he had no more
Nawasa did not appeal, C & C Commercial Corporation took part jurisdiction to amend it, C & C Commercial Corporation filed a
in the bidding. When the bids were opened on May 18, 1967, it motion in Civil Case No. 66750 wherein it prayed that the
was found to be the lowest bidder. Nawasa officials be ordered to award to the said corporation the
In a letter dated July 25, 1967, Antonio C. Menor, the acting contract for the supply of asbestos cement pressure pipes, that
general manager of the Nawasa, required C & C Commercial they be restrained from awarding the contract to another bidder
Corporation to submit the tax clearance certificate required in and that they be required to show cause why they should not be
Presidential Administrative Order No, 66 dated June 26, 1967, 63 held in contempt of court. In effect, that motion was another
0. G. 6391, which reads as follows: petition for mandamus.
Now, therefore, I, Ferdinand E. Marcos, President of the Judge Cloribel in his order of August 23, 1967 granted the motion
Philippines, by virtue of the powers vested in me by law, do and ordered Menor and the other Nawasa officials to award
hereby order the disqualification of any person, natural or within ten days from notice the contract to C & C Commercial
juridical, with a pending case before the Bureau of Internal Corporation as the lowest bidder. From that order, the Nawasa
Revenue or the Bureau of Customs or criminal or civil case in appealed to this Court. Judge Cloribel approved its record on
court pending or finally decided against him or it involving non- appeal in his order of November 9, 1967.
payment of any tax, duty or undertaking with the Government, to Realizing that the appeal would delay the award and that another

bidder might be given the contract, C & C Commercial award to Regal Trading Corporation.
Corporation filed in the lower court another petition for Judge Navarro in his order dated February 7, 1968 restrained
mandamus dated November 21, 1967 wherein it prayed that the Menor, the Nawasa, the Committee of Awards and Regal Trading
Nawasa Board of Directors, its Committee of Awards and Menor, Corporation "from going through" with the said contract and
its acting general manager, be restrained from awarding the from opening the corresponding letter of credit until the
contract to another bidder and that they be ordered to award the injunction incident is resolved (pp. 58-59 and 80-81, Rollo).
contract to C & C Commercial Corporation (pp. 29-30, Rollo). In contrast, this Court in its resolution of March 18, 1968 denied
That case, Civil Case No. 71346, was assigned to Judge Francisco C & C Commercial Corporation's aforementioned motion for the
Geronimo. In his order dated January 8, 1968, he denied the issuance of an injunction. As the parties herein had already
motion of C & C Commercial Corporation for a preliminary submitted their briefs, the appeal was submitted for decision.
injunction. He said that the injunction would be inimical to the The issue is the propriety of Judge Cloribel's order compelling the
public interest (p. 37, Rollo). Nawasa officials to award the said contract to C & C Commercial
The Government Corporate Counsel in a manifestation dated Corporation.
January 15, 1968 apprised the lower court that the Nawasa board It may be argued that the issue had become moot because the
of directors in its resolution dated January 11, 1968 awarded the contract had already been awarded to Regal Trading Corporation
contract to Regal Trading Corporation as the "lowest complying in 1968 and at this late hour it can be presumed that the contract
bidder" (p. 38, Rollo). had been fully performed and implemented. Nevertheless, a
Menor in his letter of January 16, 1968 forwarded to the ruling on the contentions of C & C Commercial Corporation is
President of the Philippines for examination and review the necessary, according to the Government Corporate Counsel, "if
contract entered into between the Nawasa and Regal Trading only to make the appellee-corporation stop playing around with
Corporation, acting in behalf of the Sumitomo Shoji Kaisha, Ltd., our courts" (p. 70, Rollo). For the guidance of the bench and bar,
for the supply of asbestos cement pressure pipes worth we have to resolve the legal issues raised by the Nawasa.
$387,814.72 (p. 41, Rollo). The Presidential Economic Staff and We hold that Judge Cloribel acted without jurisdiction and with
the Office of the President approved the contract (p. 64, Rollo). grave abuse of discretion in issuing his erroneous order,
Unable to get an injunction from Judge Geronimo, C & C directing that the Nawasa officials should award the contract to C
Commercial Corporation sought recourse in this Court. In its ex & C Commercial Corporation. The order is erroneous and void for
parte motion of January 28, 1968, it asked this Court to enjoin the the following reasons:
implementation of the said contract (p. 16, Rollo). 1. The said order was an amendment of a judgment that had
The Nawasa opposed the motion on the ground that there was already been satisfied. The case was closed and terminated. Judge
nothing more to be enjoined. Its counsel revealed in its Cloribel had no right and authority to issue such an order after he
opposition what C & C Commercial Corporation had suppressed: had lost jurisdiction over the case. The award of the contract to C
the fact that after Judge Geronimo had denied its petition for & C Commercial Corporation was not the lis mota in the
injunction C & C Commercial Corporation instituted another mandamus case before Judge Cloribel. It was an extraneous
action (the third case) in the Court of First Instance at Pasig, Rizal matter that could not have been injected into that case nor
(presided over by Judge Pedro Navarro), docketed as Civil Case resolved therein. What was in issue was whether C & C
No. 10572, wherein it sought a declaration of the nullity of the Commercial Corporation should be allowed to take part in the

bidding even if it had no tax clearance certificate. 491).
2. The Nawasa was justified in not awarding the contract- to C & It should be noted that "advertisements for bidders are simply
C Commercial Corporation because it had no tax clearance invitations to make proposals, and the advertiser is not bound to
certificate. It had a pending tax case in the Bureau of Internal accept the highest or lowest bidder, unless the contrary appears"
Revenue. The award to C & C Commercial Corporation would be (Art. 1326, Civil Code). No such contrary intention appears in this
in gross contravention of Administrative Order No. 66. case.
That was the ruling in Nawasa vs. Reyes, L-28597, February 29, WHEREFORE, the trial court's order is reversed and set aside
1968, 22 SCRA 905, where the bidder was also the appellee with costs against C & C Commercial Corporation.
herein, C & C Commercial Corporation. It was held therein that C SO ORDERED.
& C Commercial Corporation was disqualified under the said Makasiar (Chairman), Concepcion, Jr., Guerrero and Escolin, JJ.,
order to take part in the bidding to supply the Nawasa with steel concur.
pipes because it had "tremendous tax liabilities".
Under Administrative Order No. 66, the Nawasa officials would
be subject to administrative disciplinary action if they awarded
the contract to C & C Commercial Corporation in spite of its
unsettled tax liabilities. 146. G.R. No. L-48563 May 25, 1979
The trial court erred in holding that Administrative Order No. 66 VICENTE E. TANG, petitioner,
could not be given a retroactive effect to the bid of C & C vs.
Commercial Corporation which allegedly had been allowed to bid HON. COURT OF APPEALS and PHILIPPINE AMERICAN
in prior transactions with the Nawasa in spite of its pending tax LIFE INSURANCE COMPANY, respondents.
case, Ambrosio D. Go for petitioner.
It erred because Administrative Order No. 66 (promulgated after Ferry, De la Rosa, Deligero Salonga & Associates for private
Judge Cloribel had rendered his decision of March 1, 1967) respondent.
covers not only the bidding but also the "execution of any
contract with" the lowest bidder. In this case, at the time the said ABAD SANTOS, J.:
order was issued, no award had as yet been made and when the This is a petition to review on certiorari of the decision of the
award was to be made, the said order was already in force. Court of Appeals (CA-G.R. No. 55407-R, June 8, 1978) which
3. Moreover, it was not the ministerial duty of the Nawasa affirmed the decision of the Court of First Instance of Manila in
officials to award the contract to C & C Commercial Corporation Civil Case No. 90062 wherein the petitioner herein was the
even if it was the lowest bidder, The Nawasa in its addendum plaintiff and Philippine American Life Insurance Co. the herein
No.1 to the invitation to bid dated July 6, 1966 reserved the right respondent was the defendant. The action was for the
"to reject the bid of any bidder" (p. 35, Record on Appeal). enforcement of two insurance policies that had been issued by
Therefore, a bidder whose bid is rejected has no cause for the defendant company under the following circumstances.
complaint nor a right to dispute the award to another bidder On September 25, 1965, Lee See Guat, a widow, 61 years old, and
(Esguerra & Sons vs. Aytona, 114 Phil. 1189; Surigao Mineral an illiterate who spoke only Chinese, applied for an insurance on
Reservation Board vs. Cloribel, L-27072, July 31, 1968, 24 SCRA her life for P60,000 with the respondent Company. The

application consisted of two parts, both in the English language. physical condition and history and/or conspired with whoever
The second part of her application dealt with her state of health assisted her in relaying false information to the medical
and because her answers indicated that she was healthy, the examiner, assuming that the examiner could not communicate
Company issued her Policy No. 0690397, effective October 23, directly with her."
1965, with her nephew Vicente E. Tang, herein Petitioner, as her The issue in this appeal is the application of Art. 1332 of the Civil
beneficiary, Code which stipulates:
On November 15, 1965, Lee See Guat again applied with the Art. 1332. When one of the parties is unable to read, or if the
respondent Company for an additional insurance on her life for contract is in a language not understood by him, and mistake or
P40,000. Considering that her first application had just been fraud is alleged, the person enforcing the contract must show
approved, no further medical examination was made but she was that the terms thereof have been fully explained to the former.
required to accomplish and submit Part I of the application which According to the Code Commission: "This rule is especially
reads: "I/WE HEREBY DECLARE AND AGREE that all questions, necessary in the Philippines where unfortunately there is still a
statements answers contained herein, as well as those made to or fairly large number of illiterates, and where documents are
to be made to the Medical Examiner in Part II are full, complete usually drawn up in English or Spanish." (Report of the Code
and true and bind all parties in interest under the policy herein Commission, p. 136.) Art. 1332 supplements Art. 24 of the Civil
applied for; that there shall be no contract of insurance unless a Code which provides that " In all contractual, property or other
policy is issued on this application and the fun first premium relations, when one of the parties is at a disadvantage on account
thereon, according to the mode of payment specified in answer to of his moral dependence, ignorance, indigence, mental weakness,
question 4D above, actually paid during the lifetime and good tender age or other handicap, the court must be vigilant for his
health of the Proposed Insured." Moreover, her answers in Part II protection.
of her previous application were used in appraising her It is the position of the petitioner that because Lee See Guat was
insurability for the second insurance. On November 28, 1965, illiterate and spoke only Chinese, she could not be held guilty of
Policy No. 695632 was issued to Lee See Guat with the same concealment of her health history because the applications for
Vicente E. Tang as her beneficiary. insurance were in English and the insurer has not proved that the
On April 20, 1966, Lee See Guat died of lung cancer. Thereafter, terms thereof had been fully explained to her.
the beneficiary of the two policies, Vicente E. Tang claimed for It should be noted that under Art. 1332 above quoted, the
their face value in the amount of P100,000 which the insurance obligation to show that the terms of the contract had been fully
company refused to pay on the ground that the insured was explained to the party who is unable to read or understand the
guilty of concealment and misrepresentation at the time she language of the contract, when fraud or mistake is alleged,
applied for the two policies. Hence, the filing of Civil Case No. devolves on the party seeking to enforce it. Here the insurance
90062 in the Court of First Instance of Manila which dismissed company is not seeking to enforce the contracts; on the contrary,
the claim because of the concealment practised by the insured in it is seeking to avoid their performance. It is petitioner who is
violation of the Insurance Law. seeking to enforce them even as fraud or mistake is not alleged.
On appeal, the Court of Appeals, affirmed the decision. In its Accordingly, respondent company was under no obligation to
decision, the Court of Appeals stated, inter alia: "There is no prove that the terms of the insurance contracts were fully
doubt that she deliberately concealed material facts about her explained to the other party. Even if we were to say that the

insurer is the one seeking the performance of the contracts by to the provisions of Commonwealth Act No. 539, for resale to
avoiding paying the claim, it has to be noted as above stated that bona fide tenants or occupants who are qualified to own public
there has been no imputation of mistake or fraud by the illiterate land in the Philippines.1
insured whose personality is represented by her beneficiary the Thereafter, Encabo, through petitioner Cirila Vicencio,
petitioner herein. In sum, Art. 1332 is inapplicable to the case at supposedly as "agent, " came to an agreement with Josue
bar. Considering the findings of both the CFI and Court of Appeals Quesada transferring rights over the lot to the latter, conditioned
that the insured was guilty of concealment as to her state of on approval by the Land Tenure Administration (LTA, for short).
health, we have to affirm. The husband of Cirila Vicencio (Juanito Cario) is a relative of
WHEREFORE, the decision of the Court of Appeals is hereby Quesada; Cirila Vicencio is also a "comadre" of Quesada's wife.2
affirmed. No special pronouncement as to costs. The transfer of rights by Encabo to Quesada was not put in
SO ORDERED. writing but payment of the price for the rights transferred was
Concepcion, Jr., and Santos, JJ., concur. evidenced by receipts (Exhibits "A" and "B") on which Cirila
Aquino, J., concurs in the result. Vicencio signed as a witness.
On 30 July 1957, the LTA, unaware of the transfer of rights by
Encabo to Quesada, adjudicated the lot in favor of Encabo, and
the LTA and Encabo signed an "Agreement to Sell" (Exh. "G-1").
LTA later came to know about the "transfer" of rights from
147. G.R. No. L-47661 July 31, 1987 Encabo to Quesada. It disapproved the same on the ground that
JUANITO CARIO and CIRILA VICENCIO, petitioners, Quesada was not qualified to acquire the lot because he is already
vs. a lot owner.3 However, before the LTA's disapproval of the
COURT OF APPEALS, PABLO ENCABO and JUANITA DE transfer of Encabo's rights to Quesada, the latter had entered into
LOS SANTOS, and LAND AUTHORITY, respondents. possession of the lot in question. Quesada had also allowed Cirila
Vicencio to enter into possession and occupancy of the same lot.4
PADILLA, J.: In November (undated) 1958, Encabo executed a Deed of Sale of
Petition for certiorari filed by the spouses Juanito Cario and House and Transfer of Rights (Exh. "D-1"), purportedly conveying
Cirila Vicencio, seeking the review and reversal of the decision* of to herein petitioners (Juanito Cario and Cirila Vicencio), his
respondent Court of Appeals, dated 15 November 1977, in CA- rights over the lot, subject to approval of the LTA. On 17
G.R. No. 49495-R which affirmed the decision of the Court of First December 1958, Encabo wrote a letter to the LTA (Exh. "1")
Instance of Manila, Branch XXIII, Civil Case No. 57861, and its requesting permission to transfer his rights. Another such
resolution, dated 6 January 1978, denying the petitioners' motion request was made on 20 April 1960 (Exh. "2") but without
for reconsideration. making mention of who the transferee would be, just like in the
The facts derived from the records are as follows: first letter. On 18 April 1960, however, Encabo and Quesada
On 22 January 1954, Pablo Encabo formally applied with the executed a document wherein the latter purportedly resold to the
Land Estates Division, Bureau of Lands, to purchase a parcel of former (Encabo) the house and the rights over the lot.5
land designated as Lot 1, Block 4, Plan Psd-24819, which was a On 19 April 1960, Juanito Cario filed a petition with the LTA
part of the Tuason Estate purchased by the government pursuant seeking approval of the transfer to herein petitioners of rights to

the lot in question on the basis of the Deed of Sale of House and Register of Deeds, has already cancelled Certificate of Title No.
Transfer of Rights executed by Pablo Encabo (Exh. "D-1"). The 67825 as ordered by this Court in its order of September 8, 1967,
petition of Juanito Cario was docketed as LTA Case No. 490, to the said Register of Deeds, upon payment of the required legal
which respondent Pablo Encabo objected and filed an Answer in fees, is ordered to register again the Deed of Sale of Lot 1, Block 4,
opposition thereto. Plan Psd-24819 executed by the Land Authority on April 18,
Essentially, both parties in LTA Case No. 490 (Encabo and the 1967, in favor of the plaintiffs Pablo Encabo and his wife Juanita
spouses Cario) claimed the right to purchase the lot in question de los Santos Encabo and issue in their favor a new certificate of
from the LTA. After the submission of their respective pleadings title for the lot in question; that if Transfer Certificate of Title No.
and evidence, the LTA rendered a decision holding that the status 87826 has not been cancelled by the Register of Deeds, the same
quo should be maintained. It reasoned out that "the authenticity shall remain valid and in full force and effect.
of the alleged deed (Exh. "D-1") is not for this office to decide, as The defendants spouses Juanito Cario and Cirila Vicencio are
only the courts have that prerogative."6 declared the owners of the house constructed on the lot in
The Carios appealed the decision of the LTA to the Office of the question. They should remove the same within sixty (60) days
President, which affirmed it. Motions for reconsideration were after this judgment shall become final, otherwise, the same shall
filed by the Cario's but were denied, the last denial being be ordered demolished.
contained in a letter dated 22 March 1963, signed by Acting Plaintiffs and the Land Authority will recover costs from
Assistant Executive Secretary Juan S. Cancio.7 defendants Cario.
The Carios refused to give up the possession of the lot despite Not satisfied with the aforementioned decision of the Court of
the rulings of the LTA and the Office of the President; thereafter, First Instance of Manila, the herein petitioners (as defendants
the Encabos filed an action in the Court of First Instance of Manila therein) appealed the same to the Court of Appeals which, as
to declare them as the owners of the lot and for the Carios to earlier stated, affirmed the decision of the trial court in all
deliver the possession of the lot itself, and to pay rentals for their respects. Hence, this petition for review filed by the petitioners.
occupancy of the properties plus attorney's fees. After hearing As a rule, factual-findings of the Appellate Court are binding on
and trial, the lower court rendered decision in favor of the this Court.9 As held in Dra. Sofia L. Prudenciado v. Alliance
plaintiffs therein the Encabos now private respondents, the Transport System, Inc. and Jose Layson, et al.:10
dispositive part of which reads as follows:8 . . . . factual findings of the Court of Appeals are binding on the
WHEREFORE, the court renders judgment holding that the Supreme Court, but said findings are subject to scrutiny if such
plaintiffs Pablo Encabo and his wife Juanita de los Santos Encabo are diametrically opposed to those of the trial court.
are entitled to Lot No. 1, Block 4, Plan Psd-24819; that the deed of In the present case, the findings of fact and conclusions of the
sale executed by the Land Authority on April 18, 1967, in favor of Court of First Instance and the Court of Appeals are not at
said spouses is hereby upheld; that the registration of the said variance; the same is true with the findings of fact of the LTA as
deed of sale by the Register of Deeds of Manila and the issuance submitted by the public respondent Land Authority.11 As was
of Transfer Certificate of Title No. 87826 in favor of the plaintiffs held in Buyco v. People,12 this Court on appeal by certiorari from
Encabo are also upheld; that the order of this Court dated the Court of Appeals, could not find otherwise where the
September 8, 1967, cancelling and declaring the said deed of sale Amnesty Commission, the Court of First Instance and the Court of
without any effect is hereby set aside; that in the event that the Appeals all found, in effect, that the evidence did not show that

the appellant had acted in the manner contemplated by Amnesty inspire confidence where it is inconsistent and incompatible with
Proclamation No. 8, after he had been given an opportunity to his statements on other occasions concerning the same fact.16
bring the homicide with which he was charged within its terms. Strongly indicative of the simulated character of Exhibit ,"D-1" is
As we see it, the only legal question that stands as the basis of the fact that the Carios could not produce the receipts
this petition centers on whether the respondent Court of Appeals evidencing their alleged payments to the Land Authority for the
committed grave abuse of discretion in concluding that the Deed disputed lot, nor were they able to produce the Agreement to Sell
of Sale of House and Transfer of Rights (Exhibit D-1 "), on which (Exhibit "G-1"). According to Cirila Vicencio, Juana Encabo took
the petitioners have based their application over the questioned from her the Agreement to Sell and the receipts of payments to
lot, is simulated and, therefore, an inexistent deed of sale. the Land Authority in order to mortgage the land. The Carios,
This Court finds that there is substantial and convincing evidence who are the supposed vendees, did not even remonstrate or offer
that Exhibit "D-1" was a simulated deed of sale and transfer of a word of objection to this act of the Encabos. Cirila Vicencio, on
rights, to warrant the affirmance of the decision of the cross-examination, testified thus:
respondent Court of Appeals. The characteristic of simulation is Q. Do you have the receipts evidencing your payment?
the fact that the apparent contract is not really desired or A. I have but Juana Encabo got them from me.
intended to produce legal effects nor in any way alter the judicial Q. Why did she get the receipts from you?
situation of the parties.13 Under the circumstances surrounding A. SHE REQUESTED ME TO SEND HER THE AGREEMENT TO
their transaction, the parties knew that the document Exhibit "D- SELL AND THE RECEIPTS FOR THE MONTHLY RENTALS
1" was at once fictitious and simulated where none of the parties BECAUSE ACCORDING TO HER SHE WOULD MORTGAGE THE
intended to be bound thereby. DOCUMENTS. 17
The testimony of Cirila Vicencio during her direct examination x x x x x x x x x
was grossly inconsistent with her statements in the LTA Q. If you claim to have purchased the property in question, why
administrative case which she previously filed. She testified in did you still permit the Encabos to mortgage the property?
the lower court that she paid the Encabos five hundred pesos Atty. Olandesca:
(P500.00) for the lot, whereas, in the LTA administrative case she Objection, the question is vague.
said that it was one thousand pesos (P1,000.00).14 Aside from the Court:
purported Deed of Sale (Exhibit "D-1"), there is no other Witness may answer.
document which evidences the payment of a sum of money by A. BECAUSE I AM THE KOMADRE OF THE YOUNG ENCABOS, SO I
Cario to the Encabos for the disputed lot. Cirila Vicencio also TRUSTED THEM. 18
testified in the lower court that Exhibit "D-1" was signed by Pablo Previously, on direct examination, the testimony of Cirila
and Juanita Encabo in Cario's house at 4214 K Int. 8, Sociego, Vicencio, was quite different. She testified thus:
Sta. Mesa, whereas, in the LTA administrative case, she testified Q. Do you have th receipts evidencing your payment?
that it was signed in Las Pinas, Rizal, the residence of the A. I have but Juana Encabo got them from me.
Encabos.15 These inconsistencies in the testimony of the Carios Q. Why did she get the receipts from you?
are badges of untruthfulness, showing that no actual and real sale A. She requested me to lend her the Agreement to Sell and the
of the lot in question took place between the Encabos and the receipts for the monthly rentals because according to her she
Carios. The testimony of a witness does not merit credibility or would mortgage the documents.

Q. When did she borrow the documents from you? petitioners in the lower court. Instead, they gave different
A. About 1960. versions which all the more weakened their stand.
Q. And what did you tell her? Granting that the papers relative to the lot were really in the
A. I got angry and was so worried about it. possession of the Carios, the fact that they were delivered by
Q. Why were you worried? Cirila Vicencio to Juana Encabo, amounted to an act of complete
A. Because I was being embarassed to my neighbors. When they ownership and control of the property by the Encabos. As held in
arrived in our house they brought a document with them and Serrano v. CA,21 this Court finds it strange that respondent
asked me to sign said document. (Macaraya) would allow petitioner (Serrano) to receive the fruits
Q. I am showing to you a document dated April 1960 marked as of the subject property several months after he acquired absolute
Ex. 4 (a Deed of Resale) between the Encabos and the Carios) ownership of the same. This is contrary to the principle of
consisting of an original and three duplicate copies, do you ownership.
recognize this document? The respondent Court also found as a fact that the names of the
A. This is the document they brought to me for signature. Carios were not mentioned as the proposed transferees in the
Q. When Juana Encabo went to see you asking you to sign the two applications with the LTA filed by Pablo Encabo for transfer
document, Exhibit 4 and you said that you were angry and of rights (at a time when the alleged "Deed of Sale and Transfer of
embarassed, what did you do? Rights," Exhibit "D-1" was already executed in favor of the
A. I fainted because of my anger and embarassment. Carios). These applications with the LTA were mere
Q. Did you file any complaint with the LTA because of that? speculations on the part of the Encabos if they should desire to
A. Yes, sir. 19 sell the lot later on (these applications were later withdrawn by
According to Cirila Vicencio, the receipts were borrowed one (1) the Encabos in a letter dated May 9, 1960 [Exhibit 113] and no
week before the case was filed on 19 April 1960.20 It would inference can be made that they intended to transfer the lot
appear then that she delivered to Mrs. Encabo all the papers specifically to the Carios. If there were really an intent, then
relative to the disputed lot so that the latter can mortgage the there was no reason which would stop the Encabos from putting
same, despite the fact that there was already an obvious the name of the Carios as transferees, just like in the application
misunderstanding as to who was the real owner of the house and to transfer to Quesada wherein the latter's name was specifically
lot. If these papers relative to the lot were really in her mentioned. All these appear to clearly indicate a positive lack of
possession, the reasons she gave for delivering them to the intention of the Encabos to transfer any right to the petitioners
Encabos are varied. A more credible reason for the surrender of (Carios).
the papers was the one cited by the Carios in their petition to Another factor which leads the Court not to disturb the
the LTA (Exhibit 100), wherein they alleged "that due to evident respondent Court's finding that Exhibit "D-1" is a simulated
machinations employed by the respondent upon the petitioner document is the fact that such document was executed in
and by taking undue advantage of the latter's innocence and good November 1958 while the Carios petitioned the LTA to approve
faith in his dealings with the former, the respondent herein has the transfer in their names of Encabos' rights to the lot on the
maneuvered the petitioner into releasing to him the official basis of such deed of sale, only on 19 April 1960. The application
receipts issued to the petitioner for the corresponding payments was made just a day after 18 April 1960 when Josue Quesada
made on the lot. But these allegations were never pursued by the resold to Encabo, for the same consideration of P1,500.00 the

house and rights to the lot previously conveyed by the latter to The circumstances surrounding the execution of the document
the former, pursuant to a previous agreement between Quesada Exhibit "D-1" as recounted by the petitioners are bereft of
and the Encabos, providing for such a resale should the transfer credence. They are so weak that they lead to the conclusion that
to Quesada of the Encabos' rights to the lot be disapproved by the indeed, there was no real and actual Deed of Sale entered into.
LTA. Why did it take the petitioners that long to wait before they The petitioners herein have nothing else to support their claim
appealed with the LTA if they really believed that Exhibit "D-1" over the disputed lot except for the Deed of Sale, Exhibit "D-1"
was valid and effective right from the time it was executed in which is even unnotarized, and the exact date of execution,
November 1958? Such lack of eagerness on the part of the unknown. Whereas, on the other hand, the private respondents
Carios to apply with the LTA for the transfer of the lot into their clearly have a preponderance of evidence negating the validity of
name reveals their own conviction that the Deed of Sale is not such deed.
real and effective between them and the Encabos. Contracts of sale are void and produce no effect whatsoever
There is merit to the Encabos' claim that the simulated deed of where the price, which appears therein as paid, has in fact never
sale in favor of the Carios was executed in order to protect the been paid by the vendee to the vendor.23 A sale of land without
money Quesada invested in the purchase of the rights to the lot in consideration, but intended merely to protect a party to a joint
question, which transfer of said lot to his name was later on venture for the cash advances he was to make for the realty
disapproved by the LTA. As can be gleaned from the testimony of subdivision that the parties wanted to put up, is null and void.24
Josue Quesada, he did this by putting Cirila Vicencio as the The law is clear on this matter. The Civil Code provides:
vendee in the stipulated Deed of Sale, when in fact, Encabo and Art. 1409. The following contracts are inexistent and void from
Quesada meant her only as a dummy for the latter. To this effect the beginning:
Quesada testified, despite the warning given to him by the court x x x x x x x x x
that his statement might incriminate him.22 Such candor in the (2) Those which are absolutely simulated or fictitious;
testimony of Quesada gives credibility to the Encabos claim. x x x x x x x x x
From the testimonies of the witnesses, it can be deduced that These contracts cannot be ratified. Neither can the right to set up
Cirila Vicencio was privy to all the transactions relating to the the defense of illegality be waived.
sale of the disputed lot between Encabo and Quesada so that it is Furthermore, even without going into the merits and/or validity
entirely possible for Cirila Vicencio to have been used by Encabo of Exhibit "D-1", it is clear that there has been no legal transfer of
and Quesada as their dummy in the simulated deed of sale and rights in favor of the Carios because neither the LTA nor the
for Cirila Vicencio herself to lend a hand in the scheme so as to Land Authority has approved or given due course to such
protect the interests of Quesada, and in the process, protect transfer of rights.25 The LTA never waived its right to approve the
herself as she was occupying the disputed lot at the instance of transfer of rights. It only ruled that the status quo will be
Quesada. Even at the start, it was Cirila Vicencio who introduced maintained so long as the Court has not yet ruled on the
Quesada to the Encabos in connection with a house and the right authenticity of document Exhibit "D-1". The ownership of the lot
to the lot, which according to Cirila Vicencio, was being sold by by the Carios is still contingent on the approval of the LTA upon
Juanita de los Santos-Encabo. Not only that, Cirila Vicencio signed their compliance with all the requirements of the latter. Since no
as a witness on Exhibits "A" and "B" which are the receipts of approval or due course has yet been given by the LTA or LA to
payment for the disputed lot by Quesada to Encabo.1avvphi1 such transfer of rights, the document Exhibit "D-1" is not

enforceable against the latter. Negros" subtitled "The Moises Padilla Story," 1 the rights to which
WHEREFORE, the petition is hereby DENIED for lack of merit. petitioner had purchased from Atty. Rodriguez in the amount of
Costs against the petitioners. P2,000.00. 2
SO ORDERED. The book narrates the events which culminated in the murder of
Yap, Melencio-Herrera, Paras and Sarmiento, JJ., concur. Moises Padilla sometime between November 11 and November
17, 1951. Padilla was then a mayoralty candidate of the
Nacionalista Party (then the minority party) for the Municipality
of Magallon, Negros Occidental, during the November, 1951
elections. Governor Rafael Lacson, a member of the Liberal Party
148. G.R. No. L-32066 August 6, 1979 then in power and his men were tried and convicted for that
MANUEL LAGUNZAD, petitioner, murder in People vs. Lacson, et al. 3 In the book, Moises Padilla is
vs. portrayed as "a martyr in contemporary political history."
MARIA SOTO VDA. DE GONZALES and THE COURT OF Although the emphasis of the movie was on the public life of
APPEALS, respondents. Moises Padilla, there were portions which dealt with his private
Diosdado P. Peralta for petitioner. and family life including the portrayal in some scenes, of his
Manuel S. Tonogbanua for private respondent. mother, Maria Soto Vda. de Gonzales, private respondent herein,
and of one "Auring" as his girl friend. 4
MELENCIO-HERRERA, J.: The movie was scheduled for a premiere showing on October 16,
Before us is a Petition for Review by certiorari of the Decision of 1961, or at the very latest, before the November, 1961 elections.
the Court of Appeals in CA-G.R. No. 34703, promulgated on On October 3, 1961, petitioner received a telephone call from one
January 13, 1970, affirming the Decision of the Court of First Mrs. Nelly Amante, half-sister of Moises Padilla, objecting to the
Instance of Negros Occidental, dated June 30, 1964, in Civil Case filming of the movie and the "exploitation" of his life. Shown the
No. 6414 entitled "Maria Soto Vda. de Gonzales vs. Manuel early "rushes" of the picture, Mrs. Amante and her sister, Mrs.
Lagunzad," for a Sum of Money and Attachment. Gavieres, objected to many portions thereof notwithstanding
The present controversy stems from a "Licensing Agreement" petitioner's explanation that the movie had been supervised by
entered into by and between petitioner Manuel M. Lagunzad and Ernesto Rodriguez, Jr., based on his book "The Long Dark Night in
private respondent Maria Soto Vda. de Gonzales on October 5, Negros." On October 5, 1961, Mrs. Amante, for and in behalf of
1961, which contract petitioner claims to be null and void for her mother, private respondent, demanded in writing for certain
having been entered into by him under duress, intimidation and changes, corrections and deletions in the movie. 5 Petitioner
undue influence. contends that he acceded to the demands because he had already
The antecedental facts follow: Sometime in August, 1961, invested heavily in the picture to the extent of mortgaging his
petitioner Manuel Lagunzad, a newspaperman, began the properties, 6 in addition to the fact that he had to meet the
production of a movie entitled "The Moises Padilla Story" under scheduled target date of the premiere showing.
the name of his own business outfit, the "MML Productions." It On the same date, October 5, 1961, after some bargaining as to
was based mainly on the copyrighted but unpublished book of the amount to be paid, which was P50,000.00 at first, then
Atty. Ernesto Rodriguez, Jr., entitled "The Long Dark Night in reduced to P20,000.00, 7 petitioner and private respondent,

represented by her daughters and Atty. Ernesto Rodriguez, at the persons portraying some of MOISES PADILLA's kin, including
law office of Jalandoni and Jamir, executed a "Licensing LICENSOR herself;
Agreement" reading as follows: That, for and in consideration of the foregoing premises and the
LICENSING AGREEMENT other covenants and conditions hereunder stated, the LICENSOR
KNOW ALL MEN BY THESE PRESENTS: hereby grants authority and permission to LICENSEE to exploit,
This Agreement, made and executed at the City of Manila, use, and develop the life story of Moises Padilla for purposes of
Philippines, this 5th day of October, 1961, by and between: producing the PICTURE, and in connection with matters
MANUEL M. LAGUNZAD, of legal age, married, presently engaged incidental to said production, such as advertising and the like, as
in the business of producing motion pictures under the style of well as authority and permission for the use of LICENSOR's name
"MML Productions" with residence at 76 Central Boulevard, in the PICTURE and have herself portrayed therein, the authority
Quezon City and with offices at 301 Cu Unjieng Bldg., Escolta, and permission hereby granted, to retroact to the date when
Manila and hereinafter referred to as LICENSEE, LICENSEE first committed any of the acts herein authorized.
and THE CONDITIONS AND OTHER COVENANTS OF THIS
MARIA SOTO VDA. DE GONZALES, of legal age, widow, resident of AGREEMENT ARE AS FOLLOWS:
the Municipality of Moises Padilla, Province of Negros Occidental, 1. For and in consideration of the authority and permission
represented in this Act by her Attorneys-in-fact Atty. Ernesto hereby granted by LICENSOR to LICENSEE, LICENSEE shall pay
Rodriguez, Jr. of legal age and resident of 393F-Buencamino St., LICENSOR, through Atty. Lope E. Adriano at the Pelaez and
San Miguel, Manila; Maria Nelly G. Amazite, of legal age and Jalandoni Law Office, 6th Floor, Magsaysay Bldg., San Luis,
resident of 121 South 13, Quezon City; and Dolores G, Gavieres, of Ermita, Manila, the following:
legal age, and resident of 511 San Rafael Street, Quiapo, Manila, a) The sum of TWENTY THOUSAND PESOS (P20,000.00),
also duly authorized and hereinafter referred to as LICENSOR, Philippine Currency, payable without need of further demand, as
WITNESSETH: follows: P5,000.00 on or before Oct. 10, 1961; P10,000.00 on or
That, the LICENSEE is currently producing a motion picture before Oct. 31, 1961; and P5,000.00 on or before November 30,
entitled "The Moises Padilla Story" (hereinafter referred to as the 1961. In default of the payment of any of these amounts as they
PICTURE, for short) based on certain episodes in the life of fall due, the others become immediately due and demandable.
Moises Padilla, now deceased: b) A royalty in such amount corresponding to TWO AND A HALF
That the LICENSOR is the legitimate mother and only surviving PER CENTUM (2- %) of all gross income or receipts derived by,
compulsory heir of Moises Padilla, the latter not having married and/or for and in behalf of, LICENSEE as rentals and or
during his lifetime and having died without any descendants, percentage of box office receipts from exhibitors and others for
legitimate or illegitimate; the right to exploit, use, distribute and/or exhibit the picture
That, in the PICTURE and in all incidents thereof, such as anywhere here in the Philippines or abroad.
scenarios, advertisements, etc., the LICENSEE has, without the 2) The LICENSEE agrees to keep complete, true and accurate
prior consent and authority of LICENSOR, exploited the life story books of accounts, contracts and vouchers relating to the
of Moises Padilla for pecuniary gain and other profit motives, and exploitation, distribution and exhibition of the PICTURE, the
has, furthermore encroached upon the privacy of Moises Padilla's bookings thereof and the rentals and gross receipts therefrom,
immediate family, and has in fact, included in the PICTURE'S cast, and to give to LICENSOR and/or her accredited representatives,

full access at all reasonable times to all of the said books, the Agreement because of private respondent's demand, through
accounts, records, vouchers and all other papers. Mrs. Amante, for payment for the "exploitation" of the life story
3) The LICENSEE shall furnish LICENSOR monthly statements in of Moises Padilla, otherwise, she would "call a press conference
duplicate, showing in detail the gross receipts accruing from the declaring the whole picture as a fake, fraud and a hoax and would
picture, which monthly statements shall be delivered to the denounce the whole thing in the press, radio, television and that
LICENSOR with reasonable promptness, and upon verification they were going to Court to stop the picture." 8
and approval of said statements by LICENSOR, the LICENSEE On October 10, 1961, petitioner paid private respondent the
shall pay the corresponding royalties due to the LICENSOR. amount of P5,000.00 but contends that he did so not pursuant to
4) The authority and permission herein granted is subject to the their Agreement but just to placate private respondent. 9
condition that LICENSEE shall change, delete, and/or correct On October 14, 1961, the filming of the movie was completed. On
such portions in the PICTURE as the LICENSOR may require, in October 16, 1961, a premiere showing was held at the Hollywood
writing before final printing of the PICTURE, and shall, Theatre, Manila, with the Moises Padilla Society as its sponsor. 10
furthermore, not be understood as a consent to anything in the Subsequently, the movie was shown in different theaters all over
picture that is, or tends to be, derogatory to the deceased MOISES the country.
PADILLA or to LICENSOR. Because petitioner refused to pay any additional amounts
5) The LICENSOR shall not in any way be liable on any claim from pursuant to the Agreement, on December 22, 1961, private
third persons as a result of, or arising from, the manner by which respondent instituted the present suit against him praying for
the PICTURE is put together, nor on any claim arising from the judgment in her favor ordering petitioner 1) to pay her the
production, distribution and exhibition of the PICTURE, and in amount of P15,000.00, with legal interest from the filing of the
the event of any such claim being asserted against LICENSOR, the Complaint; 2) to render an accounting of the proceeds from the
LICENSEE undertakes to hold LICENSOR harmless thereon. picture and to pay the corresponding 2-1/2% royalty therefrom;
6) This agreement shall be binding upon the parties hereto, their 3) to pay attorney's fees equivalent to 20% of the amounts
representatives, administrators, successors and assigns. claimed; and 4) to pay the costs.
IN WITNESS WHEREOF, the parties have hereunto set their Traversing the Complaint, petitioner contended in his Answer
hands on the date and at the place first above stated. that the episodes in the life of Moises Padilla depicted in the
MARIA SOTO VDA. DE GONZALES MANUEL M. LAGUNZAD movie were matters of public knowledge and occurred at or
Licensor Licensee about the same time that the deceased became and was a public
By: figure; that private respondent has no property right over those
(Sgd.) ERNESTO R. RODRIGUEZ, Jr. incidents; that the Licensing Agreement was without valid cause
(Sgd.) MARIA NELLY G. AMANTE or consideration and that he signed the same only because
(Sgd.) DOLORES G. GAVIERES private respondent threatened him with unfounded and
Attorneys-in-fact harassing action which would have delayed production; and that
SIGNED IN THE PRESENCE OF: he paid private respondent the amount of P5,000.00 in October,
LOPE E. ADRIANO ILLEGIBLE 1961, only because of the coercion and threat employed upon
ACKNOWLEDGMENT him. By way of counterclaim, petitioner demanded that the
Petitioner takes the position that he was pressured into signing Licensing Agreement be declared null and void for being without

any valid cause; that private respondent be ordered to return to III. THE COURT OF APPEALS ERRED IN NOT DECLARING THE
him the amount of P5,000.00; and that he be paid P50,000.00 by LICENSING AGREEMENT, EXHIBIT "A", NULL AND VOID FOR
way of moral damages, and P7,500.00 as attorney's fees. LACK OF, OR FOR HAVING AN ILLEGAL CAUSE OR
Private respondent duly filed her Answer to Counterclaim CONSIDERATION OF CONTRACT, PETITIONER HAVING
alleging that the transaction between her and petitioner was PREVIOUSLY OBTAINED THE AUTHORITY AND/OR PERMISSION
entered into freely and voluntarily. PURPOSELY GRANTED TO HIM BY RESPONDENT UNDER SAID
On June 30, 1964, the trial Court rendered a Decision, and LICENSING AGREEMENT;
decreed in its dispositive portion: IV. THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE
WHEREFORE, judgment is hereby rendered ordering the LICENSING AGREEMENT, EXHIBIT "A", IS NULL AND VOID;
defendant Manuel Lagunzad to pay the plaintiff the sum of RESPONDENT NOT HAVING HAD ANY PROPERTY NIGHTS OVER
P15,000.00 with interest at the rate of 6% per annum from THE INCIDENTS IN THE LIFE OF MOISES PADILLA WHO WAS A
December 22, 1961 up to its complete payment; to order the PUBLIC FIGURE.
defendant to render an accounting of the gross income or V. THE COURT OF APPEALS ERRED IN NOT FINDING THAT THE
proceeds derived from the exhibition, use and/or rental of the LICENSING AGREEMENT, EXHIBIT "A", WAS NULL AND VOID,
motion picture of "The Moises Padilla Story" and to pay the PETITIONER'S CONSENT HAVING BEEN PROCURED BY MEANS
plaintiff 2- 1/2% of said gross income; to pay the plaintiff the OF DURESS, INTIMIDATION AND UNDUE INFLUENCE;
amount equivalent to 20% of the amount due the plaintiff under VI. THE COURT OF APPEALS, IN UPHOLDING THE RIGHT TO
the first cause of action as attorney's fees; and to pay the costs. PRIVACY OF RESPONDENT AS DEFINED IN ART. 26 OF THE NEW
On appeal to the Court of Appeals, the latter Court affirmed the CIVIL CODE OVER THE RIGHT OF PETITIONER TO FILM THE
judgment. Reconsideration having been denied by the Court, PUBLIC LIFE OF A PUBLIC FIGURE, INFRINGED UPON THE
petitioner filed the instant Petition for Review on Certiorari. CONSTITUTIONAL RIGHT OF PETITIONER TO FREE SPEECH
Initially, or on June 16, 1970, this Court denied the Petition for AND FREE PRESS.
lack of merit, but resolved subsequently to give it due course We find the assigned errors bereft of merit.
after petitioner moved for reconsideration on the additional Petitioner's contention that because an accounting had been
argument that the movie production was in exercise of the ordered, respondent Court of Appeals did not have jurisdiction
constitutional right of freedom of expression, and that the over the case as the Decision of the lower Court was not yet final
Licensing cement is a form of restraint on the freedom of speech and appealable, is untenable. The doctrine enunciated in
and of the press. Fuentebella vs. Carrascoso 11 relied upon by petitioner, which
In his Brief, petitioner assigns the following errors to the held that whether or not the action for accounting is the principal
appellate Court: action or is merely incidental to another, the judgment requiring
I. THE COURT OF APPEALS ERRED IN EXERCISING such accounting cannot be final, has been abandoned in Miranda
JURISDICTION IN THE CASE BECAUSE THE JUDGMENT vs. Court of Appeals 12 which ruled:
APPEALED FROM WAS INTERLOCUTORY IN NATURE AND For the guidance of bench and bar, the Court declares as
CHARACTER; abandoned the doctrine of Fuentebella vs. Carrascoso and adopts
II. THE COURT OF APPEALS ERRED IN ITS FAILURE TO MAKE the opposite rule that judgments for recovery with accounting
COMPLETE FINDINGS OF FACTS ON ALL ISSUES BEFORE IT; are final and appealable (without need of awaiting the

accounting) and would become final and executory if not representation of a person, no matter how public a figure he or
appealed within the reglementary period. she may be. 15 In the case at bar, while it is true that petitioner
In other words, where there is complete adjudication and exerted efforts to present a true-to-life story of Moises Padilla,
determination of the rights and obligations of the parties, as in petitioner admits that he included a little romance in the film
the instant case, an order for accounting in that judgment does because without it, it would be a drab story of torture and
not affect its final character, said accounting being merely brutality. 16
incidental to the judgment. We also find it difficult to sustain petitioner's posture that his
Petitioner's contention that respondent Court failed to make consent to the Licensing Agreement was procured thru duress,
complete findings of fact on all issues raised before it is without intimidation and undue influence exerted on him by private
basis. A careful study of the Decision reveals that respondent respondent and her daughters at a time when he had exhausted
Court has substantially and sufficiently complied with the his financial resources, the premiere showing of the picture was
injunction that a decision must state clearly and distinctly the imminent, and "time was of the essence." As held in Martinez vs.
facts and the law on which it is based. The rule remains that the Hongkong & Shanghai Bank, 17 it is necessary to distinguish
ultimate test as to the sufficiency of a Court's findings of fact is between real duress and the motive which is present when one
"whether they are comprehensive enough and pertinent to the gives his consent reluctantly. A contract is valid even though one
issues raised to provide a basis for decision." 13 The judgment of the parties entered into it against his own wish and desires, or
sought to be reviewed sufficiently complies with this even against his better judgment. In legal effect, there is no
requirement. difference between a contract wherein one of the contracting
Neither do we agree with petitioner's submission that the parties exchanges one condition for another because he looks for
Licensing Agreement is null and void for lack of, or for having an greater profit or gain by reason of such change, and an agreement
illegal cause or consideration. While it is true that petitioner had wherein one of the contracting parties agrees to accept the lesser
purchased the rights to the book entitled "The Moises Padilla of two disadvantages. In either case, he makes a choice free and
Story," that did not dispense with the need for prior consent and untramelled and must accordingly abide by it. The Licensing
authority from the deceased heirs to portray publicly episodes in Agreement has the force of law between the contracting parties
said deceased's life and in that of his mother and the members of and since its provisions are not contrary to law, morals, good
his family. As held in Schuyler v. Curtis, 14 "a privilege may be customs, public order or public policy (Art. 1306, Civil Code),
given the surviving relatives of a deceased person to protect his petitioner Should comply with it in good faith.
memory, but the privilege exists for the benefit of the living, to Lastly, neither do we find merit in petitioner's contention that the
protect their feelings and to prevent a violation of their own Licensing Agreement infringes on the constitutional right of
rights in the character and memory of the deceased." freedom of speech and of the press, in that, as a citizen and as a
Petitioner's averment that private respondent did not have any newspaperman, he had the right to express his thoughts in film
property right over the life of Moises Padilla since the latter was on the public life of Moises Padilla without prior restraint. The
a public figure, is neither well taken. Being a public figure ipso right of freedom of expression, indeed, occupies a preferred
facto does not automatically destroy in toto a person's right to position in the "hierarchy of civil liberties." 18 It is not, however,
privacy. The right to invade a person's privacy to disseminate without limitations. As held in Gonzales vs. Commission on
public information does not extend to a fictional or novelized Elections, 27 SCRA 835, 858 (1969):

From the language of the specific constitutional provision, it vs.
would appear that the right is not susceptible of any limitation. OLYMPIC SAWMILL CO. and ELINO LEE CHI, defendants-
No law may be passed abridging the freedom of speech and of the appellants.
press. The realities of life in a complex society preclude however, Felizardo S.M. de Guzman for plaintiff-appellee.
a literal interpretation. Freedom of expression is not an absolute. Mariano M. de Joya for defendants-appellants.
It would be too much to insist that at all times and under all
circumstances it should remain unfettered and unrestrained. MELENCIO-HERRERA, J.:
There are other societal values that press for recognition. This is an appeal by defendants from a Decision rendered by the
The prevailing doctrine is that the clear and present danger rule then Court of First Instance of Bulacan. The appeal was originally
is such a limitation. Another criterion for permissible limitation taken to the then Court of Appeals, which endorsed it to this
on freedom of speech and of the press, which includes such instance stating that the issue involved was one of law.
vehicles of the mass media as radio, television and the movies, is It appears that on or about September 7, 1957, plaintiff loaned
the "balancing-of-interests test." 19 The principle i requires a P10,000.00, without interest, to defendant partnership and
court to take conscious and detailed consideration of the defendant Elino Lee Chi, as the managing partner. The loan
interplay of interests observable in a given situation or type of became ultimately due on January 31, 1960, but was not paid on
situation." 20 that date, with the debtors asking for an extension of three
In the case at bar, the interests observable are the right to privacy months, or up to April 30, 1960.
asserted by respondent and the right of -freedom of expression On March 17, 1960, the parties executed another loan document.
invoked by petitioner. Taking into account the interplay of those Payment of the P10,000.00 was extended to April 30, 1960, but
interests, we hold that under the particular circumstances the obligation was increased by P6,000.00 as follows:
presented, and considering the obligations assumed in the That the sum of SIX THOUSAND PESOS (P6,000.00), Philippine
Licensing Agreement entered into by petitioner, the validity of currency shall form part of the principal obligation to answer for
such agreement will have to be upheld particularly because the attorney's fees, legal interest, and other cost incident thereto to
limits of freedom of expression are reached when expression be paid unto the creditor and his successors in interest upon the
touches upon matters of essentially private concern. termination of this agreement.
WHEREFORE, the Petition for Review is denied and the judgment Defendants again failed to pay their obligation by April 30, 1960
appealed from hereby affirmed. Costs against petitioner. and, on September 23, 1960, plaintiff instituted this collection
SO ORDERED. case. Defendants admitted the P10,000.00 principal obligation,
Makasiar, Fernandez, Guerrero and De Castro, JJ., concur. but claimed that the additional P6,000.00 constituted usurious
Teehankee, (Chairman), J, concur in the result. interest.
Upon application of plaintiff, the Trial Court issued, on the same
date of September 23, 1960, a writ of Attachment on real and
personal properties of defendants located at Karanglan, Nueva
Ecija. After the Writ of Attachment was implemented,
149. G.R. No. L-30771 May 28, 1984 proceedings before the Trial Court versed principally in regards
LIAM LAW, plaintiff-appellee, to the attachment.

