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THIRD DIVISION On January 26, 1989 Msgr.

Cirilos wrote back, rejecting the updated


proposal. He said that other buyers were willing to acquire the property on an as is,
where is basis at P1,400.00 per square meter. He gave SSE seven days within which
STARBRIGHT SALES G.R. No. 177936 to buy the property at P1,400.00 per square meter, otherwise, Msgr. Cirilos would take
ENTERPRISES, INC., it that SSE has lost interest in the same. He enclosed a check for P100,000.00 in his
Petitioner, Present: letter as refund of what he earlier received.
VELASCO, JR., J., Chairperson,
- versus - PERALTA, On February 4, 1989 SSE wrote Msgr. Cirilos that they already had a
ABAD, perfected contract of sale in the April 17, 1988 letter which he signed and that,
MENDOZA, and consequently, he could no longer impose amendments such as the removal of the
PERLAS- informal settlers at the buyers expense and the increase in the purchase price.
BERNABE, JJ.
PHILIPPINE REALTY CORPORATION, SSE claimed that it got no reply from Msgr. Cirilos and that the next thing they
MSGR. DOMINGO A. CIRILOS, knew, the land had been sold to Tropicana Properties on March 30, 1989. On May 15,
TROPICANA PROPERTIES AND 1989 SSE demanded rescission of that sale. Meanwhile, on August 4, 1989 Tropicana
DEVELOPMENT CORPORATION Properties sold the three parcels of land to Standard Realty.
and STANDARD REALTY Promulgated:
CORPORATION, Its demand for rescission unheeded, SSE filed a complaint for annulment of
Respondents. January 18, 2012 sale and reconveyance with damages before the Regional Trial Court (RTC) of Makati,
Branch 61, against The Holy See, PRC, Msgr. Cirilos, and Tropicana Properties in Civil
x --------------------------------------------------------------------------------------- x Case 90-183. SSE amended its complaint on February 24, 1992, impleading Standard
Realty as additional defendant.
DECISION
The Holy See sought dismissal of the case against it, claiming that as a foreign
ABAD, J.: government, it cannot be sued without its consent. The RTC held otherwise but, on
December 1, 1994,[3] the Court reversed the ruling of the RTC and ordered the case
against The Holy See dismissed. By Order of January 26, 1996 the case was
The present case involves a determination of the perfection of contract of sale. transferred to the Paraaque RTC, Branch 258.

The Facts and the Case SSE alleged that Licups original letter of April 17, 1988 to Msgr. Cirilos
constituted a perfected contract. Licup even gave an earnest money of P100,000.00 to
On April 17, 1988 Ramon Licup wrote Msgr. Domingo A. Cirilos, offering to close the transaction. His offer to rid the land of its occupants was a mere gesture of
buy three contiguous parcels of land in Paraaque that The Holy See and Philippine accommodation if only to expedite the transfer of its title. [4] Further, SSE claimed that,
Realty Corporation (PRC) owned for P1,240.00 per square meter. Licup accepted the in representing The Holy See and PRC, Msgr. Cirilos acted in bad faith when he set
responsibility for removing the illegal settlers on the land and enclosed a check the price of the property at P1,400.00 per square meter when in truth, the property was
for P100,000.00 to close the transaction.[1]He undertook to pay the balance of the sold to Tropicana Properties for only P760.68 per square meter.
purchase price upon presentation of the title for transfer and once the property has
been cleared of its occupants. Msgr. Cirilos maintained, on the other hand, that based on their exchange of
letters, no contract of sale was perfected between SSE and the parties he
Msgr. Cirilos, representing The Holy See and PRC, signed his name on represented. And, only after the negotiations between them fell through did he sell the
the conforme portion of the letter and accepted the check. But the check could not be land to Tropicana Properties.
encashed due to Licups stop-order payment. Licup wrote Msgr. Cirilos on April 26,
1988, requesting that the titles to the land be instead transferred to petitioner Starbright In its Decision of February 14, 2000, the Paraaque RTC treated the April 17,
Sales Enterprises, Inc. (SSE). He enclosed a new check for the same amount. SSEs 1988 letter between Licum and Msgr. Cirilos as a perfected contract of sale between
representatives, Mr. and Mrs. Cu, did not sign the letter. the parties. Msgr. Cirilos attempted to change the terms of contract and return SSEs
initial deposit but the parties reached no agreement regarding such change. Since such
On November 29, 1988 Msgr. Cirilos wrote SSE, requesting it to remove the agreement was wanting, the original terms provided in the April 17, 1988 letter
occupants on the property and, should it decide not to do this, Msgr. Cirilos would return continued to bind the parties.
to it the P100,000.00 that he received. On January 24, 1989 SSE replied with an
updated proposal.[2] It would be willing to comply with Msgr. Cirilos condition provided On appeal to the Court of Appeals (CA), the latter rendered judgment on
the purchase price is lowered to P1,150.00 per square meter. November 10, 2006,[5] reversing the Paraaque RTC decision. The CA held that no
perfected contract can be gleaned from the April 17, 1988 letter that SSE had relied letters between Mr. Stephen Cu, SSEs representative, and Msgr. Cirilos attests to an
on. Indeed, the subsequent exchange of letters between SSE and Msgr. Cirilos show unfinished negotiation. Msgr. Cirilos referred to his discussion with SSE regarding the
that the parties were grappling with the terms of the sale. Msgr. Cirilos made no purchase as a pending transaction.[10]
unconditional acceptance that would give rise to a perfected contract.
Cu, on the other hand, regarded SSEs first letter to Msgr. Cirilos as an updated
As to the P100,000.00 given to Msgr. Cirilos, the CA considered it an option proposal.[11] This proposal took up two issues: which party would undertake to evict the
money that secured for SSE only the privilege to buy the property even if Licup called occupants on the property and how much must the consideration be for the
it a deposit. The CA denied SSEs motion for reconsideration on May 2, 2007. property. These are clear indications that there was no meeting of the minds between
the parties. As it turned out, the parties reached no consensus regarding these issues,
thus producing no perfected sale between them.
The Issue Presented
Parenthetically, Msgr. Cirilos did not act in bad faith when he sold the property
The only issue in this case is whether or not the CA erred in holding that no to Tropicana even if it was for a lesser consideration. More than a month had passed
perfected contract of sale existed between SSE and the land owners, represented by since the last communication between the parties on February 4, 1989. It is not
Msgr. Cirilos. improbable for prospective buyers to offer to buy the property during that time.

The Courts Ruling The P100,000.00 that was given to Msgr. Cirilos as deposit cannot be
considered as earnest money. Where the parties merely exchanged offers and counter-
Three elements are needed to create a perfected contract: 1) the consent of offers, no contract is perfected since they did not yet give their consent to such
the contracting parties; (2) an object certain which is the subject matter of the contract; offers.[12]Earnest money applies to a perfected sale.
and (3) the cause of the obligation which is established. [6] Under the law on sales, a
contract of sale is perfected when the seller, obligates himself, for a price certain, to SSE cannot revert to the original terms stated in Licups letter to Msgr. Cirilos
deliver and to transfer ownership of a thing or right to the buyer, over which the latter dated April 17, 1988 since it was not privy to such contract. The parties to it were Licup
agrees.[7] From that moment, the parties may demand reciprocal performance. and Msgr. Cirilos. Under the principle of relativity of contracts, contracts can only bind
the parties who entered into it. It cannot favor or prejudice a third person.[13] Petitioner
The Court believes that the April 17, 1988 letter between Licup and Msgr. SSE cannot, therefore, impose the terms Licup stated in his April 17, 1988 letter upon
Cirilos, the representative of the propertys owners, constituted a perfected the owners.
contract. When Msgr. Cirilos affixed his signature on that letter, he expressed his
conformity to the terms of Licups offer appearing on it. There was meeting of the minds WHEREFORE, the Court DISMISSES the petition and AFFIRMS the Court of
as to the object and consideration of the contract. Appeals Decision dated November 10, 2006 in CA-G.R. CV 67366.

But when Licup ordered a stop-payment on his deposit and proposed in his SO ORDERED.
April 26, 1988 letter to Msgr. Cirilos that the property be instead transferred to SSE, a
subjective novation took place.

A subjective novation results through substitution of the person of the debtor


or through subrogation of a third person to the rights of the creditor. To accomplish a
subjective novation through change in the person of the debtor, the old debtor needs
to be expressly released from the obligation and the third person or new debtor needs
to assume his place in the relation.[8]

Novation serves two functions one is to extinguish an existing obligation, the


other to substitute a new one in its place requiring concurrence of four requisites: 1) a
previous valid obligation; 2) an agreement of all parties concerned to a new contract;
3) the extinguishment of the old obligation; and 4) the birth of a valid new obligation.[9]

Notably, Licup and Msgr. Cirilos affixed their signatures on the original
agreement embodied in Licups letter of April 26, 1988. No similar letter agreement can
be found between SSE and Msgr. Cirilos.

The proposed substitution of Licup by SSE opened the negotiation stage for
a new contract of sale as between SSE and the owners. The succeeding exchange of
constructed, the land site thereof, and the machinery and equipment to be installed.
Republic of the Philippines Among the other terms spelled out in the resolution were the following:
SUPREME COURT
Manila 1. That the proceeds of the loan shall be utilized exclusively for the
following purposes:
EN BANC
For construction of factory building P250,000.00

For payment of the balance of purchase


G.R. No. L-24968 April 27, 1972
price of machinery and equipment 240,900.00
SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee,
vs. For working capital 9,100.00
DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.
T O T A L P500,000.00
Mabanag, Eliger and Associates and Saura, Magno and Associates for plaintiff-
appellee. 4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and
Gregoria Estabillo and China Engineers, Ltd. shall sign the promissory notes jointly
Jesus A. Avancea and Hilario G. Orsolino for defendant-appellant. with the borrower-corporation;

5. That release shall be made at the discretion of the Rehabilitation Finance


Corporation, subject to availability of funds, and as the construction of the factory
MAKALINTAL, J.: buildings progresses, to be certified to by an appraiser of this Corporation;"

In Civil Case No. 55908 of the Court of First Instance of Manila, judgment was Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before,
rendered on June 28, 1965 sentencing defendant Development Bank of the however, evidently having otherwise been informed of its approval, Saura, Inc. wrote
Philippines (DBP) to pay actual and consequential damages to plaintiff Saura Import a letter to RFC, requesting a modification of the terms laid down by it, namely: that in
and Export Co., Inc. in the amount of P383,343.68, plus interest at the legal rate from lieu of having China Engineers, Ltd. (which was willing to assume liability only to the
the date the complaint was filed and attorney's fees in the amount of P5,000.00. The extent of its stock subscription with Saura, Inc.) sign as co-maker on the
present appeal is from that judgment. corresponding promissory notes, Saura, Inc. would put up a bond for P123,500.00, an
amount equivalent to such subscription; and that Maria S. Roca would be substituted
for Inocencia Arellano as one of the other co-makers, having acquired the latter's
In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the shares in Saura, Inc.
Rehabilitation Finance Corporation (RFC), before its 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 building (for the manufacture of jute sacks); P240,900.00 to In view of such request RFC approved Resolution No. 736 on February 4, 1954,
pay the balance of the purchase price of the jute mill machinery and equipment; and designating of the members of its Board of Governors, for certain reasons stated in
P9,100.00 as additional working capital. the resolution, "to reexamine all the aspects of this approved loan ... with special
reference as to the advisability of financing this particular project based on present
conditions obtaining in the operations of jute mills, and to submit his findings thereon
Parenthetically, it may be mentioned that the jute mill machinery had already been at the next meeting of the Board."
purchased by Saura on the strength of a letter of 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 paying the draft, Saura, Inc. executed a trust receipt in favor of On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again
the said bank. agreed to act as co-signer for the loan, and asked that the necessary documents be
prepared in accordance with the terms and conditions specified in Resolution No.
145. In connection with the reexamination of the project to be financed with the loan
On January 7, 1954 RFC passed Resolution No. 145 approving the loan application applied for, as stated in Resolution No. 736, the parties named their respective
for P500,000.00, to be secured by a first mortgage on the factory building to be committees of engineers and technical men to meet with each other and undertake
the necessary studies, although in appointing its own committee Saura, Inc. made the
observation that the same "should not be taken as an acquiescence on (its) part to That in view of observations made of the shortage and high cost of
novate, or accept new conditions to, the agreement already) entered into," referring to imported raw materials, the Department of Agriculture and Natural
its acceptance of the terms and conditions mentioned in Resolution No. 145. Resources shall certify to the following:

On April 13, 1954 the loan documents were executed: the promissory note, with F.R. 1. That the raw materials needed by the borrower-corporation to
Halling, representing China Engineers, Ltd., as one of the co-signers; and the carry out its operation are available in the immediate vicinity; and
corresponding deed of mortgage, which was duly registered on the following April 17.
2. That there is prospect of increased production thereof to provide
It appears, however, that despite the formal execution of the loan agreement the adequately for the requirements of the factory."
reexamination contemplated in Resolution No. 736 proceeded. In a meeting of the
RFC Board of Governors on June 10, 1954, at which Ramon Saura, President of The action thus taken was communicated to Saura, Inc. in a letter of RFC dated
Saura, Inc., was present, it was decided to reduce the loan from P500,000.00 to December 22, 1954, wherein it was explained that the certification by the Department
P300,000.00. Resolution No. 3989 was approved as follows: of Agriculture and Natural Resources was required "as the intention of the original
approval (of the loan) is to develop the manufacture of sacks on the basis of locally
RESOLUTION No. 3989. Reducing the Loan Granted Saura Import & Export Co., Inc. available raw materials." This point is important, and sheds light on the subsequent
under Resolution No. 145, C.S., from P500,000.00 to P300,000.00. Pursuant to Bd. actuations of the parties. Saura, Inc. does not deny that the factory he was building in
Res. No. 736, c.s., authorizing the re-examination of all the various aspects of the Davao was for the manufacture of bags from local raw materials. The cover page of
loan granted the Saura Import & Export Co. under Resolution No. 145, c.s., for the its brochure (Exh. M) describes the project as a "Joint venture by and between the
purpose of financing the manufacture of jute sacks in Davao, with special reference Mindanao Industry Corporation and the Saura Import and Export Co., Inc. to finance,
as to the advisability of financing this particular project based on present conditions manage and operate a Kenaf mill plant, to manufacture copra and corn bags, runners,
obtaining in the operation of jute mills, and after having heard Ramon E. Saura and floor mattings, carpets, draperies; out of 100% local raw materials, principal kenaf."
after extensive discussion on the subject the Board, upon recommendation of the The explanatory note on page 1 of the same brochure states that, the venture "is the
Chairman, RESOLVED that the loan granted the Saura Import & Export Co. be first serious attempt in this country to use 100% locally grown raw materials
REDUCED from P500,000 to P300,000 and that releases up to P100,000 may be notably kenaf which is presently grown commercially in theIsland of Mindanao where
authorized as may be necessary from time to time to place the factory in actual the proposed jutemill is located ..."
operation: PROVIDED that all terms and conditions of Resolution No. 145, c.s., not
inconsistent herewith, shall remain in full force and effect." This fact, according to defendant DBP, is what moved RFC to approve the loan
application in the first place, and to require, in its Resolution No. 9083, a certification
On June 19, 1954 another hitch developed. F.R. Halling, who had signed the from the Department of Agriculture and Natural Resources as to the availability of
promissory note for China Engineers Ltd. jointly and severally with the other RFC that local raw materials to provide adequately for the requirements of the factory. Saura,
his company no longer to of the loan and therefore considered the same as cancelled Inc. itself confirmed the defendant's stand impliedly in its letter of January 21, 1955:
as far as it was concerned. A follow-up letter dated July 2 requested RFC that the (1) stating that according to a special study made by the Bureau of Forestry
registration of the mortgage be withdrawn. "kenaf will not be available in sufficient quantity this year or probably even next year;"
(2) requesting "assurances (from RFC) that my company and associates will be able
In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00 to bring in sufficient jute materials as may be necessary for the full operation of the
be granted. The request was denied by RFC, which added in its letter-reply that it was jute mill;" and (3) asking that releases of the loan be made as follows:
"constrained to consider as cancelled the loan of P300,000.00 ... in view of a
notification ... from the China Engineers Ltd., expressing their desire to consider the a) For the payment of the receipt for jute mill
loan insofar as they are concerned." machineries with the Prudential Bank &

On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and Trust Company P250,000.00
informed RFC that China Engineers, Ltd. "will at any time reinstate their signature as
co-signer of the note if RFC releases to us the P500,000.00 originally approved by (For immediate release)
you.".
b) For the purchase of materials and equip-
On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the ment per attached list to enable the jute
original amount of P500,000.00, "it appearing that China Engineers, Ltd. is now willing mill to operate 182,413.91
to sign the promissory notes jointly with the borrower-corporation," but with the
following proviso:
c) For raw materials and labor 67,586.09
1) P25,000.00 to be released on the open- It appears that the cancellation was requested to make way for the registration of a
ing of the letter of credit for raw jute mortgage contract, executed on August 6, 1954, over the same property in favor of
for $25,000.00. the Prudential Bank and Trust Co., under which contract Saura, Inc. had up to
December 31 of the same year within which to pay its obligation on the trust receipt
2) P25,000.00 to be released upon arrival heretofore mentioned. It appears further that for failure to pay the said obligation the
of raw jute. Prudential Bank and Trust Co. sued Saura, Inc. on May 15, 1955.