On January 18, 1961, an Order was issued by the Trial Court its answer under oath denying the allegation of usury, the
stating that "after considering the manifestation of both counsel in defendant shall be deemed to have admitted the usury. The
Chambers, the Court hereby allows both parties to provision does not apply to a case, as in the present, where it is
simultaneously submit a Motion for Summary Judgment. 1 The the defendant, not the plaintiff, who is alleging usury.
plaintiff filed his Motion for Summary Judgment on January 31, Moreover, for sometime now, usury has been legally non-
1961, while defendants filed theirs on February 2, 196l. 2 existent. Interest can now be charged as lender and borrower
On June 26, 1961, the Trial Court rendered decision ordering may agree upon. 4 The Rules of Court in regards to allegations of
defendants to pay plaintiff "the amount of P10,000.00 plus the usury, procedural in nature, should be considered repealed with
further sum of P6,000.00 by way of liquidated damages . . . with retroactive effect.
legal rate of interest on both amounts from April 30, 1960." It is Statutes regulating the procedure of the courts will be construed
from this judgment that defendants have appealed. as applicable to actions pending and undetermined at the time of
We have decided to affirm. their passage. Procedural laws are retrospective in that sense and
Under Article 1354 of the Civil Code, in regards to the agreement to that extent. 5
of the parties relative to the P6,000.00 obligation, "it is presumed ... Section 24(d), Republic Act No. 876, known as the Arbitration
that it exists and is lawful, unless the debtor proves the contrary". Law, which took effect on 19 December 1953, and may be
No evidentiary hearing having been held, it has to be concluded retroactively applied to the case at bar because it is procedural in
that defendants had not proven that the P6,000.00 obligation was nature. ... 6
illegal. Confirming the Trial Court's finding, we view the WHEREFORE, the appealed judgment is hereby affirmed, without
P6,000.00 obligation as liquidated damages suffered by plaintiff, pronouncement as to costs.
as of March 17, 1960, representing loss of interest income, SO ORDERED.
attorney's fees and incidentals. Teehankee (Chairman), Plana, Relova, Gutierrez, Jr. and De la
The main thrust of defendants' appeal is the allegation in their Fuente, JJ., concur.
Answer that the P6,000.00 constituted usurious interest. They
insist the claim of usury should have been deemed admitted by
plaintiff as it was "not denied specifically and under oath". 3
Section 9 of the Usury Law (Act 2655) provided:
SEC. 9. The person or corporation sued shall file its answer in 150. G.R. No. L-61898 August 9, 1985
writing under oath to any complaint brought or filed against said LAO SOK, petitioner
person or corporation before a competent court to recover the vs.
money or other personal or real property, seeds or agricultural LYDIA SABAYSABAY, AMPARO MANGULAT, ROSITA
products, charged or received in violation of the provisions of SALVIEJO, NENITA RUINATA, VILMA CAPILLO,
this Act. The lack of taking an oath to an answer to a complaint VIRGINIA SANORJO and THE NATIONAL LABOR
will mean the admission of the facts contained in the latter. RELATIONS COMMISSION, respondents.
The foregoing provision envisages a complaint filed against an
entity which has committed usury, for the recovery of the GUTIERREZ, JR., J.:
usurious interest paid. In that case, if the entity sued shall not file This is a petition for review which seeks to set aside for grave

abuse of discretion the decision of the National Labor Relations and against the respondent, ordering the latter to pay the former
Commission dated June 21, 1982 affirming the decision of Labor their separation pay equivalent to one month salary for every
Arbiter Apolonio L. Reyes ordering the petitioner to pay the year of service proportionate to their individual length of service
private respondents their separation pay. with the respondents at legal rate of interest in the event that
The undisputed facts are: respondent failed or refused to pay the same within ten days
Petitioner Lao Sok owned and operated the Shelton Department from receipt thereof. Other issues are dismissed for being
Store located at Carriedo Street, Quiapo, Manila. judicata.
Private respondents, Lydia Sabaysabay, Amparo Mangulat, Rosita On October 2, 1981, the petitioner appealed said decision to the
Salviejo, Nenita Ruinata, Vilma Capillo and Virginia Sanorjo were National Labor Relations Commission (NLRC).
all salesladies of the department store with a daily wage of The NLRC affirmed the decision of the Labor Arbiter and
P14.00 each. dismissed the appeal.
On October 12, 1980, petitioner's store was razed by fire. He did Petitioner moved for a reconsideration of the decision but the
not report the loss of jobs of the salesladies which resulted from motion was likewise denied.
the burning of his department store to the Regional Office of the Hence, this petition for review.
Ministry of Labor. The issue in this case is whether or not petitioner Lao Sok is
Petitioner promised the private respondents that he would obligated to pay the private respondents' separation pay.
transfer them to his other department stores. Several weeks The petitioner contends that he may not be compelled to pay
passed but petitioner still did not fulfill his promise. separation pay on the basis of his mere failure to make a report
The petitioner, however, told the respondents that he would give about the fire and the consequent dismissal of his employees
them their separation pay and other benefits due them as soon as which may be effected without prior clearance. Sections 10 and
he collected the insurance proceeds arising from his burned 11 (c), Rule XIV, Book V of the Labor Code provide:
store. The private respondents accepted this offer of the Sec. 10. Exception. No clearance is required if the shutdown of
petitioner. establishment is due to serious accidents, fire, flood, typhoon,
Petitioner later collected the proceeds of his insurance but he did earthquakes, or other disaster, calamity or public emergencies,
not give the private respondents their separation pay and other provided that the employer makes a report thereon to the
benefits. Neither did he employ them in his other stores as earlier Regional Office in accordance with the form prescribed by the
promised. Department.
On May 14, 1981, the private respondents filed a complaint with Sec. 11. When reports required. -Every employer shall submit a
the Ministry of Labor and Employment charging the petitioner report to the Regional Office in accordance with the form
with illegal dismissal and non-payment of their separation pay, prescribed by the Department on the following instances of
allowance and incentive leave pay. termination of employment, suspension, layoff or shutdown
Labor Arbiter Apolonio L. Reyes required the parties to submit which may be effected by the employer without prior clearance,
their position papers and on the basis of these position papers, he within five (5) days thereafter:
rendered a decision on July 23, 1981, the dispositive portion of (a) ...
which reads: (b) ...
WHEREFORE, judgment is rendered in favor of the complainants (c) All shutdowns or cessations of work or operations falling

under the exceptional circumstances specified in Section 10 promises which could be fulfilled but which were not fulfilled
hereof; aggravated the situation.
xxx xxx xxx That petitioner Lao Sok promised to give his employees their
Compliance with the above rules is only an administrative matter separation pay, as soon as he receives the insurance proceeds for
and the failure to make a report does not make the dismissal his burned building was not rebutted. ln fact, it appears to have
illegal per se. But the employer who fails to file such report may been undisputed until the petitioner filed his memorandum on
be subjected to such administrative penalties or sanctions as may December 6,1984.
be duly provided. (Oceanic Bic Division (FFW) vs. Romero, 130 We quote with favor the Solicitor General's explanation:
SCRA 392,405). xxx xxx xxx
However, the petitioner's obligation to pay severance ... It was in reality not a mere 'promise' as petitioner terms it but
compensation is not based on his failure to make a report or to a contract, because all the essential requisites of a valid contract
ask for a prior clearance. Article 284 of the Labor Code provides are present, to wit: (1) consent was freely given by the parties,
for separation pay whenever there is a reduction of personnel (2) there was a subject matter, which is the payment of the
caused by the closure of an establishment which is not intended separation pay of private respondents, and (3) a cause, which is
to circumvent the provisions of the law. We also note that Book the loss of job of private respondents who had been petitioner's
VI, Rule 1, Section 4 (b) of the Rules and Regulations salesladies for several years. ... .
Implementing the Labor Code provides: xxx xxx xxx
xxx xxx xxx Respondent NLRC, therefore, acted properly in ordering
(b) In case the establishment where the employee is to be petitioner to give private respondents their separation pay as he
reinstated has closed or ceased operations or where his former was bound to comply with his contractual obligation which is the
position no longer exists at the time of reinstatement for reasons law between the parties (Phoenix Assurance Co. LTD. v. United
not attributable to the fault of the employer, the employee shall be States Lines, 22 SCRA 674). ... .
entitled to separation pay equivalent at least to one month salary Lao Sok made an offer which was duly accepted by the private
or to one month salary for every year of service, whichever is respondents. There was, therefore, a meeting of the minds
higher, a fraction of at least six months being considered as one between two parties whereby one bound himself with respect to
whole year. (emphasis supplied). the other, to give something or to render some service (Article
The department store or the establishment where the six 1305, Civil Code). By the unconditional acceptance of the offer
salesladies are employed has ceased operations and admittedly, that they would be paid separation pay, a contract was therefore
it was due to reasons not attributable to the fault of the employer. perfected. As held in the case of Herrera v. Auditor General, (102
But while we can not fault petitioner Lao Sok for the loss of his Phil. 875):
store due to a fortuitous event, his acts subsequent to the fire are xxx xxx xxx
equally deplorable as a termination without just cause. There is ... the Government, through the Quezon City Engineer had as late
certainly a need to alleviate the plight of the employees who have as 1955 acknowledged the financial obligation of the
lost their jobs or sources of livelihood as a result of the closure or Government, and even offered to pay it, and what is more, the
cessation of operations of the establishment. Their being given offer was duly accepted by Herrera, thereby constituting a
the run around after the loss of their jobs and their being given contract, and a renewal of the obligation. (emphasis supplied).

Petitioner contends that the contract though orally made is enterprise consisting of the operation of various department
unenforceable since it does not comply with the Statute of stores did not really close down or cease.
Frauds. We agree with the respondents that:
This contention has no merit. xxx xxx xxx
Contracts in whatever form they may have been entered into are ... the record shows that petitioner voluntarily agreed to
binding on the parties unless form is essential for the validity and compensate private respondents for the loss of their jobs because
enforceability of that particular contract. (See Lopez v. Auditor they have been his salesladies for a long time; that he did this
General, 20 SCRA 655). We held in Shaffer v. Palma (22 SCRA freely and spontaneously (Motion for Reconsideration, p. 88,
934): record). He should not now, therefore, be allowed to renege on an
xxx xxx xxx obligation of his own making. To do so, would be unjust and
... Whether the agreement is in writing or not is a question of unfair to the private respondents who took his word for it in
evidence. Nevertheless, even granting that the agreement is not good faith. The validity of that agreement must, consequently, be
in writing, this circumstance does not militate against the validity sustained (Jimeno v. Gacilago, 14 Phil. 16; Legarda v. Ongsiaco, 36
or enforceability of said agreement, because contracts are Phil. 185).
binding upon the parties in whatever form they may have been Both the law and equity dictate that private respondents must be
entered into unless the law requires otherwise. (Article 1356, compensated for the loss of their jobs considering that they were
Civil Code; Lopez v. The Auditor General, et al., L-25859, July 13, kept waiting and hoping that they would be re-employed by the
1967; Pilar Gil Vdan de Murciano v. The Auditor General, et al., petitioner, if not paid their severance pay.
103 Phil. 907). It is true that Article 1358 of the Civil Code WHEREFORE, the decision is hereby AFFIRMED and judgment is
provides that contracts involving more than P500.00 must rendered in favor of private respondents, ordering the petitioner
appear in writing, but nothing is said therein that such to pay the former their separation pay equivalent to one month
requirement is necessary for their validity or enforceability. It salary for every year of service proportionate to their individual
has been held that the writing required under Article 1358 is lengths of service with the petitioner.
merely for convenience, (Thunga Chui v. Que Bentac, 2 Phil. 561; SO ORDERED.
Ng Hoc v. Tong Ho, 52 0,G., 4396) and so the agreement alleged in Melencio-Herrera, Plana, Relova, De la Fuente and Alampay, JJ.,
the amended complaint in the present case can be enforced even concur.
if it may not be in writing. Teehankee (Chairman), J., concurs in the result.
The requirement of writing for the offer made by Lao Sok is only
for convenience and not enforceability. In fact, the petitioner
could be compelled to put the offer in writing, a step no longer
necessary now because of this petition.
Furthermore, it was also established that petitioner Lao Sok has 151. G.R. No. L-67742 October 29, 1987
other department stores where he promised to absorb the MELITON GALLARDO and TERESA VILLANUEVA,
salesladies. He was likewise remiss in this obligation. There is petitioners,
Merit in the Solicitor General's submission that, in effect, the fire vs.
closed only a division or unit of Lao Sok's business. His entire HONORABLE INTERMEDIATE APPELLATE COURT,

MARTA VILLANUEVA VDA. DE AGANA, VISITACION was sold to them in a private document, an unnotarized deed of
AGANA KIPPING, PEDRO V. AGANA, MARCELO V. sale written in Tagalog (Annex "B" of the complaint) that was
AGANA, JR., TERESITA AGANA SANTOS and JESUS V. allegedly signed by the late Pedro Villanueva conveying and
AGANA, respondents. transfering the property in question in favor of the petitioners
(Record on Appeal, Exhibit "B", pp. 9-10) which deed is
PARAS, J.: reproduced as follows.
This is a petition for review on certiorari seeking to set aside or Ako, Pedro Villanueva, 66 taong gulang, balo at nananahanan sa
reverse the decision * of the Intermediate Appellate Court (now municipio ng Cavinti, lalawigang Laguna at Kapuluang Pilipinas,
Court of Appeals) promulgated on May 22, 1984 in AC-G.R. CV No. alang-alang sa halagang LIMANG DAANG PISO (P500.00) salaping
69946 entitled Meliton Gallardo and Teresa Villanueva v. Marta filipino, na sa akin ibinayad ng mag-asawa ni Meliton Gallardo at
Villanueva vda. de Agana, et al. (Rollo, p. 37) affirming the Teresa Villanueva, tagarito rin sa nasabing municipio, lalawigang
decision ** of the Court of First Instance of Laguna 8th Judicial at kapulwan sa hinaharap ng kasulatan ay sinasaysay ko na aking
District, Branch II, Sta. Cruz, Laguna (now Regional Trial Court, inilillwat at pinagbili ng biling patuluyan sa nasabing mag-asawa
Sta. Cruz, Laguna) dated January 20, 1982, which dismissed the Meliton Gallardo at Teresa Villanueva, sampo na sa kanilay
complaint for Quieting of Title in Civil Case No. SC-1492 and mangagmamana at hahalili, ang aking isang palagay na lupa na
declared the plaintiff's (petitioner's herein) Re-constituted nabubuo sa limang luang na tubigan, punlang kalahating kabang
Transfer Certificate of Title RT-6293 (No. 23350) as null and void palay at saka dalatan o katihan na may isang kabang palay na
(Record on Appeal, pp. 215-216). hasik, tumatayo sa nayon ng Kanlurang Talaongan, sakop nitong
The dispositive portion of the questioned decision reads as municipio ng Cavinti at napapaloob sa mga hangganang
follows: sumusunod:
WHEREFORE, the appealed judgment is in full accord with the HILAGAAN, Braulio Villanueva at Modesto Ribera
evidence and the law and is hereby therefore affirmed in all its SILANGAN, Braulio Villanueva.
part. Costs against plaintiff -appellants TIMUGAN, Braulio Villanueva, Ilog Kaliraya at Jacinto Toque
SO ORDERED. KANLURAN, Jacinto Toque.
The subject matter of this controversy involves a parcel of land Ang pagaaring ito ay tunay kong pananarili sapagkat aking nabili
situated in Cavinti, Laguna consisting of 81,300 square meters, sa magkakapatid na Aniano Gallardo, Zacarias Gallardo at
more or less, initially covered by an original Certificate of Title Perfecto Gallardo at natatala sa Registro ng Amillarmiento dito sa
No. 2262, issued on April 2, 1924 owned and registered in the Cavinti sa ilalim ng Blg. 22888, at walang ano mang
name of the late Pedro Villanueva (former Justice of the Peace of ipinagkakautang ni pinanagutan kaya at magagamit na nitong
the Municipal Court, Cavinti, Laguna), pursuant to Decree No. aking pinagbilhan ang kanilang matuwid na maipamana at
150562 issued in L.R.C. Cadastral Record No. 136, Cad. Case No. 1 mailiwa sa iba. Gayon ding sinasaysay ko na akoy umaakong
(Record on Appeal; Answer, p. 28). mananagutan dito sa aking pinagbilhan, tungkol sa pagaaring ito
Petitioners were nephew and niece of the late Pedro Villanueva na ang katibay ay aking ipagsasanggalang laban sa kanino mang
and first cousin of the private respondent Marta Villanueva vda. maghahabol.
de Agana, the latter being the daughter of Pedro Villanueva. Dapat tantoin, gayon man, na ang pagaaring ito ay registrado na
On August 10, 1937, petitioner claimed that the aforestated land sa Registro de la Propiedad nitong lalawigang Laguna, subalit at

sa isang kamalian ng pagkakasukat tungkol sa lawak at laki, ay and filed an Affidavit of Adverse Claim with the Office of the
hindi pa natutubos ang kanyang titulo, kaya at kung maisaayos na Register of Deeds of Laguna (Record on Appeal, Annex "C", pp.
ang nasabing titulo ay saka na ipatatala sa pangalan nitong aking 10-13). However, on December 6, 1976 a joint affidavit was filed
pinagbilhan upang lalong malagay sa katahimikan itong aking by Pedro G. Villanueva, Jr. and Restituto Villanueva withdrawing
pinagbilhan. their adverse claim on the said parcel of land, with the Office of
At sa katunayan ay nilagdaan ko ang kasulatang ito dito sa the Register of Deeds of Laguna (Record on Appeal, Annex " D, "
municipio ng Cavinti, Laguna, ngayong ika sampung araw ng pp. 13-14).
Agosto taong isanglibo siyam na daan at tatlompu at pito (1937). When petitioners learned of this Affidavit of Adverse Claim,
(LGD) PEDRO VILLANUEVA attempt was made to settle said controversy amicably. Several
Nagfirma sa hinaharap ni demands made by herein petitioners upon private respondents
(LGD) BALTAZAR VILLANUEVA Marta Vda. de Agana to withdraw her adverse claim, failed.
JUAN VILLANUEVA On December 9, 1976, said private respondent executed a Deed
Subsequently, the Original Certificate of Title was cancelled on of Conveyance and Release of Claim (Record on Appeal and
the basis of the private document of sale (Exhibit "B") and a new Annex "AA", p. 35) wherein the parties agreed, among other
certificate of title was issued in the name of the petitioners things, to the following:
covered by Transfer Certificate of Title No. RT- 6293 (No. 23350) That in consideration of the said transfer and conveyance over a
on January 4, 1944, particularly describing the land as follows: 1,000 square meter portion mentioned in the next preceding
A parcel of land (Lot No. 401 of the Cadastral Survey of Cavinti) paragraph, the VENDEE (Marta V. Agana) does hereby withdraw
with the improvements thereon, situated in the municipality of the adverse claim mentioned above; (Rollo, p. 119).
Cavinti, Bounded on the N and NE., by Lot No. 403; on the SE by However, when private respondent Marta Villanueva vda. de
Lot No. 393 and the Caliraya River; and on the SW by Lot No. 515. Agana refused to sign an Affidavit of Quit-claim (Exhibit "9; "
Area Eighty One Thousand and Three Hundred (81,300) Record on appeal, p. 195), petitioners instituted court suit
Square Meters, more or less. (Record on Appeal, Annex "A," pp. 7 against the private respondent and her husband, Dr. Marcelo S.
and 9). Agana, Sr. by filing a complaint for Quieting of Title and Damages
During the Second World War, the records as well as the Office of with the Court of First Instance of Laguna on February 3, 1977,
the Register of Deeds of Laguna, where the original of their new demanding that their title over the questioned land be fortified
transfer certificate of title was kept, were completely burned. by a declaration of ownership in their favor and avoiding the
Accordingly, by virtue of an Affidavit of Reconstitution dated af/recited Deed of Conveyance and Release of Claim (Record on
December 2, 1958 (Record on Appeal, Annex "DD," pp. 41-42) Appeal, pp. 1-7). Accordingly, private respondents in their
and upon presentation of the Owner's Duplicate Certificate of answer countered that the Deed of Sale in Tagalog and
Title, the title was administratively reconstituted and the petitioners' title over the land be declared void ab initio, among
Register of Deeds of Laguna issued Transfer Certificate of Title other demands (Record on Appeal, pp. 16-35).
No. RT-6293 (No. 23350) in the name of the petitioners (Record On January 20, 1982, the Court of First Instance of Laguna
on Appeal, Annex "B", pp. 7). rendered its decision declaring the deed of sale of August 10,
On November 17, 1976, defendant Marta Villanueva together 1937, as well as the reconstituted transfer certificate of title of
with Pedro Villanueva, Jr., and Restituto R. Villanueva executed petitioners, void ab initio Record on Appeal, pp. 208-216).

The dispositive portion of said decision (Record on Appeal, pp. September 17, 1984. Thus, in the Resolution of January 7, 1985
215-216) reads as follows: the Court, required counsel for petitioners to show cause why
WHEREFORE, judgment is hereby rendered in favor of the disciplinary action should not be taken against him (Rollo, p. 51).
defendants and against the plaintiffs, as follows: On February 23, 1985 respondents filed their comment (Rollo, p.
a. declaring as null and void the private document dated August 57). Considering respondents' comment as answer the petition
10, 1937 written in Tagalog (Exhibit B); was given due course and the parties were required to submit
b. declaring as null and void plaintiffs' reconstituted Transfer their respective memoranda (Rollo, p. 104).
Certificate of Title RT-6293 (No. 23350) (Exhibit F) and ordering Private respondents and petitioners filed their respective
the Register of Deeds of Laguna to issue a new reconstituted or to memoranda on May 18, 1985 (Rollo, p. 117) and on June 7, 1985
reinstate Original Certificate of Title No. 2262 issued on April 2, (Rollo, p. 143) respectively. On July 1, 1985, the Court resolved to
1924 in the name of Pedro Villanueva within thirty (30) days consider the case submitted for deliberation (Rollo, p. 168).
from the finality of this decision; Petitioners, however filed a Supplemental Memorandum, with
c. declaring the heirs of Pedro Villanueva as the owners of the leave of court on May 18, 1987 (Rollo, p. 169) which was noted
property in litigation and ordering the plaintiffs and her agents by the court in its resolution dated June 19, 1987 (Rollo, p. 188).
and those acting for in their behalf to vacate the land in question In its petition petitioners raised the following assignment of
and surrender the possession of the same to the heirs of the late errors, to wit:
Pedro Villanueva thru Marta V. Agana; I
d. declaring all buildings; plantings and improvements THE TRIAL COURT ERRED IN HOLDING THAT EXHIBIT B DOES
introduced by the plaintiffs forfeited in favor of' the defendants: NOT TRANSFER OWNERSHIP, THE SAME BEING NULL AND
e. ordering plaintiffs, jointly and severally, to pay the defendants VOID.
the sum of P10,000.00 as moral and exemplary damages; II
f. ordering plaintiffs, jointly and severally, to pay defendants the THE TRIAL COURT ERRED IN HOLDING THAT DEFENDANTS-
sum of P5,000.00 as and for attorney's fees: and APPELLANTS ARE NOT GUILTY OF LACHES.
g. ordering plaintiffs, jointly and severally, to pay defendants the III
sum of P5,000.00 as litigation expenses; and costs of suit. THE TRIAL COURT ERRED IN HOLDING THAT PLAINTIFF-
SO ORDERED. APPELLANTS CANNOT ACQUIRE OWNERSHIP OF SUBJECT LAND
Thus, petitioners filed notice of appeal on February 10, 1982, BY PRESCRIPTION UPON THE PRINCIPLE THAT NO TITLE TO
followed by an appeal made to the Intermediate Appellate Court. REGISTERED LAND IN DEROGATION OF THAT OF THE
However, the Intermediate Appellate Court, on May 22, 1984, REGISTERED OWNER SHALL BE ACQUIRED BY PRESCRIPTION.
affirmed in toto the decision of the trial court. IV
Hence, this petition. THE TRIAL COURT ERRED IN NOT HOLDING THAT STATUTE OF
On August 30, 1984, the Court in its Resolution without giving LIMITATION HAS SET INTO THIS CASE; AND,
due course to the petition required the respondents to comment V
on the said petition (Rollo, p. 50). However, the counsel for THE TRIAL COURT ERRED IN DECLARING TRANSFER
private respondents failed to file comment on the petition for CERTIFlCATE OF TITLE NO. RT-6293 AS NULL AND VOID.
review on certiorari within the period which expired on The pivotal issue in this case is whether or not there was a valid

reconstitution of Transfer Certificate of Title No. RT-6293 (No. The contention is unmeritorious.
23350) issued in the names of petitioners. As the respondent court aptly stated in its decision:
It is admitted that the land in question is formerly covered by True, as argued by appellants, a private conveyance of registered
Original Certificate of Title No. 2262, issued in the name of Pedro property is valid as between the parties. However, the only right
Villanueva and that the cancellation of said OCT No. 2262 and the the vendee of registered property in a private document is to
issuance of the reconstituted Transfer Certificate of Title No. RT- compel through court processes the vendor to execute a deed of
6293 (No. 23350) are based either on the Affidavit for conveyance sufficient in law for purposes of registration.
Reconstitution of Teresa Villanueva and not of Pedro Villanueva, Plaintiffs-appellants' reliance on Article 1356 of the Civil Code is
or the unnotarized deed of sale of August 10, 1937 (Annex "B" for unfortunate. The general rule enunciated in said Art. 1356 is that
plaintiffs), held void by the lower court and by the Court of contracts are obligatory, in whatever form they may have been
Appeals. As a consequence TCT No. RT-6293 (No. 23350) was entered, provided all the essential requisites for their validity are
likewise held void ab initio. (Record on Appeal, p. 20). present. The next sentence provides the exception, requiring a
As to the validity of the Affidavit for Reconstitution, affiant contract to be in some form when the law so requires for validity
Teresa Villanueva testified on December 19, 1980, that she did or enforceability. Said law is Section 127 of Act 496 which
not know anything about the reconstitution of their title as it was requires, among other things, that the conveyance be executed
their children who took charge of the same and that she never "before the judge of a court of record or clerk of a court of record
participated in the said reconstitution. In fact she never appeared or a notary public or a justice of the peace, who shall certify such
before the Notary Public and this testimony was corroborated by acknowledgment substantially in form next hereinafter stated."
the testimony of Eleuterio Rebenque, entry clerk in the Office of Such law was violated in this case. The action of the Register of
the Register of Deeds who never made any categorical Deeds of Laguna in allowing the registration of the private deed
affirmation that said Teresa Villanueva appeared at said office. of sale was unauthorized and did not lend a bit of validity to the
(Rollo, p. 43). defective private document of sale.
Consequently, the crux of the matter now centers on whether or With reference to the special law, Section 127 of the Land
not the unnotarized deed of sale purportedly executed on August Registration Act, Act 496 (now Sec. 112 of P.D. No. 1529)
10, 1937 by the primitive owner Pedro Villanueva, in favor of provides:
petitioners, can be considered as a valid instrument for effecting Sec. 127. Deeds of Conveyance, ... affecting lands, whether
the alienation by way of sale of a parcel of land registerd under registered under this act or unregistered shall be sufficient in law
the Torrens System. Corollary thereto, it becomes necessary to when made substantially in accordance with the following forms,
examine other matters surrounding the execution of the alleged and shall be as effective to convey, encumber, ... or bind the lands
document of sale (Exhibit B). as though made in accordance with the more prolix forms
Petitioners claim that the sale although not in a public document, heretofore in use: Provided, That every such instrument shall be
is nevertheless valid and binding citing this Court's rulings in the signed by the person or persons executing the same, in the
cases of Cauto v. Cortes, 8 Phil. 459, 460; Guerrero v. Miguel, 10 presence of two witnesses, who shall sign the instrument as
Phil. 52, 53; Bucton v. Gabar 55 SCRA 499 wherein this Court witnesses to the execution thereof, and shall be acknowledged to
ruled that even a verbal contract of sale of real estate produces be his or their free act and deed by the person or persons executing
legal effects between the parties. the same, before the judge of a court of record or clerk of a court of

record, or a notary public, or a justice of the peace, who shall Umbay v. Alecha, supra) because the efficacy and integrity of the
certify to such acknowledgement substantially in the form next Torrens System must be protected (Director of Lands v. CA, 120
hereinafter stated. (Emphasis supplied). SCRA 370). As prescription is rightly regarded as a statute of
It is therefore evident that Exhibit " E " in the case at bar is repose whose objective is to suppress fraudulent and stale claims
definitely not registerable under the Land Registration Act. from springing up at great distances of time and suprising the
Likewise noteworthy is the case of Pornellosa and Angels v. Land parties or their representatives when the facts have become
Tenure Administration and Guzman, 110 Phil. 986, where the obscure from the lapse of time or the defective memory or death
Court ruled: or removal of witnesses ( Senoan v. Sorongon, 136 SCRA 407
The deed of sale (Exhibit A), allegedly executed by Vicente San [1985]).
Jose in favor of Pornellosa is a mere private document and does In the matter of laches, the Court aptly stated in the case of
not conclusively establish their right to the parcel of land. WhiIe Marcelo Sotto v. Pilar Teves, et al., 86 SCRA 155 [1978] that "in
it is valid and binding upon the parties with respect to the sale of determining whether a delay in seeking to enforce a right
the house erected thereon, yet it is not sufficient to convey title or constitutes laches, the existence of a confidential relationship
any right to the residential lot in litigation. Acts and contracts between the parties is an important circumstance for
which have for their object the creation, transmission, consideration. A delay under such circumstance is not as strictly
modification or extinguishment of real rights over immovable regarded as where the parties are strangers to each other. The
property must appear in a public document. doctrine of laches is not strictly applied between near relatives,
Upon consideration of the facts and circumstances surrounding and the fact that the parties are connected by ties of blood or
the execution of the assailed document, the trial court found that marriage tends to excuse an otherwise unreasonable delay."
said private document (Exhibit "B") was null and void and that it In the case of Esso Standard Eastern, Inc. v. Alfonso Lim, 123 SCRA
was signed by somebody else not Pedro Villanueva. Such findings 464, 480 [1983]), the Court ruled that laches cannot be asserted
of fact besides being based on the records, were sustained by the by a mere possessor without claim of title, legal or equitable
Court of Appeals. because for laches to exist, there should be a showing of delay in
The contention that ownership over registered property may be asserting the complainant's right. The complainant should have
acquired by prescription or adverse possession is absolutely knowledge or notice of the defendant's conduct and an
without merit. No title to registered land in derogation of that of opportunity to institute a suit. Delay is not counted from the date
the registered owner shall be acquired by prescription or adverse the lot was sold to the buyer but from the time of entry of the
possession. Prescription is unavailing not only against the defendant or from the time the complainant came to know of the
registered owner but also against his hereditary successors occupancy for that is the only time it could possibly have
(Umbay vs. Alecha, 135 SCRA 427 [1985]). The right to recover demanded that he get out of the premises or could have
possession of registered land is imprescriptible because instituted a suit. In the case at bar, it will be noted that what
possession is a mere consequence of ownership (Umbay vs. transpired was an administrative reconstitution, essentially ex-
Alecha, supra, citing Atun v. Nuuz 97 Phil. 762; Manlapas and parte and without notice, thereby lending credence to the claim
Tolentino v. Llorente, 48 Phil. 298, 308: J.M. Tuazon & Co., Inc. v. that private respondent Marta Agana was unaware of such
Aguirre, 117 Phil. 110, 113-114) where land has been registered reconstitution and possession until she discovered the same in
under the Torrens System (Alarcon v. Bidin, 120 SCRA 390; the Office of the Register of Deeds in 1976. As such it cannot be

claimed that she slept on her right as from that time on, it is refused to execute the deed of sale altho plaintiff was able and
undeniable that she filed her adverse claim on the said lot. willing to pay the price, and continued to refuse despite written
After a careful perusal of the case, there appears to be no cogent demands of plaintiff; that as a result, plaintiff had lost expected
reason to disturb the findings of fact of the Court of Appeals profits from a resale of the property, and caused plaintiff mental
which affirmed the findings of the trial court. anguish and suffering, for which reason the complaint prayed for
PREMISES CONSIDERED, the petition is DENIED and the assailed specific performance and damages.
decision of the Intermediate Appellate Court is AFFIRMED.
SO ORDERED. Defendant filed a motion to dismiss upon the ground that
the complaint stated no cause of action, and that the plaintiff's
claim upon which the action was founded was unenforceable
under the Statute of Frauds.

Plaintiff opposed in writing the motion to dismiss and
152. G.R. No. L-23351 March 13, 1968 annexed to his opposition a copy of a letter purportedly signed by
defendant (Annex "A"), wherein it was stated (Record on Appeal,
CIRILO PAREDES, plaintiff-appellant, pp. 19-20)
vs.
JOSE L. ESPINO, defendant-appellee. 106 GonzagaSt.
Tuguegarao,Cagayan
Simeon Capule for plaintiff-appellant. May18,1964
Iigo R. Pea for defendant-appellee. Mr.CiriloParedes
Pto.Princesa,Palawan
REYES, J.B.L., Actg. C.J.:

Appeal from an order of the Court of First Instance of
Palawan in its Civil Case No. 453, granting a motion to dismiss the Dear Mr. Paredes:
complaint.
So far I received two letters from you,
Appellant Cirilo Parades had filed an action to compel one dated April 17 and the other April 29,
defendant-appellee Jose L. Espino to execute a deed of sale and to both 1964. In reply thereto, please be
pay damages. The complaint alleged that the defendant "had informed that after consulting with my wife,
entered into the sale" to plaintiff of Lot No. 67 of the Puerto we both decided to accept your last offer of
Princesa Cadastre at P4.00 a square meter; that the deal had been Four (P4.00) pesos per square meter of the
"closed by letter and telegram" but the actual execution of the lot which contains 1826 square meters and
deed of sale and payment of the price were deferred to the arrival on cash basis.
of defendant at Puerto Princesa; that defendant upon arrival had

In order that we can facilitate the be in writing. The plain text of Article 1403, paragraph (2) is clear
transaction of the sale in question, we (Mrs. that a written note or memorandum, embodying the essentials of
Espino and I), are going there (Puerto the contract and signed by the party charged, or his agent,
Princess, Pal.) to be there during the last suffices to make the verbal agreement enforceable, taking it out
week of the month, May. I will send you a of the operation of the statute.
telegram, as per your request, when I will
reach Manila before taking the boat for Pto. Art. 1403. The following contracts are
Princess. As it is now, there is no schedule unenforceable, unless they are ratified:
yet of the boats plying between Manila and
Pto. Princess for next week. (1) . . .
Plaintiff also appended as Annex "A-1", a telegram (2) Those that do not comply with the Statute of
apparently from defendant advising plaintiff of his arrival by boat Frauds as set forth in this number. In the following
about the last week of May 1964 (Annex "A-1" Record on Appeal, cases an agreement hereafter made shall be
p. 21), as well as a previous letter of defendant (Appendix B, unenforceable by action, unless the same, or some
Record on Appeal, p. 35) referring to the lot as the one covered note or memorandum thereof, be in writing, and
by Certificate of Title No. 62. subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be
These allegations and documents notwithstanding, the received without the writing, or a secondary
Court below dismissed the complaint on the ground that there evidence of its contents:
being no written contract, under Article 1403 of the Civil Code of
the Philippines x x x x x x x x x
Although the contract is valid in itself, the (e) An agreement for the leasing for a longer
same can not be enforced by virtue of the Statute of period than one year, or for the sale of real
Frauds. (Record on Appeal, p. 37).1wph1.t property or of an interest
therein.1wph1.t
Plaintiff duly appealed to this Court.
x x x x x x x x x
The sole issue here is whether enforcement of the contract
pleaded in the complaint is barred by the Statute of Frauds; and In the case at bar, the complaint in its paragraph 3 pleads
the Court a quo plainly erred in holding that it was that the deal had been closed by letter and telegram" (Record on
unenforceable. Appeal, p. 2), and the letter referred to was evidently the one
copy of which was appended as Exhibit A to plaintiff's opposition
The Statute of Frauds, embodied in Article 1403 of the Civil to the motion dismiss. This letter, transcribed above in part,
Code of the Philippines, does not require that the contract itself together with that one marked as Appendix B, constitute an

adequate memorandum of the transaction. They are signed by COURT OF APPEALS and HIND SUGAR COMPANY
the defendant-appellee; refer to the property sold as a lot in respondents.
Puerto Princesa, Palawan, covered, by TCT No. 62; give its area as
1826 square meters and the purchase price of four (P4.00) pesos GUERRERO, J.:
per square meter payable in cash. We have in them therefore, all This is a Petition for Review by way of certiorari of the Decision
the essential terms of the contract, and they satisfy the of the Court of Appeals in CA-G.R. No. 51546-R entitled Lim Yhi
requirements of the Statute of Frauds. We have ruled in Berg vs. Luya, Plaintiff-Appellee, versus Hind Sugar Company, Defendant-
Magdalena Estate, Inc., 92 Phil. 110, 115, that a sufficient Appellant, which reversed and modified the decision of the Court
memorandum may be contained in two or more documents. of First Instance of Pangasinan in favor of the plaintiff-appellee,
now the herein petitioner.
Defendant-appellee argues that the authenticity of the The antecedent facts may be stated as follows:
letters has not been established. That is not necessary for the Petitioner Lim Yhi Luya is a businessman, resident of Lingayen,
purpose of showing prima facie that the contract is enforceable. Pangasinan where he operates a grocery store, hardware store
For as ruled by us in Shaffer vs. Palma, L-24115, March 1, 1968, and gasoline station. Private respondent Hind Sugar Company is
whether the agreement is in writing or not, is a question of engaged in the manufacturing and marketing of sugar, its
evidence; and the authenticity of the writing need not be principal office located in Manaoag, Pangasinan. Vice President
established until the trial is held. The plaintiff having alleged that and General Manager of respondent company is Atty. Emiliano
the contract is backed by letter and telegram, and the same being Abalos. His assistant is Generoso Bongato, while the cashier and
a sufficient memorandum, his cause of action is thereby accountant of the company is Teodoro Garcia.
established, especially since the defendant has not denied the Petitioner and private respondent since 1958 have had business
letters in question. At any rate, if the Court below entertained any dealings with each other, the company selling sugar to the
doubts about the existence of the written memorandum, it should petitioner and the latter has been supplying the company with
have called for a preliminary hearing on that point, and not diesoline, gasoline, muriatic acid, sulfuric acid, other supplies and
dismissed the complaint. materials ordered on credit. On November 12, 1970, petitioner
received a telegram from Manager Abalos in the following tenor:
WHEREFORE, the appealed order is hereby set aside, and "Please come tomorrow morning without fail." (Exh. "B"). The
the case remanded to the Court of origin for trial and decision. following day, November 13, 1970, petitioner proceeded to the
Costs against defendant-appellee Jose L. Espino. So ordered. company and in the office of Manager Abalos, the latter offered to
sell sugar at P37.00 per picul. The parties agreed to the purchase
of 4,085 piculs of sugar at P35.00 per picul. The specific terms of
the contract are shown in Exhibit "a" as follows:
CONTRACT OF SALE OF SUGAR
Seller : Hind Sugar Company
153. G.R. No. L-40258 September 11, 1980 Manaoag, Pangasinan
LIM YHI LUYA, petitioner, Buyer : Lim Yhi Luya
vs. Lingayen, Pangasinan

Quantity: Four Thousand Eighty-Five (4,085) unreasonably, unlawfully and maliciously refused and failed to
piculs of Hind-2 sugar, 1969-70 crop deliver to him 1,000 piculs of export sugar altho he has deposited
Price : Thirty Five (?35.00) Pesos per to the account of the defendant-appellant the price thereof in the
picul, f.o.b. Manaoag amount of P55,000.00 which the latter has already withdrawn,
Terms : Cash upon signing of this contract. the agreed period of delivery which was January 27, 1971 having
Manaoag, Pangasina, Nov. 13, 1970. expired.
On the same day, November 13, 1970, in compliance with the On his Third Cause of Action: That defendant- appellant has
contract, four delivery orders (Nos. 3054, 3055, 3056, and 3057) refused, despite repeated demands, to release to him 160 piculs
were issued to petitioner by cashier Garcia upon instructions of of Hind-3 sugar valued at P6,400.00, which he has already paid;
Manager Abalos covering the total quantity of sugar sold, 4,085 On his Fourth Cause of Action: That despite his demands that
piculs. Between November 13, 1970 to January 27, 1971, defendant-appellant liquidate and pay its indebtedness to him in
petitioner withdrew from the company warehouse in varying the amount of P60,602.30 for supplies of diesolene, gasoline,
quantities a total amount of 3,735 piculs under substitute muriatic acid, sulfuric acid and other materials needed by it,
delivery orders, leaving a balance of 350 piculs undelivered. exclusive of interest and attorney's fees, which were payable
On January 22, 1971, the question of payment cropped out within 30 days from date of delivery, the defendant-appellant has
between the parties. Petitioner claimed that he had paid refused to settle with him;
P142,975.00 to the company officials, Cashier Garcia and On his Fifth Cause of Action: That defendant- appellant's willful,
Manager Abalos on November 13. 1970 and as proof of his unjust, unreasonable, malicious and fraudulent refusal to pay its
payment, he referred to the contract Exhibit "A", particularly to just obligations has caused him mental anguish, serious anxiety,
the stipulation stating "Terms: Cash upon sing of this contract." wounded feelings, moral shock, social humiliation and similar
Respondent company officials denied the claim of the petitioner, injuries, entitling him to P50,000 in moral compensatory and
alleging that petitioner never paid for the sugar on November 13, exemplary damages, and on
1970 or at any time thereafter. An audit report or examination of The Sixth Cause of Action: That he be paid the sum of P50,000 for
the books of the company made by External Auditor Victorino attoney's fees and expenses of litigation.
Daroya showed no payment by petitioner. Answering the complaint, defendant-appellant alleges that
On May 17, 1971, petitioner, as plaintiff below, filed the On the First Cause of Action: The contract marked as Exhibit "A"
complaint against the defendant Hind Sugar Company, now the was duly executed but it stopped delivery of the last 350 piculs of
herein respondent, in Civil Case No. 14873 before the Court of sugar under said contract when plaintiff-appellee who has not
First Instance of Pangasinan on six (6) causes of action, alleging paid any amount not even for the sugar already withdrawn by
him, refused, inspite of demands, to pay the consideration
On his First Cause of Action: That defendant- appellant has mentioned in the contract claiming that he had already paid the
unreasonably, unlawfully and maliciously refused and failed to full price stipulated therein. For this, parties had agreed to
deliver to him 350 piculs of the sugar he bought from it under suspend further delivery of sugar under the contract until
their contract (Exh. "A") with a value of P12,250.00 altho the has plaintiff-appellee could prove payment;
already paid the full price thereof; On the Second Cause of Action: Altho plaintiff- appellee has
On his Second Cause of Action: That defendant-appellant has deposited P55,000 on January 20, 1971 for export sugar, in view

of the occurrence of a controversy between the parties regarding Answering the Counterclaim, plaintiff-appellee denied for being
the implementation of the Contract Exhibit "A", both parties came false and untrue the material allegations of paragraphs 1, 2, 3, 4,
to the understanding that no delivery would be made until the 5 and 6 of the Counterclaim and as special defenses, he alleges:
question of payment of the 4,085 piculs of sugar mentioned in (1) that defendant's counterclaim states no cause of action; and
said contract shall have been satisfactorily settled between them. (2) that the complaint was filed by plaintiff because defendant
On the Third Cause of Action: The 160 piculs of Hind- 3 sugar has acted in gross and evident bad faith in refusing to satisfy
referred to here is the remaining portion of 1,313 piculs plaintiff's plainly valid, just and demandable claim. At the pre-
purchased by plaintiff-appellee on June 3, 1970, and the trial conference, the parties submitted a partial stipulation of
unclaimed sugar was always ready for delivery but plaintiff- facts reproduced as follows:
appellee preferred withdrawing from the 4,085 piculs covered by COMES NOW the parties in the above-entitled case, through
the contract Exhibit "A" instead. counsel and respectfully submit the following Partial Stipulation
On the Fourth Cause of Action: Plaintiff-appellee has in truth of Facts and statement of the issues:
delivered supplies to defendant-appellant but the invoices 1. Plaintiff is of legal age, with capacity to sue and be sued and is a
mentioned in the complaint are not the same as the original resident of Lingayen, Pangasinan whereas defendant is a
delivery receipts signed by defendant- appellant's employee corporation duly organized and existing in accordance with the
when supplies were received, and the figures contained therein laws of the Philippines likewise with capacity to sue and to be
are inaccurate. Moreover, such supplies were never payable on a sued;
30-day-from-delivery term, but the standing practice was to off- 2. Defendant admits having executed on November 13, 1970 a
set their value against the costs of sugar purchased by plaintiff- Contract of Sale for 4,085 piculs of Hind-2 sugar, a xerox copy of
appellee, and which is attached to this Partial Stipulation of Facts and marked
On the Fifth and Sixth Causes of Action: Defendant-appellant as Annex "1". The signature appearing in Annex "1" hereof above
denies the averments therein and alleges that the answers to the typewritten name Emiliano L. Abalos is that of the Vice
such causes of action are fully covered by its answers to the first President and General Manager of defendant Hind Sugar
four causes of action. Company, Mr. Emiliano L. Abalos and the signature appearing
By way of Counterclaim, defendant-appellant prays that from the above the typewritten name Lim Yhi Luya appearing in Annex "1"
unpaid cost of the 3,085 piculs of sugar contracted and hereof is that of the plaintiff herein;
practically all taken by plaintiff-appellee amounting to 3. On November 13, 1970, upon execution of the Contract of Sale
P142,975.00, the value of the materials supplied amounting to marked as Annex "I" hereof, defendant delivered and issued to
P59,500.00, the P55,000.00 deposited to its account on January plaintiff four (4) delivery orders Nos. 3054, 3055, 3056 and 3057
20, 1971, and the amount of P6,080.00 representing the value of marked respectively as Annexes "1", "2", "3" and "4" of
the 350 piculs of sugar unclaimed by plaintiff- appellee, after it defendant's Answer and attached to this Partial Stipulation of
was reprocessed- or a total of P132,830.30 be off-set, and the Facts as Annexes "2", "13", "4" and "5" hereof;
balance in the amount of P10,144.70 in its favor be paid to it, and 4. That on various occasions, the latest on January 23, 1971, the
that plaintiff-appellee be required to pay, in addition thereto, defendant delivered to the plaintiff on account of the contract,
another sum of P10,000.00 for and as attorney's fees and costs of Annex "1" hereof and by virtue of the delivery orders issued by
litigation." 1 the defendant at the request of the plaintiff in substitution of the

delivery orders marked as Annexes "2", "3", "4" and "5", the The parties submit that the issues to be threshed out between the
substitute delivery orders hereto attached and marked as parties at the trial of this case are the following:
Annexes "6" to "110" inclusive (summarized herein under (a) As to the first cause of action, the remaining issue is whether
Annexes "111" to "114" inclusive), showing a total of 3,735 piculs or not plaintiffs has paid to defendant the sum of P142,975.00
of sugar already delivered and leaving a balance still undelivered which is the purchase price of the 4,085 piculs of sugar subject to
by the defendant to the plaintiff of 350 piculs of Hind-2 sugar, the contract of sale marked as Annex "I" hereof;
covered by Delivery Orders Nos. 3252, 3254, 3255, 3256, 3257, (b) On the second cause of action, the issue is whether or not the
3258, 3259, 3260, 3230, 3232, and 3233, marked as Annexes plaintiff is entitled to the delivery by the defendant of 1,000
"115" to "125", inclusive; piculs of export sugar by virtue of the deposit on January 20,
5. That the plaintiff deposited with the Consolidated Bank and 1971 of the amount of P55,000.00;
Trust Corporation, Dagupan City Branch, in the name of the Hind (c) On the third cause of action, issue is whether or not plaintiff is
Sugar Company, the sum of FIFTY FIVE THOUSAND PESOS entitled to delivery by defendant of 160 piculs of Hind-3 sugar
(P55,000.00) on January 20, 1971; sold by defendant to plaintiff on June 3,1970;
6. That defendant issued to plaintiff a provisional receipt dated (d) On the fourth cause of action, the issue are (1) what business
January 27, 1971 for said amount of P55,000.00 (FIFTY FIVE practice or practices if any were observed by the plaintiff and the
THOUSAND PESOS), copy of which is hereto attached as Annex defendant in their business dealings relative to the purchase of
126"; supplies and materials by the defendant from the plaintiff on
7. That on June 3, 1970, the defendant sold to the plaintiff 1,313 credit; (2) what is the total amount due, if any, from the
piculs of sugar at the rate of P40.00 per picul of H-2 sugar and defendant to the plaintiff for supplies and materials delivered by
P38.00 per picul of H-3 sugar, which plaintiff has fully paid per plaintiff to defendant on credit; (3) whether the supplies and
cash debit hereto attached as Annex "127", of which 160 piculs of materials delivered by plaintiff to defendant were payable within
H-3 sugar remain undelivered by the defendant to plaintiff; thirty (30) days from date of delivery and overdue account to
8. That the plaintiff supplied the defendant with diesoline, earn interests at the rate of 12% per annum an additional
gasoline, muriatic acid, sulphuric acid and other supplies and amount equivalent to 25% of the amount or value of the good in
materials ordered by defendant from plaintiff on credit; litigation as attorney's fees;
9. The plaintiff delivered to defendant on credit for the month of (e) On the sixth cause of action, whether or not plaintiff is
January, 197 1, supplies and materials in the amount of Pl entitled to attorney's fees and expenses of litigation;
3,988.20 under invoices Nos. 6327, 6329, 6330, 6331, 6332, 6333 (g) Whether defendant is entitled or not to any set off;
and 6334, marked as Annexes "128" to "134" inclusive; (h) Whether defendant is entitled to attorney's fees.
10. The plaintiff delivered to defendant on credit for the month of 14. The parties hereby reserve the right to present evidence on
February, 1971, supplies and materials in the amount of all other matters not herein stipulated.
P23,455.10; The trial Court has correctly surmised that the principal issue in
11. That in the month of March, 1971, plaintiff delivered to the this case is whether or not the plaintiff-appellee has paid the sum
defendant on credit supplies and materials worth P18,051.00; of P142,975.00 which is the purchase price of the 4,085 piculs of
12. That in the month of April, 1971, the plaintiff, delivered to sugar covered by the contract of sale (Exhibit "A") between the
defendant on credit, supplies and materials worth P5,098.00; 13. parties. This Contract reads as follows:

CONTRACT OF SALE OF SUGAR (2) On the second cause of action, ordering the defendant to
(HIND-2) 1969-70 deliver immediately to the plaintiff the 1,000 piculs of export
SELLER : HIND SUGAR COMPANY sugar or to pay the plaintiff the sum of P55,000.00 with legal rate
Manaoag, Pangasinan. of interest from January 20, 1971, but giving the option or choice
BUYER : LIM YHI LUYA to the plaintiff;
Lingayen, Pangasinan (3) With respect to the third cause of action, ordering the
QUANTITY : Four Thousand Eighty Five defendant to deliver to the plaintiff the 160 piculs of H-3 sugar or
(4,085) (Piculs of HIND-2 to pay to plaintiff the sum of P6,400.00 with legal rate of interest
Sugar, 1969-70 Crop). from June 3, 1970 but with the option again belonging to the
PRICE : Thirty Five (P35.00) PESOS per plaintiff;
picul F.O.B., Manaoag (4) On the fourth cause of action, ordering the defendant to pay
TERMS : Cash upon signing of this to the plaintiff the sum of P60,592.30 with interest at 12% per
Contract annum from the filing of the complaint and to pay attorney's fees
Manaoag, Pangasinan, November 13,1970 of 25% of the principal obligation, that is, the sum of P15,148.08;
HIND SUGAR COMPANY (5) On the fifth and sixth causes of action, ordering the defendant
By: to pay to the plaintiff the sum of P25,000.00 as damages and to
(SGD.) EMILIANO L. ABALOS (SGD.) LIM YHI LUYA pay another sum of P15,000.00 as attorney's fees, the said fees
Vice President & Gen. Mgr. (Buyer) referring to the first, second and third causes of action; and
(Seller) (6) Lastly, ordering the defendant to pay the costs of suit.
Plaintiff-appellee claimed during the trial that he has paid the SO ORDERED.
said amount and when pressed to show his receipt of payment, Defendant Hind Sugar Company appealed to the Court of Appeals.
he points to that portion of the contract which reads: "Terms: The appellate court rendered the following judgment, thus
Cash upon signing of this Contract" as his receipt and evidence of WHEREFORE, judgment is hereby rendered
payment. On the other hand, defendant-appellant maintained (1) ordering plaintiff-appellee to pay defendant- appellant the
that plaintiff-appellee has not paid anything on the contract and sum of P130,725.00 which is the price of 3,735 piculs of sugar, at
the contract does not prove payment but merely created plaintiff- P35 a picul, which plaintiff has withdrawn and received as a
appellee's obligation to pay. 2 result of the contract of sale Exhibit "A", and cancelling the
After trial, the Court of First Instance of Pangasinan rendered obligation of defendant-appellant to deliver the remaining 350
judgment, the dispositive portion of which reads: piculs called for in said contract for failure of plaintiff-appellee to
WHEREFORE, this Court renders judgment as follows: pay for the same;
(1) On he first cause of action, ordering the defendant to (2) finding the defendant-appellant liable to return to plaintiff-
immediately deliver to plaintiff the 350 piculs of H-2 sugar or to appellee the latter's deposit of P55,000.00;
pay plaintiff the sum of P12,250,00 plus legal rate of interest (3) finding the defendant-appellant liable to pay plaintiff-
from November 13, 1970, until fully paid, giving unto the plaintiff appellee the sum of P6,040.00 which was realized from
the option to choose whether to receive the sugar or to receive reprocessing the 160 piculs of sugar paid for but intentionally not
the payment corresponding to the same; claimed by plaintiff-appellee;

(4) finding the defendant-appellant liable to plaintiff-appellee for evidence that plaintiff-appellee has paid or has performed his
the sum of P60,592.30 for materials and supplies which the latter obligation to pay. Stated in another way, the provision of the
supplied to it for the months of January, February, March, and Contract in question means that the payment of P142,975.00 IS
April 1971. TO FOLLOW or IS TO BE MADE (and NOT WAS MADE) upon the
Provided, however, that the plaintiff-appellee may deduct the signing of said contract".
said amounts of P55,000.00, P6,080.00 and P60,592.30, totalling The appellate court further declared that it cannot believe as true
P121,672.30 in all, from his total obligation of P130,725.00 to the facts the testimony of the petitioner that he paid the sum of
defendant-appellant, paying the latter in cash only the remaining P142,975.000 around 1:30 o'clock in the afternoon of November
balance of P9,052.70; and 13, 1970 to Emiliano Abalos and Teodoro Garcia, in cash because
(5) ordering the plaintiff-appellee to pay defendant-appellant the he was asked to pay in cash, and the evidence of his payment was
further amount of P10,000.00 for and as attorney's fees. the contract (Exhibit "A") itself because the respondent company
With costs against plaintiff-appellee. did not want to issue a separate receipt for his payment as the
SO ORDERED. sugar sold belonged not to it but to ARCA.
Plaintiff-appellee, now the herein petitioner, having filed a The court said that there is no reason for Emiliano Abalos to deny
Motion for Reconsideration but denied by the respondent Court petitioner's claim of payment if that was really made, pointing to
of Appeals, he now comes before Us with the instant Petition for the evidence of close relationship between the parties which
Review of the decision. show that Emiliano Abalos went all the way to accommodate the
In reversing the judgment of the lower court on the first cause of petitioner by modifying the contract, changing the condition or
action, the Court of Appeals said: mode of payment provided in Exhibit "A" even without changing
Plaintiff-appellee claimed during the trial that he has paid the the written contract itself. It would have been an affront on their
said amount and when pressed to show his receipt of payment, friendship had Emiliano Abalos followed the suggestions of the
he points to that portion of the contract which reads: "Terms: trial court (that Abalos should have demanded that the contract
Cash upon signing of this Contract" as his receipt and evidence of be corrected in such a way that it does not appear that the 4,085
payment. On the other hand, defendant-appellant maintained piculs of sugar was not really paid for or he should have put a
that plaintiff- appellee has not paid anything on the contract and note on the two copies of the contract that the 4,085 piculs of
the contract does not prove payment but merely created plaintiff- sugar were not then paid), the appellate court reasoned out.
appellee's obligation to pay. And according to the court, the explanation of Abalos in allowing
'We agree with defendant-appellant. The contract in its entirety or agreeing to release the delivery orders covering the 4,085
proves no more than that there has been a meeting of the minds piculs of sugar sold even without payment by the petitioner
of the parties. The signing perfected the contract but did not ex (which explanation is not even pointed out or intimated in the
propio vigore consummate it. It gave the parties the right to decision) 'is a rational and very probable one.
demand reciprocally the performance of the obligations assumed After holding that the claim of petitioner that he paid the
by each. The vendor assumed to deliver the amount of sugar sold P142,975.00 wholly in cash is improbable; that it, is simply not
while the vendee which is the plaintiff-appellee was to pay the the way with businessmen because modern business moves on
contracted price upon the signing of the contract. The questioned credit and checks; that it is unthinkable to a businessman to keep
portion of the contract does not say, and is not therefore an so, much money in his possession when petitioner banks with

several banking houses in Lingayen and Dagupan City and has understood in that which is most in keeping with the nature and
always paid mostly in checks in previous and subsequent object of the contract.
transactions, the court resolved, "We seriously doubt that as a Art. 1377. The interpretation of obscure words or stipulations in
successful businessman he will ever disregard sound business a contract shall not favor the party who caused the obscurity.
practice of keeping his cash in the bank, especially that, according According to the trial court, "(t)here is no question that the
to him it was not his money but one he has received in trust and contract was signed on November 13, 1970, in the office of the
for a certain A. Chang Trading in Makati." Hind Sugar Company at Manaoag, Pangasinan. The contract itself
Petitioner contends that the appellate court erred, first in holding is so clear and explicit that it cast no doubt as to its meaning.
that the contract of sale of sugar executed by and between "Cash upon signing of this contract meaning to say, that once the
petitioner and respondent is not evidence that payment of the contract was signed, the payment of the 4.085 piculs of sugar
sugar had been made by the petitioner to respondent upon the which is P142,975.00 was made. After the said contract was
signing of said contract; the Court of Appeals likewise erred in signed and as sustained by the plaintiff, he has already delivered
holding that it was incumbent upon the petitioner to produce a the P142,975.00 in cash to the cashier of the defendan't, the said
receipt' signed by respondent to prove that payment of the sugar plaintiff was given all the delivery orders covering the 4,085
covered by the contract of sale had in fact been made by piculs of sugar sold and by the giving of the delivery orders to the
petitioner to respondent; it erred in not holding that petitioner plaintiff, the latter was entitled to withdraw all the 4,085 piculs
had already fully paid the respondent the sugar bought; and sugar from the company's warehouse" This is also the stand of
second, in reversing the decision of the trial court and in not the petition.
affirming the same. Contrari-wise, the appellate court castigates the "ex cathedra
The first error may be resolved by tile rules on the interpretation pronouncement of the trial court that the words 'Terms: Cash
of contracts, and the second on the basis of whether the general upon the signing of this contract' means that payment was made
rule, that findings of the appellate tribunal are binding and must and the contract itself is the receipt evidencing payment", as not
be respected by Us must govern the case at bar or the well- based on proven facts, adding further that the trial court "has
established exceptions to said rule. taken the dubious, weak, unreliable and improbable statements
At this juncture, it is well to lay down cardinal rules in the of plaintiff-appellee for true, or for granted, and in so doing the
interpretation of contracts as provided in the New Civil Code, trial court has fallen wittingly or unwittingly into the error of
thus begging the question (petitio principii)." in other words,
Art. 1370. If the terms of a contract are Clear and leave no doubt respondent company's interpretation of the contract was upheld.
upon the intention of the contracting parties. the literal meaning Considering the admitted fact that the contract of sale (Exhibit
of its stipulation shall control. "A") was prepared in the office of respondent company by
If the words appear to be contrary to the evident intention of the Generoso Bongato, Assistant to the Manager of the company,
parties, the latter shall prevail over the former. upon instruction of General Manager Emiliano L. Abalos who is a
Art. 1371. In order to judge the intention. Of the contracting lawyer, and We are now confronted with the varying or
parties, their contemporaneous and subsequent acts shall be conflicting interpretations of the parties thereto, the respondent
principally considered. company contending that the stipulation "Terms: Cash upon
Art. 1375. Words which may have different significations shall be signing of this contract" does not mean that the agreement was a

cash transaction because no money was paid by the petitioner at immediately following on; very soon after; ... b: on the occasion of
the time of the signing thereof, whereas the petitioner insists that at the time of; ... " the clear import of the stipulation is that
it was a cash transaction inasmuch as he paid cash amounting to payment was made on the occasion of or at the time of the
P142,975.00 upon the signing of the contract, the payment signing of the contract and not that payment will follow the
having been made at around 1:30 in the afternoon of November signing. We must adopt the former meaning because it is such an
13, 1970 to the cashier, Teodoro Garcia, and Manager Abalos interpretation that would most adequately render the contract
although the sale was agreed to in the morning of the same day, effectual, following Article 1373 of the New Civil Code which
November 13, 1970, the conflicting interpretations have provides:
shrouded the stipulation with ambiguity or vagueness. Then, the Art. 1373. If some stipulation of any contract should admit of
cardinal rule should and must apply, which is that the several meanings, it shall be understood as bearing that import
interpretation shall not favor the party who caused the ambiguity which is most adequate to render it effectua.
(Art. 1377, New Civil Code). We rule that in the instant case, the The evidence for the petitioner establishes that after paying the
interpretation to be taken shall not favor the respondent cash consideration to Cashier Garcia and Manager Abalos, the
company since it is the party who caused the ambiguity in its parties signed the contract and thereafter a signed copy of said
preparation. contract was given to petitioner and also the four (4) delivery
We do not agree with the meaning of the provision in the orders covering the 4,085 piculs of sugar sold. The questioned
contract ascribed by the respondent court in its decision that: stipulation recites exactly the act of payment which is the paying
"Stated in another way, the provision of the Contract in question of the money on the occasion of or at the time of the signing.
means that the payment of the P142,975.00 IS TO FOLLOW or IS Respondent would have Us believe that the stipulation does not
TO BE MADE (and NOT WAS MADE) upon the signing of said mean what it conveys because petitioner has not paid cash after
contract." As already drafted or drawn up, complete and finalized the signing of the contract nor at any time thereafter. We cannot
with all the signatures thereon of the contracting parties and agree with the respondent for otherwise the sanctity of the
presented in court as Exhibit "A" without any change whatsoever written contract can easily be violated and impugned, for
in the mode of payment, such provision plainly and simply means otherwise oral testimony would prevail over a written document
that the payment was in CASH, and not on CREDIT. The to vary, alter or modify the written terms, and most importantly,
ambiguity raised by the use of the words or phrases in the respondent's interpretation would render the stipulation
questioned provision must be resolved and interpreted against ineffectual as a mere agreement.
the respondent company. Petitioner claims that Exh. "A" is the receipt of his payment of the
In truth the stipulation in the contract which reads: "Terms: Cash P142,975.00 cash upon the signing of the contract. Respondent,
upon signing of this contract" is very clear and simple in its on the other hand, insists that it is not a written
meaning, leaving no doubt in Our minds upon the intention of the acknowledgement or written admission of having received the
contracting parties, hence, the first rule of contract interpretation sum of P142,975.00 and may not be considered a receipt for any
that the literal meaning of its stipulation shall control, is the purpose (Brief for the Respondent, p. 34), although he fully
governing rule at hand. Resorting to Webster's Third New agrees with the proposition that any written acknowledgement
International Dictionary, p. 2515, for the definition of the word or written admission of anything received is a receipt (same page
"upon" which literally means, among others, "10a (1): 34). This is exactly what the trial court ruled that "It would be

redundant to discuss what are the forms of receipts, but anything embodied in the Contract of Sale of Sugar (Exh. "A") from which
evidencing or admitting payment in compliance with an the intention of the contracting parties may be judged correctly.
obligation is a receipt and AS THE CONTRACT, EXH. A AS WELL The trial court was correct in judging and deciding the intention
AS THE SIGNED COPY, IS AN EVIDENCE OF PAYMENT OF THE of the parties from their actuations contemporaneous with and
P142,975.00 IT MUST BE CONSIDERED A RECEIPT FOR ALL subsequent to the agreement for the sale of the sugar in question,
PURPOSES" (Decision,. Record on Appeal, p. 60). We affirm the and We sustain the trial court, applying Art. 1371, New Civil
lower court's ruling. Code, supra.
One fact that weighs heavily in support of the lower court's ruling The most telling, crucial and significant act contemporaneous
is that respondent cannot show nor produce any document or with and subsequent to the signing of the agreement embodied in
record whatsoever that petitioner did not pay the consideration Exhibit "A", which needs emphasis, is the delivery to the
demanded in cash. While Manager Abalos claims that the mode of petitioner of four (4) delivery orders (Nos. 3054, 3055, 3056 and
payment was altered or changed, there is no showing or proof 3057) covering all the 4,035 piculs of sugar subject of the
that the contract, Exh. "A", was accordingly changed or altered. contract on November 13, 1970, the very day that the contract
And neither was such alteration or change noted or recorded in was entered into and signed by the parties. The delivery orders is
the books of the respondent company. admitted by the parties and included in the Partial Stipulation of
The trial court, justifying and supporting its judgment in favor of Facts, paragraph 3 thereof. Viewed in the light of the established
the petitioner, cites the following facts: (1) The liquidation sheet fact that all sugar transactions between petitioner and
dated December 30, 1970, Exh. "O", prepared by the cashier of respondent are always in cash, as admitted by Teodoro Garcia
defendant company, more than a month after the transaction in who is the cashier of respondent company (Testimony of
question on November 13, 1970 does not charge the petitioner Teodoro Garcia, t.s.n., Estrada, Hearing, April 22, 1972, pp. 1819),
with any indebtedness to the respondent company of whatever the issuance of the four delivery orders is a clear confirmation of
amount, much less the amount of P142,975.00; instead, it the fact that petitioner paid in cash the cost of the sugar in the
appears from said Exhibit "O" that as of December 30, 1970, the amount of P142,975.00 on the very day that the contract was
company had two outstanding vales in favor of the petitioner: signed, November 13, 1970, which is also the day that the
one for P18,000.00 obtained on December 1, 1970 and another delivery orders were given to him by the cashier upon direct
for P8,800.00 taken on December 15, 1970; (2) that petitioner instruction from the manager.
had always transacted with respondent company in cash and Furthermore, the issuance of and delivery to the petitioner buyer
never on credit as admitted by Teodoro Garcia, cashier of the of the said four delivery orders covering all the 4,085 piculs of
company; (3) that petitioner had been withdrawing sugar from sugar placed the control and possession of the thing sold to the
the company at its warehouse after November 13, 1970 until vendee, the herein petitioner, and pursuant to Article 1497 of the
January 23, 1971, totalling a quantity of 3,735 piculs of sugar by New Civil Code, the sugar sold is understood as delivered to the
virtue of the contract Exhibit "A" without the company petitioner. The thing sold shall be understood as delivered when
demanding from the petitioner either verbally or in writing the it is placed in the control and possession of the vendee.
payment, even only partial of such a big amount (P142,975.00). Therefore, when the thing subject of the sale is placed in the
The above facts show contemporaneous and subsequent acts of control and possession of the vendee, delivery is complete. (La
the parties in relation to the transaction between them as Fuerza, Inc. vs. Court of Appeals, 23 SCRA 1217)

In the case at bar, at the moment the delivery orders were issued to receive the delivery orders on November 13, 1970
and given to the petitioner-vendee, there was a symbolic or immediately after the signing of the agreement on the same day
feigned tradition of the sugar sold since the delivery orders are and that he was further allowed on various dates between
documents of title to goods which, under Article 1636, New Civil November 13,1970 to January 23, 1971 to take delivery in
Code, includes any bill of lading, dock, warrant, quedan, or varying amounts totalling 3,735 piculs of sugar, have not been
warehouse receipt or order for the delivery of goods, or any properly appreciated by respondent court, which failure or
other document used in the ordinary course of business in the omission in Our mind constitute grave and prejudicial abuse of
sale or transfer of goods, as proof of the possession or control of discretion.
the goods, or authorizing or purporting to authorize the This brings Us to the consideration and resolution of the second
possessor of the document to transfer or receive, either by assignment of error wherein petitioner contends that the
indorsement or by delivery, goods represented by such exception to the general rule, and not the general rule itself on
document. And when the petitioner-buyer withdrew from the the finality of the findings of fact by the Court of Appeals, is
respondent's warehouse, hauled and took delivery on various applicable and must govern in the instant case.
dates and varying quantities of sugar piculs to 3,735 piculs, there It is, of course, well-established that the general rule that the
was actual delivery thereof which consummated the sale. It is not appellate court's findings of facts are binding and must be
correct, therefore, for the respondent court to hold that "the respected by Us, has recognized exceptions.
contract in its entirety proves no more than that there has been a In Ramos vs. Pepsi-Cola Bottling Co., et al., L-22533, February 9,
meeting of the minds of the parties." It is more than that because 1967, 19 SCRA 289, We enumerated the following as exceptions
the parties did not end the agreement by simply signing the to the general rule:
contract, Exhibit "A". The minds of the parties did not only come 1. Where there is a grave abuse of discretion (Buyco vs. People,
to a meeting but they continued to implement and consummate 95 Phil. 453);
the same. 2. When the finding is grounded entirely on speculation, surmises
It may be true, as the decision under review opined, that "the or conjectures (Joaquin vs. Navarro, 93 Phil 257);
signing perfected the contract but did not ex propio vigore 3. When the inference made is manifestly mistaken, absurb or
consummate it," if the parties stopped or desisted thereafter, but impossible (Luna vs. Linatoc, 74 Phil. 15);
the issuance and delivery of the delivery orders covering the total 4. When the judgment of the Court of Appeals was based on a
quantity of sugar sold was a consummation of the agreement, misapprehension of facts (De la Cruz vs. Sosing, 94 Phil. 26);
more so when petitioner-buyer was allowed by respondent 5. When the factual findings are conflicting (Casica vs Villaseca,
company's officials to substitute the four delivery orders Nos. 101 Phil. 1205); or
3054, 3055, 3056, and 3057 marked Annexes "2", "3", "4", and 6. When the Court of Appeals, in making its findings, went
"5" with substitute delivery orders marked Annexes "6" to "110" beyond the issues of the case and the same are contrary to the
showing a total of 3,735 piculs of sugar already delivered to the admissions of both appellant and appellee (Evangelists vs. Alto
petitioner, leaving a small amount of 350 piculs still Surety & Insurance Co., 1139, April 23,1958).
unwithdrawn for which petitioner filed the original complaint in In Roque vs. Buan L-22459, October 31, 1967, 21 SCRA 642, We
Civil Case No. 14873 against the company for delivery. These reversed the conclusion of the Court of Appeals, having found it
facts which are not disputed showing that petitioner was allowed to be: (1) contrary to the established facts; (2) an inference based

on mere assumption; (3) contrary to the res ipsa loquitur rule, a total of P124,760.51 had been se off or deducted from two
and (4) not in conformity with the physical law of nature. And in expected payments coming from the petitioner amounting to
Fortus vs. Novero, L-22370, June 29, 1968, 23 SCRA 1330, We P140,259.41. In any event, whether Exhibit "O" is a liquidation
ruled that in extreme cases calling for the exercise of Our sheet or itemization of supplies and materials for set-off or
supervisory jurisdiction, this Tribunal may disturb or reverse any deduction, it is a customary and normal business practice to
particular finding of fact of the Court of Appeals should We find it indicate and include all outstanding accounts, whether payable or
to, be arbitrary or whimsical or entirely outside the issues raised receivable, pertaining to a particular customer or client at the
by the parties in their respective pleadings. Again, in Bunyi vs. close of the business year. This is a custom or usage which
Reyes, L-28845, June 10, 1971, 39 SCRA 504, We reversed the respondent court failed to consider and appreciate in the case at
factual findings of the appellate court based on an assumption bar.
unsuppoted, by the evidence on record. We agree with the petitioner that the decision under review has
In Sotto vs. Teves, 86 SCRA 154, and Alsua-Betts, et al., vs. Court of overlooked matters of substance in the evaluation of the
Appeals, et al., 92 SCRA 332, We reiterated and listed the evidence. For one, it is an established fact that the transaction in
exceptions to the general rule. question was no recorded-in the books of the respondent
And considering that in the case at bar the findings of the Court of company. This is the clear testimony of Victorino Daroya,
Appeals are contrary to those of the trial court, a minute scrutiny External Auditor of the Hind Sugar Company (t.s.n., Vinluan, p.
by the Supreme Court is in order, and resort to duly proven 32, Hearing on May 13, 1972). And another significant fact, is that
evidence becomes necessary. (Legaspi vs. Court of Appeals, L- according to General Manager Emiliano Abalos, there was no
39877, Feb. 20, 1976, 69 SCRA 360, 364, citing Tolentino vs. De document to show that the transaction was not cash upon signing
Jesus, et al., L-32797, March 27, 1974, 56 SCRA 167). of the contract, in his testimony at the hearing on May 22, 1972.
There is merit to petitioner's contention that the appellate court (t.s.n., Estrada, pp. 35-36).
misappreciated or misapprehended the import of the liquidation The logical implication of the ruling of the respondent court
sheet marked Exhibit "O" which is a financial statement prepared which upheld the position of the respondent company that the
by the cashier of the respondent company, Teodoro Garcia, purchase of sugar was not a cash transaction, is Chat the
barely two months after the contract under litigation was entered purchase was on credit. However, since it appears that the
into, indicating the mutual obligations between the parties. transaction was not recorded in the company books and there
Petitioner points out in said statement that he had no liability was no document showing it was not cash, the inference arises
whatsoever to the company, much less the cost of the sugar he that the respondent company allowed, tolerated, and/or
had bought on November 13, 1970. On the contrary, the sanctioned a credit transaction to be unrecorded in the company
statement contains outstanding "vales" of P18,000.00 and books which is simply irregular, unbusiness-like and anomalous.
P8,800.00 taken by the. company and due to petitioner. The For a corporation or company like the respondent engaged in the
Court of Appeals said it is a fallacy to believe that Exhibit "O" is a big business of sugar central, in the production and marketing as
liquidation of the periodic accounts of the parties when in fact, it well as export of sugar, and in the present case involving more
is no more than the itemization on how the amount of P97,960.51 than a hundred thousand pesos, to keep no record of the
representing cost of supplies and materials from. the petitioner transaction in question is blatantly, against ordinary business
and two "vales' ".n the sum of P18,000.00 and P8,800.00 each, or practice and procedure in bookkeeping or accounting. Whether

the explanation. of the respondent company's officials rests on intent and agreement of the parties, or the validity of the
close personal friendship or cordial attachment with a particular agreement is put in issue by the pleadings; (b) When there is an
customer or client, the conclusion is inevitable that the appealed intrinsic ambiguity in the writing.
judgment is grounded on findings that are irrational, absurd and Petitioner faults and impeaches the conclusions of the appellate
arbitrary because the court in effect sustained the version of the court as founded entirely on speculations, surmises or
company officers who wantonly and recklessly violated a conjectures. Thus, he castigates the court's holding which ruled
customary business rule of protecting first and above all the that "(t)he claim of plaintiff- appellee that he paid the
interest of the company they serve. P142,975.00 wholly in cash is improbable. It is simply not the
In the evaluation and appreciation of the evidence on record, We way with businessmen. Modern business moves on credits and
find that the respondent court gave credence to the unsupported debts ..." and that "it is unthinkable to a businessman to keep
testimony of General Manager Emiliano Abalos that the term or cash all the time in his residence in Lingayen, even if he did not
mode of payment stipulated in the written contract, Exh. "A", had know when or how soon he would disburse it." The appealed
been changed by him to "payment as withdrawals are made." decision questions: "Why would plaintiff-appellee be keeping so
This is clear as testified to by Manager Abalos in the hearing on much cash in his possession and why should he pay P142,975.00
May 22, 1972, t.s.n., pp. 3839. The evidence, however, does not all in cash" and then concludes: "We cannot imagine plaintiff-
show nor is there proof that the contract, Exh. "A", was appellee taking the risk of loss of this money by keeping it in his
accordingly changed or altered from "cash upon signing of the house."
contract" to "payment as withdrawals are made." In sustaining The contention of the petitioner that the respondent court
the oral testimony of Manager Abalos on the alleged change of indulged in speculations and conjectures which are baseless, is
payment, as against the written terms of the contract that it was impressed with merit. Truly, the very specific term of the
cash payment, the respondent court held that "Emiliano Abalos contract specified cash payment. The instruction of General
went all the way to accommodate the plaintiff-appellee by Manager Abalos to his assistant, Generoso Bongato, was
modifying the contract, changing the condition or mode of particularized to the mode of payment which was "cash upon
payment provided in Exhibit "A" even without changing the signing of this contract" and the instruction was duly obeyed and
written contract itself." complied with. It is certainly whimsical and absurd for the Court
This ruling of the court upholding the oral testimony and claim of of Appeals to speculate and surmise that petitioner ought not to
Manager Abalos as against the written contract itself is a grave have brought and produced the cash money and should not even
and prejudicial error in the appreciation of the evidence because have such cash money in his possession. A review of the appellate
it is a clear and flagrant disregard of the parol evidence rule court's findings is, therefore, justified and warranted.
(Section 7, Rule 130, Rev. Rules of Court) providing that: "When Respondents court is also taken to task for ignoring or
the terms of an agreement have been reduced to writing, it is to suppressing the testimony of Manuel Chua Lim, son of petitioner
be considered as containing all such terms, and, therefore, there and a 24-year old graduate of Bachelor of Science in Commerce,
can be, between the parties and their successors in interest, no major in Accounting, who accompanied his father to the cashier's
evidence of the terms of the agreement other than the contents of office of respondent company and witnessed the payment of the
the writing, except in the following cases: (a) Where a mistake or money in cash by his father to the cashier, Teodoro Garcia, in the
imperfection of the writing, or its failure to express-the true presence of Generoso Bongato and Manager Abalos, saw the

signing of the contract and that thereafter, the four (4) delivery In other words, the decision of the trial court being in accordance
orders were given to his father, including a signed copy of the with the evidence established and the law applicable, the same is
contract, Exhibit "A". Admittedly, this piece of evidence which is hereby reinstated in toto,
clear, positive and convincing was never considered by the court WHEREFORE, IN VIEW OF THE FOREGOING, We hereby reverse
which was its legal duty to evaluate and appreciate, considering and set aside paragraph (1) and the second portion of paragraph
that the presence of Manuel Chua Lim and his testimony was not (4) of the appealed judgment, and modify the remaining portions
directly denied nor disputed by any of the officials so named and of said judgment. Judgment is hereby rendered
their witnesses, Hence, We find petitioner's contention that the (1) On the first cause of action., ordering the respondent to
court's omission among other grave and serious prejudicial immediately deliver to petitioner the 350 piculs of H-2 sugar or
errors pointed by petitioner justify the reversal of the appealed to pay petitioner the sum of P12,250.00 plus legal rate of interest
judgment. to be tenable. from November 13, 1970, until fully paid. giving unto the
We affirm the decision of the trial court in ruling that petitioner petitioner the option to choose whether to receive the sugar or to
has paid in cash the sum of P142,975.00 to respondent company receive the payment corresponding to the same:
for the purchase of 4,085 piculs of H-2 sugar and is entitled to the (2) On the second cause of action, ordering the respondent to
delivery of 350 piculs of H-2 sugar or to be paid the sum of deliver immediately to the petitioner the 1,000 piculs of export
P12,250.00 plus legal interest from November 13, 1970 until sugar or to pay the petitioner the sum of P55,000.00 with legal
fully paid, at the option of petitioner. rate of interest from January 20, 1971, but giving the option or
On the second cause of action, the judgment of the appellate choice to the petitioner;
court is correct insofar as it orders the respondent company to (3) With respect to the third cause of action, ordering the
return to the petitioner the latter's deposit of P55,000.00 but respondent to deliver to the petitioner the 160 piculs of H-3
should be modified to include payment of legal interest from sugar or to pay to petitioner the sum of P6,400.00 with legal rate
January 20, 1971 until fully paid and giving the option to of interest from June 3. 1970, but the option again belonging to
petitioner either to receive the money or take delivery of 1,000 the petitioner;
piculs of export sugar from respondent company. (4) On the fourth cause of action ordering the respondent to pay
On the third cause of action, the appealed judgment is also to the, petitioner the sum of P60,592.30 with interest at 12% per
correct but the same is likewise modified to include payment of annum from the filing of the complaint and to pay attorney's fees
legal interest on the sum of P6,400.00 from June 3, 1970 until of 25% of the principal obligation, that is, the sum of P15,143.08;
fully paid, or to take delivery from respondent the 160 piculs of (5) On the fifth and sixth causes of action, ordering the
H-3 sugar, at the option of the petitioner. respondent to pay to the petitioner the sum of P25,000.00 as
On the fourth cause of action, the judgment of the Court of damages and to pay another sum of P15,000.00 as attorney's
Appeals finding respondent company liable to petitioner for the fees, the said fees referring to the first, second and third causes of
sum of P60,592.30 for materials and supplies which the latter action.
supplied to it for the months of January, February, March and Costs against respondent.
April, 1971 is also correct. The second portion under paragraph SO ORDERED.
(4) of the judgment is set aside, as well as paragraph (5) thereof Teehankee (Chairman), Makasiar, Fernandez and De Castro, JJ.,
which ordered petitioner to pay attorney's fees, concur.

NW by AFP military reservation. Containing an area of 450,273
square meters, more or less and registered in the name of Maria
Nieves Toledo-Gozun under TCT No. 8708 of the Register of
Deeds of Pampanga. ..., and
154. G.R. No. L-20620 August 15, 1974 A parcel of land (Portion of lot 3, Blk-1, Bureau of Lands Plan Psd
REPUBLIC OF THE PHILIPPINES, plaintiff-appellant, 26254. Bounded on the NE by Lot No. 3, on the SE by school lot
vs. and national road, on the SW by Lot 1-B Blk 2 (equivalent to Lot
CARMEN M. VDA. DE CASTELLVI, ET AL., defendants- 199-B Swo 23666), on the NW by Lot 1-B, Blk-1. Containing an
appellees. area of 88,772 square meters, more or less, and registered in the
Office of the Solicitor General for plaintiff-appellant. name of Maria Nieves Toledo Gozun under TCT No. 8708 of the
C.A. Mendoza & A. V. Raquiza and Alberto Cacnio & Register of Deeds of Pampanga, ....
Associates for defendant-appellees. In its complaint, the Republic alleged, among other things, that
the fair market value of the above-mentioned lands, according to
ZALDIVAR, J.:p the Committee on Appraisal for the Province of Pampanga, was
Appeal from the decision of the Court of First Instance of not more than P2,000 per hectare, or a total market value of
Pampanga in its Civil Case No. 1623, an expropriation P259,669.10; and prayed, that the provisional value of the lands
proceeding. be fixed at P259.669.10, that the court authorizes plaintiff to take
Plaintiff-appellant, the Republic of the Philippines, (hereinafter immediate possession of the lands upon deposit of that amount
referred to as the Republic) filed, on June 26, 1959, a complaint with the Provincial Treasurer of Pampanga; that the court
for eminent domain against defendant-appellee, Carmen M. Vda. appoints three commissioners to ascertain and report to the
de Castellvi, judicial administratrix of the estate of the late court the just compensation for the property sought to be
Alfonso de Castellvi (hereinafter referred to as Castellvi), over a expropriated, and that the court issues thereafter a final order of
parcel of land situated in the barrio of San Jose, Floridablanca, condemnation.
Pampanga, described as follows: On June 29, 1959 the trial court issued an order fixing the
A parcel of land, Lot No. 199-B Bureau of Lands Plan Swo 23666. provisional value of the lands at P259,669.10.
Bounded on the NE by Maria Nieves Toledo-Gozun; on the SE by In her "motion to dismiss" filed on July 14, 1959, Castellvi alleged,
national road; on the SW by AFP reservation, and on the NW by among other things, that the land under her administration,
AFP reservation. Containing an area of 759,299 square meters, being a residential land, had a fair market value of P15.00 per
more or less, and registered in the name of Alfonso Castellvi square meter, so it had a total market value of P11,389,485.00;
under TCT No. 13631 of the Register of Pampanga ...; that the Republic, through the Armed Forces of the Philippines,
and against defendant-appellee Maria Nieves Toledo Gozun particularly the Philippine Air Force, had been, despite repeated
(hereinafter referred to as Toledo-Gozun over two parcels of land demands, illegally occupying her property since July 1, 1956,
described as follows: thereby preventing her from using and disposing of it, thus
A parcel of land (Portion Lot Blk-1, Bureau of Lands Plan Psd, causing her damages by way of unrealized profits. This defendant
26254. Bounded on the NE by Lot 3, on the SE by Lot 3; on the prayed that the complaint be dismissed, or that the Republic be
SW by Lot 1-B, Blk. 2 (equivalent to Lot 199-B Swo 23666; on the ordered to pay her P15.00 per square meter, or a total of

P11,389,485.00, plus interest thereon at 6% per annum from July of P107,609.00 as provisional value of her lands. 2 On May 16,
1, 1956; that the Republic be ordered to pay her P5,000,000.00 as 1960 the trial Court authorized the Provincial Treasurer of
unrealized profits, and the costs of the suit. Pampanga to pay defendant Castellvi the amount of P151,859.80
By order of the trial court, dated August, 1959, Amparo C. Diaz, as provisional value of the land under her administration, and
Dolores G. viuda de Gil, Paloma Castellvi, Carmen Castellvi, Rafael ordered said defendant to deposit the amount with the Philippine
Castellvi, Luis Castellvi, Natividad Castellvi de Raquiza, Jose National Bank under the supervision of the Deputy Clerk of
Castellvi and Consuelo Castellvi were allowed to intervene as Court. In another order of May 16, 1960 the trial Court entered
parties defendants. Subsequently, Joaquin V. Gozun, Jr., husband an order of condemnation. 3
of defendant Nieves Toledo Gozun, was also allowed by the court The trial Court appointed three commissioners: Atty. Amadeo
to intervene as a party defendant. Yuzon, Clerk of Court, as commissioner for the court; Atty.
After the Republic had deposited with the Provincial Treasurer of Felicisimo G. Pamandanan, counsel of the Philippine National
Pampanga the amount of P259,669.10, the trial court ordered Bank Branch at Floridablanca, for the plaintiff; and Atty.
that the Republic be placed in possession of the lands. The Leonardo F. Lansangan, Filipino legal counsel at Clark Air Base,
Republic was actually placed in possession of the lands on August for the defendants. The Commissioners, after having qualified
10, themselves, proceeded to the performance of their duties.
1959. 1 On March 15,1961 the Commissioners submitted their report and
In her "motion to dismiss", dated October 22, 1959, Toledo- recommendation, wherein, after having determined that the
Gozun alleged, among other things, that her two parcels of land lands sought to be expropriated were residential lands, they
were residential lands, in fact a portion with an area of 343,303 recommended unanimously that the lowest price that should be
square meters had already been subdivided into different lots for paid was P10.00 per square meter, for both the lands of Castellvi
sale to the general public, and the remaining portion had already and Toledo-Gozun; that an additional P5,000.00 be paid to
been set aside for expansion sites of the already completed Toledo-Gozun for improvements found on her land; that legal
subdivisions; that the fair market value of said lands was P15.00 interest on the compensation, computed from August 10, 1959,
per square meter, so they had a total market value of be paid after deducting the amounts already paid to the owners,
P8,085,675.00; and she prayed that the complaint be dismissed, and that no consequential damages be awarded. 4 The
or that she be paid the amount of P8,085,675.00, plus interest Commissioners' report was objected to by all the parties in the
thereon at the rate of 6% per annum from October 13, 1959, and case by defendants Castellvi and Toledo-Gozun, who insisted
attorney's fees in the amount of P50,000.00. that the fair market value of their lands should be fixed at P15.00
Intervenors Jose Castellvi and Consuelo Castellvi in their answer, per square meter; and by the Republic, which insisted that the
filed on February 11, 1960, and also intervenor Joaquin Gozun, price to be paid for the lands should be fixed at P0.20 per square
Jr., husband of defendant Maria Nieves Toledo-Gozun, in his meter. 5
motion to dismiss, dated May 27, 1960, all alleged that the value After the parties-defendants and intervenors had filed their
of the lands sought to be expropriated was at the rate of P15.00 respective memoranda, and the Republic, after several
per square meter. extensions of time, had adopted as its memorandum its
On November 4, 1959, the trial court authorized the Provincial objections to the report of the Commissioners, the trial court, on
Treasurer of Pampanga to pay defendant Toledo-Gozun the sum May 26, 1961, rendered its decision 6 the dispositive portion of

which reads as follows: Republic filed a supplemental motion for new trial upon the
WHEREFORE, taking into account all the foregoing ground of additional newly-discovered evidence. This motion for
circumstances, and that the lands are titled, ... the rising trend of new trial and/or reconsideration was denied by the court on July
land values ..., and the lowered purchasing power of the 12, 1961.
Philippine peso, the court finds that the unanimous On July 17, 1961 the Republic gave notice of its intention to
recommendation of the commissioners of ten (P10.00) pesos per appeal from the decision of May 26, 1961 and the order of July
square meter for the three lots of the defendants subject of this 12, 1961. Defendant Castellvi also filed, on July 17, 1961, her
action is fair and just. notice of appeal from the decision of the trial court.
xxx xxx xxx The Republic filed various ex-parte motions for extension of time
The plaintiff will pay 6% interest per annum on the total value of within which to file its record on appeal. The Republic's record
the lands of defendant Toledo-Gozun since (sic) the amount on appeal was finally submitted on December 6, 1961.
deposited as provisional value from August 10, 1959 until full Defendants Castellvi and Toledo-Gozun filed not only a joint
payment is made to said defendant or deposit therefor is made in opposition to the approval of the Republic's record on appeal, but
court. also a joint memorandum in support of their opposition. The
In respect to the defendant Castellvi, interest at 6% per annum Republic also filed a memorandum in support of its prayer for the
will also be paid by the plaintiff to defendant Castellvi from July 1, approval of its record on appeal. On December 27, 1961 the trial
1956 when plaintiff commenced its illegal possession of the court issued an order declaring both the record on appeal filed by
Castellvi land when the instant action had not yet been the Republic, and the record on appeal filed by defendant
commenced to July 10, 1959 when the provisional value thereof Castellvi as having been filed out of time, thereby dismissing both
was actually deposited in court, on the total value of the said appeals.
(Castellvi) land as herein adjudged. The same rate of interest On January 11, 1962 the Republic filed a "motion to strike out the
shall be paid from July 11, 1959 on the total value of the land order of December 27, 1961 and for reconsideration", and
herein adjudged minus the amount deposited as provisional subsequently an amended record on appeal, against which
value, or P151,859.80, such interest to run until full payment is motion the defendants Castellvi and Toledo-Gozun filed their
made to said defendant or deposit therefor is made in court. All opposition. On July 26, 1962 the trial court issued an order,
the intervenors having failed to produce evidence in support of stating that "in the interest of expediency, the questions raised
their respective interventions, said interventions are ordered may be properly and finally determined by the Supreme Court,"
dismissed. and at the same time it ordered the Solicitor General to submit a
The costs shall be charged to the plaintiff. record on appeal containing copies of orders and pleadings
On June 21, 1961 the Republic filed a motion for a new trial specified therein. In an order dated November 19, 1962, the trial
and/or reconsideration, upon the grounds of newly-discovered court approved the Republic's record on appeal as amended.
evidence, that the decision was not supported by the evidence, Defendant Castellvi did not insist on her appeal. Defendant
and that the decision was against the law, against which motion Toledo-Gozun did not appeal.
defendants Castellvi and Toledo-Gozun filed their respective The motion to dismiss the Republic's appeal was reiterated by
oppositions. On July 8, 1961 when the motion of the Republic for appellees Castellvi and Toledo-Gozun before this Court, but this
new trial and/or reconsideration was called for hearing, the Court denied the motion.