3) P17,586.09 to be released as soon as the On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC was cancelled
mill is ready to operate. at the request of Saura, Inc., the latter commenced the present suit for damages,
alleging failure of RFC (as predecessor of the defendant DBP) to comply with its
obligation to release the proceeds of the loan applied for and approved, thereby
On January 25, 1955 RFC sent to Saura, Inc. the following reply: preventing the plaintiff from completing or paying contractual commitments it had
entered into, in connection with its jute mill project.
Dear Sirs:
The trial court rendered judgment for the plaintiff, ruling that there was a perfected
This is with reference to your letter of January 21, contract between the parties and that the defendant was guilty of breach thereof. The
1955, regarding the release of your loan under defendant pleaded below, and reiterates in this appeal: (1) that the plaintiff's cause of
consideration of P500,000. As stated in our letter action had prescribed, or that its claim had been waived or abandoned; (2) that there
of December 22, 1954, the releases of the loan, if was no perfected contract; and (3) that assuming there was, the plaintiff itself did not
revived, are proposed to be made from time to comply with the terms thereof.
time, subject to availability of funds towards the
end that the sack factory shall be placed in actual We hold that there was indeed a perfected consensual contract, as recognized in
operating status. We shall be able to act on your Article 1934 of the Civil Code, which provides:
request for revised purpose and manner of
releases upon re-appraisal of the securities
offered for the loan. ART. 1954. An accepted promise to deliver something, by way of
commodatum or simple loan is binding upon the parties, but the
commodatum or simple loan itself shall not be perferted until the
With respect to our requirement that the delivery of the object of the contract.
Department of Agriculture and Natural Resources
certify that the raw materials needed are
available in the immediate vicinity and that there There was undoubtedly offer and acceptance in this case: the application of Saura,
is prospect of increased production thereof to Inc. for a loan of P500,000.00 was approved by resolution of the defendant, and the
provide adequately the requirements of the corresponding mortgage was executed and registered. But this fact alone falls short
factory, we wish to reiterate that the basis of the of resolving the basic claim that the defendant failed to fulfill its obligation and the
original approval is to develop the manufacture of plaintiff is therefore entitled to recover damages.
sacks on the basis of the locally available raw
materials. Your statement that you will have to It should be noted that RFC entertained the loan application of Saura, Inc. on the
rely on the importation of jute and your request assumption that the factory to be constructed would utilize locally grown raw
that we give you assurance that your company materials, principally kenaf. There is no serious dispute about this. It was in line with
will be able to bring in sufficient jute materials as such assumption that when RFC, by Resolution No. 9083 approved on December 17,
may be necessary for the operation of your 1954, restored the loan to the original amount of P500,000.00. it imposed two
factory, would not be in line with our principle in conditions, to wit: "(1) that the raw materials needed by the borrower-corporation to
approving the loan. carry out its operation are available in the immediate vicinity; and (2) that there is
prospect of increased production thereof to provide adequately for the requirements
With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not of the factory." The imposition of those conditions was by no means a deviation from
pursue the matter further. Instead, it requested RFC to cancel the mortgage, and so, the terms of the agreement, but rather a step in its implementation. There was nothing
on June 17, 1955 RFC executed the corresponding deed of cancellation and in said conditions that contradicted the terms laid down in RFC Resolution No. 145,
delivered it to Ramon F. Saura himself as president of Saura, Inc. passed on January 7, 1954, namely "that the proceeds of the loan shall be
utilized exclusively for the following purposes: for construction of factory building
P250,000.00; for payment of the balance of purchase price of machinery and
equipment P240,900.00; for working capital P9,100.00." Evidently Saura, Inc.
realized that it 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 sufficient quantity this
year or probably next year," and asking that out of the loan agreed upon the sum of
P67,586.09 be released "for raw materials and labor." This was a deviation from the
terms laid down in Resolution No. 145 and embodied in the mortgage 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 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 desistance what
Manresa terms "mutuo disenso"1 which is a mode of extinguishing obligations. It is
a concept that derives from the principle that since mutual agreement can create a
contract, mutual disagreement by the parties can cause its extinguishment.2

The subsequent conduct of Saura, Inc. confirms this desistance. It did not protest
against any alleged breach of contract by RFC, or even point out that the latter's
stand was legally unjustified. Its request for cancellation of the mortgage carried no
reservation of whatever rights it believed it might have against RFC for the latter's
non-compliance. In 1962 it even applied with DBP for another loan to finance a rice
and corn project, which application was disapproved. It was only in 1964, nine years
after the loan agreement had been cancelled at its own request, that Saura, Inc.
brought this action for damages.All these circumstances demonstrate beyond doubt
that the said agreement had been extinguished by mutual desistance and that on
the initiative of the plaintiff-appellee itself.

With this view we take of the case, we find it unnecessary to consider and resolve the
other issues raised in the respective briefs of the parties.

WHEREFORE, the judgment appealed from is reversed and the complaint dismissed,
with costs against the plaintiff-appellee.

Reyes, J.B.L., Actg. C.J., Zaldivar, Castro, Fernando, Teehankee, Barredo and
Antonio, JJ., concur.

Makasiar, J., took no part.


letter14 dated June 1, 1993, the petitioner inquired from Engr. Almeida whether the
Republic of the Philippines respondent would still push through with the project.
SUPREME COURT
Manila On June 16, 1993, the petitioner received from the respondents Vice President, Engr.
Jose Po, an antedated April 23, 1993 letter15 that contained the respondents decision
SECOND DIVISION to terminate the parties contract. The April 23, 1993 letter stated:

G.R. No. 170134 June 17, 2015 Gentlemen:

ANGEL V. TALAMPAS, JR., Petitioner, This has reference to our site development contract for METROGATE SILANG
vs. ESTATES dated 16 December 1992.
MOLDEX REALTY, INC., Respondent.
Please be informed that we have decided to suspend implementation of the site
DECISION development works for the subject project. Consequently, we are constrained to
cause the termination of the abovecited contract effective immediately.
BRION, J.:
We wish to stress that this development is mainly due to a business decision. Please
rest assured that you shall remain to be a partner in our endeavors and that once we
We resolve the petition for review on certiorari1
assailing the June 27, 2005 finally decide to resume development works, you will be duly notified. (emphasis
decision2 and October 21, 2005 resolution3 of the Court of Appeals (CA) in CA-G.R. supplied)
CV No. 64715. The CA dismissed, for lack of cause of action, the complaint4 for
breach of contract and damages filed by Angel V. Talampas, Jr. (petitioner) against
Moldex Realty, Inc. (respondent). The letter bore the signature of Engr. Almeida and gave the petitioner the go signal
to demobilize his equipment from the site.16
The Facts
In a letter17 dated August 18, 1993, the petitioner demanded from the respondent the
payment of the following amounts: (a) 1,485,000.00as equipment rentals incurred
The petitioner is the owner and general manager of Angel V. Talampas, Jr. from May 14, 1993 to June16, 1993 the period of suspension of construction works on
Construction (AVTJ Construction), a business engaged in general engineering and the Metrogate project, and (b) 2,100,000.00or twenty percent (20%) of the
building.5 10,500,000.00 contract price as cost of opportunity lost due to the respondents
early termination of their contract. The respondent received the letter on August 18,
On December 16, 1992, the petitioner entered into a contract 6 with the respondent to 1993,18 but refused to heed the petitioners demands.
develop a residential subdivision on a land owned by the latter, located at Km. 41,
Aguinaldo Highway, Cavite, and known as the Metrogate Silang Estates. On November 5, 1993, the petitioner filed a complaint for breach of contract and
damages against the respondent before the RTC. He alleged that the respondent
The petitioner undertook to perform roadworks, earthworks and site-grading,7 and to committed the following acts: (1) breach of contract for unilaterally terminating their
procure materials, labor, equipment, tools and facilities, 8 for the contract price of agreement, and (2) fraud for failing to disclose the Metrogate projects lack of a
10,500,000.00,9 to be paid by the respondent through progress billings. The conversion clearance certificate from the Department of Agrarian Reform (DAR),
respondent made an initial down payment of 500,000.00 at the start of the which he claimed to be the real reason why the respondent terminated their contract.
contract.10
In a decision19 dated September 9, 1999, the RTC found the respondent liable for
Construction works on the Metrogate project started on January 14, 1993 11 and was breach of contract because the respondents reason for termination, i.e., "project
projected to be completed by the petitioner within three hundred (300) calendar days redesign," was not a stipulated ground for the unilateral termination under the parties
from this starting date.12 contract.20 The RTC further found the respondent liable for fraud for failing to disclose
to the petitioner the lack of a conversion clearance certificate for the Metrogate
On May 14, 1993, Metrogates Project Manager, Engr. Honorio Boidi Almeida, asked subdivision. The RTC considered the conversion clearance to be a material
the petitioner tosuspend construction work on the site for one week due to a change consideration for the petitioner in entering the contract with the respondent.21
in the projects subdivision plan.13 The suspension lasted for more than one week,
leaving the petitioners personnel and equipment idle at the site for three weeks. In a
Consequently, the RTC ordered the respondent to pay: (a) 1,485,000.00 as unpaid terminating the contract due to a redesign of the project necessitated by the
construction equipment rentals from May 14, 1993 to June 16, 1993; (b) acquisition of a larger tract of land adjacent to the original project. Engr. Talampas
2,100,000.00 as unrealized profits; (c) 300,000.00 as moral damages; (d) opted for the termination of the contract instead of its suspension.
150,000.00 as exemplary damages; (e) attorneys fees equivalent to ten percent
(10%) of the sum total of items (a) and (b); and (f) double costs of suit. 22 This letter was never considered by the court a quo.24 (emphasis supplied)