In her motion of August 11, 1964, appellee Castellvi sought to the Republic and appellee Castellvi, the former was granted the
increase the provisional value of her land. The Republic, in its "right and privilege" to buy the property should the lessor wish
comment on Castellvi's motion, opposed the same. This Court to terminate the lease, and that in the event of such sale, it was
denied Castellvi's motion in a resolution dated October 2,1964. stipulated that the fair market value should be as of the time of
The motion of appellees, Castellvi and Toledo-Gozun, dated occupancy; and that the permanent improvements amounting to
October 6, 1969, praying that they be authorized to mortgage the more that half a million pesos constructed during a period of
lands subject of expropriation, was denied by this Court or twelve years on the land, subject of expropriation, were
October 14, 1969. indicative of an agreed pattern of permanency and stability of
On February 14, 1972, Attys. Alberto Cacnio, and Associates, occupancy by the Philippine Air Force in the interest of national
counsel for the estate of the late Don Alfonso de Castellvi in the Security. 7
expropriation proceedings, filed a notice of attorney's lien, Appellee Castellvi, on the other hand, maintains that the "taking"
stating that as per agreement with the administrator of the estate of property under the power of eminent domain requires two
of Don Alfonso de Castellvi they shall receive by way of attorney's essential elements, to wit: (1) entrance and occupation by
fees, "the sum equivalent to ten per centum of whatever the court condemn or upon the private property for more than a
may finally decide as the expropriated price of the property momentary or limited period, and (2) devoting it to a public use
subject matter of the case." in such a way as to oust the owner and deprive him of all
--------- beneficial enjoyment of the property. This appellee argues that in
Before this Court, the Republic contends that the lower court the instant case the first element is wanting, for the contract of
erred: lease relied upon provides for a lease from year to year; that the
1. In finding the price of P10 per square meter of the lands second element is also wanting, because the Republic was paying
subject of the instant proceedings as just compensation; the lessor Castellvi a monthly rental of P445.58; and that the
2. In holding that the "taking" of the properties under contract of lease does not grant the Republic the "right and
expropriation commenced with the filing of this action; privilege" to buy the premises "at the value at the time of
3. In ordering plaintiff-appellant to pay 6% interest on the occupancy." 8
adjudged value of the Castellvi property to start from July of Appellee Toledo-Gozun did not comment on the Republic's
1956; argument in support of the second error assigned, because as far
4. In denying plaintiff-appellant's motion for new trial based on as she was concerned the Republic had not taken possession of
newly discovered evidence. her lands prior to August 10, 1959. 9
In its brief, the Republic discusses the second error assigned as In order to better comprehend the issues raised in the appeal, in
the first issue to be considered. We shall follow the sequence of so far as the Castellvi property is concerned, it should be noted
the Republic's discussion. that the Castellvi property had been occupied by the Philippine
1. In support of the assigned error that the lower court erred in Air Force since 1947 under a contract of lease, typified by the
holding that the "taking" of the properties under expropriation contract marked Exh. 4-Castellvi, the pertinent portions of which
commenced with the filing of the complaint in this case, the read:
Republic argues that the "taking" should be reckoned from the CONTRACT OF LEASE
year 1947 when by virtue of a special lease agreement between This AGREEMENT OF LEASE MADE AND ENTERED into by and

between INTESTATE ESTATE OF ALFONSO DE CASTELLVI, further agrees that should he/she/they sell or encumber all or
represented by CARMEN M. DE CASTELLVI, Judicial any part of the herein described premises during the period of
Administratrix ... hereinafter called the LESSOR and THE this lease, any conveyance will be conditioned on the right of the
REPUBLIC OF THE PHILIPPINES represented by MAJ. GEN. LESSEE hereunder.
CALIXTO DUQUE, Chief of Staff of the ARMED FORCES OF THE 4. The LESSEE shall pay to the LESSOR as monthly rentals under
PHILIPPINES, hereinafter called the LESSEE, this lease the sum of FOUR HUNDRED FIFTY-FIVE PESOS &
WITNESSETH: 58/100 (P455.58) ...
1. For and in consideration of the rentals hereinafter reserved 5. The LESSEE may, at any time prior to the termination of this
and the mutual terms, covenants and conditions of the parties, lease, use the property for any purpose or purposes and, at its
the LESSOR has, and by these presents does, lease and let unto own costs and expense make alteration, install facilities and
the LESSEE the following described land together with the fixtures and errect additions ... which facilities or fixtures ... so
improvements thereon and appurtenances thereof, viz: placed in, upon or attached to the said premises shall be and
Un Terreno, Lote No. 27 del Plano de subdivision Psu 34752, remain property of the LESSEE and may be removed therefrom
parte de la hacienda de Campauit, situado en el Barrio de San by the LESSEE prior to the termination of this lease. The LESSEE
Jose, Municipio de Floridablanca Pampanga. ... midiendo una shall surrender possession of the premises upon the expiration
extension superficial de cuatro milliones once mil cuatro cientos or termination of this lease and if so required by the LESSOR,
trienta y cinco (4,001,435) [sic] metros cuadrados, mas o menos. shall return the premises in substantially the same condition as
Out of the above described property, 75.93 hectares thereof are that existing at the time same were first occupied by the AFP,
actually occupied and covered by this contract. . reasonable and ordinary wear and tear and damages by the
Above lot is more particularly described in TCT No. 1016, elements or by circumstances over which the LESSEE has no
province of control excepted: PROVIDED, that if the LESSOR so requires the
Pampanga ... return of the premises in such condition, the LESSOR shall give
of which premises, the LESSOR warrants that he/she/they/is/are written notice thereof to the LESSEE at least twenty (20) days
the registered owner(s) and with full authority to execute a before the termination of the lease and provided, further, that
contract of this nature. should the LESSOR give notice within the time specified above,
2. The term of this lease shall be for the period beginning July 1, the LESSEE shall have the right and privilege to compensate the
1952 the date the premises were occupied by the PHILIPPINE LESSOR at the fair value or the equivalent, in lieu of performance
AIR FORCE, AFP until June 30, 1953, subject to renewal for of its obligation, if any, to restore the premises. Fair value is to be
another year at the option of the LESSEE or unless sooner determined as the value at the time of occupancy less fair wear
terminated by the LESSEE as hereinafter provided. and tear and depreciation during the period of this lease.
3. The LESSOR hereby warrants that the LESSEE shall have quiet, 6. The LESSEE may terminate this lease at any time during the
peaceful and undisturbed possession of the demised premises term hereof by giving written notice to the LESSOR at least thirty
throughout the full term or period of this lease and the LESSOR (30) days in advance ...
undertakes without cost to the LESSEE to eject all trespassers, 7. The LESSEE should not be responsible, except under special
but should the LESSOR fail to do so, the LESSEE at its option may legislation for any damages to the premises by reason of combat
proceed to do so at the expense of the LESSOR. The LESSOR operations, acts of GOD, the elements or other acts and deeds not

due to the negligence on the part of the LESSEE. the President (Exhibit "7" Castellvi).
8. This LEASE AGREEMENT supersedes and voids any and all Defendant Castellvi then brought suit in the Court of First
agreements and undertakings, oral or written, previously entered Instance of Pampanga, in Civil Case No. 1458, to eject the
into between the parties covering the property herein leased, the Philippine Air Force from the land. While this ejectment case was
same having been merged herein. This AGREEMENT may not be pending, the Republic instituted these expropriation proceedings,
modified or altered except by instrument in writing only duly and, as stated earlier in this opinion, the Republic was placed in
signed by the parties. 10 possession of the lands on August 10, 1959, On November 21,
It was stipulated by the parties, that "the foregoing contract of 1959, the Court of First Instance of Pampanga, dismissed Civil
lease (Exh. 4, Castellvi) is 'similar in terms and conditions, Case No. 1458, upon petition of the parties, in an order which, in
including the date', with the annual contracts entered into from part, reads as follows:
year to year between defendant Castellvi and the Republic of the 1. Plaintiff has agreed, as a matter of fact has already signed an
Philippines (p. 17, t.s.n., Vol. III)". 11 It is undisputed, therefore, agreement with defendants, whereby she has agreed to receive
that the Republic occupied Castellvi's land from July 1, 1947, by the rent of the lands, subject matter of the instant case from June
virtue of the above-mentioned contract, on a year to year basis 30, 1966 up to 1959 when the Philippine Air Force was placed in
(from July 1 of each year to June 30 of the succeeding year) under possession by virtue of an order of the Court upon depositing the
the terms and conditions therein stated. provisional amount as fixed by the Provincial Appraisal
Before the expiration of the contract of lease on June 30, 1956 the Committee with the Provincial Treasurer of Pampanga;
Republic sought to renew the same but Castellvi refused. When 2. That because of the above-cited agreement wherein the
the AFP refused to vacate the leased premises after the administratrix decided to get the rent corresponding to the rent
termination of the contract, on July 11, 1956, Castellvi wrote to from 1956 up to 1959 and considering that this action is one of
the Chief of Staff, AFP, informing the latter that the heirs of the illegal detainer and/or to recover the possession of said land by
property had decided not to continue leasing the property in virtue of non-payment of rents, the instant case now has become
question because they had decided to subdivide the land for sale moot and academic and/or by virtue of the agreement signed by
to the general public, demanding that the property be vacated plaintiff, she has waived her cause of action in the above-entitled
within 30 days from receipt of the letter, and that the premises case. 12
be returned in substantially the same condition as before The Republic urges that the "taking " of Castellvi's property
occupancy (Exh. 5 Castellvi). A follow-up letter was sent on should be deemed as of the year 1947 by virtue of afore-quoted
January 12, 1957, demanding the delivery and return of the lease agreement. In American Jurisprudence, Vol. 26, 2nd edition,
property within one month from said date (Exh. 6 Castellvi). On Section 157, on the subject of "Eminent Domain, we read the
January 30, 1957, Lieutenant General Alfonso Arellano, Chief of definition of "taking" (in eminent domain) as follows:
Staff, answered the letter of Castellvi, saying that it was difficult Taking' under the power of eminent domain may be defined
for the army to vacate the premises in view of the permanent generally as entering upon private property for more than a
installations and other facilities worth almost P500,000.00 that momentary period, and, under the warrant or color of legal
were erected and already established on the property, and that, authority, devoting it to a public use, or otherwise informally
there being no other recourse, the acquisition of the property by appropriating or injuriously affecting it in such a way as
means of expropriation proceedings would be recommended to substantially to oust the owner and deprive him of all beneficial

enjoyment thereof. 13 Co., Inc., 53 Phil. 515, 525); Magdalena Estate, Inc. v. Myrick, 71
Pursuant to the aforecited authority, a number of circumstances Phil. 344, 348). Moreover, in order to judge the intention of the
must be present in the "taking" of property for purposes of contracting parties, their contemporaneous and subsequent acts
eminent domain. shall be principally considered (Art. 1371, Civil Code). If the
First, the expropriator must enter a private property. This intention of the lessee (Republic) in 1947 was really to occupy
circumstance is present in the instant case, when by virtue of the permanently Castellvi's property, why was the contract of lease
lease agreement the Republic, through the AFP, took possession entered into on year to year basis? Why was the lease agreement
of the property of Castellvi. renewed from year to year? Why did not the Republic
Second, the entrance into private property must be for more than expropriate this land of Castellvi in 1949 when, according to the
a momentary period. "Momentary" means, "lasting but a Republic itself, it expropriated the other parcels of land that it
moment; of but a moment's duration" (The Oxford English occupied at the same time as the Castellvi land, for the purpose of
Dictionary, Volume VI, page 596); "lasting a very short time; converting them into a jet air base? 14 It might really have been
transitory; having a very brief life; operative or recurring at every the intention of the Republic to expropriate the lands in question
moment" (Webster's Third International Dictionary, 1963 at some future time, but certainly mere notice - much less an
edition.) The word "momentary" when applied to possession or implied notice of such intention on the part of the Republic to
occupancy of (real) property should be construed to mean "a expropriate the lands in the future did not, and could not, bind
limited period" not indefinite or permanent. The aforecited the landowner, nor bind the land itself. The expropriation must
lease contract was for a period of one year, renewable from year be actually commenced in court (Republic vs. Baylosis, et al., 96
to year. The entry on the property, under the lease, is temporary, Phil. 461, 484).
and considered transitory. The fact that the Republic, through the Third, the entry into the property should be under warrant or
AFP, constructed some installations of a permanent nature does color of legal authority. This circumstance in the "taking" may be
not alter the fact that the entry into the land was transitory, or considered as present in the instant case, because the Republic
intended to last a year, although renewable from year to year by entered the Castellvi property as lessee.
consent of 'The owner of the land. By express provision of the Fourth, the property must be devoted to a public use or
lease agreement the Republic, as lessee, undertook to return the otherwise informally appropriated or injuriously affected. It may
premises in substantially the same condition as at the time the be conceded that the circumstance of the property being devoted
property was first occupied by the AFP. It is claimed that the to public use is present because the property was used by the air
intention of the lessee was to occupy the land permanently, as force of the AFP.
may be inferred from the construction of permanent Fifth, the utilization of the property for public use must be in such
improvements. But this "intention" cannot prevail over the clear a way as to oust the owner and deprive him of all beneficial
and express terms of the lease contract. Intent is to be deduced enjoyment of the property. In the instant case, the entry of the
from the language employed by the parties, and the terms 'of the Republic into the property and its utilization of the same for
contract, when unambiguous, as in the instant case, are public use did not oust Castellvi and deprive her of all beneficial
conclusive in the absence of averment and proof of mistake or enjoyment of the property. Castellvi remained as owner, and was
fraud the question being not what the intention was, but what continuously recognized as owner by the Republic, as shown by
is expressed in the language used. (City of Manila v. Rizal Park the renewal of the lease contract from year to year, and by the

provision in the lease contract whereby the Republic undertook or why the Republic should enter into a simulated contract of
to return the property to Castellvi when the lease was lease ("under the guise of lease", as expressed by counsel for the
terminated. Neither was Castellvi deprived of all the beneficial Republic) when all the time the Republic had the right of eminent
enjoyment of the property, because the Republic was bound to domain, and could expropriate Castellvi's land if it wanted to
pay, and had been paying, Castellvi the agreed monthly rentals without resorting to any guise whatsoever. Neither can we see
until the time when it filed the complaint for eminent domain on how a right to buy could be merged in a contract of lease in the
June 26, 1959. absence of any agreement between the parties to that effect. To
It is clear, therefore, that the "taking" of Catellvi's property for sustain the contention of the Republic is to sanction a practice
purposes of eminent domain cannot be considered to have taken whereby in order to secure a low price for a land which the
place in 1947 when the Republic commenced to occupy the government intends to expropriate (or would eventually
property as lessee thereof. We find merit in the contention of expropriate) it would first negotiate with the owner of the land to
Castellvi that two essential elements in the "taking" of property lease the land (for say ten or twenty years) then expropriate the
under the power of eminent domain, namely: (1) that the same when the lease is about to terminate, then claim that the
entrance and occupation by the condemnor must be for a "taking" of the property for the purposes of the expropriation be
permanent, or indefinite period, and (2) that in devoting the reckoned as of the date when the Government started to occupy
property to public use the owner was ousted from the property the property under the lease, and then assert that the value of the
and deprived of its beneficial use, were not present when the property being expropriated be reckoned as of the start of the
Republic entered and occupied the Castellvi property in 1947. lease, in spite of the fact that the value of the property, for many
Untenable also is the Republic's contention that although the good reasons, had in the meantime increased during the period
contract between the parties was one of lease on a year to year of the lease. This would be sanctioning what obviously is a
basis, it was "in reality a more or less permanent right to occupy deceptive scheme, which would have the effect of depriving the
the premises under the guise of lease with the 'right and owner of the property of its true and fair market value at the time
privilege' to buy the property should the lessor wish to terminate when the expropriation proceedings were actually instituted in
the lease," and "the right to buy the property is merged as an court. The Republic's claim that it had the "right and privilege" to
integral part of the lease relationship ... so much so that the fair buy the property at the value that it had at the time when it first
market value has been agreed upon, not, as of the time of occupied the property as lessee nowhere appears in the lease
purchase, but as of the time of occupancy" 15 We cannot accept contract. What was agreed expressly in paragraph No. 5 of the
the Republic's contention that a lease on a year to year basis can lease agreement was that, should the lessor require the lessee to
give rise to a permanent right to occupy, since by express legal return the premises in the same condition as at the time the same
provision a lease made for a determinate time, as was the lease of was first occupied by the AFP, the lessee would have the "right
Castellvi's land in the instant case, ceases upon the day fixed, and privilege" (or option) of paying the lessor what it would
without need of a demand (Article 1669, Civil Code). Neither can fairly cost to put the premises in the same condition as it was at
it be said that the right of eminent domain may be exercised by the commencement of the lease, in lieu of the lessee's
simply leasing the premises to be expropriated (Rule 67, Section performance of the undertaking to put the land in said condition.
1, Rules of Court). Nor can it be accepted that the Republic would The "fair value" at the time of occupancy, mentioned in the lease
enter into a contract of lease where its real intention was to buy, agreement, does not refer to the value of the property if bought

by the lessee, but refers to the cost of restoring the property in those lands, therefore, must also be reckoned as of June 26, 1959,
the same condition as of the time when the lessee took the date of the filing of the complaint for eminent domain.
possession of the property. Such fair value cannot refer to the 2. Regarding the first assigned error discussed as the second
purchase price, for purchase was never intended by the parties to issue the Republic maintains that, even assuming that the
the lease contract. It is a rule in the interpretation of contracts value of the expropriated lands is to be determined as of June 26,
that "However general the terms of a contract may be, they shall 1959, the price of P10.00 per square meter fixed by the lower
not be understood to comprehend things that are distinct and court "is not only exhorbitant but also unconscionable, and
cases that are different from those upon which the parties almost fantastic". On the other hand, both Castellvi and Toledo-
intended to agree" (Art. 1372, Civil Code). Gozun maintain that their lands are residential lands with a fair
We hold, therefore, that the "taking" of the Castellvi property market value of not less than P15.00 per square meter.
should not be reckoned as of the year 1947 when the Republic The lower court found, and declared, that the lands of Castellvi
first occupied the same pursuant to the contract of lease, and that and Toledo-Gozun are residential lands. The finding of the lower
the just compensation to be paid for the Castellvi property should court is in consonance with the unanimous opinion of the three
not be determined on the basis of the value of the property as of commissioners who, in their report to the court, declared that the
that year. The lower court did not commit an error when it held lands are residential lands.
that the "taking" of the property under expropriation The Republic assails the finding that the lands are residential,
commenced with the filing of the complaint in this case. contending that the plans of the appellees to convert the lands
Under Section 4 of Rule 67 of the Rules of Court, 16 the "just into subdivision for residential purposes were only on paper,
compensation" is to be determined as of the date of the filing of there being no overt acts on the part of the appellees which
the complaint. This Court has ruled that when the taking of the indicated that the subdivision project had been commenced, so
property sought to be expropriated coincides with the that any compensation to be awarded on the basis of the plans
commencement of the expropriation proceedings, or takes place would be speculative. The Republic's contention is not well taken.
subsequent to the filing of the complaint for eminent domain, the We find evidence showing that the lands in question had ceased
just compensation should be determined as of the date of the to be devoted to the production of agricultural crops, that they
filing of the complaint. (Republic vs. Philippine National Bank, L- had become adaptable for residential purposes, and that the
14158, April 12, 1961, 1 SCRA 957, 961-962). In the instant case, appellees had actually taken steps to convert their lands into
it is undisputed that the Republic was placed in possession of the residential subdivisions even before the Republic filed the
Castellvi property, by authority of the court, on August 10, 1959. complaint for eminent domain. In the case of City of Manila vs.
The "taking" of the Castellvi property for the purposes of Corrales (32 Phil. 82, 98) this Court laid down basic guidelines in
determining the just compensation to be paid must, therefore, be determining the value of the property expropriated for public
reckoned as of June 26, 1959 when the complaint for eminent purposes. This Court said:
domain was filed. In determining the value of land appropriated for public
Regarding the two parcels of land of Toledo-Gozun, also sought to purposes, the same consideration are to be regarded as in a sale of
be expropriated, which had never been under lease to the property between private parties. The inquiry, in such cases, must
Republic, the Republic was placed in possession of said lands, be what is the property worth in the market, viewed not merely
also by authority of the court, on August 10, 1959, The taking of with reference to the uses to which it is at the time applied, but

with reference to the uses to which it is plainly adapted, that is to land;
say, What is it worth from its availability for valuable uses? The evidence shows that Castellvi broached the idea of
So many and varied are the circumstances to be taken into subdividing her land into residential lots as early as July 11, 1956
account in determining the value of property condemned for in her letter to the Chief of Staff of the Armed Forces of the
public purposes, that it is practically impossible to formulate a Philippines. (Exh. 5-Castellvi) As a matter of fact, the layout of the
rule to govern its appraisement in all cases. Exceptional subdivision plan was tentatively approved by the National
circumstances will modify the most carefully guarded rule, but, Planning Commission on September 7, 1956. (Exh. 8-Castellvi).
as a general thing, we should say that the compensation of the The land of Castellvi had not been devoted to agriculture since
owner is to be estimated by reference to the use for which the 1947 when it was leased to the Philippine Army. In 1957 said
property is suitable, having regard to the existing business or land was classified as residential, and taxes based on its
wants of the community, or such as may be reasonably expected classification as residential had been paid since then (Exh. 13-
in the immediate future. (Miss. and Rum River Boom Co. vs. Castellvi). The location of the Castellvi land justifies its suitability
Patterson, 98 U.S., 403). for a residential subdivision. As found by the trial court, "It is at
In expropriation proceedings, therefore, the owner of the land the left side of the entrance of the Basa Air Base and bounded on
has the right to its value for the use for which it would bring the two sides by roads (Exh. 13-Castellvi), paragraphs 1 and 2, Exh.
most in the market. 17 The owner may thus show every 12-Castellvi), the poblacion, (of Floridablanca) the municipal
advantage that his property possesses, present and prospective, building, and the Pampanga Sugar Mills are closed by. The barrio
in order that the price it could be sold for in the market may be schoolhouse and chapel are also near (T.S.N. November 23,1960,
satisfactorily determined. 18 The owner may also show that the p. 68)." 20
property is suitable for division into village or town lots. 19 The lands of Toledo-Gozun (Lot 1-B and Lot 3) are practically of
The trial court, therefore, correctly considered, among other the same condition as the land of Castellvi. The lands of Toledo-
circumstances, the proposed subdivision plans of the lands Gozun adjoin the land of Castellvi. They are also contiguous to the
sought to be expropriated in finding that those lands are Basa Air Base, and are along the road. These lands are near the
residential lots. This finding of the lower court is supported not barrio schoolhouse, the barrio chapel, the Pampanga Sugar Mills,
only by the unanimous opinion of the commissioners, as and the poblacion of Floridablanca (Exhs. 1, 3 and 4-Toledo-
embodied in their report, but also by the Provincial Appraisal Gozun). As a matter of fact, regarding lot 1-B it had already been
Committee of the province of Pampanga composed of the surveyed and subdivided, and its conversion into a residential
Provincial Treasurer, the Provincial Auditor and the District subdivision was tentatively approved by the National Planning
Engineer. In the minutes of the meeting of the Provincial Commission on July 8, 1959 (Exhs. 5 and 6 Toledo-Gozun). As
Appraisal Committee, held on May 14, 1959 (Exh. 13-Castellvi) early as June, 1958, no less than 32 man connected with the
We read in its Resolution No. 10 the following: Philippine Air Force among them commissioned officers, non-
3. Since 1957 the land has been classified as residential in view of commission officers, and enlisted men had requested Mr. and
its proximity to the air base and due to the fact that it was not Mrs. Joaquin D. Gozun to open a subdivision on their lands in
being devoted to agriculture. In fact, there is a plan to convert it question (Exhs. 8, 8-A to 8-ZZ-Toledo-Gozun). 21
into a subdivision for residential purposes. The taxes due on the We agree with the findings, and the conclusions, of the lower
property have been paid based on its classification as residential court that the lands that are the subject of expropriation in the

present case, as of August 10, 1959 when the same were taken square meter. 22 While the lands involved in the present case,
possession of by the Republic, were residential lands and were like the lands involved in the Narciso case, might have a fair
adaptable for use as residential subdivisions. Indeed, the owners market value of P.20 per square meter in 1949, it can not be
of these lands have the right to their value for the use for which denied that ten years later, in 1959, when the present
they would bring the most in the market at the time the same proceedings were instituted, the value of those lands had
were taken from them. The most important issue to be resolved increased considerably. The evidence shows that since 1949
in the present case relates to the question of what is the just those lands were no longer cultivated as sugar lands, and in 1959
compensation that should be paid to the appellees. those lands were already classified, and assessed for taxation
The Republic asserts that the fair market value of the lands of the purposes, as residential lands. In 1959 the land of Castellvi was
appellees is P.20 per square meter. The Republic cites the case of assessed at P1.00 per square meter. 23
Republic vs. Narciso, et al., L-6594, which this Court decided on The Republic also points out that the Provincial Appraisal
May 18, 1956. The Narciso case involved lands that belonged to Committee of Pampanga, in its resolution No. 5 of February 15,
Castellvi and Toledo-Gozun, and to one Donata Montemayor, 1957 (Exhibit D), recommended the sum of P.20 per square
which were expropriated by the Republic in 1949 and which are meter as the fair valuation of the Castellvi property. We find that
now the site of the Basa Air Base. In the Narciso case this Court this resolution was made by the Republic the basis in asking the
fixed the fair market value at P.20 per square meter. The lands court to fix the provisional value of the lands sought to be
that are sought to be expropriated in the present case being expropriated at P259,669.10, which was approved by the court.
contiguous to the lands involved in the Narciso case, it is the 24 It must be considered, however, that the amount fixed as the
stand of the Republic that the price that should be fixed for the provisional value of the lands that are being expropriated does
lands now in question should also be at P.20 per square meter. not necessarily represent the true and correct value of the land.
We can not sustain the stand of the Republic. We find that the The value is only "provisional" or "tentative", to serve as the basis
price of P.20 per square meter, as fixed by this Court in the for the immediate occupancy of the property being expropriated
Narciso case, was based on the allegation of the defendants by the condemnor. The records show that this resolution No. 5
(owners) in their answer to the complaint for eminent domain in was repealed by the same Provincial Committee on Appraisal in
that case that the price of their lands was P2,000.00 per hectare its resolution No. 10 of May 14, 1959 (Exhibit 13-Castellvi). In
and that was the price that they asked the court to pay them. This that resolution No. 10, the appraisal committee stated that "The
Court said, then, that the owners of the land could not be given Committee has observed that the value of the land in this locality
more than what they had asked, notwithstanding the has increased since 1957 ...", and recommended the price of
recommendation of the majority of the Commission on Appraisal P1.50 per square meter. It follows, therefore, that, contrary to the
which was adopted by the trial court that the fair market stand of the Republic, that resolution No. 5 of the Provincial
value of the lands was P3,000.00 per hectare. We also find that Appraisal Committee can not be made the basis for fixing the fair
the price of P.20 per square meter in the Narciso case was market value of the lands of Castellvi and Toledo-Gozun.
considered the fair market value of the lands as of the year 1949 The Republic further relied on the certification of the Acting
when the expropriation proceedings were instituted, and at that Assistant Provincial Assessor of Pampanga, dated February 8,
time the lands were classified as sugar lands, and assessed for 1961 (Exhibit K), to the effect that in 1950 the lands of Toledo-
taxation purposes at around P400.00 per hectare, or P.04 per Gozun were classified partly as sugar land and partly as urban

land, and that the sugar land was assessed at P.40 per square court fixed the price at P18.00 per square meter (Exhibit 14-
meter, while part of the urban land was assessed at P.40 per Castellvi). In their report, the commissioners, among other
square meter and part at P.20 per square meter; and that in 1956 things, said:
the Castellvi land was classified as sugar land and was assessed ... This expropriation case is specially pointed out, because the
at P450.00 per hectare, or P.045 per square meter. We can not circumstances and factors involved therein are similar in many
also consider this certification of the Acting Assistant Provincial respects to the defendants' lands in this case. The land in Civil
Assessor as a basis for fixing the fair market value of the lands of Case No. 1531 of this Court and the lands in the present case
Castellvi and Toledo-Gozun because, as the evidence shows, the (Civil Case No. 1623) are both near the air bases, the Clark Air
lands in question, in 1957, were already classified and assessed Base and the Basa Air Base respectively. There is a national road
for taxation purposes as residential lands. The certification of the fronting them and are situated in a first-class municipality. As
assessor refers to the year 1950 as far as the lands of Toledo- added advantage it may be said that the Basa Air Base land is
Gozun are concerned, and to the year 1956 as far as the land of very near the sugar mill at Del Carmen, Floridablanca, Pampanga,
Castellvi is concerned. Moreover, this Court has held that the owned by the Pampanga Sugar Mills. Also just stone's throw
valuation fixed for the purposes of the assessment of the land for away from the same lands is a beautiful vacation spot at Palacol, a
taxation purposes can not bind the landowner where the latter sitio of the town of Floridablanca, which counts with a natural
did not intervene in fixing it. 25 swimming pool for vacationists on weekends. These advantages
On the other hand, the Commissioners, appointed by the court to are not found in the case of the Clark Air Base. The defendants'
appraise the lands that were being expropriated, recommended lands are nearer to the poblacion of Floridablanca then Clark Air
to the court that the price of P10.00 per square meter would be Base is nearer (sic) to the poblacion of Angeles, Pampanga.
the fair market value of the lands. The commissioners made their The deeds of absolute sale, according to the undersigned
recommendation on the basis of their observation after several commissioners, as well as the land in Civil Case No. 1531 are
ocular inspections of the lands, of their own personal knowledge competent evidence, because they were executed during the year
of land values in the province of Pampanga, of the testimonies of 1959 and before August 10 of the same year. More specifically so
the owners of the land, and other witnesses, and of documentary the land at Clark Air Base which coincidentally is the subject
evidence presented by the appellees. Both Castellvi and Toledo- matter in the complaint in said Civil Case No. 1531, it having been
Gozun testified that the fair market value of their respective land filed on January 13, 1959 and the taking of the land involved
was at P15.00 per square meter. The documentary evidence therein was ordered by the Court of First Instance of Pampanga
considered by the commissioners consisted of deeds of sale of on January 15, 1959, several months before the lands in this case
residential lands in the town of San Fernando and in Angeles City, were taken by the plaintiffs ....
in the province of Pampanga, which were sold at prices ranging From the above and considering further that the lowest as well as
from P8.00 to P20.00 per square meter (Exhibits 15, 16, 17, 18, the highest price per square meter obtainable in the market of
19, 20, 21, 22, 23-Castellvi). The commissioners also considered Pampanga relative to subdivision lots within its jurisdiction in
the decision in Civil Case No. 1531 of the Court of First Instance the year 1959 is very well known by the Commissioners, the
of Pampanga, entitled Republic vs. Sabina Tablante, which was Commission finds that the lowest price that can be awarded to
expropriation case filed on January 13, 1959, involving a parcel of the lands in question is P10.00 per square meter. 26
land adjacent to the Clark Air Base in Angeles City, where the The lower court did not altogether accept the findings of the

Commissioners based on the documentary evidence, but it Base, and the facilities that obtain because of their nearness to
considered the documentary evidence as basis for comparison in the big sugar central of the Pampanga Sugar mills, and to the
determining land values. The lower court arrived at the flourishing first class town of Floridablanca. It is true that the
conclusion that "the unanimous recommendation of the lands in question are not in the territory of San Fernando and
commissioners of ten (P10.00) pesos per square meter for the Angeles City, but, considering the facilities of modern
three lots of the defendants subject of this action is fair and just". communications, the town of Floridablanca may be considered
27 In arriving at its conclusion, the lower court took into practically adjacent to San Fernando and Angeles City. It is not
consideration, among other circumstances, that the lands are out of place, therefore, to compare the land values in
titled, that there is a rising trend of land values, and the lowered Floridablanca to the land values in San Fernando and Angeles
purchasing power of the Philippine peso. City, and form an idea of the value of the lands in Floridablanca
In the case of Manila Railroad Co. vs. Caligsihan, 40 Phil. 326, 328, with reference to the land values in those two other
this Court said: communities.
A court of first instance or, on appeal, the Supreme Court, may The important factor in expropriation proceeding is that the
change or modify the report of the commissioners by increasing owner is awarded the just compensation for his property. We
or reducing the amount of the award if the facts of the case so have carefully studied the record, and the evidence, in this case,
justify. While great weight is attached to the report of the and after considering the circumstances attending the lands in
commissioners, yet a court may substitute therefor its estimate of question We have arrived at the conclusion that the price of
the value of the property as gathered from the record in certain P10.00 per square meter, as recommended by the commissioners
cases, as, where the commissioners have applied illegal and adopted by the lower court, is quite high. It is Our considered
principles to the evidence submitted to them, or where they have view that the price of P5.00 per square meter would be a fair
disregarded a clear preponderance of evidence, or where the valuation of the lands in question and would constitute a just
amount allowed is either palpably inadequate or excessive. 28 compensation to the owners thereof. In arriving at this
The report of the commissioners of appraisal in condemnation conclusion We have particularly taken into consideration the
proceedings are not binding, but merely advisory in character, as resolution of the Provincial Committee on Appraisal of the
far as the court is concerned. 29 In our analysis of the report of province of Pampanga informing, among others, that in the year
the commissioners, We find points that merit serious 1959 the land of Castellvi could be sold for from P3.00 to P4.00
consideration in the determination of the just compensation that per square meter, while the land of Toledo-Gozun could be sold
should be paid to Castellvi and Toledo-Gozun for their lands. It for from P2.50 to P3.00 per square meter. The Court has weighed
should be noted that the commissioners had made ocular all the circumstances relating to this expropriations proceedings,
inspections of the lands and had considered the nature and and in fixing the price of the lands that are being expropriated
similarities of said lands in relation to the lands in other places in the Court arrived at a happy medium between the price as
the province of Pampanga, like San Fernando and Angeles City. recommended by the commissioners and approved by the court,
We cannot disregard the observations of the commissioners and the price advocated by the Republic. This Court has also
regarding the circumstances that make the lands in question taken judicial notice of the fact that the value of the Philippine
suited for residential purposes their location near the Basa Air peso has considerably gone down since the year 1959. 30
Base, just like the lands in Angeles City that are near the Clark Air Considering that the lands of Castellvi and Toledo-Gozun are

adjoining each other, and are of the same nature, the Court has she could not at the same time be entitled to the payment of
deemed it proper to fix the same price for all these lands. interest during the same period on the amount awarded her as
3. The third issue raised by the Republic relates to the payment of the just compensation of her land. The Republic, therefore,
interest. The Republic maintains that the lower court erred when should pay Castellvi interest at the rate of 6% per annum on the
it ordered the Republic to pay Castellvi interest at the rate of 6% value of her land, minus the provisional value that was deposited,
per annum on the total amount adjudged as the value of the land only from July 10, 1959 when it deposited in court the
of Castellvi, from July 1, 1956 to July 10, 1959. We find merit in provisional value of the land.
this assignment of error. 4. The fourth error assigned by the Republic relates to the denial
In ordering the Republic to pay 6% interest on the total value of by the lower court of its motion for a new trial based on nearly
the land of Castellvi from July 1, 1956 to July 10, 1959, the lower discovered evidence. We do not find merit in this assignment of
court held that the Republic had illegally possessed the land of error.
Castellvi from July 1, 1956, after its lease of the land had expired After the lower court had decided this case on May 26, 1961, the
on June 30, 1956, until August 10, 1959 when the Republic was Republic filed a motion for a new trial, supplemented by another
placed in possession of the land pursuant to the writ of motion, both based upon the ground of newly discovered
possession issued by the court. What really happened was that evidence. The alleged newly discovered evidence in the motion
the Republic continued to occupy the land of Castellvi after the filed on June 21, 1961 was a deed of absolute sale-executed on
expiration of its lease on June 30, 1956, so much so that Castellvi January 25, 1961, showing that a certain Serafin Francisco had
filed an ejectment case against the Republic in the Court of First sold to Pablo L. Narciso a parcel of sugar land having an area of
Instance of Pampanga. 31 However, while that ejectment case was 100,000 square meters with a sugar quota of 100 piculs, covered
pending, the Republic filed the complaint for eminent domain in by P.A. No. 1701, situated in Barrio Fortuna, Floridablanca, for
the present case and was placed in possession of the land on P14,000, or P.14 per square meter.
August 10, 1959, and because of the institution of the In the supplemental motion, the alleged newly discovered
expropriation proceedings the ejectment case was later evidence were: (1) a deed of sale of some 35,000 square meters
dismissed. In the order dismissing the ejectment case, the Court of land situated at Floridablanca for P7,500.00 (or about P.21 per
of First Instance of Pampanga said: square meter) executed in July, 1959, by the spouses Evelyn D.
Plaintiff has agreed, as a matter of fact has already signed an Laird and Cornelio G. Laird in favor of spouses Bienvenido S.
agreement with defendants, whereby she had agreed to receive Aguas and Josefina Q. Aguas; and (2) a deed of absolute sale of a
the rent of the lands, subject matter of the instant case from June parcel of land having an area of 4,120,101 square meters,
30, 1956 up to 1959 when the Philippine Air Force was placed in including the sugar quota covered by Plantation Audit No. 161
possession by virtue of an order of the Court upon depositing the 1345, situated at Floridablanca, Pampanga, for P860.00 per
provisional amount as fixed by the Provincial Appraisal hectare (a little less than P.09 per square meter) executed on
Committee with the Provincial Treasurer of October 22, 1957 by Jesus Toledo y Mendoza in favor of the Land
Pampanga; ... Tenure Administration.
If Castellvi had agreed to receive the rentals from June 30, 1956 We find that the lower court acted correctly when it denied the
to August 10, 1959, she should be considered as having allowed motions for a new trial.
her land to be leased to the Republic until August 10, 1959, and To warrant the granting of a new trial based on the ground of

newly discovered evidence, it must appear that the evidence was conveyances which may be presented in the evidence in this case
discovered after the trial; that even with the exercise of due as it is now sought to be done by virtue of the motions at bar,
diligence, the evidence could not have been discovered and Fiscal Lagman, one of the lawyers of the plaintiff, did not exercise
produced at the trial; and that the evidence is of such a nature as reasonable diligence as required by the rules. The assertion that
to alter the result of the case if admitted. 32 The lower court he only went to the office of the Register of Deeds 'now and then'
correctly ruled that these requisites were not complied with. to check the records in that office only shows the half-hazard
The lower court, in a well-reasoned order, found that the sales [sic] manner by which the plaintiff looked for evidence to be
made by Serafin Francisco to Pablo Narciso and that made by presented during the hearing before the Commissioners, if it is at
Jesus Toledo to the Land Tenure Administration were immaterial all true that Fiscal Lagman did what he is supposed to have done
and irrelevant, because those sales covered sugarlands with according to Solicitor Padua. It would have been the easiest
sugar quotas, while the lands sought to be expropriated in the matter for plaintiff to move for the issuance of a subpoena duces
instant case are residential lands. The lower court also concluded tecum directing the Register of Deeds of Pampanga to come to
that the land sold by the spouses Laird to the spouses Aguas was testify and to bring with him all documents found in his office
a sugar land. pertaining to sales of land in Floridablanca adjacent to or near
We agree with the trial court. In eminent domain proceedings, in the lands in question executed or recorded from 1958 to the
order that evidence as to the sale price of other lands may be present. Even this elementary precaution was not done by
admitted in evidence to prove the fair market value of the land plaintiff's numerous attorneys.
sought to be expropriated, the lands must, among other things, be The same can be said of the deeds of sale attached to the
shown to be similar. supplementary motion. They refer to lands covered by certificate
But even assuming, gratia argumenti, that the lands mentioned in of title issued by the Register of Deeds of Pampanga. For the same
those deeds of sale were residential, the evidence would still not reason they could have been easily discovered if reasonable
warrant the grant of a new trial, for said evidence could have diligence has been exerted by the numerous lawyers of the
been discovered and produced at the trial, and they cannot be plaintiff in this case. It is noteworthy that all these deeds of sale
considered newly discovered evidence as contemplated in could be found in several government offices, namely, in the
Section 1(b) of Rule 37 of the Rules of Court. Regarding this point, Office of the Register of Deeds of Pampanga, the Office of the
the trial court said: Provincial Assessor of Pampanga, the Office of the Clerk of Court
The Court will now show that there was no reasonable diligence as a part of notarial reports of notaries public that acknowledged
employed. these documents, or in the archives of the National Library. In
The land described in the deed of sale executed by Serafin respect to Annex 'B' of the supplementary motion copy of the
Francisco, copy of which is attached to the original motion, is document could also be found in the Office of the Land Tenure
covered by a Certificate of Title issued by the Office of the Administration, another government entity. Any lawyer with a
Register of Deeds of Pampanga. There is no question in the mind modicum of ability handling this expropriation case would have
of the court but this document passed through the Office of the right away though [sic] of digging up documents diligently
Register of Deeds for the purpose of transferring the title or showing conveyances of lands near or around the parcels of land
annotating the sale on the certificate of title. It is true that Fiscal sought to be expropriated in this case in the offices that would
Lagman went to the Office of the Register of Deeds to check have naturally come to his mind such as the offices mentioned

above, and had counsel for the movant really exercised the that has an area of 759,299 square meters, minus the sum of
reasonable diligence required by the Rule' undoubtedly they P151,859.80 that she withdrew out of the amount that was
would have been able to find these documents and/or caused the deposited in court as the provisional value of the land, with
issuance of subpoena duces tecum. ... interest at the rate of 6% per annum from July 10, 1959 until the
It is also recalled that during the hearing before the Court of the day full payment is made or deposited in court;
Report and Recommendation of the Commissioners and (d) the Republic must pay appellee Toledo-Gozun the sum of
objection thereto, Solicitor Padua made the observation: P2,695,225.00 as the just compensation for her two parcels of
I understand, Your Honor, that there was a sale that took place in land that have a total area of 539,045 square meters, minus the
this place of land recently where the land was sold for P0.20 sum of P107,809.00 that she withdrew out of the amount that
which is contiguous to this land. was deposited in court as the provisional value of her lands, with
The Court gave him permission to submit said document subject interest at the rate of 6%, per annum from July 10, 1959 until the
to the approval of the Court. ... This was before the decision was day full payment is made or deposited in court; (e) the attorney's
rendered, and later promulgated on May 26, 1961 or more than lien of Atty. Alberto Cacnio is enforced; and
one month after Solicitor Padua made the above observation. He (f) the costs should be paid by appellant Republic of the
could have, therefore, checked up the alleged sale and moved for Philippines, as provided in Section 12, Rule 67, and in Section 13,
a reopening to adduce further evidence. He did not do so. He Rule 141, of the Rules of Court.
forgot to present the evidence at a more propitious time. Now, he IT IS SO ORDERED.
seeks to introduce said evidence under the guise of newly- Makalintal, C.J., Barredo, Antonio, Esguerra, Fernandez, Muoz
discovered evidence. Unfortunately the Court cannot classify it as Palma and Aquino, JJ., concur.
newly-discovered evidence, because tinder the circumstances, Castro, Fernando, Teehankee and Makasiar, JJ., took no part.
the correct qualification that can be given is 'forgotten evidence'.
Forgotten however, is not newly-discovered
evidence. 33
The granting or denial of a motion for new trial is, as a general
rule, discretionary with the trial court, whose judgment should 155. G.R. No. L-31087 September 27, 1979
not be disturbed unless there is a clear showing of abuse of EASTERN SHIPPING LINES, INC., petitioner,
discretion. 34 We do not see any abuse of discretion on the part of vs.
the lower court when it denied the motions for a new trial. MARGARINE-VERKAUFS-UNION GmbH, respondent.
WHEREFORE, the decision appealed from is modified, as follows: Ross, Salcedo, Del Rosario, Bito & Misa for petitioner.
(a) the lands of appellees Carmen Vda. de Castellvi and Maria Lichauco Picazo & Agcaoili for respondent.
Nieves Toledo-Gozun, as described in the complaint, are declared
expropriated for public use; TEEHANKEE, Acting C.J.:
(b) the fair market value of the lands of the appellees is fixed at The Court affirms the appealed judgment holding petitioner
P5.00 per square meter; liable under the terms of its own bill of lading for the damage
(c) the Republic must pay appellee Castellvi the sum of suffered by respondent's copra cargo on board petitioner's
P3,796,495.00 as just compensation for her one parcel of land vessel, but sets aside the award of attorney's fees to respondent-

plaintiff for lack of any statement or reason in the lower court's The Court finds no error and upholds the lower court's ruling
judgment that would justify the award. sustaining respondent's damage claim although the amount
Respondent corporation, a West German corporation not thereof did not exceed 5% of respondent's interest in the cargo
engaged in business in the Philippines, was the consignee of 500 and would have been barred by the cited article of the Commerce
long tons of Philippine copra in bulk with a total value of US$ Code. We hold that the lower court correctly ruled the cited codal
108,750.00 shipped from Cebu City on board petitioner's (a article to be "not applicable in this particular case for the reason
Philippine corporation) vessel, the SS "EASTERN PLANET" for that the bill of lading (Exhibit "F") contains "an agreement to the
discharge at Hamburg, Germany. Petitioner's bill of lading for the contrary" for it is expressly provided in the last sentence of the
cargo provided as follows: first paragraph (Exhibit "1-A") that "In case of average, same
... Except as otherwise stated herein and in - the Charter Party, shall be adjusted according to York-Antwerp Rules of 1950." The
this contract shag be governed by the laws of the Flag of the Ship insertion of said condition is expressly authorized by
carrying the goods. In case of average, same shall be adjusted Commonwealth Act No. 65 which has adopted in toto the U.S.
according to York-Antwerp Rules of 1950. Carriage of Goods by Sea Act. Now, it has not been shown that
While the vessel was off Gibraltar, a fire broke out aboard the and said rules limit the recovery of damage to cases within a certain
caused water damage to the copra shipment in the amount of US$ percentage or proportion that said damage may bear to
591.38. Petitioner corporation rejected respondent's claim for claimant's interest either in the vessel or cargo as provided in
payment of the and respondent filed on June 18, 1966 in the Article 848 of the Code of Commerce On the contrary, Rule 3 of
Manila court of first instance its complaint against petitioner as said York-Antwerp Rules expressly states that "Damage done to a
defendant for recovery of the same and US$ 250.00 - attorney's ship and cargo, or either of them, by water or otherwise,
fees and expenses of litigation. including damage by breaching or scuttling a burning ship, in
After trial, the lower court rejected petitioner's defense that did extinguishing a fire on board the ship, shall be made good as
not exceed 5% of respondent's interest in the cargo it was not general average. ... "
liable under Philippine Law for the damage which I rendered There is a clear and irreconcilable inconsistency between the
judgment on April 25, 1969 "ordering the defendant, Eastern York-Antwerp Rules expressly adopted by the parties as their
Shipping Lines, Inc. to pay to the plaintiff, Margarine-Verkaufs- contract under the bill of lading which sustains respondent's
Union GMBH, the sum of US$ 591.38, with interest at the legal claim and the codal article cited by petitioner which would bar
rate from the date of the filing of the complaint until fully paid, the same. Furthermore, as correctly contended by respondent,
plus US$ 250.00 as attorney's fees and the costs of the suit." what is here involved is a contract of adhesion as embodied in
In this review on questions of law, petitioner reiterates as its first the printed bill of lading issued by petitioner for the shipment to
assignment t of error its submittal that Article 848 of the Code of which respondent as the consignee merely adhered, having no
Commerce 1 which would bar claims for averages not exceeding choice in the matter, and consequently, any ambiguity therein
5% of the claimant's interest should be applied rather than the must be construed against petitioner as the author.
lower court's ruling that petitioner's bill of lading expressly We find, however, petitioner's second and only other assignment
contained "an agreement to the contrary," i.e. for the application of error against the award of attorney's fees of US$ 250.00 to be
of the York-Antwerp Rules which provide for respondent's fun well taken. The text of the lower court's decision stated no
recovery of the damage loss. justification nor reason for the award of attorney's fees and

should therefore be disallowed. As restated in Buan vs. Philippine currency measured at the prevailing rate of exchange 3
Camaganacan 2 , the general rule is that it is contrary to sound ). Consequently, we find no necessity to make any further
public policy to place a penalty on the right to litigate nor should pronouncement thereon. We merely affirm the judgment in U.S.
attorney's fees be awarded everytime a party wins a lawsuit. currency in favor of respondent corporation, a foreign
Hence, Article 2208 of the Civil Code provides that "in the corporation not engaged in business herein, in view of
absence of stipulation, attorney's fees and expenses of litigation, petitioner's acquiescence therein and view the judgment as one
other than judicial costs, cannot be recovered," save for the wherein the lower court sentenced petitioner to pay and remit to
eleven exceptions therein expressly provided. respondent as a non-resident foreign corporation the amount
Insofar as the present case is concerned, the lower court made no due under the judgment in U S. currency.
finding that it falls within any of the exceptions that would justify ACCORDINGLY, the appealed judgment is hereby affirmed with
the award for attorney's fees, such as gross and evident bad faith the modification that the award of attorney's fees is set aside.
in refusing to satisfy a plainly valid, just and demandable claim. With costs against petitioner.
Even under the broad eleventh exception of the cited article Makasiar, Fernandez, Guerrero, De Castro and Melencio-Herrera,
which allows the imposition of attorney's fees "in any other case JJ., concur.
where the court deems it just and equitable that attorney's fees
and expenses of litigation should be recovered," the Court
stressed in Buan, supra, that "the conclusion must be borne out
by findings of facts and law. What is just and equitable in a given
case is not a mere matter of feeling but of demonstration .... 156. G.R. No. L-25650 June 11, 1975
Hence, the exercise of judicial discretion in the award of ISIDORA L. CABALIW and SOLEDAD SADORRA,
attorney's fees under Article 2208 (11) of the Civil Code demands petitioners,
a factual, legal or equitable justification upon the basis of which vs.
the court exercises its discretion. Without such a justification, the SOTERO SADORRA, ENCARNACION SADORRA, EMILIO
award is a conclusion without a premise, its basis being ANTONIO, ESPERANZA RANJO, ANSELMO RALA,
improperly left to speculation and conjecture." The summary BASION VELASCO, IGNACIO SALMAZAN, and THE
award of counsel's fees made in the appealed judgment must HONORABLE COURT OF APPEALS, respondents.
therefore be set aside. Jose W. Diokno for petitioners.
A final observation. The appealed judgment ordered petitioner to Angel A. Sison for respondents.
pay respondent the sum of US$591.38 with interest at the legal
rate (which we hold to be the rate of six [6%] per cent under MUNOZ PALMA, J.:
Article 2209 of the Civil Code in force at the time of the judgment Isidora Cabaliw was the wife of Benigno Sadorra by his second
of April 25, 1969) from the filing of the complaint on June 18, marriage solemnized on May 5, 1915, before the Justice of the
1966 until fully paid. Petitioner did not appeal from nor question Peace of Bayambang, Pangasinan. This couple had a daughter
this portion of the judgment requiring that it pay respondent- named Soledad Sadorra. During their marriage, the spouses
creditor the damage claim with interest in U.S. currency (with acquired two (2) parcels of land situated in Iniangan, Dupax,
reference to the general rule of discharging obligations in Nueva Vizcaya. One parcel with an area of 14.4847 hectares was

acquired by a Sales Patent and covered by Original Certificate of Vizcaya.
Title No. 1 of the Land Records of Nueva Vizcaya issued in the In May of 1940, Benigno Sadorra died.
name of Benigno Sadorra. The other piece of land of about 1-1/2 On June 7, 1948, the above-mentioned notice of lis pendens was
hectares and covered by Tax Declaration Nos. 6209 and 6642 cancelled by the Register of Deeds of Nueva Vizcaya upon the
was secured through purchase. filing of an affidavit by Sotero Sadorra to the effect that Civil Case
Having been abandoned by her husband, Isidora Cabaliw No. 449 had been decided in his favor and that he was adjudged
instituted an action for support with the Court of First Instance of the owner of the land covered by T.C.T. No. 522, but that his copy
Manila, entitled "Isidora Cabaliw de Orden versus Benigno of the decision was lost during the war.
Sadorra" docketed therein as Civil Case No. 43193. On January On October 1, 1954, Isidora and her daughter Soledad filed with
30, 1933, judgment was rendered requiring Benigno Sadorra to the Court of First Instance of Nueva Vizcaya Civil Case 634 to
pay his wife, Isidora Cabaliw, the amount of P75.00 a month in recover from the spouses Sotero and Encarnacion Sadorra the
terms of support as of January 1, 1933, and P150.00 in concept of aforementioned two parcels of land; they also caused the
attorney's fees and the costs. annotation of a cautionary notice and notice of lis pendens over
Unknown to Isidora Cabaliw, on August 19, 1933, Benigno T.C.T. 522. 1
Sadorra executed two (2) deeds of sale over the two parcels of On November 22, 1955, the complaint was amended and named
land above described in favor of his son-in-law, Sotero Sadorra, additional party-defendants were the children of Benigno
the latter being married to Encarnacion Sadorra, a daughter of Sadorra by his first marriage. The amended complaint prayed
Benigno Sadorra by his first marriage. These deeds were duly among others: (1) that the deeds of sale executed by Benigno
registered and Original Certificate of Title No. 1 was cancelled Sadorra be declared null and void; (2) that defendant spouses
and replaced with T.C.T. No. 522 of the Register of Deeds of Sotero and Encarnacion Sadorra be directed to yield the
Nueva Vizcaya. possession of the lands in question; and (3) that said lands be
Because of the failure of her husband to comply with the ordered partitioned among plaintiffs and defendants who are
judgment of support, Isidora Cabaliw filed in Civil Case 43192 a children by the first marriage of Benigno Sadorra in the
motion to cite Benigno Sadorra for contempt and the Court of proportions provided by law. 2
First Instance of Manila in its Order of May 12, 1937, authorized During the pendency of civil case 634 certain parties intervened
Isidora to take possession of the conjugal property, to administer claiming that they had purchased parts of the land covered by
the same, and to avail herself of the fruits thereof in payment of T.C.T. 522.
the monthly support in arrears. With this order of the Court, After trial, the lower court rendered judgment and among other
Isidora proceeded to Nueva Vizcaya to take possession of the things: (1) declared the deeds of sale executed by Benigno
aforementioned parcels of land, and it was then that she Sadorra to be simulated and fictitious; (2) recognized and upheld
discovered that her husband had sold them to his son-in-law the rights of the intervenor-purchasers who acquired their
Sotero. On February 1, 1940, Isidora filed with the Court of First portions prior to the registration of the notice of lis pendens on
Instance of Nueva Vizcaya Civil Case No. 449 against her husband October 1, 1954, but dismissed the claims of the intervenors who
and Sotero Sadorra for the recovery of the lands in question on allegedly bought parts of the land subsequent thereto; and (3)
the ground that the sale was fictitious; at the same time a notice ordered the partition of the remaining unsold lands between
of lis pendens was filed with the Register of Deeds of Nueva Isidora Cabaliw, Sotero Sadorra, on one hand and the children by

the first marriage of Benigno Sadorra on the other. 3 made by Benigno Sadorra in favor of his son-in-law were
From the foregoing decision of the lower court in civil case 634 fraudulent. For the heart of the matter is that about seven
spouses Sotero and Encarnacion Sadorra appealed to the Court of months after a judgment was rendered against him in Civil Case
Appeals and so did the intervenors whose claim were dismissed. No. 43192 of the Court of First Instance of Manila and without
(CA-G.R. No. 26956-R) On November 29, 1965, the appellate paying any part of that judgment, Benigno Sadorra sold the only
court by a vote of 3 to 2 reversed the decision of the trial court, two parcels of land belonging to the conjugal partnership to his
and dismissed the amended complaint of Isidora Cabaliw. 4 son-in-law. Such a sale even if made for a valuable consideration
Hence, this petition filed by Isidora Cabaliw and her daughter, is presumed to be in fraud of the judgment creditor who in this
Soledad Sadorra, for the Court to review the adverse judgment of case happens to be the offended wife.
the Court of Appeals. Article 1297 of the old Civil Code which was the law in force at
Several errors have been assigned by petitioners but the vital the time of the transaction provides: 5
question upon which depends the outcome of this appeal is given Contracts by virtue of which the debtor alienates property by
in Error I, to wit: gratuitous title are presumed to be made in fraud of creditors.
The Honorable Court of Appeals gravely erred in holding that the Alienations by onerous title are also presumed fraudulent when
fraud could not be presumed in the transfer of the lots in made by persons against whom some judgment has been
question by the late Benigno Sadorra to his son-in-law Sotero rendered in any instance or some writ of attachment has been
Sadorra, even if this transfer was done shortly after judgment issued. The decision or attachment need not refer to the property
was rendered against the former and in favor of your petitioner alienated and need not have been obtained by the party seeking
Isidora Cabaliw. (p. 1, Petitioner's Brief) rescission. (emphasis supplied)
The Court of Appeals sustained the validity and efficacy of the The above-quoted legal provision was totally disregarded by the
deeds of sale executed by Benigno Sadorra in favor of his son-in- appellate court, and there lies its basic error.
law (Exhibits I and I-1) on the ground that these are public We agree with petitioners that the parties here do not stand in
documents and as such are presumed by law to have been fair equipoise, for the petitioners have in their favor, by a specific
and legal; that the vendee Sotero Sadorra, is presumed to have provision of law, the presumption of a fraudulent transaction
acted in good faith, citing Art. 44, Spanish Civil Code, Art. 627 which is not overcome by the mere fact that the deeds of sale in
New Civil Code; that fraud is never presumed, and it is settled in question were in the nature of public instruments. As well said in
this jurisdiction that strong and convincing evidence is necessary the dissenting opinion of Justice Magno Gatmaitan, the principle
to overthrow the validity of an existing public instrument. The invoked by the majority opinion that to destroy the validity of an
appellate court continued that inasmuch as under the old Civil existing public document "strong and convincing evidence is
Code in force at the time of the sale, the husband was empowered necessary", operates "where the action was brought by one party
to dispose of the conjugal property without the consent of the against the other to impugn the contract ... but that rule can not
wife, the sales made by Benigno Sadorra were valid, and the wife operate and does not, where the case is one wherein the suit is
Isidora cannot now recover the property from the vendee. not between the parties inter se but is one instituted by a third
The judgment of the Court of Appeals cannot be sustained. person, not a party to the contract but precisely the victim of it
The facts narrated in the first portion of this Decision which are because executed to his prejudice and behind his back; neither
not disputed, convincingly show or prove that the conveyances law, nor justice, nor reason, nor logic, should so permit,

otherwise, in such a suit, the courts would be furnishing a most rebutting the presumption of fraud established by law, and
effective shield of defense to the aggressor." (pp. 30-31, CA having failed to do so, the fraudulent nature of the conveyance in
Decision) question prevails. 9
Furthermore, the presumption of fraud established by the law in The decision of the Court of Appeals makes mention of Art. 1413
favor of petitioners is bolstered by other indicia of bad faith on of the old Civil Code which authorizes the husband as
the part of the vendor and vendee. Thus (1) the vendee is the administrator to alienate and bind by onerous title the property
son-in-law of the vendor. In the early case of Regalado vs. of the conjugal partnership without the consent of the wife, and
Luchsinger & Co., 5 Phil. 625, this Court held that the close by reason thereof, concludes that petitioner Isidora Cabaliw can
relationship between the vendor and the vendee is one of the not now seek annulment of the sale made by her husband. On this
known badges of fraud. (2) At the time of the conveyance, the point, counsel for petitioners rightly claims that the lack of
vendee, Sotero, was living with his father-in-law, the vendor, and consent of the wife to the conveyances made by her husband was
he knew that there was a judgment directing the latter to give a never invoked nor placed in issue before the trial court. What
monthly support to his wife Isidora and that his father-in-law was claimed all along by plaintiff, Isidora Cabaliw now petitioner,
was avoiding payment and execution of the judgment. 6 (3) It was was that the conveyances or deeds of sale were executed by her
known to the vendee that his father-in-law had no properties husband to avoid payment of the monthly support adjudged in
other than those two parcels of land which were being sold to her favor and to deprive her of the means to execute said
him. 7 The fact that a vendor transfers all of his property to a judgment. In other words, petitioner seeks relief not so much as
third person when there is a judgment against him is a strong an aggrieved wife but more as a judgment creditor of Benigno
indication of a scheme to defraud one who may have a valid Sadorra. Art. 1413 therefore is inapplicable; but even if it were,
interest over his properties. 8 the result would be the same because the very article reserves to
Added to the above circumstances is the undisputed fact that the the wife the right to seek redress in court for alienations which
vendee Sotero Sadorra secured the cancellation of the lis pendens prejudice her or her heirs. 10 The undisputed facts before Us
on O.C.T. No. 1, which was annotated in 1940 at the instance of clearly show that, the sales made by the husband were merely a
Isidora Cabaliw, and the issuance of a transfer certificate of title scheme to place beyond the reach of the wife the only properties
in his favor, by executing an affidavit, Exhibit H, on June 7, 1948, belonging to the conjugal partnership and deprive her of what
wherein he referred to Isidora as "the late Isidora Cabaliw' when rightly belongs to her and her only daughter Soledad.
he knew for a fact that she was alive, and alleged that Civil Case PREMISES CONSIDERED, We find merit to this Petition for
449 of the Court of First Instance of Nueva Vizcaya was decided Review and We set aside the decision of the appellate court for
in his favor where in truth there was no such decision because being contrary to the law applicable to the facts of the case. The
the proceedings in said case were interrupted by the last world decision of the trial court stands affirmed with costs against
war. Such conduct of Sotero Sadorra reveals, as stated by the private respondents.
lower court, an "utter lack of sincerity and truthfulness" and So Ordered.
belies his pretensions of good faith. Castro (Chairman), Makasiar, Esguerra and Martin, JJ., concur.
On the part of the transferee, he did not present satisfactory and Teehankee, J., took no part.
convincing evidence sufficient to overthrow the presumption and
evidence of a fraudulent transaction. His is the burden of

discovery of the transaction by his creditors, he did not register
the deed of Sale. Six years later, on March 1, 1963, he
157. G.R. No. L-38303 May 30, 1988 fraudulently sold the hacienda to his daughter, defendant-
HONGKONG & SHANGHAI BANKING CORPORATION, appellee Sally Garganera, and her husband Mateo Garganera. The
plaintiff-appellant, sale was registered on March 5, 1963. Transfer Certificate of Title
vs. No. 34425 was issued to the Garganeras.
RALPH PAULI and SPOUSES SALLY P. GARGANERA and 2) Civil Case No. 626 Court of First Instance Negros Occidental
MATEO GARGANERA, defendants-appellees. At the instance of Warner Barnes & Co., another creditor of Pauli,
Siguion Reyna, Montecillo & Ongsiako for plaintiff- the sale to the Garganera spouses was declared fictitious for
appellant. being in fraud of creditors by the Court of First Instance of
Nordy P. Diploma for defendants-appellees. Negros Occidental, Silay City, Branch VII, in its decision dated
October 15, 1968 in Civil Case No. 262, entitled Warner Barnes &
GRIO-AQUINO J.: Co., Ltd. vs. Ralph Pauli and Spouses Mateo and Sally Garganera."
This appealed case was preceded by three (3) other cases The defendants appealed the decision to the Court of Appeals
between the parties, to wit: where it was docketed as CA-G.R. No. 43163-R. On December 18,
1) Civil Case No. 32799 Court of First Instance Manila 1969, the defendants entered into a compromise agreement with
On June 14, 1957, the Hongkong & Shanghai Banking Corporation the Warner Barnes & Co., Ltd., by paying its judgment credit of
filed a complaint against the defendant Ralph Pauli, to collect the P28,962.11 On the same date, December 18, 1969, they filed in
sum of P258,964.15. It was docketed as Civil Case No. 32799 in the Court of Appeals a "Joint Motion to Dismiss" praying that the
the Court of First Instance of Manila. appealed case be dismissed with prejudice and that the decision
After the trial, judgment was rendered in favor of the Bank on of the Court of First Instance of Negros Occidental in Civil Case
June 2, 1959, the dispositive portion of which provided as No. 262 be set aside." The Court of Appeals approved the
follows: compromise and dismissed the case, CA-GR No. 43163-R, on
WHEREFORE, judgment is hereby rendered ordering defendant January 6, 1970 (p. 78, Records).
to pay to plaintiff the sum of P219,236.20 with legal interest 3) Civil Case No. 75319 Court of First Instance Manila
thereon from June 14, 1957, until fully paid, and the costs. Having discovered that the sugar plantation belonged to Paul, the
On appeal by the defendant debtor, the decision was upheld by Hongkong and Shanghai Bank filed on January 13, 1969 in the
the Supreme Court on March 31, 1962 in case G.R. No. L-15713. Court of First Instance of Manila a complaint for revival of the
The decision having become final, the Bank endeavored to 1962 judgment in its favor in Civil Case No. 32799. The case was
execute it but the writs of execution were returned unsatisfied docketed as Civil Case No. 75319. A writ of preliminary
because no leviable assets of Pauli could be located by the attachment was issued against Pauli's, rights, interests and
sheriffs. participation in Lot No. 693 of Cad. Survey of Saravia, covered by
Unknown to the Hongkong & Shanghai Bank, Pauli had on the Garganera's TCT No. T-34425. Pauli prayed for the dismissal
January 8, 1957 purchased from the Philippine National Bank of the complaint and the lifting of the order of attachment on Lot
(PNB) a sugar cane plantation known as Hacienda Riverside (Lot No. 693.
No. 693 of Saravia Cadastre, Negros Occidental). To avoid Under the pretext of amicably settling Civil Case No. 75319,

defendant Ralph Pauli repeatedly postponed hearings of the case, On June 15, 1971, the Court granted the motions to dismiss on
to enable defendants-spouses, Sally P. Garganera and Mateo the grounds of prescription of the action and res judicata.
Garganera, to intervene in Civil Case No. 75319, which they did The plaintiff appealed to the Court of Appeals. The defendants-
on October 21, 1969. appellees, the spouses Mateo and Sally Garganera, with the
On January 23, 1971, the Court rendered judgment in Civil Case conformity of the plaintiff-appellant, filed a motion to certify the
No. 75319, the dispositive portion of which reads: appeal to this Court as only questions of law res judicata and
WHEREFORE, judgment is hereby rendered: prescription of the action- are involved. The Court of Appeals
1. Decreeing the revival of the judgment rendered on June, 2, granted the motion.
1959 in Civil Case No. 32799 of the Court of First Instance of Has the action for annulment of the sale of Lot 693 to the
Manila, entitled "Hongkong and Shanghai Banking Corporation, Garganeras prescribed? Did prescription of the action commence
plaintiff, versus Ralph Pauli, defendant," as aimed by the Supreme to run from the registration of the sale, or from the discovery of
Court in its decision promulgated on March 31, 1962 in Civil Case the transaction by the Bank?
No. G.R. L-15713, entitled "Hongkong and Shanghai Banking When a transaction involves registered land, the four-year period
Corporation, plaintiff-appellate, versus Ralph Pauli, defendant- fixed in Article 1391 within winch to bring an action for
appellant; annulment of the deed, shall be computed from the registration
2. Ordering defendant to pay to plaintiff the sum of P219,276.20 of the conveyance (March 5, 1963) on the familiar theory that the
with legal interest thereon from June 14, 1957 until fully paid, registration of the document is constructive notice of the
and the costs; conveyance to the whole world (Armentia vs. Patriarca, 18 SCRA
3. Ordering the discharge of the attachment levied upon and 1253; Avecilla vs. Yatco, 103 Phil. 666).
annotated on Transfer Certificate of Title No. T-34425 of the land Plaintiff's submission that the four-year period commenced to
records of the Province of Negros Occidental in virtue of the writ run from the date when the Bank obtained actual knowledge of
issued in the above-entitled case on February 21, 1969; and the fraudulent sale of Pauli's land to the Garganeras (sometime in
4. Dismissing all the claims for damages respectively interposed 1969) and that hence the four-year period for bringing an action
by the litigants therein. to annul the sale had not yet expired when it filed the action for
No appeal was taken by Pauli from this decision. annullment on February 17, 1971, is unacceptable. That theory
Civil Case No. 465 Court of First Instance Negros Occidental would diminish public faith in the integrity of torrens titles and
On February 17, 1971, the Bank filed a new complaint against impair commercial transactions involving registered lands for it
Pauli and the Garganeras which was docketed as Civil Case No. would render uncertain the computation of the period for the
465 in the Court of First Instance of Negros Occidental, Branch I, prescription of such actions.
praying for annulment of the Conditional Sale as well as the Deed Civil Case No. 465, the action for annulment of the Sale is not
of Sale, of Hacienda Riverside to the Garganeras and also for barred by res judicata, specifically, the prior judgment in Civil
annulment of Garganera's Certificate of Title No. T-34425. Case No. 75319, for revival of the judgment in the collection suit,
Pauli filed a Motion to Dismiss on the grounds of res judicata, Civil Case No. 32799, for the subject matter and causes of action
prescription, waiver and abandonment of claim. in the two cases are different. The three (3) Identities required
The Garganeras filed a similar Motion to Dismiss dated March 17, for the application of the bar by prior judgment: Identity of
1971. parties, of subject matter and causes of action, are lacking.

Nevertheless, as the plaintiff's right of action in Civil Case No. 465 defendants; and an offer to redeem the mortgage had been
had already prescribed, the trial court did not err in dismissing refused so they filed the complaint in order to recover the three
the case. parcels of land.
WHEREFORE,finding no reversible error in the order dated June The defendants asserted that they had acquired the lots from the
15, 1971 of the trial court dismissing Civil Case No. 465, the same plaintiffs by purchase and subsequent delivery to them. The trial
is hereby affirmed. court sustained the claim of the defendants and rendered the
SO ORDERED. following judgment:
a. declaring the defendants to be the lawful owners of the
property subject of the present litigation;
b. declaring the complaint in the present action to be without
merit and is therefore hereby ordered dismissed;
158. G.R. No. L-60174 February 16, 1983 c. ordering the plaintiffs to pay to the defendants the amount of
EDUARDO FELIPE, HERMOGENA V. FELIPE AND P2,000.00 as reasonable attorney's fees and to pay the costs of
VICENTE V. FELIPE, petitioners, the suit.
vs. The plaintiffs appealed the decision to the Court of Appeals which
HEIRS OF MAXIMO ALDON, NAMELY: GIMENA rendered the following judgment:
ALMOSARA, SOFIA ALDON, SALVADOR ALDON, AND PREMISES CONSIDERED, the decision appealed from is hereby
THE HONORABLE COURT OF APPEALS, respondents. REVERSED and SET ASIDE, and a new one is hereby RENDERED,
Romulo D. San Juan for petitioner. ordering the defendants-appellees to surrender the lots in
Gerundino Castillejo for private respondent. question as well as the plaintiffs'-appellants' muniments of title
thereof to said plaintiffs-appellants, to make an accounting of the
ABAD SANTOS, J.: produce derived from the lands including expenses incurred
Maximo Aldon married Gimena Almosara in 1936. The spouses since 1951, and to solidarity turn over to the plaintiffs-appellants
bought several pieces of land sometime between 1948 and 1950. the NET monetary value of the profits, after deducting the sum of
In 1960-62, the lands were divided into three lots, 1370, 1371 P1,800.00. No attorney's fees nor moral damages are awarded for
and 1415 of the San Jacinto Public Land Subdivision, San Jacinto, lack of any legal justification therefor. No. costs.
Masbate. The ratio of the judgment is stated in the following paragraphs of
In 1951, Gimena Almosara sold the lots to the spouses Eduardo the decision penned by Justice Edgardo L. Paras with the
Felipe and Hermogena V. Felipe. The sale was made without the concurrence of Justices Venicio Escolin and Mariano A. Zosa:
consent of her husband, Maximo. One of the principal issues in the case involves the nature of the
On April 26, 1976, the heirs of Maximo Aldon, namely his widow aforementioned conveyance or transaction, with appellants
Gimena and their children Sofia and Salvador Aldon, filed a claiming the same to be an oral contract of mortgage or
complaint in the Court of First Instance of Masbate against the antichresis, the redemption of which could be done anytime upon
Felipes. The complaint which was docketed as Civil Case No. repayment of the P1,800.00 involved (incidentally the only thing
2372 alleged that the plaintiffs were the owners of Lots 1370, written about the transaction is the aforementioned receipt re
1371 and 1415; that they had orally mortgaged the same to the the P1,800). Upon the other hand, appellees claim that the

transaction was one of sale, accordingly, redemption was husband is the administrator of the conjugal partnership. (Art.
improper. The appellees claim that plaintiffs never conveyed the 165, Civil Code.) Subject to certain exceptions, the husband
property because of a loan or mortgage or antichresis and that cannot alienate or encumber any real property of the conjugal
what really transpired was the execution of a contract of sale partnership without the wife's consent. (Art. 166, Idem.) And the
thru a private document designated as a 'Deed of Purchase and wife cannot bind the conjugal partnership without the husband's
Sale' (Exhibit 1), the execution having been made by Gimena consent, except in cases provided by law. (Art. 172, Idem.)
Almosara in favor of appellee Hermogena V. Felipe. In the instant case, Gimena, the wife, sold lands belonging to the
After a study of this case, we have come to the conclusion that the conjugal partnership without the consent of the husband and the
appellants are entitled to recover the ownership of the lots in sale is not covered by the phrase "except in cases provided by
question. We so hold because although Exh. 1 concerning the sale law." The Court of Appeals described the sale as "invalid" - a term
made in 1951 of the disputed lots is, in Our opinion, not a forgery which is imprecise when used in relation to contracts because the
the fact is that the sale made by Gimena Almosara is invalid, Civil Code uses specific names in designating defective contracts,
having been executed without the needed consent of her namely: rescissible (Arts. 1380 et seq.), voidable (Arts. 1390 et
husband, the lots being conjugal. Appellees' argument that this seq.), unenforceable (Arts. 1403, et seq.), and void or inexistent
was an issue not raised in the pleadings is baseless, considering (Arts. 1409 et seq.)
the fact that the complaint alleges that the parcels 'were The sale made by Gimena is certainly a defective contract but of
purchased by plaintiff Gimena Almosara and her late husband what category? The answer: it is a voidable contract.
Maximo Aldon' (the lots having been purchased during the According to Art. 1390 of the Civil Code, among the voidable
existence of the marriage, the same are presumed conjugal) and contracts are "[T]hose where one of the parties is incapable of
inferentially, by force of law, could not, be disposed of by a wife giving consent to the contract." (Par. 1.) In the instant case-
without her husband's consent. Gimena had no capacity to give consent to the contract of sale.
The defendants are now the appellants in this petition for review. The capacity to give consent belonged not even to the husband
They invoke several grounds in seeking the reversal of the alone but to both spouses.
decision of the Court of Appeals. One of the grounds is factual in The view that the contract made by Gimena is a voidable contract
nature; petitioners claim that "respondent Court of Appeals has is supported by the legal provision that contracts entered by the
found as a fact that the 'Deed of Purchase and Sale' executed by husband without the consent of the wife when such consent is
respondent Gimena Almosara is not a forgery and therefore its required, are annullable at her instance during the marriage and
authenticity and due execution is already beyond question." We within ten years from the transaction questioned. (Art. 173, Civil
cannot consider this ground because as a rule only questions of Code.)
law are reviewed in proceedings under Rule 45 of the Rules of Gimena's contract is not rescissible for in such contract all the
Court subject to well-defined exceptions not present in the essential elements are untainted but Gimena's consent was
instant case. tainted. Neither can the contract be classified as unenforceable
The legal ground which deserves attention is the legal effect of a because it does not fit any of those described in Art. 1403 of the
sale of lands belonging to the conjugal partnership made by the Civil Code. And finally, the contract cannot be void or inexistent
wife without the consent of the husband. because it is not one of those mentioned in Art. 1409 of the Civil
It is useful at this point to re-state some elementary rules: The Code. By process of elimination, it must perforce be a voidable

contract. otherwise, why were they interested in a document of sale in
The voidable contract of Gimena was subject to annulment by her their favor? Again why did Vicente V. Felipe tell Gimena that the
husband only during the marriage because he was the victim who purpose of the document was to obtain Gimena's consent to the
had an interest in the contract. Gimena, who was the party construction of an irrigation pump on the lots in question? The
responsible for the defect, could not ask for its annulment. Their only possible reason for purporting to obtain such consent is that
children could not likewise seek the annulment of the contract the appellees knew the lots were not theirs. Why was there an
while the marriage subsisted because they merely had an attempted improvement (the irrigation tank) only in 1970? Why
inchoate right to the lands sold. was the declaration of property made only in 1974? Why were no
The termination of the marriage and the dissolution of the attempts made to obtain the husband's signature, despite the fact
conjugal partnership by the death of Maximo Aldon did not that Gimena and Hermogena were close relatives? An these
improve the situation of Gimena. What she could not do during indicate the bad faith of the appellees. Now then, even if we were
the marriage, she could not do thereafter. to consider appellees' possession in bad faith as a possession in
The case of Sofia and Salvador Aldon is different. After the death the concept of owners, this possession at the earliest started in
of Maximo they acquired the right to question the defective 1951, hence the period for extraordinary prescription (30 years)
contract insofar as it deprived them of their hereditary rights in had not yet lapsed when the present action was instituted on
their father's share in the lands. The father's share is one-half April 26, 1976.
(1/2) of the lands and their share is two-thirds (2/3) thereof, As to the second question, the children's cause of action accrued
one-third (1/3) pertaining to the widow. from the death of their father in 1959 and they had thirty (30)
The petitioners have been in possession of the lands since 1951. years to institute it (Art. 1141, Civil Code.) They filed action in
It was only in 1976 when the respondents filed action to recover 1976 which is well within the period.
the lands. In the meantime, Maximo Aldon died. WHEREFORE, the decision of the Court of Appeals is hereby
Two questions come to mind, namely: (1) Have the petitioners modified. Judgment is entered awarding to Sofia and Salvador
acquired the lands by acquisitive prescription? (2) Is the right of Aldon their shares of the lands as stated in the body of this
action of Sofia and Salvador Aldon barred by the statute of decision; and the petitioners as possessors in bad faith shall
limitations? make an accounting of the fruits corresponding to the share
Anent the first question, We quote with approval the following aforementioned from 1959 and solidarity pay their value to Sofia
statement of the Court of Appeals: and Salvador Aldon; costs against the petitioners.
We would like to state further that appellees [petitioners herein] SO ORDERED.
could not have acquired ownership of the lots by prescription in Concepcion Jr., Guerrero and De Castro, JJ., concur.
view of what we regard as their bad faith. This bad faith is Makasiar, (Chairman), J., In the result.
revealed by testimony to the effect that defendant-appellee Escolin J., took no part.
Vicente V. Felipe (son of appellees Eduardo Felipe and
Hermogena V. Felipe) attempted in December 1970 to have
Gimena Almosara sign a ready-made document purporting to self
the disputed lots to the appellees. This actuation clearly indicated
that the appellees knew the lots did not still belong to them, 159. G.R. No. 75287

HOUSE INTERNATIONAL BUILDING TENANTS Trial Court of Manila against CENTERTOWN, TOWERS and GSIS
ASSOCIATION, INC., petitioner-plaintiff, for annulment of the deed of conditional sale and the subsequent
vs. assignment thereof by CENTERTOWN to TOWERS. The complaint
INTERMEDIATE APPELLATE COURT, CENTERTOWN alleged in part that the Deed of Conditional Sale is null and void
MARKETING CORP., MANILA TOWERS DEVELOPMENT ab initio for being ultra vires, since defendant CENTERTOWN is
CORP., AND THE GOVERNMENT SERVICE INSURANCE not qualified to acquire real estate property or to engage in real
SYSTEM, respondents-defendants. estate transactions.
The court a quo * dismissed the complaint. Petitioner appealed to
CORTES, J.: the Court of Appeals after its motion for reconsideration was
Petitioner House International Building Tenants Association, Inc. denied by the trial court. The order of dismissal was affirmed by
(ASSOCIATION, for short) is a domestic non-stock, non-profit the appellate court in a decision dated 4 February 1986 in AC-GR
civic corporation, whose incorporators, directors and members CV No. 02691. ** Petitioner filed a motion for reconsideration,
constitute the great majority of more than a hundred heads of which was denied in a resolution dated 26 June 1986. Hence, this
families who are tenants of long and good standing of the 14- petition for review on certiorari.
storey House International Building located at 777 Ongpin Street, The main issues raised in the petition are: (1) whether petitioner
Binondo, Manila. The land and the improvements thereon were has the personality to sue, on its own, as a corporation
formerly owned by Atty. Felipe Ang who mortgaged the same to representing its members who are tenants of the House
the Government Service Insurance System (hereinafter referred International Building, and (2) whether petitioner has a cause of
to as GSIS) to secure payment of an obligation. After foreclosure action against respondents GSIS, CENTERTOWN and TOWERS.
of the mortgage and for failure of Ang to exercise his right of Section 2, Rule 3 of the Rules of Court provides:
redemption over the foreclosed property, the ownership thereof Sec. 2. Parties in interest. Every action must be prosecuted and
was consolidated with the GSIS which subsequently sold it to defended in the name of the real party in interest. All persons
Centertown Marketing Corporation (CENTERTOWN, for short) in having an interest in the subject of the action and in obtaining the
a deed of conditional sale, without notice to the tenants of the relief amended shall be joined as plaintiffs.
building and without securing the prior clearance of the then The real party in interest is the party who stands to be benefited
Ministry of Human Settlements. or injured by the judgment or the party entitled to the avails of
As CENTERTOWN was not authorized by its Articles of the suit. " Interest" within the meaning of the rule means material
Incorporation to engage in the real estate business, it organized a interest, an interest in issue and to be affected by the decree, as
sister corporation, with almost an the same incorporators and distinguished from mere interest in the question involved, or a
stockholders, as CENTERTOWN'S, under the corporate name of mere incidental interest. Consequently, a person who is not a
Manila Towers Development Corporation (TOWERS, for short) party to a contract and for whose benefit it was not expressly
for the primary purpose of engaging in the real estate business. made cannot maintain an action thereon, notwithstanding that
Subsequently, CENTERTOWN assigned to its sister corporation the contract, if performed by the parties to it, would incidentally
TOWERS all its rights and obligations under the Deed of inure to his benefit. (Francisco, the Revised Rules of Court in the
Conditional Sale, with the consent and approval of the GSIS. Phil., Vol., 1, p. 126).
Thereafter, herein petitioner filed a complaint with the Regional In the present case, the real parties in interest are the tenants of

the House International Building and not the petitioner one of those provisions render unlawful the contract in question.
ASSOCIATION, which has a personality separate and distinct Except for the prohibition against the taking of private property
from that of its members and therefore it has the capacity to sue for public use without just compensation, the other provisions
and be sued although it is composed of the tenants. Petitioner has require implementing legislation to confer a legal right and
not shown any real, actual, material, or substantial interest in the impose a legal duty which can be judicially invoked.
subject matter of the action. In this connection, the Court of P.D. No. 1517 which confers a preferential right to tenants of long
Appeals properly observed: standing to acquire leased land on which they have constructed
Appellant has sued in its name, but has not alleged any right their houses. This has no application to the present case where
belonging to it that was violated or any wrong that was the property involved is land and building belonging to the
committed. The reason is obvious, the benefits are not really lessor.
meant for appellant but for the unnamed great majority" of its The petitioners likewise invoke our ruling in Mataas na Lupa
members who have allegedly been tenants of' long standing of Tenants Association Inc. et al. vs. Dimayuga, et. al. (G.R. L-32049,
the building in question. (Decision of Court of Appeals, p. 2). June 25, 1984, 130 SCRA 30) where we upheld the petitioners
And, quoting from the Brief for the respondent-defendant GSIS, right of first refusal over land they had leased and occupied for
the Court of Appeals further said: more than ten (10) years and on which they had constructed
Assuming arguendo, that the tenants have the alleged right, such their houses, a right given them under P.D. No. 1517 (and
rights of the tenants are personal and individual rights which can Proclamation No. 1967 of May 14, 1980). For two reasons this
only be claimed by the tenants who must necessarily be the case gives the petitioners' case no support. In Mataas na Lupa the
indispensable and real parties in interest and certainly not the members of the ASSOCIATION were also plaintiffs in their
plaintiff-appellant organization. (Ibid, p. 2.) individual capacity. This is not so in the present case.
With regard to the second main issue, the petitioner asserts that Furthermore, it is not the first time this issue has come before Us.
the Court of Appeals erred in ignoring the provisions of Art. 1409 In the case of Santos vs. Court of Appeals, G.R. L-60210, March
of the Civil Code on void or inexistent contracts, the contract at 27,1984, 128 SCRA 428. We laid down the following doctrine.
bar being void, inexistent, and absolutely wanting in civil effects P.D. 1517 in referring to the pre-emptive or redemptive right of a
because "its consideration is illicit and/or the object violates lessee speaks only of urban land under lease on which a tenant
some mandatory provisions of the laws." has built a home and on which he has resided for ten years or
Cited to support this assertion are provisions of the 1973 more. If both the land and the building belong to the lessor, the
constitution on eminent domain (Art. IV, sec. 2, also Art. XIV, sec. right referred to hereinabove does not apply.
3) agrarian reform (Art. XIV, sec. 12) and the Declaration of The main thrust of the petitioner's challenge on the validity of the
Principles and State Policies particularly those emphasizing the conditional sale is that the contract is ultra vires because the
"stewardship concept, under which property is supposed to be respondent CENTERTOWN is not qualified to acquire properties
held by the individual only as trustee for the people in general, under its Articles of Incorporation. The petitioner has confused a
who are its real owners." (Art. II, secs. 6 and 7). void contract with an ultra vires contract which is merely
As bases for a declaration that the conditional sale between GSIS voidable.
and CENTERTOWN is null and void for being contrary to law or We agree with the Court of Appeals that on this issue the
public policy, the constitutional provisions are inapposite. Not provision of Art. 1397 of the Civil Code is in point, thus:

Art. 1397. The action for the annulment of contracts may be Fernan (Chairman), Gutierrez, Jr., Paras and Padilla, JJ., concur.
instituted by all who are thereby obliged principally or Bidin. J., took no part.
subsidiarily.
Petitioner is neither a party nor a privy to the Deed of
Conditional Sale and the assignment thereof: thus, it cannot assail
the validity of the said contracts. In Ibaez vs. Hongkong and
Shanghai Bank, we said: 160. G.R. No. L-11311 May 28, 1958
From these legal provisions it is deduced that it is the interest MARTA C. ORTEGA, plaintiff-appellant,
had in a given contract, that is the determining reason of the right vs.
which lies in favor of the party obligated principally or DANIEL LEONARDO, defendant-appellee.
subsidiarily to enable him to bring an action for the nullity of the Jose Ma. Reyes for appellant. Tomas A. Leonardo for
contract in which he intervened, and, therefore, he who has no appellee.
right in a contract is not entitled to prosecute an action for
nullity, for, according to the precedents established by the courts, BENGZON, J.:
the person who is not a party to a contract, nor has any cause of Well known is the general rule in the Statute of Frauds
action or representation from those who intervened therein, is precluding enforcement of oral contracts for the sale of land. Not
manifestly without right of action and personality such as to so well known is exception concerning the partially executed
enable him to assail the validity of the contract. (Decisions of the contracts1 least our jurisprudence offers few, if any, apposite
supreme court of Spain, of April 18, 1901, and November 23, illustrations. This appeal exemplifies such exception.
1903, pronounced in cases requiring an application of the Alleging partial performance, plaintiff sought to compel
preinserted article 1302 of the Civil Code.) (22 Phil. 572; 584). defendant to comply with their oral contract of sale of a parcel of
In the decision sought to be reviewed We agree with the Court of land. Upon a motion to dismiss, the Manila court of first instance
Appeals that: ordered dismissal following the above general rule.
The corollary issue is whether appellant has the personality to Hence this appeal. It should be sustained if the allegations of the
assail the validity of the conditional sale and its assignment. The complaint which the motion to dismiss admitted set out an
answer is partly supplied by the above discussion: further instance of partial performance.
arguments against the appellant are the provisions of the Civil Stripped of non-essentials, the complaint averred that long
Code which say that contracts take effect only between parties before and until her house had been completely destroyed during
(Art. 131 1) hence the action for their annulment may be the liberation of the City of Manila, plaintiff occupied a parcel of
instituted only by those who are thereby obliged principally or land, designated as Lot 1, Block 3 etc. (hereinafter called Lot I)
subsidiarily (Art. 1397). Appellant is not privy to either the deed located at San Andres Street, Malate, Manila; that after liberation
of conditional sale or the assignment. (Decision of Court of she re-occupied it; that when the administration and disposition
Appeals, p. 3). of the said Lot I (together with other lots in the Ana Sarmiento
WHEREFORE, the petition is DENIED, with costs against the Estate) were assigned by the Government to the Rural Progress
petitioner. Administration2 plaintiff asserted her right thereto (as occupant)
SO ORDERED. for purposes of purchase; that defendant also asserted a similar

right, alleging occupancy of a portion of the land subsequent to contract will, if it has already been performed, make the verbal
plaintiff's; that during the investigation of such conflicting contract enforceable, payment of price being an essential part of
interests, defendant asked plaintiff to desist from pressing her the contract of sale.
claim and definitely promised that if and when he succeeded in If the above means that partial performance of a sale contract
getting title to Lot I3 , he would sell to her a portion thereof with occurs only when part of the purchase price is paid, it surely
an area of 55.60 square meters (particularly described) at the constitutes a defective statement of the law. American
rate of P25.00 per square meter, provided she paid for the Jurisprudence in its title "Statute of Frauds" lists other acts of
surveying and subdivision of the Lot and provided further that partial performance, such as possession, the making of
after he acquired title, she could continue holding the lot as improvements, rendition of services, payment of taxes,
tenant by paying a monthly rental of P10.00 until said portion relinquishment of rights, etc.
shall have been segregated and the purchase price fully paid; that Thus, it is stated that "The continuance in possession may, in a
plaintiff accepted defendant's offer, and desisted from further proper case, be sufficiently referable to the parol contract of sale
claiming Lot I; that defendant finally acquired title thereto; that to constitute a part performance thereof. There may be
relying upon their agreement, plaintiff caused the survey and additional acts or peculiar circumstances which sufficiently refer
segregation of the portion which defendant had promised to sell the possession to the contract. . . . Continued possession under an
incurring expenses therefor, said portion being now designated oral contract of sale, by one already in possession as a tenant, has
as Lot I-B in a duly prepared and approved subdivision plan; that been held a sufficient part performance, where accompanied by
in remodelling her son's house constructed on a lot adjoining Lot other acts which characterize the continued possession and refer
I she extended it over said Lot I-B; that after defendant had it to the contract of purchase. Especially is this true where the
acquired Lot I plaintiff regularly paid him the monthly rental of circumstances of the case include the making of substantial,
P10.00; that in July 1954, after the plans of subdivision and permanent, and valuable improvements." (49 American
segregation of the lot had been approved by the Bureau of Lands, Jurisprudence 44)
plaintiff tendered to defendant the purchase price which the It is also stated that "The making of valuable permanent
latter refused to accept, without cause or reason. improvements on the land by the purchaser, in pursuance of the
The court below explained in its order of dismissal: agreement and with the knowledge of the vendor, has been said
It is admitted by both parties that an oral agreement to sell a to be the strongest and the most unequivocal act of part
piece of land is not enforceable. (Art. 1403, Civil Code, Section 21, performance by which a verbal contract to sell land is taken out
Rule 123, Rules of Court.) Plaintiff, however, argues that the of the statute of frauds, and is ordinarily an important element in
contract in question, although verbal, was partially performed such part performance. . . . Possession by the purchaser under a
because plaintiff desisted from claiming the portion of lot I in parol contract for the purchase of real property, together with his
question due to the promise of defendant to transfer said portion making valuable and permanent improvements on the property
to her after the issuance of title to defendant. The court thinks which are referable exclusively to the contract, in reliance on the
that even granting that plaintiff really desisted to claim not on contract, in the honest belief that he has a right to make them,
oral promise to sell made by defendant, the oral promise to sell and with the knowledge and consent or acquiescence of the
cannot be enforced. The desistance to claim is not a part of the vendor, is deemed a part performance of the contract. The entry
contract of sale of the land. Only in essential part of the executory into possession and the making of the improvements are held on

amount to such an alteration in the purchaser's position as will circumstances indicated by him, (relinquishment, survey, tender)
warrant the court's entering a degree of specific performance." would separately suffice, still the combination of the three with
(49 American Jurisprudence p.755, 756.) the others already mentioned, amounts to more than enough.
Again, it is stated that "A tender or offer of payment, declined by Hence, as there was partial performance, the principle excluding
the vendor, has been said to be equivalent to actual payment, for parol contracts for the sale of realty, does not apply.
the purposes of determining whether or not there has been a part The judgment will accordingly be reversed and the record
performance of the contract. This is apparently true where the remanded for further proceedings. With costs against appellee.
tender is by a purchaser who has made improvements. But the Paras, C.J., Montemayor, Reyes, A., Bautista Angelo, Labrador,
doctrine now generally accepted, that not even the payment of Concepcion, Reyes, J.B.L., Endencia and Felix, JJ., concur.
the purchase price, without something more, . . . is a sufficient
part performance. (49 American Jurisprudence p. 772.)
And the relinquishment of rights or the compromise thereof has
likewise been held to constitute part performance. (See same title
secs. 473, 474, 475.) 161. G.R. No. L-11231 May 12, 1958
In the light of the above four paragraphs, it would appear that the ROSARIO CARBONNEL, plaintiff-appellant,
complaint in this case described several circumstance indicating vs.
partial performance: relinquishment of rights4 continued JOSE PONCIO, RAMON INFANTE, and EMMA INFANTE,
possession, building of improvements, tender of payment plus defendants-appellees.
the surveying of the lot at plaintiff's expense and the payment of Tolentino and Garcia and D. R. Cruz for appellant.
rentals. Guillermo B. Guevarra, Ricardo P. Guevarra and Emmanuel
We shall not take, time to discuss whether one or the other or S. Tipon for appellees.
any two or three of them constituted sufficient performance to
take the matter away from the operation of the Statute of Frauds. CONCEPCION, J.:
Enough to hold that the combination of all of them amounted to The issue in this case is whether the Statute of Frauds is
partial performance; and we do so line with the accepted basis of applicable thereto.
the doctrine, that it would be a fraud upon the plaintiff if the Plaintiff Rosario Carbonnel alleges, in her second amended
defendant were permitted to oppose performance of his part complaint, filed with the Court of First Instance of Rizal, that, on
after he has allowed or induced the former to perform in reliance January 27, 1955, she purchased from defendant Jose Poncio, at
upon the agreement. (See 49 American Jurisprudence p. 725.) P9.50 a square meter, a parcel of land of about 195 square
The paragraph immediately preceding will serve as our comment meters, more or less, located in San Juan del Monte, Rizal, known
on the appellee's quotations from American Jurisprudence itself as Lot No. 13-B of subdivision plan Psd-19567, and more
to the effect that "relinquishment" is not part performance, and particularly described in Transfer Certificate of Title No. 5040
that neither "surveying the land"5 nor tender of payment is (now No. 37842), excluding the improvements thereon; that
sufficient. The precedents hereinabove transcribed oppose or plaintiff paid P247.26 on account of the price and assumed
explain away or qualify the appellee's citations. And at the risk of Poncio's obligation with the Republic Savings Bank amounting to
being repetitious we say: granting that none of the three P1,177.48, with the understanding that the balance would be

payable upon execution of the corresponding deed of not less than P20 a square meter; that Mrs. Infante, likewise, tried
conveyance; that one of the conditions of the sale was that Poncio to buy the land at P15 a square meter; that, on or about January
would continue staying in said land for one year, as stated in a 27, 1955, Poncio was advised by plaintiff that should she decide
document signed by him (and later marked as Exhibit A), a to buy the property at P20 a square meter, she would allow him
translation of which was attached to the said complaint: that to remain in the property for one year; that plaintiff then induced
Poncio refuses to execute the corresponding deed of sale, despite Poncio to sign a document, copy of which is probable, the one
repeated demand; that plaintiff has thereby suffered damages in appended to the second amended complaint; that Poncio signed
the sum of P5,000, aside from attorney's fees amounting to it "relying upon the statement of the plaintiff that the document
P1,000; that Poncio has conveyed the same property to was a permit for him to remain in the premises in the event that
defendants Ramon R. Infante and Emma L. Infante, who knew, of defendant decided to sell the property to the plaintiff at P20 a
the first sale to plaintiff; and that the Infantes had thereby, square meter"; that on January 30, 1955, Mrs. Infante improved
caused damages to plaintiff in the sum of P5,000. her offer and he agreed to sell the land and its improvements to
Plaintiff prayed, therefore, that she be declared owner of the land her for P3,535; that Poncio has not lost "his mind," to sell his
in question; that the sale to the Infantes be annulled; that Poncio property, worth at least P4,000, for the paltry sum of P1,177.48,
be required to execute the corresponding deed of conveyance in the amount of his obligation to the Republic Savings Bank; and
plaintiff's favor; that the Register of Deeds of Rizal be directed to that plaintiff's action is barred by the Statute of Frauds. Poncio
issue the corresponding title in plaintiff's name; and that similarly set up a counterclaim for damages.
defendants be sentenced to pay damages. As the case came up for trial on February 23, 1956 plaintiff
Defendants moved to dismiss said complaint upon the ground introduced the testimony of one Constancio Meonada, who said
that plaintiff's claim is unenforceable under the Statute of Frauds, that he is janitor of the Sto. Domingo Church and a high school, as
and that said pleading does not state facts sufficient to constitute well as auto-mechanic, graduate; that he has been and still is a
a cause of action. The motion was denied, "without prejudice to paying boarder in plaintiff's house; that Poncio is his townmate,
considering, when this case is decided on the merits, whether the both being from Mahatao, Batanes; that, after making a rough
same falls under the Statute of Frauds." draft, based upon data furnished by plaintiff, he typed Exhibit A,
Thereafter, the Infantes filed an answer denying, most of the which is, in the Batanes dialect; that, thereafter, Poncio came to
allegations of said complaint and alleged, by way of special plaintiff's house, where he was shown Exhibit A; that after the
defense, that they purchased the land in question in good faith, witness had read its contents to Poncio and given him a copy
for value, and without knowledge of the alleged sale to plaintiff; thereof, Poncio signed Exhibit A and so did the plaintiff; that
and that plaintiff's claim is unenforceable under the Statute of Meonada likewise signed at the foot of Exhibit A, as attesting
Frauds. They, likewise, set up counterclaims for damages. witness; and that translated freely into English, Exhibit A, reads
In his answer, Poncio denied specifically some allegations of said as follows:
complaint and alleged that he had no knowledge sufficient to From this date, January 27, Jose Poncio may stay in this lot that I
form a belief as to the truth of the other averments therein. By bought from him until one year without payment. After that one
way of special defenses, he alleged that he had consistently year and he cannot find any place where to transfer his house, he
turned down several offers, made by plaintiff, to buy the land in can also stay in this lot and he will pay according agreement.
question, at P15 a square meter, for he believes that it is worth (t.s.n., p. 4.)