On appeal, the CA reversed and set aside the RTCs ruling and dismissed the The CA, likewise, dismissed the petitioners allegation of fraud, under the following
petitioners complaint for breach of contract for lack of cause of action. 23 The CA held: reasoning: The alleged lack of conversion clearance does not in itself amount to
fraud. While the duty to seek conversion clearance from DAR is an obligation of the
The pieces of evidence presented and offered by the plaintiff-appellee do not clearly defendant-appellant, failure to obtain the same at the time of the execution of the
prove that the subject contract was unilaterally terminated by the defendant-appellant. contract would not convincingly show that the plaintiff-appellee was defrauded. The
While the trial court cited the letter of defendant-appellant dated April 23, 1993 as an omission to obtain conversion clearance could be in good faith since the records
evidence of unilateral rescission, said court however, failed to consider the letter of show that it was eventually obtained. Fraud must be established by clear and
the plaintiff-appellee dated June 15, 1993, showing that he agreed to terminate the convincing evidence. Mere preponderance of evidence is not enough. Besides, it
contract. Thus: cannot be said by the plaintiff-appellee that the alleged lack of conversion clearance
was concealed by defendant-appellant from plaintiff-appellee. Plaintiff-appellee had
June 15, 1993. every opportunity to verify this before submitting his bid. Plaintiff-appellee must
sufficiently connect that such lack of conversion clearance was the real reason for the
termination of the contract. Sadly, the records fail to show that head equately
ENGR. JOSE PO established that the failure of the defendant-appellant to seek conversion clearance of
Vice-President the subject property was the real reason for the termination of the contract. On the
Moldex Realty, Inc. contrary, the June 15, 1993 letter of Angel V. Talampas admits that the reason for the
West Avenue, Q.C. termination was "due to business decision."25

Subject: Earthwork and Preparation The petitioner moved to reconsider the CAs decision, but the CA denied his motion in
Moldex Silang Estates a resolution26 dated October 21, 2005. The denial opened the way for the filing of the
Silang, Cavite present petition for review on certiorari with this Court.

Sir: The Petition

Please be informed that as of this writing, we have not received your official letter The petitioner raised the following issues:
regarding the untimely termination of our contract with you, due to reason that
stoppage of work is due to business decision.
1. Whether, as found by the trial court, the subject development contract was
unilaterally abrogated by respondent without justifiable cause, or whether, as
In order for us to demobilize our personnel, construction equipments (sic), we need opined by the Court of Appeals, the contract termination was upon the
your official letter of termination (sic) soonest possible time. mutual agreement of the parties.

Thank you. 2. Whether, as found by the trial court, the lack of DAR conversion clearance
which was not disclosed to the petitioner prior to the bidding and execution
Very truly yours, of the subject contract, was the true reason of the respondent in ordering
stoppage of work and in eventually terminating the subject contract, or
ANGEL V. TALAMPAS, JR. whether, as opined by the Court of Appeals, the reason for the contract
General Manager termination was "due to business decision" of the respondent.

This letter of June 15, 1993 of Angel Talampas, Jr. to Engr. Jose Po, Sr., Vice- 3. Whether or not it was respondents responsibility prior to the bidding or
President of Moldex Realty, Inc., confirms that previous to said date or specifically on execution of the contract, to disclose to the petitioner, the lack of conversion
May 21, 1993, Engr. Jose Po, Sr. met with Jose Angel Talampas, the Project clearance certificate from DAR and/or its agrarian problem; and if in the
Manager of the plaintiff-appellee, to discuss the possibility of either suspending or affirmative, whether such non-disclosure constitutes bad faith or fraud on the
part of respondent.
4. Whether, as concluded by the trial court, the subject development contract On May 14, 1993, the respondent, through Engr. Almeida, ordered the suspension of
was an integrated whole, not divisible contract, or whether, as opined by the construction work on the site, instead of terminating the project in accordance with the
Court of Appeals, subject contract is a divisible contract. respondents instructions in its (belatedly received) April 23, 1993 letter to the
petitioner.
5. Whether or not petitioner is entitled to the damages awarded to him by the
trial court for breach of contract by respondent.27 The respondent alleged that, on May 21, 1993, its Vice-President Engr. Po and Engr.
Talampas of AVTJ Construction met to discuss the possible termination of their
In a resolution28 dated June 28, 2006, this Court gave due course to the petition and contract or the suspension of construction works on the Metrogate project. In this
required the parties to submit their respective memoranda. meeting, Engr. Talampas chose to terminate their contract.

The Case for the Respondent On June 1, 1993, the petitioner wrote Engr. Almeida to ask for the confirmation of the
Metrogate projects status.
The respondent argues that the petitioner is no longer entitled to the payment of the
amounts he demanded because he had already agreed/consented to terminate their On June 10, 1993, the petitioner received from the respondent the amount of
contract;29 that, in a meeting held on May 21, 1993, the petitioners son, Engr. Jose 474,679.28 as payment for Progress Billing No. 339 (which billing the petitioner
Angel Talampas, the Project Manager and Vice-President of AVTJ Construction, requested in a letter40 to the respondent dated May 31, 1993).
agreed, even opted, to terminate their contract.30 The respondent posits that the
petitioners consent is confirmed by his request for an official letter of termination from On June 15, 1993, the petitioner wrote Engr. Po, informing the latter that he had not
the respondent, as the petitioner would not have requested for such letter had he not yet received from the respondent the letter officially terminating their contract.
earlier agreed/consented to the termination.31
On June 16, 1993, the petitioner received from the respondent a letter dated April 23,
Moreover, the respondent argues that the petitioner is estopped to claim further 1993, expressing the respondents decision to terminate the parties contract. The
damages, as he had already been paid the amounts of: (a) 297,090.43representing petitioner alleged that it was only then (June 16, 1993) that he was formally informed
the contractors unpaid actual work accomplishment at the time of termination (paid of the respondents decision to terminate their contract.
on August 13, 1993); (b) 109,551.00representing unrecouped costs of equipment
mobilization and demobilization, and unrecouped payment of insurance bond (paid on On August 13, 1993, the petitioner received from the respondent the amount of
September 14, 1993); and (c) 209,606.56 representing the release of all retention 297,090.43 as payment for earthworks and road base preparations done on the
fees.32 The respondent contends that the petitioner, by accepting these payments, Metrogate subdivision as of July 12, 1993 (Progress Billing No. 4).41
ratified, if not consented to, the termination of their contract.33
On August 18, 1993, the petitioner sent a demand letter to the respondent for the
The respondent strongly denies the petitioners allegation of fraud and maintains that payment of 1,485,000.00 for unpaid construction equipment rentals from May 14,
the real reason for the termination of their contract was the redesign of the Metrogate 1993 to June 16, 1993, and 2,100,000.00 as unrealized profits, among others.
Silang Estates project, not the projects lack of conversion clearance from the DAR. 34
Meanwhile, the petitioner received from the respondent the amount of 209,606.56
The Court's Ruling for the release of all "retention fees"42 withheld by the respondent from the petitioners
billings.43
The petitioners issues are largely factual in nature and are therefore not the proper
subjects of a Rule 45 petition.35Specifically, the determination of the existence of a On November 5, 1993, the petitioner filed a complaint for breach of contract against
breach of contract is a factual matter that we do not review in a Rule 45 petition. 36 But the respondent. This is the root-complaint of the present case.
due to the conflicts in the factual findings of the RTC and the CA, we see the need to
re-examine the facts and the parties evidence to fully resolve their present dispute. 37
The parties contract is the law between them
In an April 23, 1993 letter38 addressed to the petitioner, the respondent declared that
it was "constrained to cause the termination of the parties contract effective and must be complied with in good faith.
immediately" due to a "business decision," but the termination was not immediately
implemented. Contracts have the force of law between the parties and must be complied with in
good faith.44 A contracting partys failure, without legal reason, to comply with contract
stipulations breaches their contract and can be the basis for the award of damages to Thus, the respondents termination of the subject contract violated the parties
the other contracting party.45 agreement as the reason for the termination, i.e., the redesign of the projects
subdivision plan, was not a stipulated cause for the unilateral termination under
In the present case, we find that the respondent failed to comply with its contractual Paragraph 8.1 of their contract.
stipulations on the unilateral termination when it terminated their contract due to the
redesign of the Metrogate Silang Estates subdivision plan. The respondent failed to prove the petitioners consent,