Then, taking the witness stand, plaintiff testified that she has because unless they be in writing there is no palpable evidence of
known Poncio since childhood, he being related to her mother; the intention of the contracting parties. The statute has precisely
that Poncio's lot adjoins her lot, in San Juan, Rizal; that one day been enacted to prevent fraud." (Comments on the Rules of
Poncio told her that he wanted to sell his property; that, after Court, by Moran, Vol. III [1957 ed.], p. 178.) However, if a contract
both had agreed on its price, he said that his lot is mortgaged to has been totally or partially performed, the exclusion of parol
the Republic savings Bank; and that at noon time, on the same evidence would promote fraud or bad faith, for it would enable the
day, he came back stating that both would "go to the bank to pay defendant to keep the benefits already denied by him from the
the balance in arrears." At this juncture, defense counsel moved transaction in litigation, and, at the same time, evade the
to strike out the statement of the witness, invoking, in support of obligations, responsibilities or liabilities assumed or contracted
the motion, the Statute of Frauds. After an extended discussion, by him thereby.
the parties agreed to submit memoranda and the hearing was For obvious reasons, it is not enough for a party to allege partial
suspended. Later on, the lower court issued an order dismissing performance in order to hold that there has been such
plaintiff's complaint, without costs, upon the ground that her performance and to render a decision declaring that the Statute of
cause of action is unenforceable under the Statute of Frauds. The Frauds is inapplicable. But neither is such party required to
counterclaims were, also, dismissed. Hence, this appeal by establish such partial performance by documentary proof before
plaintiff. he could have the opportunity to introduce oral testimony on the
We are of the opinion and so hold that the appeal is well taken. It transaction. Indeed, such oral testimony would usually be
is well settled in this jurisdiction that the Statute of Frauds is unnecessary if there were documents proving partial
applicable only to executory contracts (Facturan vs. Sabanal, 81 performance. Thus, the rejection of any and all testimonial
Phil., 512), not to contracts that are totally or partially performed evidence on partial performance, would nullify the rule that the
(Almirol, et al., vs. Monserrat, 48 Phil., 67, 70; Robles vs. Lizarraga Statute of Frauds is inapplicable to contracts which have been
Hermanos, 50 Phil., 387; Diana vs. Macalibo, 74 Phil., 70). partly executed, and lead to the very evils that the statute seeks to
Subject to a rule to the contrary followed in a few jurisdictions, it prevent.
is the accepted view that part performance of a parol contract for The true basis of the doctrine of part performance according to
the sale of real estate has the effect, subject to certain conditions the overwhelming weight of authority, is that it would be a fraud
concerning the nature and extent of the acts constituting upon the plaintiff if the defendant were permitted to escape
performance and the right to equitable relief generally, of taking performance of his part of the oral agreement after he has
such contract from the operation of the statute of frauds, so that permitted the plaintiff to perform in reliance upon the
chancery may decree its specific performance or grant other agreement. The oral contract is enforced in harmony with the
equitable relief. It is well settled in Great Britain and in this principle that courts of equity will not allow the statute of frauds
country, with the exception of a few states, that a sufficient part to be used as an instrument of fraud. In other words, the doctrine
performance by the purchaser under a parol contract for the sale of part performance was established for the same purpose for
of real estate removes the contract from the operation of the which, the statute of frauds itself was enacted, namely, for the
statute of frauds. (49 Am. Jur. 722-723.) prevention of fraud, and arose from the necessity of preventing
In the words of former Chief Justice Moran: "The reason is the statute from becoming an agent of fraud for it could not have
simple. In executory contracts there is a wide field for fraud been the intention of the statue to enable any party to commit a

fraud with impunity. (49 Am. Jur., 725-726; emphasis supplied.) P20 a sq. m." is, on its face, somewhat difficult to believe. Indeed,
When the party concerned has pleaded partial performance, such if he had not decided as yet to sell the land to plaintiff, who, had
party is entitled to a reasonable chance to; establish by parol never increased her offer of P15 a square meter, there was no
evidence the truth of this allegation, as well as the contract itself. reason for Poncio to get said, Permit from her. Upon the other
"The recognition of the exceptional effect of part performance in hand, if plaintiff intended to mislead Poncio, she would have
taking an oral contract out of the statute of frauds involves the caused Exhibit A to be drafted, probably in English, instead of
principle that oral evidence is admissible in such cases to prove taking the trouble of seeing to it that it was written precisely in
both the contract and the part performance of the contract" (49 his native dialect, the Batanes. Moreover, Poncio's signature on
Am. Jur., 927). Exhibit A suggests that he is neither illiterate nor so ignorant as
Upon submission of the case for decision on the merits, the Court to sign a document without reading its contents, apart from the
should determine whether said allegation is true, bearing in mind fact that Meonada had read Exhibit A to him and given him a copy
that parol evidence is easier to concoct and more likely to be thereof, before he signed thereon, according to Meonada's
colored or inaccurate than documentary evidence. If the evidence uncontradicted testimony.
of record fails to prove clearly that there has been partial Then, also, defendants say in their brief:
performance, then the Court should apply the Statute of Frauds, if The only allegation in plaintiff's complaint that bears any relation
the cause of action involved falls within the purview thereof. If to her claim that there has been partial performance of the
the Court is, however, convinced that the obligation in question supposed contract of sale, is the notation of the sum of P247.26 in
has been partly executed and that the allegation of partial the bank book of defendant Jose Poncio. The noting or jotting
performance was not resorted to as a devise to circumvent the down of the sum of P247.26 in the bank book of Jose Poncio does
Statute, then the same should not be applied. not prove the fact that said amount was the purchase price of the
Apart from the foregoing, there are in the case at bar several property in question. For all we knew, the sum of P247.26 which
circumstances indicating that plaintiff's claim might not be plaintiff claims to have paid to the Republic Savings Bank for the
entirely devoid of factual basis. Thus, for instance, Poncio account of the defendant, assuming that the money paid to the,
admitted in his answer that plaintiff had offered several times to Republic Savings Bank came from the plaintiff, was the result of
purchase his land. some usurious loan or accommodation, rather than earnest
Again, there is Exhibit A, as document signed by the defendant. It money or part payment of the land. Neither is a competent or
is in the Batanes dialect, which, according to plaintiff's satisfactory evidence to prove the conveyance on the land in
uncontradicted evidence, is the one spoken by, Poncio, he being a question the fact that the bank book account of Jose Poncio
native of said region. Exhibit A states that Poncio would stay in happens to be in the possession of the plaintiff. (Defendants-
the land sold by him to plaintiff for one year, from January 27, Appellees' brief, pp. 25-26.)
1955, free of charge, and that, if he cannot find a place where to How shall we know why Poncio's bank deposit book is in
transfer his house thereon, he may remain in said lot under such plaintiff's possession or whether there is any relation between
terms as may be agreed upon. Incidentally, the allegation in the P247.26 entry therein and the partial payment of P247.26
Poncio's answer to the effect that he signed Exhibit A under the allegedly made by plaintiff to Poncio on account of the price of his
belief that it "was a permit for him to remain in the premises in land, if we do not allow the plaintiff to explain it on the witness
the event" that "he decided to sell the property" to the plaintiff at stand? Without expressing any opinion on the merits of plaintiff's

claim, it is clear, therefore, that she is entitled, legally as well as either under Act 496 or under the Spanish Mortgage law: that
from the viewpoint of equity, to an opportunity to introduce sometime in 1924 when the deceased Santiago Babao married
parol evidence in support of the allegations of her second Maria Cleofe Perez, niece of Celestina Perez, the latter and the
amended complaint. former entered into a verbal agreement whereby Santiago Babao
Wherefore, the order appealed from is hereby set aside, and let bound himself to improve the land by leveling and clearing all the
this case be remanded to the lower court for further proceedings forest trees standing thereon and planting in lieu there of
not inconsistent with this decision, with the costs of this instance coconuts, rice, corn and other crops such as bananas and bamboo
against defendants-appellees. It is so ordered. trees, and to act at the same time as administrator thereof during
Paras, C.J., Bengzon, Montemayor, Reyes, A., Bautista Angelo, the lifetime of Celestina Perez, all expenses for labor, and
Labrador, Reyes, J.B.L., Endencia, and Felix,, JJ., concur. materials to be at his cost, in consideration of which Celestina in
turn bound herself to convey to Santiago Babao or, his wife of
land, together with all the improvements thereon upon her
death; that pursuant to said verbal agreement, Santiago Babao in
1924 left his job as administrator of the Llana Estate in San Juan,
162. G.R. No. L-8334 December 28, 1957 Batangas for which he was receiving a salary of P150 a month,
BIENVENIDO BABAO, ETC., plaintiff-appellee, and started leveling and clearing the land having planted in an
vs. area of 50 hectares 50,000 coconuts trees, and rice and corn in
FLORENCIO PEREZ, ETC., ET AL., defendants-appellants. another area of 70 hectares, leaving out only 50 hectares
Ozaeta, Lichauco and Picazo for appellants. Feria, unimproved, all of which having been administered by him from
Manglapuz and Associates for appellee. 1924 to 1946; that for clearing and improving the portions of
land above-mentioned, he incurred expenses amounting to
BAUTISTA ANGELO, J.: P7,400 which added to his salary as administrator from l924 to
This is an action to recover one-half () of a parcel of land 1946 at rate P150 a month mounting to P39,600, makes a total of
containing an area of 156 hectares situated in San Juan, Batangas, P47,000; that in the violation of the aforesaid verbal agreement,
plus the value of the produce gathered thereon from August, Celestina Perez, acting through Leovigildo Perez, to whom she
1947 until actual recovery and in the alternative, to recover the extended a power of Attorney to sell, sold few days before she
Sum of P47,000 representing reimbursement of the amount of died about 127 __ hectares of the land in question in
useful and necessary expenses incurred to the clear and improve consequence of which Santiago Babao was deprived of the
the aforesaid land. possession and administration thereof from 1945. that said sales
Plaintiff is the judicial administrator of the estate of the late are fictitious and were made clear violation of the oral agreement
Santiago Babao while defendant Florencio Perez is the judicial made between Celestina Perez and Santiago Babao and as such
administrator of the estate of the late Celestina Perez. The other the same are null and void; that Celestina Perez died on August
defendants are purchasers and actual owners of portions of the 24, 1947 as a result of which intestate proceedings were
land which is sought to be recovered in the present litigation. instituted for the settlement of her estate and one Florencio
The complaint alleges that Celestina Perez was in her lifetime the Perez was named as judicial administrator; that Santiago Babao
owner of the parcel of land in question which was not registered died on January 6, 1948 and as a consequence in estate

proceedings were instituted for the settlement of his estate and until 1935 when Celestina disgusted with the conduct of
Bienvenido Babao failed to recover the portion of the lane Santiago, left the company of Santiago and his wife and went to
herein litigated, said estate would suffer an irreparable damage live with her nephew Bernardo Perez until her death in 1947;
of not less than P366,700 representing fruits which it has failed that since then Celestina Perez prohibited Santiago from
to receive during the last 20 years. Wherefore, plaintiff played for interfering with the administration of the land and designated
the conveyance of portion of the land in question and for another person in his place, and for the work he did from 1930 to
annulment of the sales of the portion for having been made 1935, he was more than compensated because the proceeds of
fictitiously, and in the alternative, for judgment in plaintiff's favor the harvests during said years were all given only to him and his
for the sum of P47,000 representing the amount of useful and wife and Celestina was given only what was barely sufficient for
necessary expenses incurred by Santiago Babao in improving the her maintenance.
land in line with the oral agreement. Defendants also alleged that the sales made by Celestina Perez
Defendants denied plaintiff's claim that a verbal agreement was through her attorney-in-fact Leovigildo Perez of several portions
entered into between Celestina Perez Babao relative to the of the land were not fictitious is alleged but were made with full
clearing, improving and administering the land belonging to the knowledge and authority of Celestina who executed in favor of
former having an area of 156 hectares, as well as the other claim Leovigildo Perez a power of Attorney under the authority notary
that Santiago Babao had actually cleared and improve a great public in the presence of Santiago Babao himself who did not
portion thereof at the cost at around P7,400. They alleged in interpose any objection to the execution of said power of
1924 and for many years prior thereto, the land in question had attorney and, therefore, said sales are real, valid and genuine,
already been cleared and cultivated for agricultural purposes having been executed in accordance with law. Defendants prayed
with an exception of a portion of 50 hectares: that said land was that the complaint be dismissed with costs, after awarding to
cleared and cultivated due partly to the effort made by Celestinas them moral damages in the amount that the court may deem
husband, Esteban de Villa, her overseers and tenants, and partly proper to fix.
to the "trusco" system employed by them whereby persons were After hearing, the court rendered in favor of the plaintiff and
allowed to clear the land and plat thereon and from the harvest against the defendants,
were compensated according to a graduated scale of division Wherefore, judgement is rendered in favor of the plaintiff and
varying from year to year; that the coconut trees, banana plants against the defendants,
and bamboo trees now standing thereon were planted not by (1) Declaring the sales of Lupang Parang by and between the
Santiago Babao nor at his expenses but by the tenants of the defendants, fraudulent and fictitious, null and void;
spouses Esteban de Villa and Celestina Perez who were dully (2) Ordering defendant Florencio Perea as administrator of the
compensated according to the "trusco" system; that although testate of the deceased Celestina Perez, to pay plaintiff the sum of
Santiago Babao and Maria Cleofe Perez were married in 1924, the P3,786.66 annually from August 25, 1947 until delivery of the
former did not have anything to do with the land in question to land to the latter, with interest thereon at the rate of 6 per cent
Esteban de Villa was then still living and actively managed the per annum from the date of the filing of the complaint;
same with help of his overseer and tenants until he died in 1930; (3) Divesting the title of defendants over of Lupang Parang
that it was only in that year when Santiago Babao began both in quantity and quality and vesting title however in plaintiff
administering the land in the capacity of a nephew of Celestina pursuant to section 10 of Rule 39. To carry out this judgement,

the Clerk of Court is hereby appointed representative of this our Rules of Court, is now found in Article 1403 of the new Civil
Court to designate a disinterested surveyor for the necessary Code, which provides, in so far as pertinent to this case, as
survey and division, the expenses therefor to be defrayed half follows:1awphi1.net
and half by plaintiff and Florencio Perez; In the following cases an agreement hereafter made shall be
(4) Ordering defendants to surrender the possession of the half enforceable by action unless the same, or some note or
adjudicated and vested in favor of the plaintiff after the same has memorandum thereof, be in writing, and subscribed by the party
been designated under the proceeding paragraph; and . charged or by his agent, evidence therefore, of the agreement
(5) To pay the costs. cannot be received without the writing, or secondary evidence of
Defendants in due time took the case on appeal to the Court of its contents;
Appeals where the parties submitted their respective briefs (a) An agreement that by its terms is not to be performed within
within the reglementary period, and thereafter the court a year from the making thereof.
rendered judgment reversing in toto the decision appealed from x x x x x x x x x
and dismissing the case without pronouncement as to costs. But (e) An agreement . . . for the sale of real property or of an interest
when its attention was called, thru a proper motion, that the therein.
court acted without jurisdiction because the amount involved Appellants contends that the alleged verbal agreement falls
was more than P50,000, the court in a resolution entered on under the paragraphs (a) and (c) above-quoted because the same
August 14, 1954 set aside its decision and forwarded the case to may be considered as an agreement which by its terms is not to
us to have remanded to the Court of Appeals proved futile. be performed within one year from the making thereof, or one
While this case was pending in the lower court, counsel for which involves a sale of real property or of an interest therein. If
appellants filed a motion to dismiss on the ground, amount this premise is correct, appellants contend, then the trial court
others, but the alleged verbal agreement between Santiago Babao erred in allowing the introduction of parole evidence to prove the
and Celestina Perez was enforceable under the Statute of frauds. alleged agreement over the vigorous objection of counsel for
The trial court denied this motion on the ground that it appears appellants.
from the complaint "that Santiago fully complied with his part of That the alleged verbal agreement is one which by its terms is not
the oral contract between the parties and that this is an action to be performed within one year is very apparent from the
not only specific performance but also for damages." allegations of the complaint. Thus, it is therein alleged that the
Consequently, the court held that the Statute of frauds cannot be agreement was allegedly made in 1924 and by its terms Santiago
invoked for the reason that "performance by one party of his part Babao bound himself (1) to improve all the forest trees and
of the contract takes the case out of the statute." And pursuant to planting thereon coconuts, rice, corn and other crops such as
such ruling, when the case was tried on the merits, the court bananas and bamboo trees, and (2) to act at the same time as
overruled to the introduction of oral testimony to prove the administrator of said land and improvements during the lifetime
alleged verbal agreement. to Celestina Perez. And in consideration of such undertaking,
The important question then to be determined is whether or not Celestina Perez "bound herself to give and deliver, either to
the alleged verbal agreement falls within the prohibition of the Santiago Babao or his wife Cleofe Perez, one-half () of the
Statute of frauds. whole area of said land as improved with all the improvements
This statute, formerly incorporated as Section 21 of Rule 123 of thereon upon her death". It is also alleged in the complaint that

Celestina Perez died on August 24, 1947, or 23 years after the When, in an oral contract which, by its terms, is to be performed
making of the alleged agreement while Santiago Babao died on within one year from the execution of the contracting parties has
January 6, 1948. From the above terms, therefore, it is not complied within the year with obligations imposed on him by
difficult to see that the undertaking assumed by Santiago Babao said contract, the other party cannot avoid the fulfillment of
which was to clear, level and plant to coconut trees and other those incumbent on him under the same contract by invoking the
plants 156 hectares of forest land could not be accomplished in statute of frauds because the latter aims to prevent and not to
one year. In fact, the alleged improvements were supposedly protect fraud. (Shoemaker vs. La Tondea, Inc. 68 Phil., 24.).
accomplished during the lifetime of Celestina, which lasted over a The broad view is that the statute of Frauds applies only to
period of 23 years, and even then not all was cleared and planted agreements not to be performed on either side within a year
but only a portion thereof. Another part of his undertaking is that from the making thereof. Agreements to be fully performed on
he is to administer the land during the lifetime of Celestina, and one side within the year are taken out of the operation of the
as we have already said, her death occurred 23 years after the statute. (National Bank vs. Philippine Vegetable Oil Co., Phil., 857,
agreement. 858.).
But the trial court expressed the view that the statute does not Assuming arguendo that the agreement in question falls also
apply because it assumed that Santiago Babao was fully complied under paragraph (a) of article 1403 of the new Civil Code, i.e., it is
with his part of the oral contract between the parties, and in its a contract or agreement for the sale of real property or of an
opinion "performance by one party of his part of the contract interest therein, it cannot also be contended that the provision
takes the case out of the statute." Even if his assumption were does not apply to the present case for the reason that there was
correct, still we find one flaw in its logic which fully nullifies it for part performance on the part of one of the parties. In this
it falls to consider that in order that a partial performance of the connection, it must be noted that this statute is one based on
contract may take the case out of the operation of the statute, it equity. It is based on equitable estoppel or estoppel by conduct. It
must appear clear that the full performance has been made by operates only under certain specified conditions and when
one party within one year, as otherwise the statute would apply. adequate relief of law is unavailable (49 Am. Jur., Statute of
Thus, the rule on this point is well stated in Corpus Juris in the Frauds, Section 422, p. 727). And one of the requisites that need
following wise: Contracts which by their terms are not to be be present is that the agreement relied on must be certain,
performed within one year, may be taken out of the statute definite, clear, unambiguous and unequivocal in its terms before
through performance by one party thereto. All that is required in the statute may operate. Thus, the rule on this matter is as
such case is complete performance within the year by one party, follows:
however many tears may have to elapse before the agreement is The contract must be fully made and completed in every respect
performed by the other party. But nothing less than full except for the writing required by the statute, in order to be
performance by one party will suffice, and it has been held that, if enforceable on the ground of part performance. The parol
anything remains to be done after the expiration of the year agreement relied on must be certain, definite, clear,
besides the mere payment of money, the statute will apply." 1 unambiguous, and unequivocal in its terms, particularly where
(Emphasis supplied). It is not therefore correct to state that the agreement is between parent and child, and be clearly
Santiago Babao has fully complied with his part within the year established by the evidence. The requisite of clearness and
from the alleged contract in question. definiteness extends to both the terms and the subject matter of

the contract. Also, the oral contract must be fair, reasonable and between Celestina Perez and Santiago Babao for apparently the
just in its provisions for equity to enforce it on the ground of part same does not run along the same line as the one claimed by
performance. If it would be inequitable to enforce the oral appellee. This is what Orense said: "You, Santiago, leave the Llana
agreement, or if its specific enforcement would be harsh or estate and attend to this lupang parang. Have it cleared and
oppressive upon the defendant, equity will withhold its aid. planted to coconuts, for that land will eventually fall in your
Clearly, the doctrine of part performance taking an oral contract hands" (as translated from Tagalog), which runs counter with the
out of the statute of frauds does not apply so as to support a suit claim of appellee. The agreement being vague and ambiguous, the
for specific performance where both the equities and the statute doctrine of part performance cannot therefore be invoked to take
support the defendant's case. (49 Am. Jur., p. 729.). this case out of the operation of the statute.
The alleged agreement is far from complying with the above Obviously, there can be no part performance until there is a
requirement for, according to the complaint, Santiago Babao definite and complete agreement between the parties. In order to
bound himself to convert a big parcel of forest land of 156 warrant the specific enforcement of a parol contract for the sale
hectares into a veritable farm planted to coconuts, rice, corn and of land, on the ground of part performance, all the essential terms
other crops such as bananas and bamboo trees and to act as of the contract must be established by competent proof, and
administrator of said farm during the lifetime of Celestina Perez, shown to be definite, certain, clear, and unambiguous.
while the latter in turn bound herself to give either to Santiago or And this clearness and definiteness must extend to both the
his wife of the land as improved with all the improvements terms and the subject matter of the contract.
thereupon her death. This agreement is indeed vague and The rule that the court will not specifically enforce a contract for
ambiguous for it does not specify how many hectares was to be the sale of land unless its terms have been definitely understood
planted to coconuts, how many to rice and corn, and what and agreed upon by the parties, and established by the evidence,
portion to bananas and bamboo trees. And as counsel for is especially applicable to oral contracts sought to be enforced on
appellants puts it, "as the alleged contract stands, if Santiago the ground of part performance. An oral contract, to be enforced
Babao should plant one-half hectares to coconuts, one-half to on this ground, must at least have that degree of certainty which
rice, and another half hectare to corn, and the rest to bananas and is required of written contracts sought to be specifically
bamboo trees, he would be entitled to receive one-half of 156 enforced.lawphi1.net
hectares, or 78 hectares, of land for his services. That certainly The parol contract must be sufficiently clear and definite to
would be unfair and unheard of; no sane property owner would render the precise acts which are to be performed thereunder
enter into such contract. It costs much more time, money, and clearly ascertainable. Its terms must be so clear and complete as
labor to plant coconut trees than to plant bananas and bamboo to allow no reasonable doubt respecting its enforcement
trees; and it also costs less to convert forest land to rice and corn according to the understanding of the parties. (101 A.L.R., pp.
land than to convert it into a coconut plantation. On the part of 950-951).
Celestina Perez, her promise is also incapable of execution. How In this jurisdiction, as in the United States, the existence of an
could she give and deliver one half of the land upon her death?" oral agreement or understanding such as that alleged in the
The terms of the alleged contract would appear more vague if we complaint in the case at bar cannot be maintained on vague,
consider the testimony of Carlos Orense who claimed to have uncertain, and indefinite testimony, against the reasonable
been present at the time the alleged agreement was made presumption that prudent men who enter into such contracts will

execute them in writing, and comply with the formalities the commencement of the action against him, if at the time the
prescribed by law for the creation of a valid mortgage. But where testimony was given he was dead and cannot disprove it, since
the evidence as to the existence of such an understanding or the reason for the prohibition, which is to discourage perjury,
agreement is clear, convincing and satisfactory, the same broad exists in both instances. (Moran, Comments on the Rules of Court,
principles of equity operate on this jurisdiction as in the United Vol. 3, 1952 Ed., p. 234.).lawphi1.net
States to compel the parties to live up to the terms of their Having reached the conclusion that all the parol evidence of
contract. (Cuyugan vs. Santos, 34 Phil., 100, 101.). appellee was submitted in violation of the Statute of Frauds, or of
There is another flaw that we find in the decision of the court a the rule which prohibits testimony against deceased persons, we
quo. During the trial of this case, counsel for appellants objected find unnecessary to discuss the other issues raised in appellants'
the admission of the testimony of plaintiff Bernardo Babao and brief.
that of his mother Cleofe Perez as to what occurred between Wherefore, the decision appealed from is reversed, and the case
Celestina Perez and Santiago Babao, with regard to the is dismissed, with costs against appellee.
agreement on the ground that their testimony was prohibited by Bengzon, Paras, C.J., Padilla, Reyes, A., Labrador, Reyes, J.B.L., and
section 26(c) of Rule 123 of the Rules of Court. This rule prohibits Endencia, JJ., concur.
parties or assignors of parties to a case, or persons in whose
behalf case is prosecuted, against an executor or administrator of
a deceased person upon a claim or demand against the estate of
such deceased person from testifying as to any matter of fact
occurring before the death of such deceased person. But the court 163. G.R. No. L-5028 November 26, 1952
overruled the opposition saying that said rule did not apply FELIPE CABAGUE and GERONIMO CABAGUE, plaintiffs-
where the complaint against the estate of a deceased person appellants,
alleges fraud, citing the case of Ong Chua vs. Carr, 53 Phil., 980. vs.
Here again the court is in error because if in that case the witness MATIAS AUXILIO and SOCORRO AUXILIO, defendants-
was allowed to testify it was because the existence of fraud was appellees.
first established by sufficient and competent evidence. Here, Generoso F. Obusan for appellants. Pedro M. Tagala for
however, the alleged fraud is predicated upon the existence of appellees.
the agreement itself which violates the rule of petitio principii.
Evidently, the fraud to exist must be established by evidence BENGZON, J.:
aliunde and not by the same evidence which is to sought to be According to the Rules of Court parol evidence is not admissible
prevented. The infringement of the rule is evident. to prove an agreement made upon the consideration of marriage
. . . The reason for this rule is that "if death has closed the lips of other than a mutual promise to marry.1 This litigation calls for
one party, the policy of the law is to close the lips of the other.' application of that rule.
Another reason is that `the temptation to falsehood and In the justice of the peace court of Basud, Camarines Norte, Felipe
concealment in such cases is considered too great to allow the Cabague and his son Geronimo sued the defendant Matias Auxilio
surviving party to testify in his own behalf.' Accordingly, the and his daughter Socorro to recover damages resulting from
incompetency applies whether the deceased died before or after defendants' refusal to carry out the previously agreed marriage

between Socorro and Geronimo. promise to marry."
The complaint alleged, in short: (a) that defendants promised Consequently, we declare that Geronimo may continue his action
such marriage to plaintiffs, provided the latter would improve against Socorro for such damages as may have resulted from her
the defendants' house in Basud and spend for the wedding feast failure to carry out their mutual matrimonial promises.
and the needs of the bride; (b) that relying upon such promises Wherefore this expediente will be returned to the lower court for
plaintiffs made the improvement and spent P700; and (c) that further proceedings in accordance with this opinion. So ordered.
without cause defendants refused to honor their pledged word. Paras, C.J., Pablo, Padilla, Montemayor, Jugo, Bautista Angelo and
The defendants moved to dismiss, arguing that the contract was Labrador, JJ., concur.
oral, unenforceable under the rule of evidence hereinbefore
mentioned. And the court dismissed the case. On appeal to the
Court of First Instance, the plaintiffs reproduced their complaint
and defendants reiterated their motion to dismiss. From an order
of dismissal this appeal was perfected in due time and form. 164. G.R. No. L-55048 May 27, 1981
It should be observed preliminarily that, under the former rules SUGA SOTTO YUVIENCO, BRITANIA SOTTO, and
of procedure, when the complaint did not state whether the MARCELINO SOTTO, petitioners,
contract sued on was in writing or not, the statute of frauds could vs.
be no ground for demurrer. Under the new Rules "defendant may HON. AUXENCIO C. DACUYCUY, Judge of the CFI of
now present a motion to dismiss on the ground that the contract Leyte, DELY RODRIGUEZ, FELIPE ANG CRUZ,
was not in writing, even if such fact is not apparent on the face of CONSTANCIA NOGAR, MANUEL GO, INOCENTES DIME,
the complaint. The fact may be proved by him." (Moran Rules of WILLY JULIO, JAIME YU, OSCAR DY, DY CHIU SENG,
Court 2d ed. p. 139 Vol. I.) BENITO YOUNG, FERNANDO YU, SEBASTIAN YU,
There is no question here that the transaction was not in writing. CARLOS UY, HOC CHUAN and MANUEL DY, respondents.
The only issue is whether it may be proved in court.
The understanding between the plaintiffs on one side and the BARREDO, J.:1wph1.t
defendants on the other, really involves two kinds of agreement. Petition for certiorari and prohibition to declare void for being in
One, the agreement between Felipe Cabague and the defendants grave abuse of discretion the orders of respondent judge dated
in consideration of the marriage of Socorro and Geronimo. November 2, 1978 and August 29, 1980, in Civil Case No. 5759 of
Another, the agreement between the two lovers, as "a mutual the Court of First Instance of Leyte, which denied the motion filed
promise to marry". For breach of that mutual promise to marry, by petitioners to dismiss the complaint of private respondents
Geronimo may sue Socorro for damages. This is such action, and for specific performance of an alleged agreement of sale of real
evidence of such mutual promise is admissible.2 However Felipe property, the said motion being based on the grounds that the
Cabague's action may not prosper, because it is to enforce an respondents' complaint states no cause of action and/or that the
agreement in consideration of marriage. Evidently as to Felipe claim alleged therein is unenforceable under the Statute of
Cabague and Matias Auxilio this action could not be maintained Frauds.
on the theory of "mutual promise to marry".3 Neither may it be Finding initially prima facie merit in the petition, We required
regarded as action by Felipe against Socorro "on a mutual respondents to answer and We issued a temporary restraining

order on October 7, 1980 enjoining the execution of the 1wph1.t
questioned orders. Very truly yours,
In essence, the theory of petitioners is that while it is true that Pedro C. Gamboa 1
they did express willingness to sell to private respondents the (Page 9, Record.)
subject property for P6,500,000 provided the latter made known Reacting to the foregoing letter, the following telegram was sent
their own decision to buy it not later than July 31, 1978, the by "Yao King Ong & tenants" to Atty. Pedro Gamboa in Cebu City:
respondents' reply that they were agreeable was not absolute, so Atty. Pedro Gamboa
much so that when ultimately petitioners' representative went to Room 314, Maria Cristina Bldg.
Cebu City with a prepared and duly signed contract for the Osmea Boulevard, Cebu City
purpose of perfecting and consummating the transaction, Reurlet dated July 12 inform Dra. Yuvienco we agree to buy
respondents and said representative found variance between the property proceed Tacloban to negotiate details 1wph1.t
terms of payment stipulated in the prepared document and what Yao King Ong & tenants
respondents had in mind, hence the bankdraft which (Page 10, Record.)
respondents were delivering to petit loners' representative was Likewise uncontroverted is the fact that under date of July 27,
returned and the document remained unsigned by respondents. 1978, Atty. Gamboa wired Yao King Ong in Tacloban City as
Hence the action below for specific performance. follows:
To be more specific, the parties do not dispute that on July 12, NLT
1978, petitioners, thru a certain Pedro C. Gamboa, sent to YAO KING ONG
respondents the following letter: LIFE BAKERY
Mr. Yao King Ong TACLOBAN CITY
Life Bakery PROPOSAL ACCEPTED ARRIVING TUESDAY MORNING WITH
Tacloban City CONTRACT PREPARE PAYMENT BANK DRAFT 1wph1.t
Dear Mr. Yao: 1wph1.t ATTY. GAMBOA
This refers to the Sotto property (land and building) situated at (Page 10, Id.)
Tacloban City. My clients are willing to sell them at a total price of Now, Paragraph 10 of the complaint below of respondents
P6,500,000.00. alleges: 1wph1.t
While there are other parties who are interested to buy the 10. That on August 1, 1978, defendant Pedro Gamboa arrived
property, I am giving you and the other occupants the preference, Tacloban City bringing with him the prepared contract to
but such priority has to be exercised within a given number of purchase and to sell referred to in his telegram dated July 27, 1978
days as I do not want to lose the opportunity if you are not (Annex 'D' hereof) for the purpose of closing the transactions
interested. I am therefore gluing you and the rest of the occupants referred to in paragraphs 8 and 9 hereof, however, to the
until July 31, 1978 within it which to decide whether you want to complete surprise of plaintiffs, the defendant (except def.
buy the property. If I do not hear from you by July 31, I will offer Tacloban City Ice Plant, Inc.) without giving notice to plaintiffs,
or close the deal with the other interested buyer. changed the mode of payment with respect to the balance of
Thank you so much for the hospitality extended to me during my P4,500,000.00 by imposing upon plaintiffs to pay same amount
last trip to Tacloban, and I hope to hear from you very soon. within thirty (30) days from execution of the contract instead of

the former term of ninety (90) days as stated in paragraph 8 state a cause of action and the claim on which the action is
hereof. (Pp. 10-11, Record.) founded is likewise unenforceable under the provisions of the
Additionally and to reenforce their position, respondents alleged Statute of Frauds.
further in their complaint: 1wph1.t II. That as to the rest of the plaintiffs, their amended complaint
8. That on July 12, 1978, defendants (except defendant Tacloban does not state a cause of action and the claim on which the action
City Ice Plant, Inc.) finally sent a telegram letter to plaintiffs- is founded is likewise unenforceable under the provisions of the
tenants, through same Mr. Yao King Ong, notifying them that Statute of Frauds. (Page 81, Record.)
defendants are willing to sell the properties (lands and building) With commendable knowledgeability and industry, respondent
at a total price of P6,500,000.00, which herein plaintiffs-tenants judge ruled negatively on the motion to dismiss, discoursing at
have agreed to buy the said properties for said price; a copy of length on the personality as real party-in-interest of respondent
which letter is hereto attached as integral part hereof and corporation, while passing lightly, however, on what to Us are the
marked as Annex 'C', and plaintiffs accepted the offer through a more substantial and decisive issues of whether or not the
telegram dated July 25, 1978, sent to defendants (through complaint sufficiently states a cause of action and whether or not
defendant Pedro C. Gamboa), a copy of which telegram is hereto the claim alleged therein is unenforceable under the Statute of
attached as integral part hereof and marked as Annex C-1 and as Frauds, by holding thus: 1wph1.t
a consequence hereof. plaintiffs except plaintiff Tacloban - The second ground of the motion to dismiss is that plaintiffs'
merchants' Realty Development Corporation) and defendants claim is unenforceable under the Statute of Frauds. The
(except defendant Tacloban City Ice Plant. Inc.) agreed to the defendants argued against this motion and asked the court to
following terms and conditions respecting the payment of said reject the objection for the simple reason that the contract of sale
purchase price, to wit: 1wph1.t sued upon in this case is supported by letters and telegrams
P2,000,000.00 to be paid in full on the date of the execution of the annexed to the complaint and other papers which will be
contract; and the balance of P4,500,000.00 shall be fully paid presented during the trial. This contention of the defendants is
within ninety (90) days thereafter; not well taken. The plaintiffs having alleged that the contract is
9. That on July 27, 1978, defendants sent a telegram to plaintiff- backed up by letters and telegrams, and the same being a
tenants, through the latter's representative Mr. Yao King Ong, sufficient memorandum, the complaint states a cause of action
reiterating their acceptance to the agreement referred to in the and they should be given a day in court and allowed to
next preceding paragraph hereof and notifying plaintiffs-tenants substantiate their allegations (Paredes vs. Espino, 22 SCRA
to prepare payment by bank drafts; which the latter readily 1000).
complied with; a copy of which telegram is hereto attached as To take a contract for the sale of land out of the Statute of Frauds
integral part hereof and marked as Annex "D"; (Pp 49-50, a mere note or memorandum in writing subscribed by the
Record.) vendor or his agent containing the name of the parties and a
It was on the basis of the foregoing facts and allegations that summary statement of the terms of the sale either expressly or
herein petitioners filed their motion to dismiss alleging as main by reference to something else is all that is required. The statute
grounds: 1wph1.t does not require a formal contract drawn up with technical
I. That plaintiff, TACLOBAN MERCHANTS' REALTY exactness for the language of Par. 2 of Art. 1403 of the Philippine
DEVELOPMENT CORPORATION, amended complaint, does not Civil Code is' ... an agreement ... or some note or memorandum

thereof,' thus recognizing a difference between the contract itself Dictionally, the implication of "to negotiate" is practically the
and the written evidence which the statute requires (Berg vs. opposite of the Idea that an agreement has been reached.
Magdalena Estate, Inc., 92 Phil. 110; Ill Moran, Comments on the Webster's Third International Dictionary, Vol. II (G. & C. Merriam
Rules of Court, 1952 ed. p. 187). See also Bautista's Monograph Co., 1971 Philippine copyright) gives the meaning of negotiate as
on the Statute of Frauds in 21 SCRA p. 250. (Pp. 110-111, Record) "to communicate or confer with another so as to arrive at the
Our first task then is to dwell on the issue of whether or not in settlement of some matter; meet with another so as to arrive
the light of the foregoing circumstances, the complaint in through discussion at some kind of agreement or compromise
controversy states sufficiently a cause of action. This issue about something; to arrange for or bring about through
necessarily entails the determination of whether or not the conference or discussion; work at or arrive at or settle upon by
plaintiffs have alleged facts adequately showing the existence of a meetings and agreements or compromises ". Importantly, it
perfected contract of sale between herein petitioners and the must be borne in mind that Yao King Ong's telegram simply says
occupant represented by respondent Yao King Ong. "we agree to buy property". It does not necessarily connote
In this respect, the governing legal provision is, of course, Article acceptance of the price but instead suggests that the details were
1319 of the Civil Code which provides:1wph1.t to be subject of negotiation.
ART. 1319. Consent is manifested by the meeting of the offer and Respondents now maintain that what the telegram refers to as
the acceptance upon the thing and the cause which are constitute "details" to be "negotiated" are mere "accidental elements", not
the contract. The offer must be certain the acceptance absolute. A the essential elements of the contract. They even invite attention
qualified acceptance constitute a counter-offer. to the fact that they have alleged in their complaint (Par. 6) that it
Acceptance made by letter or telegram does not bind offerer was as early as "in the month of October, 1977 (that)
except from the time it came to his knowledge. The contract, in a negotiations between plaintiffs and defendants for the purchase
case, is presumed to have been entered into in the place where and sale (in question) were made, thus resulting to offers of
the offer was made. same defendants and counter-offer of plaintiffs". But to Our mind
In the instant case, We can lay aside, for the moment, petitioners' such alleged facts precisely indicate the failure of any meeting of
contention that the letter of July 12, 1978 of Atty. Pedro C. the minds of the parties, and it is only from the letter and
Gamboa to respondents Yao King Ong and his companions telegrams above-quoted that one can determine whether or not
constitute an offer that is "certain", although the petitioners claim such meeting of the minds did materialize. As We see it, what
that it was a mere expression of willingness to sell the subject such allegations bring out in bold relief is that it was precisely
property and not a direct offer of sale to said respondents. What because of their past failure to arrive at an agreement that
We consider as more important and truly decisive is what is the petitioners had to put an end to the uncertainty by writing the
correct juridical significance of the telegram of respondents letter of July 12, 1978. On the other hand, that respondents were
instructing Atty. Gamboa to "proceed to Tacloban to negotiate all the time agreeable to buy the property may be conceded, but
details." We underline the word "negotiate" advisedly because to what impresses Us is that instead of "absolutely" accepting the
Our mind it is the key word that negates and makes it legally "certain" offer if there was one of the petitioners, they still
impossible for Us to hold that respondents' acceptance of insisted on further negotiation of details. For anyone to read in
petitioners' offer, assuming that it was a "certain" offer indeed, the telegram of Yao that they accepted the price of P6,500,000.00
was the "absolute" one that Article 1319 above-quoted requires. would be an inference not necessarily warranted by the words

"we agree to buy" and "proceed Tacloban to negotiate details". If issue of fact arose, which could warrant a trial in order for the
indeed the details being left by them for further negotiations trial court to determine whether or not there was such an
were merely accidental or formal ones, what need was there to agreement about the balance being payable in 90 days instead of
say in the telegram that they had still "to negotiate (such) the 30 days stipulated in Annexes 9 and 10 above-referred to.
details", when, being unessential per their contention, they could Our conclusion, therefore, is that although there was no perfected
have been just easily clarified and agreed upon when Atty. contract of sale in the light of the letter of Atty. Gamboa of July 12,
Gamboa would reach Tacloban? 1978 and the letter-reply thereto of Yao; it being doubtful
Anent the telegram of Atty. Gamboa of July 27, 1978, also quoted whether or not, under Article 1319 of the Civil Code, the said
earlier above, We gather that it was in answer to the telegram of letter may be deemed as an offer to sell that is "certain", and
Yao. Considering that Yao was in Tacloban then while Atty. more, the Yao telegram is far from being an "absolute"
Gamboa was in Cebu, it is difficult to surmise that there was any acceptance under said article, still there appears to be a cause of
communication of any kind between them during the intervening action alleged in Paragraphs 8 to 12 of the respondents'
period, and none such is alleged anyway by respondents. complaint, considering it is alleged therein that subsequent to the
Accordingly, the claim of respondents in paragraph 8 of their telegram of Yao, it was agreed that the petitioners would sell the
complaint below that there was an agreement of a down payment property to respondents for P6.5 M, by paving P2 M down and
of P2 M, with the balance of P4.5M to be paid within 90 days the balance in 90 days and which agreement was allegedly
afterwards is rather improbable to imagine to have actually violated when in the deeds prepared by Atty. Gamboa and taken
happened. to Tacloban, only 30 days were given to respondents.
Respondents maintain that under existing jurisprudence relative But the foregoing conclusion is not enough to carry the day for
to a motion to dismiss on the ground of failure of the complaint to respondents. It only brings Us to the question of whether or not
state a cause of action, the movant-defendant is deemed to admit the claim for specific performance of respondents is enforceable
the factual allegations of the complaint, hence, petitioners cannot under the Statute of Frauds. In this respect, We man, view the
deny, for purposes of their motion, that such terms of payment situation at hand from two angles, namely, (1) that the
had indeed been agreed upon. allegations contained in paragraphs 8 to 12 of respondents'
While such is the rule, those allegations do not detract from the complaint should be taken together with the documents already
fact that under Article 1319 of the Civil Code above-quoted, and aforementioned and (2) that the said allegations constitute a
judged in the light of the telegram-reply of Yao to Atty. Gamboa's separate and distinct cause of action. We hold that either way We
letter of July 12, 1978, there was not an absolute acceptance, view the situation, the conclusion is inescapable e that the claim
hence from that point of view, petitioners' contention that the of respondents that petitioners have unjustifiably refused to
complaint of respondents state no cause of action is correct. proceed with the sale to them of the property v in question is
Nonetheless, the alleged subsequent agreement about the P2 M unenforceable under the Statute of Frauds.
down and P4.5 M in 90 days may at best be deemed as a distinct It is nowhere alleged in said paragraphs 8 to 12 of the complaint
cause of action. And placed against the insistence of petitioners, that there is any writing or memorandum, much less a duly
as demonstrated in the two deeds of sale taken by Atty. Gamboa signed agreement to the effect that the price of P6,500,000 fixed
to Tacloban, Annexes 9 and 10 of the answer of herein by petitioners for the real property herein involved was agreed
respondents, that there was no agreement about 90 days, an to be paid not in cash but in installments as alleged by

respondents. The only documented indication of the non-wholly- complaint and plaintiffs have announced that they will present
cash payment extant in the record is that stipulated in Annexes 9 additional evidences during the trial to prove their cause of
and 10 above-referred to, the deeds already signed by the action. The plaintiffs having alleged that the contract is backed up
petitioners and taken to Tacloban by Atty. Gamboa for the by letters and telegrams, and the same being sufficient
signatures of the respondents. In other words, the 90-day term memorandum, the complaint states a cause of action and they
for the balance of P4.5 M insisted upon by respondents choices should be given their day in court and allowed to substantiate
not appear in any note, writing or memorandum signed by either their allegations (Parades vs. Espino, 22 SCRA 1000). (Pp 165-
the petitioners or any of them, not even by Atty. Gamboa. Hence, 166, Record.)
looking at the pose of respondents that there was a perfected The foregoing disquisition of respondent judge misses at least
agreement of purchase and sale between them and petitioners two (2) juridical substantive aspects of the Statute of Frauds
under which they would pay in installments of P2 M down and insofar as sale of real property is concerned. First, His Honor
P4.5 M within ninety 90) days afterwards it is evident that such assumed that the requirement of perfection of such kind of
oral contract involving the "sale of real property" comes squarely contract under Article 1475 of the Civil Code which provides that
under the Statute of Frauds (Article 1403, No. 2(e), Civil Code.) "(t)he contract of sale is perfected at the moment there is a
On the other score of considering the supposed agreement of meeting of the minds upon the thing which is the object of the
paying installments as partly supported by the letter and t contract and upon the price", the Statute would no longer apply
telegram earlier quoted herein, His Honor declared with well as long as the total price or consideration is mentioned in some
studied ratiocination, albeit legally inaccurate, that: 1wph1.t note or memorandum and there is no need of any indication of
The next issue relate to the State of Frauds. It is contended that the manner in which such total price is to be paid.
plaintiffs' action for specific performance to compel the We cannot agree. In the reality of the economic world and the
defendants to execute a good and sufficient conveyance of the exacting demands of business interests monetary in character,
property in question (Sotto land and building) is unenforceable payment on installments or staggered payment of the total price
because there is no other note memorandum or writing except is entirely a different matter from cash payment, considering the
annexes "C", "C-l" and "D", which by themselves did not give birth unpredictable trends in the sudden fluctuation of the rate of
to a contract to sell. The argument is not well founded. The rules interest. In other words, it is indisputable that the value of money
of pleading limit the statement of the cause of action only to such - varies from day to day, hence the indispensability of providing
operative facts as give rise to the right of action of the plaintiff to in any sale of the terms of payment when not expressly or
obtain relief against the wrongdoer. The details of probative impliedly intended to be in cash.
matter or particulars of evidence, statements of law, inferences Thus, We hold that in any sale of real property on installments,
and arguments need not be stated. Thus, Sec. 1 of Rule 8 provides the Statute of Frauds read together with the perfection
that 'every pleading shall contain in a methodical and logical requirements of Article 1475 of the Civil Code must be
form, a plain concise and direct statement of the ultimate facts on understood and applied in the sense that the idea of payment on
which the party pleading relies for his claim or defense, as the installments must be in the requisite of a note or memorandum
case may be, omitting the statement of mere evidentiary facts.' therein contemplated. Stated otherwise, the inessential
Exhibits need not be attached. The contract of sale sued upon in elements" mentioned in the case of Parades vs. Espino, 22 SCRA
this case is supported by letters and telegrams annexed to the 1000, relied upon by respondent judge must be deemed to

include the requirement just discussed when it comes to face of the complaint. Such absence may be the subject of proof in
installment sales. There is nothing in the monograph re the the motion stage of the proceedings. (Moran, Comment on the
Statute of Frauds appearing in 21 SCRA 250 also cited by His Rules of Court, Vol. 1, p. 494, 1979 ed.) It follows then that when
Honor indicative of any contrary view to this ruling of Ours, for such a motion is filed and all the documents available to movant
the essence and thrust of the said monograph refers only to the are before the court, and they are insufficient to comply with the
form of the note or memorandum which would comply with the Statute, it becomes incumbent upon the plaintiff, for the reasons
Statute, and no doubt, while such note or memorandum need not of policy We have just' indicated regarding speedy
be in one single document or writing and it can be in just administration of justice, to bring out what note or memorandum
sufficiently implicit tenor, imperatively the separate notes must, still exists in his possession in order to enable the court to
when put together', contain all the requisites of a perfected expeditiously determine then and there the need for further
contract of sale. To put it the other way, under the Statute of proceedings. In other words, it would be inimical to the public
Frauds, the contents of the note or memorandum, whether in one interests in speedy justice for plaintiff to play hide and seek at his
writing or in separate ones merely indicative for an adequate own convenience, particularly, when, as is quite apparent as in
understanding of all the essential elements of the entire the instant case that chances are that there are no more writings,
agreement, may be said to be the contract itself, except as to the notes or memoranda of the installment agreement alleged by
form. respondents. We cannot divine any reason why any such
Secondly, We are of the considered opinion that under the rules document would be withheld if they existed, except the
on proper pleading, the ruling of the trial court that, even if the unpermissible desire of the respondents to force the petitioners
allegation of the existence of a sale of real property in a complaint to undergo the ordeals, time, effort and expenses of a futile trial.
is challenged as barred from enforceability by the Statute of In the foregoing premises, We find no alternative than to render
Frauds, the plaintiff may simply say there are documents, notes judgment in favor of petitioners in this certiorari and prohibition
or memoranda without either quoting them in or annexing them case. If at all, appeal could be available if the petitioners
to the complaint, as if holding an ace in the sleeves is not correct. subjected themselves to the trial ruled to be held by the trial
To go directly to the point, for Us to sanction such a procedure is court. We foresee even at this point, on the basis of what is both
to tolerate and even encourage undue delay in litigation, for the extant and implicit in the records, that no different result can be
simple reason that to await the stage of trial for the showing or probable. We consider it as sufficiently a grave abuse of
presentation of the requisite documentary proof when it already discretion warranting the special civil actions herein the failure
exists and is asked to be produced by the adverse party would of respondent judge to properly apply the laws on perfection of
amount to unnecessarily postponing, with the concomitant waste contracts in relation to the Statute of Frauds and the pertinent
of time and the prolongation of the proceedings, something that rules of pleading and practice, as We have discussed above.
can immediately be evidenced and thereby determinable with ACCORDINGLY, the impugned orders of respondent judge of
decisiveness and precision by the court without further delay. November 2, 1978 and August 29, 1980 are hereby set aside and
In this connection, Moran observes that unlike when the ground private respondents' amended complaint, Annex A of the
of dismissal alleged is failure of the complaint to state a cause of petition, is hereby ordered dismissed and the restraining order
action, a motion to dismiss invoking the Statute of Frauds may be heretofore issued by this Court on October 7, 1980 is declared
filed even if the absence of compliance does not appear an the permanent. Costs against respondents.