Paragraph 8 of the parties contract limits the instances when the respondent express or implied, to the termination of the subject contract.
(referred to as owner in the contract) or the petitioner (referred to as contractor in the
contract) may unilaterally terminate their agreement. On the part of the owner, The respondent alleged that there had been mutual termination of the parties
paragraph 8.1 of the contract specifically provides: contract during a meeting held between Engr. Po of Moldex Realty Inc. and Engr.
Talampas of AVTJ Construction on May 21, 1993. However, this claim is not
8.1. The OWNER may terminate this CONTRACT upon ten (10) days written notice to supported by evidence.
the CONTRACTOR in the event of any default by the CONTRACTOR. It shall be
considered a default by the CONTRACTOR whenever he shall: In the first place, the respondent failed to fully establish that a meeting took place as
alleged. Except for the self-serving testimony of Engr. Po that the May 21, 1993
a) declare bankruptcy, become insolvent, dissolve the corporation, or assign its meeting took place, the respondent presented no other evidence to prove that Engr.
assets for the benefit of his creditors; Po and Engr. Talampas met on that date to discuss the fate of their contract. No
document or record the minutes of their May 21, 1993 meeting appeared to have
b) disregard, violate or not comply with important provisions of the Plans and been made despite the importance of their alleged discussion. The questions that this
Specifications or the OWNERs instructions, or incur a delay of more than fifteen evidentiary gap raised cannot but be resolved against the respondent.
percent (15%) in the prosecution of the work as evaluated against the work schedule
to be submitted by the CONTRACTOR; or Even assuming that the May 21, 1993 meeting between Engr. Po and Engr.
Talampas did indeed take place, we cannot discern from the developments the
c) fail to provide a qualified superintendent, competent workmen, or materials or petitioners claimed agreement or consent to the termination of the construction
equipment meeting the requirements of the Plans and Specifications. contract.

xxxx The respondent contended that the petitioners request for an official letter of
termination was proof that the latter consented to the termination of their contract. We
disagree with this view. The request for an official letter of termination does not
The respondent could not have validly and unilaterally terminated its contract with the necessarily mean consent to the termination; by itself, the request for an official letter
petitioner, as the latter has not committed any of the stipulated acts of default. In fact, of termination does not really signify an agreement; it was nothing more than a
the petitioner at that time was willing and able to perform his obligations under their request for a final decision from the respondent.
contract; he expressed this in his June 1, 1993 letter to the respondent, which stated:
A close reading of petitioners June15, 1993 letter shows that the petitioners intent
Dear Sir: was solely to confirm whether the respondent would still push through with its
decision to terminate the contract. The petitioners June 15, 1993 letter to the
Please be advised that as per last meeting, you made mention that works at Silang respondent stated:
Estates, Cavite will be temporarily stopped for reason/reasons of redesigning of the
subdivision plan. Stoppage will only be for one week and that we will be informed in Sir:
writing of your decision. It has been three weeks now, going a month that we have not
received your decision on the matter. Meantime, our timetable for the completion of
the work is hampered, considering also the good weather condition prevailing in the Please be informed that as of this writing, we have not received your official letter
area which is also a big factor for our early completion of our contract with you. regarding the untimely termination of our contract with you, due to reason that
stoppage of work is due to business decision.
Kindly inform us in writing regarding this matter, so that we can act accordingly. 46
In order for us to demobilize our personnel, construction equipments, we need your
official letter of termination soonest possible time.
Thank you. the idling was allegedly due to the petitioners fault; the respondent posits that the
petitioner should have demobilized his equipment as soon as the latter gave his
To our mind, the petitioner fully disclosed the intent behind his letter and it was not consent to terminate their contract. Also, it questioned the petitioners use of
consent. Thus, we find it erroneous to conclude, based on this letter, that the ACEL51 rates in the computation of the accrued rent.
petitioner had consented to the termination of the construction contract.
The petitioner cannot be faulted for the idling of his equipment on the project site.
The respondent also contended that the petitioner ratified the termination of their First and foremost, the order to suspend the construction work on May 14, 1993 came
contract by accepting payments for progress billings, costs of equipment from the respondent. Second, the suspension of construction works was supposedly
mobilization/demobilization, refund of insurance bond payments, and the release of temporary; thus, the petitioners equipment were placed on standby at the site. Third,
retention fees. However, we do not see the petitioners receipt of these payments to it was only on June 16, 1993, that the respondent gave the final word and formal
be acts of ratification or consent to the contracts termination. authority for the demobilization of the petitioners equipment.

Consent is manifested by the meeting of the offer and the acceptance upon the thing Hence, even assuming that the petitioner had earlier given his consent, such consent
and the cause which are to constitute the contract.47 The offer must be certain, and was for the suspension of the contract, not for its termination. The petitioner could not
the acceptance, whether express or implied, must be absolute.48 An acceptance is have properly demobilized his equipment earlier than June 16, 1993 without an official
considered absolute and unqualified when it is identical in all respects with that of the and definite letter of termination from the respondent.
offer so as to produce consent or a
The petitioner undeniably lost expected profits when he placed the rented equipment
meeting of the minds.49 on idle since progress billings under the contract were to be paid by the respondent
based on the petitioners actual work accomplished. Due to the uncertainty of the end
date of the suspension (initially represented to be only for one week but which lasted
We find no such meeting of the minds between the parties on the matter of for three weeks), the petitioner was compelled to keep his personnel and his rented
termination because the petitioners acceptance of the respondents offer to terminate equipment on standby at the site, and was prevented from renting out his own
was not absolute. equipment to others.

To terminate their contract, the respondent offered to pay the petitioner billings for Under these facts, the petitioner should be entitled to the payment of the rent for his
accomplished works, unrecouped costs of equipment mobilization and demobilization, equipment amounting to 1,485,000.00, incurred from May 14, 1993 to June 16,
unrecouped payment of insurance bond, and the release of all retention fees 1993.
payments that the petitioner accepted or received.
We uphold the amount of rent arrived at by the petitioner as the use of prevailing
But despite receipt of payments, no absolute acceptance of the respondents offer ACEL rates in the computation of the rent was reasonable based on industry
took place because the petitioner still demanded the payment of equipment rentals, standards.
cost of opportunity lost, among others. In fact, the payments received were for
finished or delivered works and for expenses incurred for the respondents account.
By making the additional demands, the petitioner effectively made a qualified B. On cost of opportunity lost
acceptance or a counteroffer,50 which the respondent did not accept. Under these
circumstances, we see no full consent. Article 2200 of the Civil Code provides that indemnification for damages shall include,
not only the value of the loss suffered, but also the profits that the obligee failed to
The petitioner is entitled to the payment of: obtain. On this basis, we find the petitioner entitled to the payment for the opportunity
lost because of the respondents unilateral termination of the parties contract.
(a) equipment rentals during the period of work suspension, and
Significantly, the respondent itself impliedly accepted this legal consequence by
contending that the cost of opportunity lost should not be based on the total contract
(b) cost of opportunity lost. price of 10,500,000.00 as the petitioner had already been compensated for a part of
the construction work done.
A. On equipment rentals incurred during the suspension of construction works
We find merit in the respondents contention that the basis of the cost of opportunity
The respondent does not deny that the petitioners equipment was idled from May 14, lost should not be the total contract price, as the cost of opportunity lost must
1993 to June 16, 1993,but refused to pay the petitioner equipment rentals because represent only the profits that the petitioner failed to obtain due to the contracts early
termination. Thus, from the total contract price, the amounts paid to the petitioner for
work accomplished must be subtracted, including the 500,000.00 down payment damages, the wrongful act must be accompanied by bad faith, such as when the
that the respondent gave at the start of the contract; the difference would be the basis guilty party acted in a wanton, fraudulent, reckless or malevolent manner. 53
for determining the cost of opportunity lost.
We cannot also award attorneys fees to the petitioner. Attorneys fees are not
On record, the petitioner received the following amounts for work accomplished: (a) awarded every time a party wins a suit.54 Attorneys fees cannot be awarded even if a
292,682.90, paid by the respondent on March 10, 1993; (b) 319,922.32, paid on claimant is compelled to litigate or to incur expenses to protect his rights due to the
May 14, 1993; (c) 474,679.28, paid on June 10, 1993; and (d) 297,090.43, paid on defendants act or omission,55 where no sufficient showing of bad faith exists; a
August 13, 1993. By subtracting these amounts and the 500,000.00 down payment partys persistence based solely on its erroneous conviction of the righteousness of
from the total contract price of 10,500,000.00, we arrive at the amount of his cause, does not necessarily amount to bad faith.56 In the present case, the
8,615,625.07, which represents the petitioners unrealized gross earnings from the respondent was not shown to have acted in bad faith in appealing and zealously
contract. pursuing its case. Under the circumstances, it was merely protecting its interests.

The twenty percent (20%) rate of cost of opportunity lost is, to our mind, reasonable WHEREFORE, premises considered, we GRANT the appeal and REVERSE and SET
under the circumstances, considering that one hundred fifty (150) days had lapsed ASIDE the decision dated June 27, 2005, and resolution dated October 21, 2005, of
(out of the three hundred (300) days-completion period under the contract) at the time the Court of Appeals in CA-G.R. CV No. 64715.
the petitioner received the respondents letter confirming the termination of their
contract on June 16, 1993. Accordingly, we ORDER the respondent to pay the petitioner the following amounts
of: (a) 1,485,000.00, for the rent of petitioner's equipment from May 14, 1993 to
In these lights, we award the petitioner the amount of 1,723,125.01(equivalent of June 16, 1993, and (b) 1,723,125.01, as cost of opportunity lost. The sum of these
20% of 8,615,625.07) as cost of opportunity lost. amounts shall earn legal interest of six percent (6%) per annum from the finality of
this Decision until full payment.
Awards of moral and exemplary damages,
and attorneys fees are unwarranted No pronouncement as to costs.
due to the absence of fraud and bad faith
on the part of the respondent. SO ORDERED.