Guerrero,* Abad Santos and De Castro, JJ., concur.1wph1.t payment of P800.00. The latters acceptance of the payment
Mr. Justice Hermogenes Concepcion, Jr. is on leave. clearly showed his consent to the contract thereby precluding
him from rejecting its binding effect.

2. ID.; ID.; ID.; ID.; PARTIAL EXECUTION; EFFECTS. With the
contract being partially executed, the same is no longer covered
165. [G.R. No. L-30786. February 20, 1984.] by the requirements of the Statute of Frauds in order to be
enforceable. Therefore, with the contract being valid and
OLEGARIO B. CLARIN, Petitioner, v. ALBERTO L. enforceable, the petitioner cannot avoid his obligation by
RULONA and THE HONORABLE COURT OF APPEALS, interposing that Exhibit A is not a public document. On the
Respondents. contrary, under Article 1357 of the Civil Code, the petitioner can
even be compelled by the respondent to execute a public
Bengzon, Villegas & Zarraga Law Office for Petitioner. document to embody their valid and enforceable contract.

Tirol, Tirol and Bernaldez & Tirol for Respondents. 3. ID.; PROPERTY; CO-OWNERSHIP; CO-OWNER CANNOT BIND
PROPERTY OWNED IN COMMON. Although as a co-owner, the
petitioner cannot dispose of a specific portion of the land, his
SYLLABUS share shall be bound by the effect of the sale. This is anchored in
Article 493 of the Civil Code.

1. CIVIL LAW; CONTRACTS; SALES; PERFECTION THEREOF,
CASE AT BAR. A contract of sale is perfected at the moment D E C I S I O N
there is a meeting of minds upon the thing which is the object of
the contract and upon the price. Such contract is binding in
whatever form it may have been entered into. Construing GUTIERREZ, JR., J.:
Exhibits A and B together, it can be seen that the petitioner
agreed to sell and the respondent agreed to buy a definite object,
that is, ten hectares of land which is part and parcel of Lot 20 PLD This is a petition for review on certiorari of the decision of the
No. 4, owned in common by the petitioner and his sisters Court of Appeals which affirmed the finding of the trial court that
although the boundaries of the ten hectares would be delineated there was a perfected contract of sale between the petitioner and
at a later date. The parties also agreed on a definite price which is the respondent with regard to the ten (10) hectares of land
P2,500.00. Exhibit B further shows that the petitioner has constituting the petitioners share of Lot 20 PLD No. 4, Carmen
received from the respondent as initial payment, the amount of Cadastre in Carmen, Bohol.chanrobles virtual lawlibrary
P800.00. Hence, it cannot be denied that there was a perfected
contract of sale between the parties and that such contract was On May 31, 1959 the petitioner executed two documents, namely,
already partially executed when the petitioner received the initial Exhibits "A" and "B" which respectively

provide:jgc:chanrobles.com.ph In his complaint, the respondent alleged that the petitioner sold
ten hectares of his share of the disputed lot to him for P2,500.00.
"TO WHOM THIS MAY CONCERN:jgc:chanrobles.com.ph The conditions of the sale were that a downpayment of P1,000.00
was to be made and then the balance of P1,500.00 was to be paid
"This is to authorize Mr. Gustavo Decasa, surveyor from Batuan, in monthly installment of P100.00. As shown by Exhibit B, the
Bohol to survey on behalf of Mr. & Mrs. Alberto L. Rulona of Suba, respondent delivered to the petitioner a downpayment of
Katipunan, Carmen, Bohol, a portion of the share of the P800.00 and on the first week of June the amount of P200.00 was
undersigned of Lot 20 PLD No. 4 (Carmen Cadastre) from the also delivered thereby completing the downpayment of
CLARIN HERMANOS of which the undersigned is one of the heirs P1,000.00. On the first week of August, another delivery was
in a decision rendered in Cad. Case No. 20, Reg. Rec. No. 200 made by the respondent in the amount of P100.00 as payment for
promulgated by Judge Hipolito Alo of the Court of First Instance the first installment. Respondent further alleged that despite
of this province dated January 6, 1956; of the ten hectares (10) repeated demands to let the sale continue and for the petitioner
awarded to Mr. & Mrs. Alberto L. Rulona which the couple to take back the six postal money orders, the latter refused to
purchased from the undersigned for TWO THOUSAND FIVE comply.cralawnad
HUNDRED PESOS (P2,500.00). The portion of land to be surveyed
is situated where the house and vicinity of Mr. & Mrs. A. Rulona In his answer, the petitioner alleged that while it is true that he
are located in said lot. had a projected contract of sale of a portion of land with the
respondent, such was subject to the following conditions: (1) that
(SGD.) OLEGARIO B. CLARIN the contract would be realized only if his co-heirs would give
their consent to the sale of a specific portion of their common
(SGD.) ZOILA L. CLARIN inheritance from the late Aniceto Clarin before partition of the
said common property and (2) that should his co-heirs refuse to
"Received from Mr. Alberto Rulona of Carmen, Bohol, the sum of give their consent, the projected contract would be discontinued
Eight Hundred (P800.00) Pesos as an initial payment for the ten or would not be realized. Petitioner further contended that the
hectares of land in Carmen, Bohol which he is going to purchase respondent knew fully well the above terms and accepted them
from the undersigned. The value of the land in question is as conditions precedent to the perfection or consummation of the
P2,500.00."cralaw virtua1aw library contract; that respondent delivered the amount of P1,000.00 as
earnest money, subject to the above conditions and that the
Respondent Rulona filed a complaint for specific performance amount was returned by the petitioner upon his learning
and recovery of improvements on the ground that the petitioner definitely that his co-heirs and co-owners refused to give their
and his wife violated the terms of the agreement of sale "by consent to the projected sale.
returning by their own volition and without the consent of
plaintiff, the amount of P1,100.00 in six postal money orders, The trial court rendered judgment in favor of the respondent on
covering the downpayment of P1,000.00 and first installment of the ground that the contract of sale, Exhibit A, is a pure sale of a
P100.00."cralaw virtua1aw library portion of Lot No. 20, containing an area of ten hectares for the
sum of P2,500.00, and that the sale is not subject to any condition

nor is it vitiated by any flaw. Therefore, it declared the same consideration nor should it contain the proper heading." (sic)
binding upon the parties under Articles 1356 and 1458 of the
Civil Code. The trial court also ruled that the fact that petitioner It is maintained in this petition that the appellate court erred in
returned the sum of P1,100.00 paid by the respondent indicated holding there was a perfected contract of sale between the
an intention to rescind the contract. The court stated, however, petitioner and the respondent, principally relying on Exhibit A
that rescission under Article 1191 of the Civil Code can be and that even assuming that the latter were a perfected contract
authorized by the court only if either party violates his obligation. of sale, such was subject to a condition precedent with which
Since there had been no violation, the court ruled that the there was no compliance. The petitioner alleges that the two
petitioner could not rescind the contract. Lastly, the court held documents introduced in evidence could not effectively convey
that although as co-owner the petitioner could not dispose of a title to the land because they were not public documents. Lastly,
specific portion of the land, nevertheless, his share was bound by the petitioner contends that he could not have validly disposed of
the effect of the sale.chanrobles lawlibrary : rednad a definite portion of the community property and therefore, there
arose a legal impossibility for him and the respondent to agree on
On appeal, the Court of Appeals sustained the findings of the trial a definite object.chanrobles.com.ph : virtual law library
court, stating that:chanrob1es virtual 1aw library
The petitioners contentions are without merit.
x x x
While it is true that Exhibits A and B are, in themselves, not
contracts of sale, they are, however, clear evidence that a
". . . We believe that the trial court did not incur any error when it contract of sale was perfected between the petitioner and the
arrived at the conclusion that there was a perfected contract of respondent and that such contract had already been partially
sale between the plaintiff and the defendant, for indeed the terms fulfilled and executed. A contract of sale is perfected at the
of the agreement (Exh. A) were clearly drafted in an equivocal moment there is a meeting of minds upon the thing which is the
manner that leaves no room for interpretation other than those object of the contract and upon the price. (Article 1475, Civil
terms contained therein, the real substance of which satisfied all Code; Phil. Virginia Tobacco Administration v. De los Angeles, 87
the elements and requisites of a contract. Appellant, however, SCRA 210). Such contract is binding in whatever form it may have
argues that Exhibit A was a mere authority to survey. It is not been entered into. (Lopez v. Auditor General, 20 SCRA 655).
addressed to any definite party, it does not contain the proper
heading, there is no statement of the manner of paying the Construing Exhibits A and B together, it can be seen that the
purchase price, no personal circumstances of the parties, and it is petitioner agreed to sell and the respondent agreed to buy a
not notarized. All these grounds relied upon to suit the theory of definite object, that is, ten hectares of land which is part and
appellant, anchored as it were on a weak foundation, deserve parcel of Lot 20 PLD No. 4, owned in common by the petitioner
scant consideration. Suffice it to state that a contract to be and his sisters although the boundaries of the ten hectares would
binding upon the contracting parties need not be notarized. be delineated at a later date. The parties also agreed on a definite
Neither should it specify the manner of payment of the price which is P2,500.00. Exhibit B further shows that the
consideration nor should it specify the manner of payment of the petitioner has received from the respondent as initial payment,

the amount of P800.00. Hence, it cannot be denied that there was petitioner has been stressing that he made it clear to the
a perfected contract of sale between the parties and that such respondent that the consent of his sisters as co-owners was
contract was already partially executed when the petitioner necessary in order for the sale to push through, his letter to
received the initial payment of P800.00. The latters acceptance respondent marked Exhibit C stated another reason, to
of the payment clearly showed his consent to the contract wit:jgc:chanrobles.com.ph
thereby precluding him from rejecting its binding effect. (See
Federation of United Namarco Distributors, Inc. v. National "My dear Mr. Rulona:chanrob1es virtual 1aw library
Marketing Corporation, 4 SCRA 884). With the contract being
partially executed, the same is no longer covered by the Replying to your letter of recent date, I deeply regret to inform
requirements of the Statute of Frauds in order to be enforceable. you that my daughter, Alice, who is now in Manila, could not be
(See Khan v. Asuncion, 19 SCRA 996). Therefore, with the convinced by me to sell the land in question, that is, the ten (10)
contract being valid and enforceable, the petitioner cannot avoid hectares of land referred to in our tentative agreement. It is for
his obligation by interposing that Exhibit A is not a public this reason that I hereby authorize the bearer, Mr. Paciano
document. On the contrary, under Article 1357 of the Civil Code, Parmisano, to return to you in person the sum of One Thousand
the petitioner can even be compelled by the respondent to and One Hundred (P1,100.00) Pesos which you have paid in
execute a public document to embody their valid and enforceable advance for the proposed sale of the land in question."cralaw
contract. virtua1aw library

The petitioners contention that he was only forced to receive x x x
money from the respondent due to the insistence of the latter
merits little consideration. It is highly improbable that the
respondent would give different sums on separate dates to the The reasons given by the petitioner cannot operate against the
petitioner with no apparent reason, without a binding assurance validity of the contract in question. A contract is valid even
from the latter that the disputed lot would be sold to him. We though one of the parties entered into it against his better
agree with the trial court and the appellate court that the judgment. (See Lagunzad v. Vda. de Gonzales, 92 SCRA 476; citing
payments were made in fulfillment of the conditions of the sale, Martinez v. Hongkong and Shanghai Bank, 15 Phil. 252).
namely, a downpayment of P1,000.00 and the balance of
P1,500.00, to be paid in monthly installments of P100.00 Finally, we agree with the lower courts holding that although as
each.chanrobles virtualawlibrary a co-owner, the petitioner cannot dispose of a specific portion of
chanrobles.com:chanrobles.com.ph the land, his share shall be bound by the effect of the sale. This is
anchored in Article 493 of the Civil Code which
We, therefore, find no error in the lower courts holding that a provides:chanrob1es virtual 1aw library
contract of sale was perfected between the petitioner and the
respondent and that the sale did not depend on a condition that Art. 493. Each co-owner shall have the full ownership of his part
the petitioners co-owners would have to agree to the sale. The and the fruits and benefits pertaining thereto, and he may
latter finding is strengthened by the fact that although the therefore alienate, assign or mortgage it, and even substitute

another person in its enjoyment, except when personal rights are the ports of call of these vessels has been Butuan City. As early as
involved. But the effect of the alienation or the mortgage, with 1954, private respondent Marciano Sanchez (Sanchez, for short)
respect to the co-owners, shall be limited to the portion which was an employee of BISTRANCO, specifically, a quartermaster in
may be alloted to him in the division upon the termination of the one of its vessels, In 1959, he ceased to be an employee as he
co-ownership. engaged in stevedoring services in the port of Butuan City and
rendered steverdoring services for the vessels of BISTRANCO. 1
WHEREFORE, the petition is hereby DISMISSED for lack of merit. In May 1975, Sanchez was appointed by BISTRANCO as shipping
Costs against the petitioner. agent in Butuan City for the vessel M/V Don Mariano. 2 The new
Butuan City Agent 3 referred to in the letter "Exhibit "C" was
SO ORDERED. Marciano Sanchez. Later, on 12 March 1976, when BISTRANCO
was under receivership, Sanchez was appointed by its Receiver,
Melencio-Herrera Plana and Relova, JJ., concur. Atty. Adolfo V. Amor, as acting shipping agent, also for M/V Doa
Remedies, in addition to M/V Doa Filomena, in the port of
Teehankee, J., concurs in the result. Butuan City "pending the execution of the formal contract of
agency. 4 When Sanchez was constituted as acting shipping agent,
he received the same commission as his predecessor, one ONG
YUI who received 10% for all freight and passenger revenues
coming from Butuan City and 5 % for all freight going to Butuan. 5
166. G.R. No. 74623 August 31, 1987 Thereafter, or on 27 July 1976, a formal Contract of Agency,
BISAYA LAND TRANSPORTATION CO., INC., ANTONIO marked as Exhibit "F", was executed between BISTRANCO,
V. CUENCO and BENJAMIN G. ROA, petitioners, represented by Receiver Atty. Adolfo V. Amor and Marciano C.
vs. Sanchez, represented by his authorized representative Exequiel
MARCIANO C. SANCHEZ AND THE HON. Aranas. On 30 July 1976, after Sanchez found that Paragraph 16
INTERMEDIATE APPELLATE COURT, respondents. of the Contract of agency was quite prejudicial to him, he
executed with BISTRANCO a Supplemental Shipping Agency
PADILLA, J.: Contract, marked as Exhibit "G", which was duly signed by
This is a petition for certiorari to review the decision * of Receiver Atty. Adolfo V. Amor on behalf of BISTRANCO and
respondent Intermediate Appellate Court, dated 25 April 1986, in Marciano C. Sanchez himself. 6 But, both the Contract of Agency
AC-G.R. No. CV-01300 which affirmed the decision ** of the and the Supplemental Shipping Agency Contract were never
Regional Trial Court, 7th Judicial Region, Branch XII, Cebu City, submitted by Atty. Adolfo Amor to the receivership court for its
dated 14 February 1983, in Civil Case No. R-18830 which was a approval.
suit for Specific Performance with Preliminary Injunction and By virtue of the Contract of Agency and the Supplemental
Damages. Shipping Agency Contract (hereinafter referred to as Contracts),
Petitioner Bisaya Land Transportation Company, Inc. Sanchez performed his duties as shipping agent of BISTRANCO,
(BISTRANCO, for short) has been engaged in the shipping and he received his corresponding commissions as such shipping
business, operating several passenger-cargo vessels, and among agent. Pursuant to the Contracts, Sanchez leased a parcel of land

owned by Jose S. Mondejar which was used as the wharf and Pursuant to the letter (Exhibit "FF"), BISTRANCO actually opened
berthing facilities of BISTRANCO. 7 At an expense of more than and operated a branch office in Butuan City on 15 January 1980.
P100,000.00, Sanchez constructed the wharf on the land he BISTRANCO through its new representative contacted the
leased and the wharf was used to facilitate the loading and shippers in Butuan City and neighboring towns, advising them to
unloading of cargoes of the BISTRANCO vessels at the port of transact their business directly with its new branch office in
Butuan City from 1976 to December 1979. Sanchez also Butuan City. Under these circumstances, the business of Sanchez,
constructed a bodega at his wharf for use in connection with the as shipping agent of BISTRANCO in Butuan City, was seriously
shipping business of BISTRANCO. He constructed an office for the impaired and undermined He could not solicit as many
agency and, as of December 1979, he had an office force of 13 passengers as he used to, because the passenger tickets issued to
employees, all paid and maintained by him. Sanchez operated six him by BISTRANCO were limited. The cargoes solicited by
(6) cargo trucks and one (1) jeep for the service of the shipping Sanchez were loaded on a "chance basis" because those that were
agency. As shipping agent, Sanchez put up billboards and other solicited by the branch office were given priority. 12
forms of advertisement to enhance the shipping business of After due hearing and their respective memorandum filed, the
BISTRANCO. He established good business relations with the trial court rendered judgment in favor of Sanchez, the dispositive
business community of Butuan City. 8 In these endeavors, portion of which is quoted hereunder: 13
Sanchez succeeded in increasing the volume of the shipping WHEREFORE, judgment is hereby rendered declaring the
business of BISTRANCO at the Butuan City port, so much so that contracts, Exhibits "F" and "G", as valid and binding between the
his earnings on freight alone increased from an average of plaintiff and defendant BISTRANCO up to its expiry date on July
P8,535.00 a month in 1975 to an average of about P32,000.00 a 27, 1981, and ordering the defendant BISTRANCO to pay the
month in the last seven months of 1979. 9 plaintiff the total sum of FIVE HUNDRED EIGHTY EIGHT
While the shipping business of BISTRANCO in Butuan City THOUSAND PESOS (P588,000.00) in concept of unearned
flourished, evidently to the mutual benefit of both parties, on 26 commissions as well as damages, with interest at the legal rate
December 1979, co-petitioner Benjamin G. Roa, as Executive counted from July 28, 1981 up to the time the amount is fully
Vice-President of BISTRANCO, wrote Sanchez a letter 10 advising paid, and the further sum of P15,000.00 as attorney's fees, and
him that, effective 1 January 1980, BISTRANCO would commence the costs of this action.
operating its branch office in Butuan City. Prior to this, on 11 Thereafter, BISTRANCO appealed to the Court of Appeals which,
December 1979, Sanchez was invited to attend a meeting of the as heretofore stated, affirmed the decision of the trial court in
Board of Directors of BISTRANCO wherein he was told by co- toto.
petitioner Antonio V. Cuenco that the Board was to open a branch Hence this Petition for certiorari brought to this Court, with the
office in Butuan City and he was asked what would be his petitioners raising the following issues: 14
proposals. Sanchez submitted his proposals in writing, marked as I
Exhibit "NN", but these were not acceptable to BISTRANCO. 11 CAN A COURT APPOINTED RECEIVER VALIDLY ENTER INTO A
Realizing that the letter, marked as Exhibit "FF", was in effect a CONTRACT WITHOUT COURT APPROVAL?
repudiation of the Contracts, Sanchez filed an action for specific II
performance with preliminary injunction and damages with the IS THE OPENING BY BISTRANCO OF A BRANCH OFFICE IN
Regional Trial Court of Cebu City on 28 December 1979. BUTUAN CITY A VIOLATION OF THE CONTRACT OF AGENCY

AND SUPPLEMENTAL SHIPPING AGENCY CONTRACT EXHIBITS unenforceable contract may still be ratified and, thereafter,
"F" and "G") ASSUMING THEM TO BE VALID? enforced.
III The petitioners allege that the Contracts are void, citing Article
WHAT EFFECT DID THE WORKING AGREEMENTS (EXHIBITS "S" 1409(l) of the Civil Code which provides that contracts whose
and "U") HAVE ON AFORESAID QUESTIONED CONTRACTS? cause, object or purpose is contrary to law, morals, good customs,
IV public order or public policy, are inexistent and void from the
IS THE AWARD FOR UNEARNED COMMISSION AND DAMAGES beginning. In the case at bar, the contracts of agency were
JUSTIFIED? entered into for the management and operation of BISTRANCO's
The general powers of a court-appointed receiver are provided in business in Butuan City. Said Contracts necessarily imposed
Section 7, Rule 59 of the Rules of Court. Under such rule, the obligations and liabilities on the contracting parties, thereby
receiver is "subject to the control of the court in which the action affecting the disposition of the assets and business of the
is pending" and he can "generally do such acts respecting the company under receivership. But a perusal of the Contracts in
property as the court may authorize". The act of Receiver Amor question would show that there is nothing in their cause, object
in entering into a contract of agency with Sanchez is not one of or purpose which renders them void. The purpose of the
the acts specifically allowed in the mentioned rule. While such act Contracts was to create an agency for BISTRANCO with Marciano
of Amor may be arguably implied from the power of the receiver Sanchez as its agent in Butuan City. Even as to the other
to "take and keep possession of the property in controversy", and provisions of the Contracts, there is nothing in their cause or
that the act of Amor is covered by the broad phrase that a object which can be said as contrary to law, morals, good
receiver can "generally do such acts respecting the property as customs, public order or public policy so as to render them void.
the court may authorize", still, it is necessary that the acts of the On the other hand, paragraph 1. Article 1403 of the Civil Code
receiver have the approval or authorization of the court which provides that contracts "entered into in the name of another
appointed him as a receiver. As held in one case, 15 a court- person by one who has been given no authority or legal
appointed receiver cannot validly enter into a contract without representation, or who has acted beyond his powers" are
the approval of the court. unenforceable, unless they are ratified.
What then is the status of the Contracts which Receiver Amor In the case at bar, it is undisputed that Atty. Adolfo Amor was
entered into with Sanchez, without the approval of the court entrusted, as receiver, with the administration of BISTRANCO
which appointed him receiver? Even the petitioners noticeably and it business. But the act of entering into a contract is one
waver as to the exact status of these Contracts. The petitioners which requires the authorization of the court which appointed
allege in their Memorandum 16 submitted to this Court that they him receiver. Consequently, the questioned Contracts can
are void contracts under Article 1409(l) of the Civil Code, rightfully be classified as unenforceable for having been entered
whereas, in their Petition, 17 they labelled the contracts as into by one who had acted beyond his powers, due to Receiver
unenforceable under Article 1403(l) of the Civil Code. Amor's failure to secure the court's approval of said Contracts.
The determination, therefore, of whether the questioned These unenforceable Contracts were nevertheless deemed
contracts are void or merely unenforceable is important, because ratified in the case at bar, based upon the facts and circumstances
of the settled distinction that a void and inexistent contract can on record which have led this Court to conclude that BISTRANCO
not be ratified and become enforceable, whereas an had actually ratified the questioned Contracts.

Private respondent Sanchez filed his complaint in the lower court Contracts even before the time of Benjamin G. Roa, because when
on 28 December 1979. But on 10 January 1980, copetitioner Atty. Fulveo Pelaez succeeded Atty. Adolfo Amor as Receiver, he
Benjamin G. Roa, as Executive Vice-President of BISTRANCO, still was represented by BISTRANCO's shipping manager as having
sent Sanchez three (3) separate letters with the following taken cognizance of these Contracts and sanctioned the acts of
contents: (3) reducing his passage commission from 10%, as he Sanchez as shipping agent of BISTRANCO in Butuan City. This is
used to receive in the previous years, to 7-1/2% "as stated in the shown by a letter, 23 dated 15 February 1977, written by Capt.
agency contract dated 27 July 1976, 18 (2) advising Sanchez that Federico Reyes, 24 the shipping manager of BISTRANCO at that
in view of "his failure to post a bond or such other securities time. The letter states that "the Receiver (Atty. Fulveo Pelaez)
acceptable to the company in the sum of P5,000.00 pursuant to maintains that the previous agency contract remains and (sic)
par. 8 of the Contract executed by Sanchez the plaintiff with basically the same except that the rates of the agency commission
BISTRANCO on 27 July 1976, we are recalling all unused passage were modified.
tickets issued your agency" and reminding him (Sanchez) also Furthermore, it is clear that BISTRANCO received material
that "pursuant to par. 2 of aforementioned Contract, solicitation of benefits from the contracts of agency of Sanchez, based upon the
cargo and passengers shall be undertaken by you strictly in monthly statements of income of BISTRANCO, upon which the
accordance with the scheduled rates of the Company; 19 and (3) commissions of Sanchez were based. 25 A perusal of the Contracts
informing Sanchez that "we (petitioners) are abiding strictly with will also show that there is no single provision therein that can
the terms of the contracts executed between Marciano C Sanchez, be said as prejudicial or not beneficial to BISTRANCO. As held in
and Atty. Adolfo V Amor in behalf of BISTRANCO, etc. etc. 20 Savings v. Ball-Bearing Chain Co. 26
The three (3) letters of Benjamin G. Roa in effect recognized and Not every act within the letter of an order can be sanctioned, nor
gave efficacy to the Contracts in question. The declaration of everything done without the direction of the court condemned.
Benjamin G. Roa that BISTRANCO did not have any knowledge The tests to be applied are: (1) was the act under investigation
about the Contracts before the complaint was filed on 28 within the authority conferred by an order of court? (2) If so, was
December 1979 is contradicted by his own testimony that, as it performed with reference to the preservation of the estate, as a
early as 14 December 1979, he was already looking for the man of ordinary sagacity and prudence would have performed it
contract, after he saw Exhibit "NN", wherein Sanchez requested under like circumstances? (3) If without authority, was it
the company "to abide with the terms of the contract which will beneficial to the estate?
expire on July 1981; 21 Besides, the pretended lack which will Besides, in our considered opinion, the doctrine of estoppel
expire on July 1981 of knowledge of Benjamin G. Roa can not be precludes BISTRANCO from repudiating an obligation voluntarily
equated with BISTRANCO's. It should be noted that Roa started to assumed by it, after having accepted benefits therefrom. To
work for BISTRANCO only on 27 April 1979, 22 whereas, the countenance such, repudiation would be contrary to equity and
Contracts were executed in 1976. would put a premium on fraud or misrepresentation, 27 which
The people who were more in a position to know about the this Court will not sanction.
Contracts, like the company officers and members of the board of Anent the issue of whether the Memorandum of Agreement and
directors at the time the Contracts were entered into, especially the Working Agreement (Exhibits "S" and "U") which were
Antonio V. Cuenco, were never presented as witnesses. Aside executed by the parties in this case on 4 February 1977 and 28
from this, the company cannot deny its ratification of the May 1979, respectively, novated the questioned Contracts, the

answer is also in the negative. BISTRANCO avers that Exhibit "S" Besides, the changes were not really substantial to bring about a
substantially altered or changed the principal terms and novation. The changes pointed out by BISTRANCO between the
conditions of Exhibits "F" and "G" on material points, such as, Contracts and the Agreements do not go into the essence of the
reduction of the rate of commission for freight and passage (from cause or object of the former. Under the Agreements, Sanchez
10% to 7-1/2%), the manner of liquidation and remittance of remains the agent of BISTRANCO in Butuan City. There is really
collections of the agent, the mode of payment of the agent's no clear proof of incompatibility. In fact, the Contracts and the
commissions, and the term of the Contract which is from a period Agreements can be reconciled. The provisions of the Agreements
of 5 years to a term of 1 year renewable yearly upon mutual which were more of changes on how to enforce the agency,
consent; and that Exhibit "U" ,furthermore, bolstered this prevailed during the period provided in them, but after their
novation theory. expiration, the conditions under the Contracts were implemented
Novation is not equivalent or synonymous to mere alteration, again. The term of the agency contract which was for a period of
modification or amendment. Novation is the substitution of a five (5) years still continued, until 27 July 1981.
new obligation for an existing or old one, which is thereby Considering that the contract of agency and the supplemental
extinguished. Novation takes place when the object or principal shipping agency contract are valid and binding between
condition of an obligation is changed or altered. 28 Novation is BISTRANCO and Sanchez, the former's opening of a branch in
never presumed; it must be explicitly stated or there must be a Butuan City was, in effect, a violation of the Contracts. Sanchez
manifest incompatibility between the old and the new obligations entered into the agency Contract because of the expected income
in every aspect. 29 The test of incompatibility between two and profits for himself. There could be no other motive from a
obligations or contracts, is whether or not they can stand businessman's point of view. A provision in the Supplemental
together, each one having an independent existence. If they Shipping Agency Contract reads:
cannot, they are incompatible, and the later obligation novates 6. That in consideration of the foregoing additional particular
the first. obligations of the AGENT, the COMPANY agrees not to appoint or
In the case at bar, it can be deduced that the Agreements, Exhibits employ another agent in Butuan City or in any of the City's
"S" and "U", were not meant to novate the herein questioned neighboring towns without the written consent of the AGENT
contracts. Rather, the intent of the parties was to suspend some first obtained. (Exhibit "G ")
of the provisions of the Contracts for a period of one (1) year, The additional particular obligations referred to in Exhibit "G"
during which, the provisions of the Agreements will prevail. As were the putting up of an adequate agency office in Butuan City,
par. 8 of the Memorandum of Agreement provides: "It is in this the employment of canvassers of passengers and solicitors of
spirit of cooperation with the Receiver to enable him to pay huge cargoes, that the Agent shall provide at least two (2) cargo trucks
obligations of the company that the agent Marciano Sanchez has and a private docking and berthing facilities for the vessels of the
acceded to the request of Messrs. Miguel Cuenco and Antonio company, at the expense of Sanchez. Aside from this, Sanchez
Cuenco to accept the reduction of his commissions." It would not also had to spend for the lease of the wharf and the construction
be equitable to Sanchez to say now that the Contracts were of the bodega at the wharf.
extinguished and substituted by the Agreements. It would be It may be true that there is no express prohibition for
tantamount to punishing Sanchez for the concessions he BISTRANCO to open its branch in Butuan City. But, the very
extended to BISTRANCO. reason why BISTRANCO agreed not to employ or appoint another

agent in Butuan City was to prevent competition against Sanchez'
agency, in order that he might recover what he invested and
eventually maximize his profits. The opening by BISTRANCO of a
branch in Butuan City virtually resulted in consequences to
Sanchez worse than if another agent had been appointed. In 167. G.R. No. 175483, October 14, 2015
effect, the opening of a branch office in Butuan City was a
violation of the Contracts of agency. Article 1315 of the Civil Code VALENTINA S. CLEMENTE, Petitioner, v. THE COURT OF
provides: APPEALS, ANNIE SHOTWELL JALANDOON, ET AL.,
Contracts are perfected by mere consent, and from that moment Respondents.
the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which, D E C I S I O N
according to their nature, may be in keeping with good faith,
usage and law. JARDELEZA, J.:
In the case at bar, good faith required that BISTRANCO refrain
from opening its branch in Butuan City during the effectivity of This is a Petition for Review on Certiorari1 under Rule 45 of the
the agency contract with Sanchez, or until 27 July 1981. Revised Rules of Court filed by Valentina S. Clemente
Moreover, the opening of the branch office which, in effect, was a ("petitioner") from the Decision2 of August 23, 2005 and the
revocation of the contracts of agency is not sanctioned by law Resolution3 dated November 15, 2006 of the Court of Appeals
because the agency was the means by which Sanchez could fulfill (CA) Eighth Division in CA-G.R. CV No. 70918.
his obligations under Exhibits "F" and "G". Article 1927 of the
Civil Code, among others, provides: "An agency cannot be Petitioner assails the Decision of the CA which ruled that two (2)
revoked if a bilateral contract depends upon it, or if it is the deeds of absolute sale executed between petitioner and Adela de
means of fulfilling an obligation already contracted". Guzman Shotwell ("Adela"), her grandmother, are void and
As to the issue of whether the award of P588,000.00 to Sanchez inexistent for being simulated and lacking consideration. The CA
for unearned commissions and damages is justified, the answer is affirmed the Decision of the Regional Trial Court (RTC) of Quezon
also in the affirmative, considering that BISTRANCO violated the City, Branch 89, but deleted the holding of the latter that an
Contracts of agency and that Sanchez, before the breach by implied trust existed.
BISTRANCO of said agency Contracts, was already earning an
average monthly commission of P32,000.00, as shown by the The Facts
statements of commissions prepared by BISTRANCO itself.
WHEREFORE, the petition is denied. The decision of the Adela owned three (3) adjoining parcels of land in Scout Ojeda
respondent Court is affirmed. Street, Diliman, Quezon City, subdivided as Lots 32, 34 and 35-B
SO ORDERED. (the "Properties"). Among the improvements on the Properties
Yap (Chairman), Melencio-Herrera, Paras and Sarmiento, JJ., was Adela's house (also referred to as the "big house"). During
concur. her lifetime, Adela allowed her children, namely, Annie Shotwell
Jalandoon, Carlos G. Shotwell ("Carlos Sr."), Anselmo G. Shotwell
and Corazon S. Basset, and her grandchildren,4 the use and

possession of the Properties and its improvements.5
On January 14, 1990, Adela died in the United States and was
Sometime in 1985 and 1987, Adela simulated the transfer of Lots succeeded by her four children.17
32 and Lot 34 to her two grandsons from Carlos Sr., namely,
Carlos V. Shotwell, Jr. ("Carlos Jr.") and Dennis V. Shotwell.6 As a Soon thereafter, petitioner sought to eject Annie and Carlos Sr.,
consequence, Transfer Certificate of Title (TCT) No. 338708/PR who were then staying on the Properties. Only then did Annie
9421 was issued over Lot 32 under the name of Carlos Jr., while and Carlos Sr. learn of the transfer of titles to petitioner. Thus, on
TCT No. 366256/PR 9422 was issued over Lot 34 under the July 9, 1990, Annie, Carlos Sr. and Anselmo, represented by
name of Dennis.7 On the other hand, Lot 35-B remained with Annie, ("private respondents") filed a complaint for
Adela and was covered by TCT No. 374531. It is undisputed that reconveyance of property18 against petitioner before Branch 89
the transfers were never intended to vest title to Carlos Jr. and of the RTC of Quezon City. It was docketed as Civil Case No. Q-90-
Dennis who both will return the lots to Adela when requested.8 6035 and titled "Annie S. Jalandoon, et al. v. Valentino. Clemente"19

On April 18, 1989, prior to Adela and petitioner's departure for In the course of the trial, private respondents discovered that
the United States, Adela requested Carlos Jr. and Dennis to Adela and petitioner executed another deed of absolute sale20
execute a deed of reconveyance9 over Lots 32 and 34. The deed of over Lot 35-B on April 25, 1989 (collectively with the deed of
reconveyance was executed on the same day and was registered absolute sale over Lots 32 and 34, "Deeds of Absolute Sale"),
with the Registry of Deeds on April 24, 1989.10 bearing on its face the price of F60,000.00.21 This was notarized
on the same date by one Orancio Generoso in Manila, but it was
On April 25, 1989, Adela executed a deed of absolute sale11 over registered with the Registry of Deeds only on October 5, 1990.22
Lots 32 and 34, and their improvements, in favor of petitioner, Thus, private respondents amended their complaint to include
bearing on its face the price of P250,000.00. On the same day, Lot 35-B.23
Adela also executed a special power of attorney12 (SPA) in favor
of petitioner. Petitioner's authority under the SPA included the In their amended complaint, private respondents sought
power to administer, take charge and manage, for Adela's benefit, nullification of the Deeds of Absolute Sale. They alleged that
the Properties and all her other real and personal properties in Adela only wanted to help petitioner travel to the United States,
the Philippines.13 The deed of absolute sale and the SPA were by making it appear that petitioner has ownership of the
notarized on the same day by Atty. Dionilo D. Marfil in Quezon Properties. They further alleged that similar to the previous
City.14 simulated transfers to Carlos Jr. and Dennis, petitioner also
undertook and warranted to execute a deed of reconveyance in
On April 29, 1989, Adela and petitioner left for the United favor of the deceased over the Properties, if and when Adela
States.15 When petitioner returned to the Philippines, she should demand the same. They finally alleged that no
registered the sale over Lots 32 and 34 with the Registry of consideration was given by petitioner to Adela in exchange for
Deeds on September 25, 1989. TCT No. 19811 and TCT No. the simulated conveyances.24
19809 were then issued in the name of petitioner over Lots 32
and 34, respectively.16 On October 3, 1997, Carlos Sr. died and was substituted only by

Dennis.25 In an order dated June 18, 1999, the case was dismissed
with respect to Annie after she manifested her intention to The CA agreed with the trial court that the contemporaneous and
withdraw as a party-plaintiff.26 Anselmo Shotwell also died subsequent acts of petitioner and her grandmother are enough to
without any compulsory heir on September 7, 2000. render the conveyances null and void on the ground of being
simulated.30 The CA found that Adela retained and continued to
On February 26, 2001, the trial court promulgated a Decision27 in exercise dominion over the Properties even after she executed
favor of private respondents. Its decretal portion the conveyances to petitioner.31 By contrast, petitioner did not
reads:cralawlawlibrary exercise control over the properties because she continued to
honor the decisions of Adela. The CA also affirmed the court a
WHEREFORE, premises considered, judgment is hereby rendered quo's finding that the conveyances were not supported by any
as follows: consideration.32

1. Declaring null and void the Deeds of Absolute Sale both Petitioner filed a Motion for Reconsideration33 dated September
dated April 25, 1989 between the late Adela De Guzman 12, 2005 but this was denied by the CA in its Resolution34 dated
Shotwell and the defendant;ChanRoblesVirtualawlibrary November 15, 2006.

2. Ordering the cancellation of Transfer Certificates of Title Hence, this petition. The petition raises the principal issue of
Nos. 19809, 19811 and 26558, all of the Registry of Deeds whether or not the CA erred in affirming the decision of the trial
of Quezon City and in the name of defendant Valentina court, that the Deeds of Absolute Sale between petitioner and her
Clemente; and late grandmother over the Properties are simulated and without
consideration, and hence, void and inexistent.35
3. Ordering the defendant to execute a Deed of
Reconveyance in favor of the estate of the late Adela de Ruling of the Court
Guzman Shotwell over the three (3) subject lots,
respectively covered by Transfer Certificates of Title Nos.
19809, 19811 and 26558 of the Registry of Deeds of We deny the petition.
Quezon City;
In a Petition for Review on Certiorari
With costs against defendant. under Rule 45, only questions of law
may be entertained.
SO ORDERED.28chanrobleslaw
Whether or not the CA erred in affirming the decision of the RTC
On appeal, the CA affirmed with modification the Decision. The that the Deeds of Absolute Sale between petitioner and her late
CA ruled that the Deeds of Absolute Sale were simulated. It also grandmother are simulated and without consideration, and
ruled that the conveyances of the Properties to petitioner were hence, void and inexistent, is a question of fact which is not
made without consideration and with no intention to have legal within the province of a petition for review on certiorari under
effect.29 Rule 45 of the Revised Rules of Court.

The Deeds of Absolute Sale between
Section 1, Rule 45 of the Revised Rules of Court states that the petitioner and the late Adela Shotwell
petition filed shall raise only questions of law, which must be are null and void for lack of consent
distinctly set forth. We have explained the difference between a and consideration.
question of fact and a question of law, to wit:cralawlawlibrary
While the Deeds of Absolute Sale appear to be valid on their face,
A question of law arises when there is doubt as to what the law is the courts are not completely precluded to consider evidence
on a certain state of facts, while there is a question of fact when aliunde in determining the real intent of the parties. This is
the doubt arises as to the truth or falsity of the alleged facts. For a especially true when the validity of the contracts was put in issue
question to be one of law, the same must not involve an by one of the parties in his pleadings.42 Here, private respondents
examination of the probative value of the evidence presented by assail the validity of the Deeds of Absolute Sale by alleging that
the litigants or any of them. The resolution of the issue must rest they were simulated and lacked consideration.
solely on what the law provides on the given set of
circumstances. Once it is clear that the issue invites a review of A. Simulated contract
the evidence presented, the question posed is one of
fact.36chanrobleslaw The Civil Code defines a contract as a meeting of minds between
two persons whereby one binds himself, with respect to the
Most of the issues raised by petitioner are questions of fact that other, to give something or to render some service.43 Article 1318
invite a review of the evidence presented by the parties below. provides that there is no contract unless the following requisites
We have repeatedly ruled that the issue on the genuineness of a concur:cralawlawlibrary
deed of sale is essentially a question of fact.37 We are not a trier of
facts and do not normally undertake the re-examination of the (1) Consent of the contracting parties;
evidence presented by the contending parties during the trial of (2) Object certain which is the subject matter of the contract; and
the case. This is especially true where the trial court's factual
38 (3) Cause of the obligation which is established.chanrobleslaw
findings are adopted and affirmed by the CA as in the present
case. Factual findings of the trial court affirmed by the CA are
39 All these elements must be present to constitute a valid contract;
final and conclusive and may not be reviewed on appeal. While 40 the absence of one renders the contract void. As one of the
it is true that there are recognized exceptions41 to the general essential elements, consent when wanting makes the contract
rule that only questions of law may be entertained in a Rule 45 non-existent. Consent is manifested by the meeting of the offer
petition, we find that there is none obtaining in this case. and the acceptance of the thing and the cause, which are to
constitute the contract.44 A contract of sale is perfected at the
Nevertheless, and to erase any doubt on the correctness of the moment there is a meeting of the minds upon the thing that is the
assailed ruling, we examined the records below and have arrived object of the contract, and upon the price.45
at the same conclusion. Petitioner has not been able to show that
the lower courts committed error in appreciating the evidence of Here, there was no valid contract of sale between petitioner and
record. Adela because their consent was absent. The contract of sale was
a mere simulation.

contemporaneous and subsequent acts of the parties. The
Simulation takes place when the parties do not really want the following circumstances led the RTC and the CA to conclude that
contract they have executed to produce the legal effects the Deeds of Absolute Sale are simulated, and that the transfers
expressed by its wordings.46 Article 1345 of the Civil Code were never intended to affect the juridical relation of the
provides that the simulation of a contract may either be absolute parties:chanRoblesvirtualLawlibrary
or relative. The former takes place when the parties do not
intend to be bound at all; the latter, when the parties conceal a) There was no indication that Adela intended to alienate her
their true agreement. The case of Heirs of Policronio M. Ureta, Sr. properties in favor of petitioner. In fact, the letter of Adela to
v. Heirs of Liberate M. Ureta47 is instructive on the matter of Dennis dated April 18, 198951 reveals that she has reserved the
absolute simulation of contracts, viz:cralawlawlibrary ownership of the Properties in favor of Dennis.

In absolute simulation, there is a colorable contract but it has b) Adela continued exercising acts of dominion and control over
no substance as the parties have no intention to be bound by it. the properties, even after the execution of the Deeds of Absolute
The main characteristic of an absolute simulation is that the Sale, and though she lived abroad for a time. In Adela's letter
apparent contract is not really desired or intended to produce dated August 25, 198952 to a certain Candy, she advised the latter
legal effect or in any way alter the juridical situation of the to stay in the big house. Also, in petitioner's letter to her cousin
parties. As a result, an absolutely simulated or fictitious Dennis dated July 3, 1989,53 she admitted that Adela continued to
contract is void, and the parties may recover from each other be in charge of the Properties; that she has no "say" when it
what they may have given under the contract...48 (Emphasis comes to the Properties; that she does not intend to claim
supplied)chanrobleslaw exclusive ownership of Lot 35-B; and that she is aware that the
ownership and control of the Properties are intended to be
In short, in absolute simulation there appears to be a valid consolidated in Dennis.
contract but there is actually none because the element of
consent is lacking.49 This is so because the parties do not actually c) The SPA executed on the same day as the Deeds of Absolute
intend to be bound by the terms of the contract. Sale appointing petitioner as administratrix of Adela's properties,
including the Properties, is repugnant to petitioner's claim that
In determining the true nature of a contract, the primary test is the ownership of the same had been transferred to her.
the intention of the parties. If the words of a contract appear to
contravene the evident intention of the parties, the latter shall d) The previous sales of the Properties to Dennis and Carlos, Jr.
prevail. Such intention is determined not only from the express were simulated. This history, coupled with Adela's treatment of
terms of their agreement, but also from the contemporaneous petitioner, and the surrounding circumstances of the sales,
and subsequent acts of the parties.50 This is especially true in a strongly show that Adela only granted petitioner the same favor
claim of absolute simulation where a colorable contract is she had granted to Dennis and Carlos Jr.
executed.
The April 18, 1989 letter to Dennis convincingly shows Adela's
In ruling that the Deeds of Absolute Sale were absolutely intention to give him the Properties. Part of the letter reads:
simulated, the lower courts considered the totality of the prior,

"Dennis, the two lot [sic] 32-34 at your said lower house will be at suluhin ang 35-B, ganyan pa sya... Now tungkol sa iyo, alam ko
name yours [sic] plus the 35 part of Cora or Teens [sic] house are meron ka rin lupa tapos yung bahay na malaki ikaw rin ang
all under your name"54 Petitioner claims this letter was not titira at magmamahala sa lahat. Anyway, itong bahay ko sa
properly identified and is thus, hearsay evidence. The records, iyo rin, alam mo naman na I'm just making the kids grow a little
however, show that the letter was admitted by the trial court in older then we have to home in the states...56 (Emphasis supplied)
its Order dated February 24, 1993.55 While it is true that the chanrobleslaw
letter is dated prior (or six days before to be exact) to the
execution of the Deeds of Absolute Sale and is not conclusive that Moreover, Adela's letter to petitioner's cousin Candy dated
Adela did not change her mind, we find that the language of the August 25, 1989 shows Adela's retention of dominion over the
letter is more consistent with the other pieces of evidence that Properties even after the sales. In the letter, Adela even
show Adela never intended to relinquish ownership of the requested her granddaughter Candy to stay in the house rent and
Properties to petitioner. In this regard, we see no compelling expense free.57 Petitioner claims that Candy and the house
reason to depart from the findings of the trial court as there referred to in the letter were not identified. Records show,
appears no grave abuse of discretion in its admission and however, that petitioner has testified she has a cousin named
consideration of the letter. Candy Shotwell who stayed at the "big house" since February
1989.58
Petitioner's letter to her cousin Dennis dated July 3, 1989 also
sufficiently establishes that Adela retained control over the Clearly, the submission of petitioner to the orders of Adela does
Properties, even after the execution of the Deeds of Absolute Sale. not only show that the latter retained dominion over the
Petitioner herself admitted that she was only following the Properties, but also that petitioner did not exercise acts of
orders of Adela, and that she has no claim over the Properties. ownership over it. If at all, her actions only affirm the conclusion
We quote in verbatim the relevant part of the that she was merely an administratrix of the Properties by virtue
letter:cralawlawlibrary of the SPA.