The petitioner alleges that the respondent deliberately failed to inform him of the
Metrogate projects lack of a conversion clearance from the DAR, and that the non-
disclosure of this fact amounted to fraud: he would not have contracted with the
respondent had he known beforehand of the projects lack of a conversion clearance.

The petitioner presented evidence to confirm that the respondent actually failed to
secure a conversion clearance before it entered into a contract with the petitioner for
the development of the Metrogate Silang Estates.1wphi1 However, nothing in the
evidence showed that the respondent was under any legal or contractual obligation to
disclose the projects conversion clearance status to the petitioner, or that the
presence of a conversion clearance was a consideration for the petitioners entry into
the contract with the respondent.

Article 1339 of the Civil Code provides that "failure to disclose facts, when there is a
duty to reveal them, as when the parties are bound by confidential relations,
constitutes fraud." Otherwise stated, the innocent non-disclosure of facts, when no
duty to reveal them exists, does not amount to fraud.

We cannot award moral and exemplary damages to the petitioner in the absence of
fraud on the respondents part. To recover moral damages in an action for breach of
contract, the breach must be palpably wanton, reckless, malicious, in bad faith,
oppressive or abusive.52 In the same manner, to warrant the award of exemplary
Alamirew (Vice President Alamirew) circulated a memorandum 13 addressed to the
FIRST DIVISION college faculties and Filipino teaching staff. It stated that the Ministry of Education
required the university to evaluate the credentials of the Filipino teaching staff and
suggest an academic rank for them pursuant to the national norm. Later, on 15 March
G.R. No. 189262, July 06, 2015 2006, another memorandum14 was issued lowering the ranks of most of the Filipino
teaching staff and asking them to sign a new contract reflecting a change in rank and
GBMLT MANPOWER SERVICES, INC., Petitioner, v. MA. VICTORIA H. salary.15 In particular, respondent's designation was lowered from lecturer to assistant
MALINAO, Respondent. lecturer16 with a monthly salary of USD 600.17chanrobleslaw

DECISION Respondent refused to sign a new contract. Together with her affected Filipino
colleagues, she went to the Ministry of Education on 17 March 2006 to protest the re-
ranking.18 They also asked for an audience with Vice President Alamirew on 27
SERENO, C.J.: March 2006.19 During the meeting, respondent raised her hand in order to be
acknowledged to speak. However, Vice President Alamirew told her, "You are not
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court allowed to speak before this meeting. Alemaya University does not need your
assailing the Court of Appeals (CA) Decision1 dated 29 May 2009 and services anymore, you are terminated, you are fired."20chanrobleslaw
Resolution2 dated 24 August 2009 in CA-G.R. SP No. 107378.
Later that afternoon, Vice President Alamirew apologized to respondent for the
The CA found grave abuse of discretion on the part of the National Labor Relations retort,21 saying that she thought the latter was the leader of the protest before the
Commission (NLRC) when the latter reversed the decision of the labor arbiter, which Ministry of Education. Nevertheless, in a letter22 dated 28 March 2006, respondent
granted respondent's money claims under her complaint for illegal dismissal against requested Vice President Alamirew to issue a notice of termination to her "in order not
petitioner. The CA Resolution denied petitioner's motion for reconsideration. to prolong [her] agony."23chanrobleslaw

Facts A memorandum24 dated 4 April 2006 was issued by Temesgen Keno, Head of the
Department of Accounting (Mr. Keno). He informed the Faculty of Business and
Sometime in May 2005, respondent applied to petitioner for a job as teacher for Economics that due to a students' petition, another instructor had been assigned to
deployment abroad.3She went through the usual application process and was later replace respondent in Auditing II. The latter was again left idle. Attached to the
called for an interview by the president of an Ethiopian university. 4 The interviewer memorandum was the class compliance on the performance of respondent, together
endorsed her for the post of accounting lecturer.5 Petitioner issued her a wage with the individual signatures of the students.25 Respondent checked the signatures
response slip,6 which provided that she would receive a monthly salary of USD 900. and found that some had signed twice, while two were not in her
class.26chanrobleslaw
Respondent paid petitioner the processing and placement fees equivalent to her one-
month salary.7 She also signed a Contract of Employment for Foreign Academic Another memorandum27 of the same date was issued by Workneh Kassa, Dean of
Personnel8 (Contract of Employment) covering a period of two academic years. The the Faculty of Business and Economics (Dean Kassa) addressed to Vice President
contract had been approved by the Philippine Overseas Employment Administration Alamirew. Dean Kassa indicated that the qualification of respondent had been highly
(POEA). debated as the faculty had never approved the recruitment of expatriate staff who
were bachelor's degree holders. He noted that this was the second time that the
On 12 December 2005, respondent departed for Ethiopia. Upon her arrival, she was Department of Accounting had to replace respondent in her course assignment,
informed by the Vice Minister of the Ministry of Education that her credentials would because "she has never handled any course effectively." 28 Dean Kassa requested
have to be re-evaluated, because it appeared that she did not have a master's Vice President Alamirew to take the necessary action, because keeping an idle
degree.9 Respondent was given a new contract for signing, which at first she refused expatriate staff was unacceptable.
to sign. However, upon reading that it was a duplicate of the original contract, she
affixed her signature.10chanrobleslaw Respondent took great offense at being referred to as a bachelor's degree holder,
insisting that she was a certified public accountant and a law graduate. 29 She
Respondent was assigned to teach at the Alemaya University. 11 On 10 January 2006, responded30 to the memorandum on the same day stating that in the Philippines, a
she unilaterally decided to discontinue teaching the course in cooperative accounting person who had a law degree and passed the bar examinations has a degree more
that had been assigned to her.12The reason she gave was that auditing, not than a master's, but less than a doctorate. She recognized that the university had the
accounting, was her specialization. Another lecturer took over the course, and right to terminate her at any time, but insisted that there was no need to discredit
respondent spent the rest of the semester without a teaching load. her.31chanrobleslaw

On 1 March 2006, Alemaya University Academic and Research Vice President Tena On 6 April 2006, Vice President Alamirew issued the notice of termination 32 to
respondent. The notice alluded to the two instances when the Department of
Accounting had to replace respondent in her course assignments. Part of the notice In addition, your incompetent statement that Auditing is my self-acclaimed
reads:chanRoblesvirtualLawlibrary specializationshows sarcasm; very damaging not only to my person, but also to my
Despite the efforts of the head of the Department, the dean of the faculty and myself profession, and ultimately, to my government, and the Professional Regulations
to bring you on board, it seems that you are not fitting anywhere. On the contrary, to Commission itself which conferred to me the license of being a Certified Public
cover up your incompetence and personal problems, you are insulting students, the Accountant.
staff and the management in particular and Ethiopians in general in the class. In view
of these facts, it will be difficult to expect any positive contribution by keeping you For your further information, I am not only an expert in financial audit, but I am
here any longer. But as per Article X Sub-article 2 of the contract, we are obliged to actually an expert in the audit of management systems.
give you this three months advance notice as regards the contract termination. In the
mean time, however, you are expected to duly carry the assignment which shall be Again, your last sentence on the notice of termination is provocative, malicious and
given by your Department. Please note that if you continue insulting and abusing any defamatory. You mean, I am indecent and behaving irrationally? That is very hard to
of the students, the Department or the Faculty Community, we shall be forced either prove. I guess it is not only the undersigned that should behave rationally.
to invoke Article X Sub article 1 or bring you into the court of law. There is, therefore,
to bring to your notice the fact that the University has decided to terminate your Giving three months prior notice to the other party is required only if the termination is
contract three months from now. In the mean time, however, you're strongly advised for no cause. To reiterate, you are not under obligation to give me three months
to have an iota of decency and behave rationally.33 advance notice as per Art. X, par. 3 of the employment contract, unless you really
To this notice, respondent replied in a letter dated 7 April 2006, which believe that there exists no valid ground to terminate my contract.
reads:chanRoblesvirtualLawlibrary
Dear Dr. Tena:ChanRoblesVirtualawlibrary Thank you very much.34
While waiting for the three-month period to expire, respondent was offered a post at
You did it first! I only defended myself from all the insults I received from the students, the Internal Audit Department by Alemaya University President Belay Kassa
the staff and management. I believe this is within my constitutional rights. I did not (President Kassa). She accepted the job through a letter dated 19 April
insult anybody! 2006.35chanrobleslaw

I cannot resort to such vile tactics because I am not an incompetent person, as you However, in another letter36 dated 27 April 2006 addressed to President Kassa,
perceived me to be. All the incidents that had happened were the aftermath of your respondent signified her change of mind and rejected the offered post at the Internal
evaluation and as a subsequence, the defamation committed against me when you Audit Department. She narrated that on her first day on the job, she was made to wait
insulted me and fired me from my job before my colleagues. for several hours before attending a meeting. In that meeting, the Vice President for
Administration Dr. Belaineh and two staff members from the department conversed in
Your accusations are merely based on hearsays, and hearsays are inadmissible in Amharic, which she did not understand. She was also assigned to work under the
evidence under the law. They remain allegations unless proven by substantial acting head, who was merely a holder of a diploma in accounting. Respondent
evidence under administrative proceedings and beyond reasonable doubt under manifested that "[she does] not deserve to be insulted." 37chanrobleslaw
criminal procedure.
Respondent was repatriated on 27 June 2006.38 She later signed a Quitclaim and
You cannot legally base your decision in terminating my contract on facts not Release dated 5 July 2006 in favor of petitioner. The waiver reads as
proven. Your statement that it will be difficult to expect positive contribution by follows:chanRoblesvirtualLawlibrary
keeping me here is a mere speculation. In law, it must be conclusive, not speculative. That for and in consideration of the sum of NINE HUNDRED DOLLARS ($900 USD),
It must be a fact that must be proved, substantially and procedurally, as required by and for other invaluable considerations extended to me by GBMLT MANPOWER
due process. SERVICES, INC., receipt of which is hereby acknowledged to my full and complete
satisfaction, I hereby forever release and discharge said GBMLT MANPOWER
If you really believe I am guilty as charged, what could have prevented you anyway SERVICES, INC., all its Officers and Directors, from any and all claims by way of
from enforcing it before the court of law? I am ready to face any charges because I unpaid salaries, wages, and all other monetary claims or otherwise due me in
know I have not violated the rights of other people and the law. I could have connection with my deployment as lecturer/teacher in Ethiopia.
appreciated it better had you filed the case in court; at least I could have been
accorded my day in court. I hereby state further x x x that this Quitclaim and Release is executed on my own
free will and that I have no more claims [or] right of action [of] whatever nature and
I cannot understand why there is a need for you to open an old issue about kind, whether past, present and/or contingent against GBMLT MANPOWER
Cooperative Accounting Course, and use this against me, when it has already been SERVICES, INC.[,] its Officers and Directors as a consequence of such
resolved a long time ago. And please be reminded that Auditing is an area in deployment.39
Accounting and you know very well that this was not my reason when I refused to On 18 July 2006, respondent filed a complaint before the labor arbiter against
handle the abovementioned course. petitioner as local agency and Alemaya University as foreign principal.40 She sought
full payment of the unexpired portion of the two-year contract, moral and exemplary Petitioner filed an appeal before the NLRC.55 For her part, respondent filed before the
damages, and attorney's fees. NLRC a pleading entitled "Omnibus Motion,"56 which was divided into three parts.

Ruling of the Labor Arbiter In her Motion to Dismiss Appeal, respondent indicated that petitioner had received a
copy of the Decision of the labor arbiter on 13 April 2007, giving it a period until 23
In a Decision41 dated 29 March 2007, the labor arbiter found respondent to have been April 2007 within which to perfect its appeal.57 When petitioner filed its memorandum
unduly repatriated in breach of the employment contract. 42 Petitioner and Alemaya of appeal on 20 April 2007, it issued a check as payment for the appeal bond. The
University were ordered to pay her in solidum the amounts of USD 4,500 as check was presented for payment only on 23 April 2007. Considering that it takes
unrealized income - from which the amount paid to her under the Quitclaim and three days for checks to clear - and that checks only produce the effect of payment
Release had already been deducted - Php 30,000 as moral damages, Php 20,000 as when they have been cashed - the appeal bond was posted beyond the 10-day
exemplary damages, plus costs.43chanrobleslaw reglementary period.58 Hence, according to respondent, petitioner's appeal was not
perfected, and the labor arbiter's ruling had attained finality. 59chanrobleslaw
According to the labor arbiter, respondent did not hide the fact that she had no
master's degree "in the strict sense of the word,"44 because she was a holder of a In the Motion to Deny Due Course for Lack of Merit, respondent gave her counter-
bachelor of laws degree. Some law schools in the Philippines actually confer the arguments on the allegations of petitioner in the latter's appeal.
degree of Juris Doctor on their graduates because a four-year undergraduate degree
is one of the qualifications for acceptance.45 Thus, it was incumbent upon Alemaya In the final part, the Motion for Revision/Modification of Award, respondent requested
University to allow respondent to finish her two-year employment contract instead of that the NLRC revise the award made by the labor arbiter. She argued that in the
forcing her to sign a new contract with lower pay, just because she did not have a dispositive portion of the decision, the labor arbiter had left out the full reimbursement
master's degree.46chanrobleslaw of the placement fees plus 12% interest per annum, as mandated by Section 10 60 of
R.A. 8042.61 Respondent also prayed for the increase of the moral and exemplary
The labor arbiter also ruled that the protest of respondent and her colleagues before damages to Php 250,000 each, and the award of attorney's fees equivalent to 10% of
the Ministry of Education, as well as the question of whether she was the leader of the total award.62chanrobleslaw
that protest, should not be taken against her. The labor arbiter ruled that respondent
had simply acted based on her right to protest changes in her Ruling of the NLRC
contract.47chanrobleslaw
The NLRC issued a Decision63 dated 30 July 2008 dismissing respondent's
The labor arbiter gave no credence either to the allegation that respondent was complaint, because her claims had been the subject of a valid release, waiver and
dismissed for incompetence based on the students' petition. It was noted that the quitclaim.64chanrobleslaw
petition only came out after she was fired by Vice President Alamirew during the
meeting.48 Furthermore, the alleged petition contained double signatures and The NLRC ruled that respondent could no longer question the termination of her
signatures of students not included in the class list. contract of employment after her acceptance of the new offer of President Kassa to
work at the Internal Audit Department.65 It found that the termination of the contract
In the end, the labor arbiter found that respondent had been constructively dismissed. did not take effect when respondent and the university agreed to the continuance of
She was supposedly forced to quit because continued employment became her employment, albeit in another capacity. Thus, when respondent later wrote to
unbearable, not only due to demotion in rank and diminution in pay, but also due to President Kassa that she did not want the new post after all and requested to be
the discrimination and disdain on the part of her employer. 49 Further, no procedural repatriated, it was she who terminated the contract.66 Contrary to the ruling of the
due process was accorded to respondent because no panel of her peers was ever labor arbiter, respondent was not constructively dismissed.
formed to review her performance.50 The only basis for the charge of unsatisfactory
teaching was the alleged students' petition, which was found to be questionable. The NLRC also sustained the validity of the Quitclaim and Release. It held that
respondent was a certified public accountant and bachelor of laws graduate who
The labor arbiter also declared that the Quitclaim and Release could not work to bar could hardly be "duped into signing any document that would be detrimental to her
the claims of respondent, because when compared to the amount that she was cause, if she was not willing [to agree] to the terms and conditions [provided in] what
entitled to receive under Section 1051of Republic Act No. (R.A.) 8042 (Migrant she was signing [or] entering into."67chanrobleslaw
Workers and Overseas Filipinos Act of 1995), the amount of USD 900 was
unreasonable and prejudicial to her.52chanrobleslaw After her motion for reconsideration68 was denied in the Resolution dated 31 October
2008, respondent filed a petition69 before the CA ascribing grave abuse of discretion
According to the labor arbiter, respondent was also entitled to moral damages in view on the part of the NLRC.
of the verbal abuse she received during the meeting and the resulting
humiliation.53 The exemplary damages were awarded in order to deter others from Ruling of the CA
emulating the acts of petitioner and Alemaya University. 54chanrobleslaw
In the assailed Decision70 dated 29 May 2009, the CA reinstated the Decision of the Mode of Review
labor arbiter with modifications. Aside from upholding the awards made by the labor
arbiter, the appellate court ordered petitioner and Alemaya University to reimburse The instant petition is one for review of the CA Decision issued under a petition for
respondent for the full amount of the placement fee she had paid, with interest at the certiorari, in which the CA found that the NLRC had committed grave abuse of
rate of 12% per annum, as well as her airfare from Dire Dawa to Addis Ababa in discretion when the latter upheld the validity of the Quitclaim and Release. As
Ethiopia.71 The awards of moral and exemplary damages were both increased to Php in Montoya v. Trammed Manila Corp.,82 we shall examine in the instant Rule 45
50,000, plus attorney's fees equivalent to 10% of the monetary petition the correctness of the Rule 65 decision rendered by the CA by answering this
award.72chanrobleslaw question: Did the CA correctly determine whether the NLRC committed grave abuse
of discretion in ruling on the case?
The CA ruled that the amount of USD 900 given to respondent by virtue of the
Quitclaim and Release was unconscionable and not commensurate with the I.
unexpired portion of the contract.73 Hence, the waiver and quitclaim was invalid.
Respondent was not illegally dismissed.
The CA also ruled that the educational attainment of respondent should not be taken
against her, because she only signed the Quitclaim and Release by force of In ruling that the Quitclaim and Release was ineffective to bar recovery by
necessity, for she was in dire need of money.74chanrobleslaw respondent, the CA reasoned that the consideration in the amount of USD 900 was
unconscionable and not commensurate to the unexpired portion of the Contract of
The appellate court observed that while respondent accepted the offer of President Employment. This reasoning presupposes that respondent is entitled to the salaries
Kassa to work at the Internal Audit Department, such arrangement was in the purview for the unexpired portion of her employment contract.
of a new contract of employment.75 A new contract was invalid without the approval of
the POEA. According to the CA, Alemaya University was also guilty of substitution of Under Section 1083 of R.A. 8042, workers who are illegally terminated are entitled to
contracts when it required respondent to sign a second contract upon her arrival in their salaries for the unexpired portion of their employment contracts or for three
Ethiopia, and when it attempted in vain to have her sign a third contract demoting her months for every year of the unexpired term, whichever is less, in addition to the
in rank and lowering her salary.76 Considering that a representative of the Ethiopian reimbursement of their placement fee with interest at the rate of 12% per annum.
government went to the Philippines to screen respondent and check her
qualifications, the review of her credentials in Ethiopia was "truly mind A plain reading of the provision reveals that it applies only to an illegally dismissed
boggling."77chanrobleslaw overseas contract worker or a worker dismissed from overseas employment without
just, valid or authorized cause as defined by law or contract.84 The monetary award
As regards the appeal bond before the NLRC, the CA ruled that since petitioner's provided in Section 10 of R.A. 8042 finds no application to cases in which the
check payment was encashed only after the reglementary period within which to overseas Filipino worker was not illegally dismissed.
appeal, the appeal was considered to have been filed out of time. 78 According to the
CA, the rules provide that only a cash or surety bond may be considered as appeal In this case, we find that respondent was not illegally dismissed.
bond, and noncompliance with the rule was fatal to petitioner's cause.
Article X of the POEA-approved Contract of Employment, as well as the second
Petitioner provided the plane ticket from Addis Ababa to the Philippines. However, it contract given to respondent for signing upon her arrival in Ethiopia,
did not reimburse the airfare of respondent from Dire Dawa, her place of work, to provides:chanRoblesvirtualLawlibrary
Addis Ababa. Thus, the CA ordered a reimbursement of the airfare for the latter route, ARTICLE X-TERMINATION
but did not allow the claim for hotel accommodations for lack of sufficient
evidence.79chanrobleslaw 1. This contract may be terminated by the Employer or by the Employee in the case of
breach of the provisions of this Contract and not withstanding [sic]/fulfilling the terms
After its Motion for Reconsideration80 was denied in the challenged and conditions set forth in Article III here of [sic]. In such an event[,] the Employee
Resolution81 dated 24 August 2009, petitioner filed the instant petition before us. shall be entitled to his/her salary and allowances due up to the date of termination.