...Now, before I left going back here in Mla. Mommy Dela ask me On the SPA, petitioner claims the lower courts erred in holding
to read your letter about the big house and lot, and I explained it that it is inconsistent with her claim of ownership. Petitioner
to her. Now Mommy and Mommy Dela wants that the house is for claims that she has sufficiently explained that the SPA is not for
everyone who will need to stay, well that is what they say. Alam the administration of the Properties, but for the reconstitution of
mo naman, I have no "say" esp. when it comes with their titles.
properties & you know that. Now kung ano gusto nila that
goes. Now, to be honest Mommy was surprise [sic] bakit daw We agree with the lower courts that the execution of an SPA for
kailangan mawalan ng karapatan sa bahay eh Nanay daw nila the administration of the Properties, on the same day the Deeds
iyon at tayo apo lang, Eh wala akong masasabi dyan, to be of Absolute Sale were executed, is antithetical to the
truthful to you, I only get the orders... Tapos, sinisingil pa ako relinquishment of ownership. The SPA shows that it is so worded
ng P1,000 --para sa gate napinapagawa nya sa lot 35-B, eh hindi as to leave no doubt that Adela is appointing petitioner as the
na lang ako kiimibo pero nagdamdam ako, imagine minsan na administratrix of her properties in Scout Ojeda. Had the SPA been
lang sya nakagawa ng bien sa akin at wala sa intention ko na

intended only to facilitate the processing of the reconstitution of
the titles, there would have been no need to confer other powers We affirm the conclusion reached by the RTC and the CA that the
of administration, such as the collection of debts, filing of suit, evidence presented below prove that Adela did not intend to
etc., to petitioner.59 In any case, the explanation given by alienate the Properties in favor of petitioner, and that the
petitioner that the SPA was executed so as only to facilitate the transfers were merely a sham to accommodate petitioner in her
reconstitution of the titles of the Properties is not inconsistent travel abroad.
with the idea of her being the administratrix of the Properties. On
the other hand, the idea of assigning her as administratrix is not Petitioner claims that we should consider that there is only one
only inconsistent, but also repugnant, to the intention of selling heir of the late Adela who is contesting the sale, and that out of
and relinquishing ownership of the Properties. the many transactions involving the decedent's other properties,
the sale to petitioner is the only one being questioned. We are not
Petitioner next questions the lower courts' findings that the convinced that these are material to the resolution of the case. As
Deeds of Absolute Sale are simulated because the previous aptly passed upon by the CA in its assailed
transfers to Adela's other grandchildren were also simulated. It Resolution:cralawlawlibrary
may be true that, taken by itself, the fact that Adela had
previously feigned the transfer of ownership of Lots 32 and 34 to In a contest for the declaration of nullity of an instrument for
her other grandchildren would not automatically mean that the being simulated, the number of contestants is not determinative
subject Deeds of Absolute Sale are likewise void. The lower of the propriety of the cause. Any person who is prejudiced by
courts, however, did not rely solely on this fact, but considered it a simulated contract may set up its inexistence. In this instant
with the rest of the evidence, the totality of which reveals that case, it does not matter if the contest is made by one, some or all
Adela's intention was merely to feign the transfer to petitioner. of the heirs.

The fact that unlike in the case of Dennis and Carlos, Jr., she was Neither would the existence of other contracts which remain
not asked by Adela to execute a deed of reconveyance, is of no unquestioned deter an action for the nullity of an instrument. A
moment. There was a considerable lapse of time from the contract is rendered meaningful and forceful by the intention of
moment of the transfer to Dennis and Carlos, Jr. of Lots 32 and 34 the parties relative thereto, and such intention can only be
in 1985 and in 1987, respectively, and until the execution of the relevant to that particular contract which is produced or, as in
deed of reconveyance in 1989. Here, the alleged Deeds of this case, to that which is not produced. That the deed of sale in
Absolute Sale were executed in April 1989. Adela died in January [petitioner's] favor has been held to be simulated is not indicative
1990 in the United States. Given the short period of time between of the simulation of any other contract executed by the deceased
the alleged execution of the Deeds of Absolute Sale and the Adela de Guzman Shotwell during her lifetime.60chanrobleslaw
sudden demise of Adela, the fact that petitioner was not asked to
execute a deed of reconveyance is understandable. This is To this we add that other alleged transactions made by Adela
because there was no chance at all to do so. Thus, the fact that cannot be used as evidence to prove the validity of the
she did not execute a deed of reconveyance does not help her conveyances to petitioner. For one, we are not aware of any of
case. these transactions or whether there are indeed other
transactions. More importantly, the validity of these transactions

does not prove directly or indirectly the validity of the Resulting trusts65 arise from the nature or circumstances of the
conveyances in question. consideration involved in a transaction whereby one person
becomes invested with legal title but is obligated in equity to hold
B. No consideration for the sale his title for the benefit of another.66 It is founded on the equitable
doctrine that valuable consideration and not legal title is
We also find no compelling reason to depart from the court a determinative of equitable title or interest and is always
quo's finding that Adela never received the consideration presumed to have been contemplated by the parties.67 Since the
stipulated in the simulated Deeds of Absolute Sale. intent is not expressed in the instrument or deed of conveyance,
it is to be found in the nature of the parties' transaction.68
Although on their face, the Deeds of Absolute Sale appear to be Resulting trusts are thus describable as intention-enforcing
supported by valuable consideration, the RTC and the CA found trusts.69 An example of a resulting trust is Article 1453 of the Civil
that there was no money involved in the sale. The consideration Code.
in the Deeds of Absolute Sale was superimposed on the spaces
therein, bearing a font type different from that used in the rest of We, however, agree with the CA that no implied trust can be
the document.61 The lower courts also found that the duplicate generated by the simulated transfers because being fictitious or
originals of the Deeds of Absolute Sale bear a different entry with simulated, the transfers were null and void ab initio from the
regard to the price.62 very beginning and thus vested no rights whatsoever in favor
of petitioner. That which is inexistent cannot give life to anything
Article 1471 of the Civil Code provides that "if the price is at all.70
simulated, the sale is void." Where a deed of sale states that the
purchase price has been paid but in fact has never been paid, the Article 1453 contemplates that legal titles were validly vested in
deed of sale is null and void for lack of consideration.63 Thus, petitioner. Considering, however, that the sales lack not only the
although the contracts state that the purchase price of element of consent for being absolutely simulated, but also the
P250,000.00 and P60,000.00 were paid by petitioner to Adela for element of consideration, these transactions are void and
the Properties, the evidence shows that the contrary is true, inexistent and produce no effect. Being null and void from the
because no money changed hands. Apart from her testimony, beginning, no transfer of title, both legal and beneficial, was ever
petitioner did not present proof that she paid for the Properties. effected to petitioner.

There is no implied trust. In any case, regardless of the presence of an implied trust, this
will not affect the disposition of the case. As void contracts do not
We also affirm the CA's deletion of the pronouncement of the trial produce any effect, the result will be the same in that the
court as to the existence of an implied trust. The trial court found Properties will be reeonveyed to the estate of the late Adela de
that a resulting trust, a form of implied trust based on Article Guzman Shotwell.
145364 of the Civil Code, was created between Adela and
petitioner. WHEREFORE, the petition is DENIED.,


transmissible disease (STD). She averred that private respondent
SO ORDERED. was irresponsible, immature and unprepared for the duties of a
married life. Petitioner prayed that for having abandoned the
family, private respondent be ordered to give support to their
three children in the total amount of P9,000.00 every month; that
168. [G.R. No. 126010. December 8, 1999] she be awarded the custody of their children; and that she be
LUCITA ESTRELLA HERNANDEZ, petitioner vs. COURT adjudged as the sole owner of a parcel of land located at Don
OF APPEALS and MARIO C. HERNANDEZ, respondents. Gregorio Subdivision I in Bo. Bucal, Dasmarias, Cavite, purchased
D E C I S I O N during the marriage, as well as the jeep which private respondent
took with him when he left the conjugal home on June 12, 1992.
MENDOZA, J.: On October 8, 1992, because of private respondents failure
This is a petition for review on certiorari of the decision of to file his answer, the trial court issued an order directing the
the Court of Appeals, dated January 30, 1996, affirming the assistant provincial prosecutor to conduct an investigation to
decision of the Regional Trial Court, Branch 18, Tagaytay City, determine if there was collusion between the parties.[ Only
dated April 10, 1993, which dismissed the petition for annulment petitioner appeared at the investigation on November 5, 1992.
of marriage filed by petitioner. Nevertheless, the prosecutor found no evidence of collusion and
Petitioner Lucita Estrella Hernandez and private recommended that the case be set for trial.
respondent Mario C. Hernandez were married at the Silang Based on the evidence presented by the petitioner, the facts
Catholic Parish Church in Silang, Cavite on January 1, 1981 (Exh. are as follows:
A). Three children were born to them, namely, Maie, who was Petitioner and private respondent met in 1977 at the
born on May 3, 1982 (Exh. B), Lyra, born on May 22, 1985 (Exh. Philippine Christian University in Dasmarias, Cavite. Petitioner,
C),[if !supportFootnotes][4][endif] and Marian, born on June 15, 1989 (Exh. who is five years older than private respondent, was then in her
D). first year of teaching zoology and botany. Private respondent, a
On July 10, 1992, petitioner filed before the Regional Trial college freshman, was her student for two consecutive semesters.
Court, Branch 18, Tagaytay City, a petition seeking the annulment They became sweethearts in February 1979 when she was no
of her marriage to private respondent on the ground of longer private respondents teacher. On January 1, 1981, they
psychological incapacity of the latter. She alleged that from the were married.
time of their marriage up to the time of the filing of the suit, Private respondent continued his studies for two more
private respondent failed to perform his obligation to support the years. His parents paid for his tuition fees, while petitioner
family and contribute to the management of the household, provided his allowances and other financial needs. The family
devoting most of his time engaging in drinking sprees with his income came from petitioners salary as a faculty member of the
friends. She further claimed that private respondent, after they Philippine Christian University. Petitioner augmented her
were married, cohabited with another woman with whom he had earnings by selling Tupperware products, as well as engaging in
an illegitimate child, while having affairs with different women, the buy-and-sell of coffee, rice and polvoron.
and that, because of his promiscuity, private respondent From 1983 up to 1986, as private respondent could not find
endangered her health by infecting her with a sexually a stable job, it was agreed that he would help petitioner in her

businesses by delivering orders to customers. However, because result of which she was confined at the De la Salle University
her husband was a spendthrift and had other women, petitioners Medical Center in Dasmarias, Cavite on July 4-5, 1990 because of
business suffered. Private respondent often had smoking and cerebral concussion (Exh. F)
drinking sprees with his friends and betted on fighting cocks. In According to petitioner, private respondent engaged in
1982, after the birth of their first child, petitioner discovered two extreme promiscuous conduct during the latter part of 1986. As a
love letters written by a certain Realita Villena to private result, private respondent contracted gonorrhea and infected
respondent. She knew Villena as a married student whose petitioner. They both received treatment at the Zapote Medical
husband was working in Saudi Arabia. When petitioner Specialists Center in Zapote, Bacoor, Cavite from October 22,
confronted private respondent, he admitted having an extra- 1986 until March 13, 1987 (Exhs. G & H).
marital affair with Villena. Petitioner then pleaded with Villena to Petitioner averred that on one occasion of a heated
end her relationship with private respondent. For his part, argument, private respondent hit their eldest child who was then
private respondent said he would end the affairs, but he did not barely a year old. Private respondent is not close to any of their
keep his promise. Instead, he left the conjugal home and children as he was never affectionate and hardly spent time with
abandoned petitioner and their child. When private respondent them.
came back, however, petitioner accepted him, despite private On July 17, 1979, petitioner entered into a contract to sell
respondents infidelity in the hope of saving their marriage. (Exh. J)[if ! with F & C Realty Corporation whereby she agreed to
Upon the recommendation of a family friend, private buy from the latter a parcel of land at the Don Gregorio Heights
respondent was able to get a job at Reynolds Philippines, Inc. in Subdivision I in Bo. Bucal, Dasmarias, Cavite and placed a partial
San Agustin, Dasmarias, Cavite in 1986. However, private payment of P31,330.00. On May 26, 1987, after full payment of
respondent was employed only until March 31, 1991, because he the amount of P51,067.10, inclusive of interests from monthly
availed himself of the early retirement plan offered by the installments, a deed of absolute sale (Exh. K) was executed in her
company. He received P53,000.00 in retirement pay, but instead favor and TCT No. T-221529 (Exh. M) was duly issued.
of spending the amount for the needs of the family, private According to petitioner, on August 1, 1992, she sent a
respondent spent the money on himself and consumed the entire handwritten letter to private respondent expressing her
amount within four months of his retirement. frustration over the fact that her efforts to save their marriage
While private respondent worked at Reynolds Philippines, proved futile. In her letter, petitioner also stated that she was
Inc., his smoking, drinking, gambling and womanizing became allowing him to sell their owner-type jeepney and to divide the
worse. Petitioner discovered that private respondent carried on proceeds of the sale between the two of them. Petitioner also told
relationships with different women. He had relations with a private respondent of her intention to file a petition for the
certain Edna who worked at Yazaki; Angie, who was an operator annulment of their marriage.
of a billiard hall; Tess, a Japayuki; Myrna Macatangay, a secretary It does not appear that private respondent ever replied to
at the Road Master Drivers School in Bayan, Dasmarias, Cavite, petitioners letter. By this time, he had already abandoned
with whom he cohabited for quite a while; and, Ruth Oliva, by petitioner and their children. In October 1992, petitioner learned
whom he had a daughter named Margie P. Oliva, born on that private respondent left for the Middle East. Since then,
September 15, 1989 (Exh. E) When petitioner confronted private private respondents whereabouts had been unknown.
respondent about his relationship with Tess, he beat her up, as a Ester Alfaro, petitioners childhood friend and co-teacher at

the Philippine Christian University, testified during the hearing directed against the petitioner, a common child, or a child of the
on the petition for annulment. She said that sometime in June petitioner;
1979, petitioner introduced private respondent to her (Alfaro) as . . . .
the formers sweetheart. Alfaro said she was not impressed with (5) Drug addiction or habitual alcoholism of the respondent;
private respondent who was her student in accounting. She . . . .
observed private respondent to be fun-loving, spending most of (8) Sexual infidelity or perversion;
his time with campus friends. In November 1980, when . . . .
petitioner asked Alfaro to be one of the secondary sponsors at (10) Abandonment of petitioner by respondent without
her forthcoming wedding, Alfaro wanted to dissuade petitioner justifiable cause for more than one year.
from going through with the wedding because she thought . . . .
private respondent was not ready for married life as he was then If indeed Article 36 of the Family Code of the Philippines, which
unemployed. True enough, although the couple appeared happy mentions psychological incapacity as a ground for the declaration
during the early part of their marriage, it was not long thereafter of the nullity of a marriage, has intended to include the above-
that private respondent started drinking with his friends and stated circumstances as constitutive of such incapacity, then the
going home late at night. Alfaro corroborated petitioners claim same would not have been enumerated as grounds for legal
that private respondent was a habitual drunkard who carried on separation.
relationships with different women and continued hanging out In the same manner, this Court is not disposed to grant relief in
with his friends. She also confirmed that petitioner was once favor of the petitioner under Article 46, paragraph (3) of the
hospitalized because she was beaten up by private respondent. Family Code of the Philippines, as there is no dispute that the
After the first year of petitioners marriage, Alfaro tried to talk to gonorrhea transmitted to the petitioner by respondent occurred
private respondent, but the latter accused her of meddling with sometime in 1986, or five (5) years after petitioners marriage
their marital life. Alfaro said that private respondent was not with respondent was celebrated in 1981. The provisions of
close to his children and that he had abandoned petitioner. Article 46, paragraph (3) of the same law should be taken in
On April 10, 1993, the trial court rendered a decision conjunction with Article 45, paragraph (3) of the same code, and
dismissing the petition for annulment of marriage filed by a careful reading of the two (2) provisions of the law would
petitioner. The pertinent portion of the decision reads: require the existence of this ground (fraud) at the time of the
The Court can underscore the fact that the circumstances celebration of the marriage. Hence, the annulment of petitioners
mentioned by the petitioner in support of her claim that marriage with the respondent on this ground, as alleged and
respondent was psychologically incapacitated to marry her are proved in the instant case, cannot be legally accepted by the
among the grounds cited by the law as valid reasons for the grant Court.
of legal separation (Article 55 of the Family Code) - not as Petitioner appealed to the Court of Appeals which, on
grounds for a declaration of nullity of marriages or annulment January 30, 1996, rendered its decision affirming the decision of
thereof. Thus, Article 55 of the same code reads as follows: the trial court. Citing the ruling in Santos v. Court of Appeals, the
Art. 55. A petition for legal separation may be filed on any of the Court of Appeals held:
following grounds: It is clear in the above law and jurisprudence that the
(1) Repeated physical violence or grossly abusive conduct psychological incapacity of a spouse, as a ground for declaration

of nullity of marriage, must exist at the time of the celebration of DENYING THE PRAYER FOR ISSUANCE OF AN ORDER
marriage. More so, chronic sexual infidelity, abandonment, REQUIRING PRIVATE RESPONDENT TO GIVE SUPPORT TO THE
gambling and use of prohibited drugs are not grounds per se, of THREE CHILDREN IN THE AMOUNT OF P3,000.00 PER CHILD.
psychological incapacity of a spouse. V. IN NOT DECLARING THE REAL PROPERTY ACQUIRED BY
We agree with the Solicitor General that petitioner-appellant PETITIONER AS HER EXCLUSIVE PROPERTY.
failed to prove that her respondent-husband was psychologically The issue in this case is whether or not the marriage of
incapacitated at the time of the celebration of the marriage. petitioner and private respondent should be annulled on the
Certainly, petitioner-appellants declaration that at the time of ground of private respondents psychological incapacity.
their marriage her respondent-husbands character was on the Petitioner alleges that the Court of Appeals erred in holding
borderline between a responsible person and the happy-go- that petitioner failed to show that private respondents
lucky, could not constitute the psychological incapacity in psychological incapacity existed at the time of the celebration of
contemplation of Article 36 of the Family Code. In fact, petitioner- the marriage. She argues that the fact that the acts of incapacity
appellant herself ascribed said attitude to her respondent- of private respondent became manifest only after the celebration
husbands youth and very good looks, who was admittedly several of their marriage should not be a bar to the annulment of their
years younger than petitioner-appellant who, herself, happened marriage.
to be the college professor of her respondent-husband. Art. 36 of the Family Code states:
Petitioner-appellant even described her respondent-husband not A marriage contracted by any party who, at the time of the
as a problem student but a normal one (p. 24, tsn, Dec. 8, 1992). celebration, was psychologically incapacitated to comply with the
The acts and attitudes complained of by petitioner-appellant essential marital obligations of marriage, shall likewise be void
happened after the marriage and there is no proof that the same even if such incapacity becomes manifest only after its
have already existed at the time of the celebration of the solemnization.
marriage to constitute the psychological incapacity under Article In Santos v. Court of Appeals, we held:
36 of the Family Code. Psychological incapacity should refer to no less than a mental
Hence, this petition. Petitioner contends that the (not physical) incapacity that causes a party to be truly
respondent Court of Appeals erred incognitive of the basic marital covenants that concomitantly
I. IN FINDING THAT THE PSYCHOLOGICAL INCAPACITY OF THE must be assumed and discharged by the parties to the marriage
PRIVATE RESPONDENT TO COMPLY WITH HIS ESSENTIAL which, as so expressed by Article 68 of the Family Code, include
MARITAL OBLIGATIONS DID NOT EXIST FROM THE TIME OF their mutual obligations to live together, observe love, respect
THE CELEBRATION OF THE MARRIAGE. and fidelity and render help and support. There is hardly any
II. IN RULING THAT PRIVATE RESPONDENT WAS NOT doubt that the intendment of the law has been to confine the
PSYCHOLOGICALLY INCAPACITATED TO COMPLY WITH HIS meaning of psychological incapacity to the most serious cases of
ESSENTIAL MARITAL OBLIGATIONS. personality disorders clearly demonstrative of an utter
III. IN AFFIRMING THE DECISION OF THE TRIAL COURT insensitivity or inability to give meaning and significance to the
DENYING THE AWARD OF PERMANENT CUSTODY OF THE marriage. This psychological condition must exist at the time the
CHILDREN TO PETITIONER. marriage is celebrated. The law does not evidently envision, upon
IV. IN AFFIRMING THE DECISION OF THE TRIAL COURT the other hand, an inability of the spouse to have sexual relations

with the other. This conclusion is implicit under Article 54 of the Private respondents parents and petitioner supported him
Family Code which considers children conceived prior to the through college. After his schooling, although he eventually found
judicial declaration of nullity of the void marriage to be a job, he availed himself of the early retirement plan offered by
legitimate. his employer and spent the entire amount he received on himself.
The other forms of psychoses, if existing at the inception of For a greater part of their marital life, private respondent was out
marriage, like the state of a party being of unsound mind or of job and did not have the initiative to look for another. He
concealment of drug addiction, habitual alcoholism, indulged in vices and engaged in philandering, and later
homosexuality or lesbianism, merely renders the marriage abandoned his family. Petitioner concludes that private
contract voidable pursuant to Article 46, Family Code. If drug respondents condition is incurable, causing the disintegration of
addiction, habitual alcoholism, lesbianism or homosexuality their union and defeating the very objectives of marriage.
should occur only during the marriage, they become mere However, private respondents alleged habitual alcoholism,
grounds for legal separation under Article 55 of the Family Code. sexual infidelity or perversion, and abandonment do not by
These provisions of the Code, however, do not necessarily themselves constitute grounds for finding that he is suffering
preclude the possibility of these various circumstances being from a psychological incapacity within the contemplation of the
themselves, depending on the degree and severity of the Family Code. It must be shown that these acts are manifestations
disorder, indicia of psychological incapacity. of a disordered personality which make private respondent
Until further statutory and jurisprudential parameters are completely unable to discharge the essential obligations of the
established, every circumstance that may have some bearing on marital state, and not merely due to private respondents youth
the degree, extent, and other conditions of that incapacity must, and self-conscious feeling of being handsome, as the appellate
in every case, be carefully examined and evaluated so that no court held. As pointed out in Republic of the Philippines v. Court of
precipitate and indiscriminate nullity is peremptorily decreed. Appeals:
The well-considered opinions of psychiatrists, psychologists, and The root cause of the psychological incapacity must be: (a)
persons with expertise in psychological disciplines might be medically or clinically identified, (b) alleged in the complaint, (c)
helpful or even desirable. sufficiently proven by experts and (d) clearly explained in the
In the instant case, other than her self-serving declarations, decision. Article 36 of the Family Code requires that the
petitioner failed to establish the fact that at the time they were incapacity must be psychological not physical, although its
married, private respondent was suffering from a psychological manifestations and/or symptoms may be physical. The evidence
defect which in fact deprived him of the ability to assume the must convince the court that the parties, or one of them, was
essential duties of marriage and its concomitant responsibilities. mentally or physically ill to such an extent that the person could
As the Court of Appeals pointed out, no evidence was presented not have known the obligations he was assuming, or knowing
to show that private respondent was not cognizant of the basic them, could not have given valid assumption thereof. Although no
marital obligations. It was not sufficiently proved that private example of such incapacity need be given here so as not to limit
respondent was really incapable of fulfilling his duties due to the application of the provision under the principle of ejusdem
some incapacity of a psychological nature, and not merely generis (citing Salita v. Magtolis, supra) nevertheless such root
physical. Petitioner says that at the outset of their marriage, cause must be identified as a psychological illness and its
private respondent showed lack of drive to work for his family. incapacitating nature fully explained. Expert evidence may be

given by qualified psychiatrists and clinical psychologists. ISAIAS BATILLER, defendant-appellee.
Moreover, expert testimony should have been presented to Gregorio M. Rubias for plaintiff-appellant.
establish the precise cause of private respondents psychological Vicente R. Acsay for defendant-appellee.
incapacity, if any, in order to show that it existed at the inception
of the marriage. The burden of proof to show the nullity of the TEEHANKEE, J.:
marriage rests upon petitioner. The Court is mindful of the policy In this appeal certified by the Court of Appeals to this Court as
of the 1987 Constitution to protect and strengthen the family as involving purely legal questions, we affirm the dismissal order
the basic autonomous social institution and marriage as the rendered by the Iloilo court of first instance after pre-trial and
foundation of the family. Thus, any doubt should be resolved in submittal of the pertinent documentary exhibits.
favor of the validity of the marriage. Such dismissal was proper, plaintiff having no cause of action,
We, therefore, find no reason to reverse the ruling of since it was duly established in the record that the application for
respondent Court of Appeals whose conclusions, affirming the registration of the land in question filed by Francisco Militante,
trial courts finding with regard to the non-existence of private plaintiff's vendor and predecessor interest, had been dismissed
respondents psychological incapacity at the time of the marriage, by decision of 1952 of the land registration court as affirmed by
are entitled to great weight and even finality.Only where it is final judgment in 1958 of the Court of Appeals and hence, there
shown that such findings are whimsical, capricious, and arbitrary was no title or right to the land that could be transmitted by the
can these be overturned. purported sale to plaintiff.
The conclusion we have reached makes it unnecessary for As late as 1964, the Iloilo court of first instance had in another
us to pass upon petitioners contentions on the issue of case of ejectment likewise upheld by final judgment defendant's
permanent custody of children, the amount for their respective "better right to possess the land in question . having been in the
support, and the declaration of exclusive ownership of petitioner actual possession thereof under a claim of title many years before
over the real property. These matters may more appropriately be Francisco Militante sold the land to the plaintiff."
litigated in a separate proceeding for legal separation, dissolution Furthermore, even assuming that Militante had anything to sell,
of property regime, and/or custody of children which petitioner the deed of sale executed in 1956 by him in favor of plaintiff at a
may bring. time when plaintiff was concededly his counsel of record in the
WHEREFORE, the decision of the Court of Appeals is AFFIRMED. land registration case involving the very land in dispute
SO ORDERED. (ultimately decided adversely against Militante by the Court of
Bellosillo (Chairman), Quisumbing, Buena, and De Leon, Jr., JJ., Appeals' 1958 judgment affirming the lower court's dismissal of
concur. Militante's application for registration) was properly declared
inexistent and void by the lower court, as decreed by Article
1409 in relation to Article 1491 of the Civil Code.
The appellate court, in its resolution of certification of 25 July
1972, gave the following backgrounder of the appeal at bar:
169. G.R. No. L-35702 May 29, 1973 On August 31, 1964, plaintiff Domingo D. Rubias, a lawyer, filed a
DOMINGO D. RUBIAS, plaintiff-appellant, suit to recover the ownership and possession of certain portions
vs. of lot under Psu-99791 located in Barrio General Luna, Barotac

Viejo, Iloilo which he bought from his father-in-law, Francisco record of the case. The record was reconstituted on the Court of
Militante in 1956 against its present occupant defendant, Isaias the First Instance of Iloilo and docketed as Land Case No. R-695,
Batiller, who illegally entered said portions of the lot on two GLRO Rec. No. 54852. The Court of First Instance heard the land
occasions in 1945 and in 1959. Plaintiff prayed also for registration case on November 14, 1952, and after the trial this
damages and attorneys fees. (pp. 1-7, Record on Appeal). In his court dismissed the application for registration. The appellant,
answer with counter-claim defendant claims the complaint of the Francisco Militante, appealed from the decision of this Court to
plaintiff does not state a cause of action, the truth of the matter the Court of Appeals where the case was docketed as CA-GR No.
being that he and his predecessors-in-interest have always been 13497-R..
in actual, open and continuous possession since time immemorial 3. Pending the disposal of the appeal in CA-GR No. 13497-R and
under claim of ownership of the portions of the lot in question more particularly on June 18, 1956, Francisco Militante sold to the
and for the alleged malicious institution of the complaint he plaintiff, Domingo Rubias the land technically described in psu-
claims he has suffered moral damages in the amount of P 99791 (Exh. "A"). The sale was duly recorded in the Office of the
2,000.00, as well as the sum of P500.00 for attorney's fees. ... Register of Deeds for the province of Iloilo as Entry No. 13609 on
On December 9, 1964, the trial court issued a pre-trial order, July 11, 1960 (Exh. "A-1").
after a pre-trial conference between the parties and their counsel (NOTE: As per deed of sale, Exh. A, what Militante purportedly
which order reads as follows.. sold to plaintiff-appellant, his son-in-law, for the sum of P2,000.00
'When this case was called for a pre-trial conference today, the was "a parcel of untitled land having an area Of 144.9072
plaintiff appeared assisted by himself and Atty. Gregorio M. hectares ... surveyed under Psu 99791 ... (and) subject to the
Rubias. The defendant also appeared, assisted by his counsel exclusions made by me, under (case) CA-i3497, Land Registration
Atty. Vicente R. Acsay. Case No. R-695, G.L.R.O. No. 54852, Court of First Instance of the
A. During the pre-trial conference, the parties have agreed that province of Iloilo. These exclusions referred to portions of the
the following facts are attendant in this case and that they will no original area of over 171 hectares originally claimed by Militante
longer introduced any evidence, testimonial or documentary to as applicant, but which he expressly recognized during the trial
prove them: to pertain to some oppositors, such as the Bureau of Public
1. That Francisco Militante claimed ownership of a parcel of land Works and Bureau of Forestry and several other individual
located in the Barrio of General Luna, municipality of Barotac occupants and accordingly withdrew his application over the
Viejo province of Iloilo, which he caused to be surveyed on July same. This is expressly made of record in Exh. A, which is the
18-31, 1934, whereby he was issued a plan Psu-99791 (Exhibit Court of Appeals' decision of 22 September 1958 confirming the
"B"). (The land claimed contained an area of 171:3561 hectares.) land registration court's dismissal of Militante's application for
2. Before the war with Japan, Francisco Militante filed with the registration.)
Court of First Instance of Iloilo an application for the registration 4. On September 22,1958 the Court of appeals in CA-G.R. No.
of the title of the land technically described in psu-99791 (Exh. 13497-R promulgated its judgment confirming the decision of
"B") opposed by the Director of Lands, the Director of Forestry and this Court in Land Case No. R-695, GLRO Rec. No. 54852 which
other oppositors. However, during the war with Japan, the record dismissed the application for Registration filed by Francisco
of the case was lost before it was heard, so after the war Militante (Exh. "I").
Francisco Militante petitioned this court to reconstitute the 5. Domingo Rubias declared the land described in Exh. 'B' for

taxation purposes under Tax Dec. No. 8585 (Exh. "C") for 1957; defendant Isaias Batiller riled his answer on August 29, 1960
Tax Dec. Nos. 9533 (Exh. "C-1") and 10019 (Exh. "C-3")for the (Exh. "4-A"). The Municipal Court of Barotac Viejo after trial,
year 1961; Tax Dec. No. 9868 (Exh. "C-2") for the year 1964, decided the case on May 10, 1961 in favor of the defendant and
paying the land taxes under Tax Dec. No. 8585 and 9533 (Exh. against the plaintiff (Exh. "4-B"). The plaintiff appealed from the
"D", "D-1", "G-6"). decision of the Municipal Court of Barotac Viejo which was
6. Francisco Militante immediate predecessor-in-interest of the docketed in this Court as Civil Case No. 5750 on June 3, 1961, to
plaintiff, has also declared the land for taxation purposes under which the defendant, Isaias Batiller, on June 13, 1961 filed his
Tax Dec. No. 5172 in 1940 (Exh. "E") for 1945; under Tax Dec. No. answer (Exh. "4-C"). And this Court after the trial. decided the case
T-86 (Exh. "E-1") for 1948; under Tax Dec. No. 7122 (Exh. "2"), on November 26, 1964, in favor of the defendant, Isaias Batiller
and paid the land taxes for 1940 (Exhs. "G" and "G-7"), for 1945 and against the plaintiff (Exh. "4-D").
46 (Exh. "G-1") for 1947 (Exh. "G-2"), for 1947 & 1948 (Exh. "G- (NOTE: As per Exh. 4-B, which is the Iloilo court of first instance
3"), for 1948 (Exh. "G-4"), and for 1948 and 1949 (Exh. "G-5"). decision of 26 November 1964 dismissing plaintiff's therein
7. Tax Declaration No. 2434 in the name of Liberato Demontao complaint for ejectment against defendant, the iloilo court
for the land described therein (Exh. "F") was cancelled by Tax. expressly found "that plaintiff's complaint is unjustified, intended
Dec. No. 5172 of Francisco Militante (Exh. "E"). Liberato to harass the defendant" and "that the defendant, Isaias Batiller,
Demontao paid the land tax under Tax Dec. No. 2434 on Dec. 20, has a better right to possess the land in question described in Psu
1939 for the years 1938 (50%) and 1959 (Exh. "H"). 155241 (Exh. "3"), Isaias Batiller having been in the actual
8. The defendant had declared for taxation purposes Lot No. 2 of physical possession thereof under a claim of title many years
the Psu-155241 under Tax Dec. Not. 8583 for 1957 and a portion before Francisco Militante sold the land to the plaintiff-hereby
of Lot No. 2, Psu-155241, for 1945 under Tax Dec. No. 8584 (Exh. dismissing plaintiff's complaint and ordering the plaintiff to pay
"2-A" Tax No. 8583 (Exh. "2") was revised by Tax Dec. No. 9498 the defendant attorney's fees ....")
in the name of the defendant (Exh. "2-B") and Tax Dec. No. 8584 B. During the trial of this case on the merit, the plaintiff will prove
(Exh. "2-A") was cancelled by Tax Dec. No. 9584 also in the name by competent evidence the following:
of the defendant (Exh. "2-C"). The defendant paid the land taxes 1. That the land he purchased from Francisco Militante under
for Lot 2, Psu-155241, on Nov. 9, 1960 for the years 1945 and Exh. "A" was formerly owned and possessed by Liberato
1946, for the year 1950, and for the year 1960 as shown by the Demontao but that on September 6, 1919 the land was sold at
certificate of the treasurer (Exh. "3"). The defendant may present public auction by virtue of a judgment in a Civil Case entitled
to the Court other land taxes receipts for the payment of taxes for "Edw J. Pflieder plaintiff vs. Liberato Demontao Francisco
this lot. Balladeros and Gregorio Yulo, defendants", of which Yap Pongco
9. The land claimed by the defendant as his own was surveyed on was the purchaser (Exh. "1-3"). The sale was registered in the
June 6 and 7,1956, and a plan approved by Director of Land on Office of the Register of Deeds of Iloilo on August 4, 1920, under
November 15, 1956 was issued, identified as Psu 155241 (Exh. Primary Entry No. 69 (Exh. "1"), and a definite Deed of Sale was
"5"). executed by Constantino A. Canto, provincial Sheriff of Iloilo, on
10. On April 22, 1960, the plaintiff filed forcible Entry and Jan. 19, 1934 in favor of Yap Pongco (Exh. "I"), the sale having
Detainer case against Isaias Batiller in the Justice of the Peace been registered in the Office of the Register of Deeds of Iloilo on
Court of Barotac Viejo Province of Iloilo (Exh. "4") to which the February 10, 1934 (Exh. "1-1").

2. On September 22, 1934, Yap Pongco sold this land to Francisco the beginning:
Militante as evidenced by a notarial deed (Exh. "J") which was xxx xxx xxx
registered in the Registry of Deeds on May 13, 1940 (Exh. "J-1"). (7) Those expressly prohibited by law.
3. That plaintiff suffered damages alleged in his complaint. 'ART. 1491. The following persons cannot acquire any purchase,
C. Defendants, on the other hand will prove by competent even at a public auction, either in person of through the
evidence during the trial of this case the following facts: mediation of another: .
1. That lot No. 2 of the Psu-1552 it (Exh. '5') was originally owned xxx xxx xxx
and possessed by Felipe Batiller, grandfather of the defendant (5) Justices, judges, prosecuting attorneys, clerks of superior and
Basilio Batiller, on the death of the former in 1920, as his sole inferior courts, and other officers and employees connected with
heir. Isaias Batiller succeeded his father , Basilio Batiller, in the the administration of justice, the property and rights of in
ownership and possession of the land in the year 1930, and since litigation or levied upon an execution before the court within
then up to the present, the land remains in the possession of the whose jurisdiction or territory they exercise their respective
defendant, his possession being actual, open, public, peaceful and functions; this prohibition includes the act of acquiring an
continuous in the concept of an owner, exclusive of any other assignment and shall apply to lawyers, with respect to the
rights and adverse to all other claimants. property and rights which may be the object of any litigation in
2. That the alleged predecessors in interest of the plaintiff have which they may take part by virtue of their profession.'
never been in the actual possession of the land and that they defendant claims that plaintiff could not have acquired any
never had any title thereto. interest in the property in dispute as the contract he (plaintiff)
3. That Lot No. 2, Psu 155241, the subject of Free Patent had with Francisco Militante was inexistent and void. (See pp. 22-
application of the defendant has been approved. 31, Record on Appeal). Plaintiff strongly opposed defendant's
4. The damages suffered by the defendant, as alleged in his motion to dismiss claiming that defendant can not invoke Articles
counterclaim."' 1 1409 and 1491 of the Civil Code as Article 1422 of the same Code
The appellate court further related the developments of the case, provides that 'The defense of illegality of contracts is not
as follows: available to third persons whose interests are not directly
On August 17, 1965, defendant's counsel manifested in open affected' (See pp. 32-35 Record on Appeal).
court that before any trial on the merit of the case could proceed On October 18, 1965, the lower court issued an order disclaiming
he would file a motion to dismiss plaintiff's complaint which he plaintiffs complaint (pp. 42-49, Record on Appeal.) In the
did, alleging that plaintiff does not have cause of action against aforesaid order of dismissal the lower court practically agreed
him because the property in dispute which he (plaintiff) allegedly with defendant's contention that the contract (Exh. A) between
bought from his father-in-law, Francisco Militante was the plaintiff and Francism Militante was null and void. In due season
subject matter of LRC No. 695 filed in the CFI of Iloilo, which case plaintiff filed a motion for reconsideration (pp. 50-56 Record on
was brought on appeal to this Court and docketed as CA-G.R. No. Appeal) which was denied by the lower court on January 14,
13497-R in which aforesaid case plaintiff was the counsel on 1966 (p. 57, Record on Appeal).
record of his father-in-law, Francisco Militante. Invoking Arts. Hence, this appeal by plaintiff from the orders of October 18,
1409 and 1491 of the Civil Code which reads: 1965 and January 14, 1966.
'Art. 1409. The following contracts are inexistent and void from Plaintiff-appellant imputes to the lower court the following

errors: The three points on which plaintiff reserved the presentation of
'1. The lower court erred in holding that the contract of sale evidence at the-trial dealing with the source of the alleged right
between the plaintiff-appellant and his father-in-law, Francisco and title of Francisco Militante's predecessors, supra, 3 actually
Militante, Sr., now deceased, of the property covered by Plan Psu- are already made of record in the stipulated facts and admitted
99791, (Exh. "A") was void, not voidable because it was made exhibits. The chain of Militante's alleged title and right to the land
when plaintiff-appellant was the counsel of the latter in the Land as supposedly traced back to Liberato Demontao was actually
Registration case. asserted by Militante (and his vendee, lawyer and son-in-law,
'2. The lower court erred in holding that the defendant-appellee herein plaintiff) in the land registration case and rejected by the
is an interested person to question the validity of the contract of Iloilo land registration court which dismissed Militante's
sale between plaintiff-appellant and the deceased, Francisco application for registration of the land. Such dismissal, as already
Militante, Sr. stated, was affirmed by the final judgment in 1958 of the Court of
'3. The lower court erred in entertaining the motion to dismiss of Appeals. 4
the defendant-appellee after he had already filed his answer, and The four points on which defendant on his part reserved the
after the termination of the pre-trial, when the said motion to presentation of evidence at the trial dealing with his and his
dismiss raised a collateral question. ancestors' continuous, open, public and peaceful possession in
'4. The lower court erred in dismissing the complaint of the the concept of owner of the land and the Director of Lands'
plaintiff-appellant.' approval of his survey plan thereof, supra, 5 are likewise already
The appellate court concluded that plaintiffs "assignment of duly established facts of record, in the land registration case as
errors gives rise to two (2) legal posers (1) whether or not the well as in the ejectment case wherein the Iloilo court of first
contract of sale between appellant and his father-in-law, the late instance recognized the superiority of defendant's right to the
Francisco Militante over the property subject of Plan Psu-99791 land as against plaintiff.
was void because it was made when plaintiff was counsel of his No error was therefore committed by the lower court in
father-in-law in a land registration case involving the property in dismissing plaintiff's complaint upon defendant's motion after
dispute; and (2) whether or not the lower court was correct in the pre-trial.
entertaining defendant-appellee's motion to dismiss after the 1. The stipulated facts and exhibits of record indisputably
latter had already filed his answer and after he (defendant) and established plaintiff's lack of cause of action and justified the
plaintiff-appellant had agreed on some matters in a pre-trial outright dismissal of the complaint. Plaintiff's claim of ownership
conference. Hence, its elevation of the appeal to this Court as to the land in question was predicated on the sale thereof for
involving pure questions of law. P2,000.00 made in 1956 by his father-in- law, Francisco
It is at once evident from the foregoing narration that the pre- Militante, in his favor, at a time when Militante's application for
trial conference held by the trial court at which the parties with registration thereof had already been dismissed by the Iloilo land
their counsel agreed and stipulated on the material and relevant registration court and was pending appeal in the Court of
facts and submitted their respective documentary exhibits as Appeals.
referred to in the pre-trial order, supra, 2 practically amounted to With the Court of Appeals' 1958 final judgment affirming the
a fulldress trial which placed on record all the facts and exhibits dismissal of Militante's application for registration, the lack of any
necessary for adjudication of the case. rightful claim or title of Militante to the land was conclusively and

decisively judicially determined. Hence, there was no right or title The spouses, Juan Soriano and Vicente Macaraeg, were the
to the land that could be transferred or sold by Militante's owners of twelve parcels of land. Vicenta Macaraeg died in
purported sale in 1956 in favor of plaintiff. November, 1909, leaving a large number of collateral heirs but no
Manifestly, then plaintiff's complaint against defendant, to be descendants. Litigation between the surviving husband, Juan
declared absolute owner of the land and to be restored to Soriano, and the heirs of Vicenta immediately arose, and the
possession thereof with damages was bereft of any factual or herein appellant Sisenando Palarca acted as Soriano's lawyer. On
legal basis. May 2, 1918, Soriano executed a deed for the aforesaid twelve
2. No error could be attributed either to the lower court's holding parcels of land in favor of Sisenando Palarca and on the following
that the purchase by a lawyer of the property in litigation from day, May 3, 1918, Palarca filed an application for the registration
his client is categorically prohibited by Article 1491, paragraph of the land in the deed. After hearing, the Court of First Instance
(5) of the Philippine Civil Code, reproduced supra; 6 and that declared that the deed was invalid by virtue of the provisions of
consequently, plaintiff's purchase of the property in litigation article 1459 of the Civil Code, which prohibits lawyers and
from his client (assuming that his client could sell the same since solicitors from purchasing property rights involved in any litigation
as already shown above, his client's claim to the property was in which they take part by virtue of their profession. The
defeated and rejected) was void and could produce no legal application for registration was consequently denied, and upon
effect, by virtue of Article 1409, paragraph (7) of our Civil Code appeal by Palarca to the Supreme Court, the judgement of the
which provides that contracts "expressly prohibited or declared lower court was affirmed by a decision promulgated November
void by law' are "inexistent and that "(T)hese contracts cannot be 16,1925. (G.R. No. 24329, Palarca vs. Director of Lands, not
ratified. Neither can the right to set up the defense of illegality be reported.)
waived." In the meantime cadastral case No. 30 of the Province of Tarlac
The 1911 case of Wolfson vs. Estate of Martinez 7 relied upon by was instituted, and on August 21, 1923, Eleuteria Macaraeg, as
plaintiff as holding that a sale of property in litigation to the party administratrix of the estate of Vicente Macaraeg, filed claims for
litigant's lawyer "is not void but voidable at the election of the the parcels in question. Buenaventura Lavitoria administrator of
vendor" was correctly held by the lower court to have been the estate of Juan Soriano, did likewise and so did Sisenando
superseded by the later 1929 case of Director of Lands vs. Abagat. Palarca. In a decision dated June 21, 1927, the Court of First
8 In this later case of Abagat, the Court expressly cited two Instance, Judge Carballo presiding, rendered judgment in favor of
antecedent cases involving the same transaction of purchase of Palarea and ordered the registration of the land in his name.
property in litigation by the lawyer which was expressly declared Upon appeal to this court by the administration of the estates of
invalid under Article 1459 of the Civil Code of Spain (of which Juan Soriano and Vicente Macaraeg, the judgment of the court
Article 1491 of our Civil Code of the Philippines is the below was reversed and the land adjudicated to the two estates as
counterpart) upon challenge thereof not by the vendor-client but conjugal property of the deceased spouses. (G.R. No. 28226,
by the adverse parties against whom the lawyer was to enforce Director of Lands vs. Abagat, promulgated May 21, 1928, not
his rights as vendee thus acquired. reported.) 9
These two antecedent cases thus cited in Abagat clearly In the very case of Abagat itself, the Court, again affirming the
superseded (without so expressly stating the previous ruling in invalidity and nullity of the lawyer's purchase of the land in
Wolfson: litigation from his client, ordered the issuance of a writ of

possession for the return of the land by the lawyer to the adverse The reason thus given by Manresa in considering such prohibited
parties without reimbursement of the price paid by him and acquisitions under Article 1459 of the S

Case Compilation OBLICON Civil Law Review 2 (Atty. Uribe) - Part1 PDF

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ARELLANO

UNIVERSITY SCHOOL OF LAW

Prescinding from San Roque in the consolidated case Mindanao II

PEREZ, J.: PROMISSORY NOTE

Before us are consolidated Petitions for Review on Certiorari 120,000.00

First, we cannot give credence to such a naked claim of forgery

SO ORDERED. All references, therefore, to the NARIC in this decision must

Should the action against the Philippine Tourism Authority be

Realty Corporation] shall pay the disturbance compensation to

The petition lacks merit.

. . . it is clear that defendant [Olivarez Realty Corporation] should II

1. The Ibrahims and Maruhomsnot Mangondatoare the 1. x x x

The Petition The case presents to us the following issues:

SO ORDERED THE RTC RULING

I. Art. 1159. Obligations arising from contracts have the force of

Item No. 14 of the Contract of Lease states: x x x x

Ruling of the Court of Appeals

Further, Liwayway would not have executed the deed of

If a contract should contain some stipulation in favor of

WHETHER PETITIONER PENTACAPITAL INVESTMENT

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