Issues 2. This contract may be terminated by the Employer in case of illness or disability
1. Whether respondent was illegally dismissed satisfying the conditions set forth in Article VIII (1) here of [sic] and of a duration in
excess of twenty days in any one year. In such an event[,] the Employee shall be
2. Whether the Quitclaim and Release was valid entitled to his/her salary and allowances due up to the date of commencement of said
illness or disability.
3. Whether petitioner's appeal was perfected on time
Our Ruling 3. This contract may be terminated by either party, at any time and for no cause
by giving three months notice to the other party. In such an event[,] the Employee
shall be entitled to his/her salary and allowances only up to the date of termination teaching]."88chanrobleslaw
specified in the said notice of termination. However, the employee shall be fully
engaged in his/her duty in the period notified and up to the last date of In the exercise of the right to terminate a contract without cause, one party need only
termination.85 (Emphasis supplied) to give the other prior written notice as provided in the contract.89 Despite the grounds
Based on the foregoing provisions, the Contract of Employment may be terminated by cited in the notice of termination, Alemaya University opted to take the "no cause"
either party for cause or at any time for no cause, as long as a three-month notice is route in terminating the Contract of Employment. In this case, the contract provided
given to the other party. In the latter case, respondent shall still be fully engaged and that the other party be given a three-month advance notice, a requirement that
entitled to her salary and allowances for the three-month period provided in the notice Alemaya University complied with.
of termination.
It is well to note that the right to terminate the Contract of Employment at will was also
The Contract of Employment signed by respondent is first and foremost a contract, available to respondent, who exercised that right when she signified her change of
which has the force of law between the parties as long as its stipulations are not mind and rejected the job at the Internal Audit Department. This detail was
contrary to law, morals, public order, or public policy. We had occasion to rule that appreciated even by the labor arbiter who found that respondent had quit her job.
stipulations providing that either party may terminate a contract even without cause
are legitimate if exercised in good faith.86 Thus, while either party has the right to It cannot be denied that when respondent accepted the post offered at the Internal
terminate the contract at will, it cannot not act purposely to injure the Audit Department, the parties had decided to revert to the status quo ante of
other.87chanrobleslaw harmonious employment relationship and to do away with the previous termination of
her employment. Respondent's letter to President Kassa is illuminative of this
There is no need to delve on the attempted demotion of respondent for the reason point:chanRoblesvirtualLawlibrary
that she did not have a master's degree. We are more inclined to believe that the Dear Prof. Belay:ChanRoblesVirtualawlibrary
matter regarding respondent's master's degree or her lack thereof was a result of a
mere misunderstanding. While respondent may be fully justified in claiming that she I am glad to accept the job at the Internal Audit Department. It is an honor to work
has a master's degree by virtue of her law degree here in the Philippines, it is clearly under the Office of the President. Be rest assured that I will try my very best to live up
not the master's degree that the Ministry of Education of Ethiopia required. This to your expectations.
matter was not clarified when the representative of the Ministry of Education of
Ethiopia evaluated her qualifications prior to her deployment, and it only became My only concern is the proximity of my residence in Harar to the campus.
apparent upon her arrival in Ethiopia. Thus, the misunderstanding was not the result Convenience is necessary for the effective and efficient performance of my duties and
of bad faith on the part of either party. It is for this reason that their acts regarding the responsibilities. The job is a tough one that will need my full attention and
matter should not be taken against either one of them. In any case, the demotion did concentration. I may make use of Saturdays and Sundays for the job.
not materialize, and respondent maintained her salary and benefits until she was
repatriated. Further, the Harar residence will be very crowded as there will be two families with
children or a total of seventeen (17) persons who will be occupying the said residence
Neither can we impute bad faith on the part of Alemaya University in the exercise of when the family of Ms. Irene Ycoy arrives on the second week of May.
its right to terminate the Contract of Employment at will for several reasons.
In consideration thereof, may I request that I be provided with a separate housing unit
First, we regard the alleged statements of Vice President Alamirew during the inside the campus?
meeting on 27 March 2006 as an isolated personal incident that had nothing to do
with the termination of respondent's employment. Vice President Alamirew later Thank you very much.90
apologized to respondent for the blunder and confessed it was because she thought Nothing in the letter gives the impression that respondent understood that the
respondent led the group protest before the Ministry of Education. engagement was temporary or effective only until the three-month grace period was
through as provided in the termination letter. She even requested a separate housing
Second, while it was Vice President Alamirew who eventually issued the notice of unit inside the campus. As correctly found by the NLRC, the logical conclusion is that
termination, the ground cited therein was respondent's supposed failure to handle her the parties had agreed to let her employment continue in the university under the
teaching load effectively. Respondent had previously caused some inconvenience to Contract of Employment, albeit in a different capacity. When respondent later decided
the management of Alemaya University when she decided to discontinue teaching the that she did not want the new job for personal reasons, she exercised her right to
course assigned to her and spent the rest of the semester without any teaching load terminate the Contract of Employment.
but still with pay. It also alluded to her tendency to insult students, staff, management
and Ethiopians in general. Respondent made a belated unilateral declaration in her letter to President Kassa
dated 27 April 2006. Indeed, her declaration therein that "the advance notice of
Third, respondent never denied the grounds cited in the notice of termination. In fact, termination is still in force and effect"91cannot operate to transfer responsibility for the
in her letter dated 31 March 2006 addressed to Mr. Keno, she affirmed that the termination of the Contract of Employment to Alemaya University. Ultimately, it was
students "told [her] bluntly that they do not want [her] style [of
she who terminated the Contract of Employment, and she cannot now claim that she Nonetheless, we find otherwise and rule that petitioner has complied with the
was illegally dismissed. requirements of the law with regard to the posting of the appeal bond.

II. The posting of a bond for the perfection of an appeal from a decision of the labor
arbiter is required under Article 22898 of the Labor Code, which
The Quitclaim and Release is valid. provides:chanRoblesvirtualLawlibrary
ARTICLE 228. Appeal. Decisions, awards, or orders of the Labor Arbiter are final
We also find that the NLRC did not commit grave abuse of discretion when it and executory unless appealed to the Commission by any or both parties within ten
sustained the validity of the Quitclaim and Release executed by respondent in favor of (10) calendar days from receipt of such decisions, awards, or orders.
petitioner.
xxxx
Where a person executing a waiver or quitclaim has done so voluntarily with a full
understanding of its terms and conditions, coupled with the other person's payment of In case of a judgment involving a monetary award, an appeal by the employer
credible and reasonable consideration, we have no choice on the matter but to uphold may be perfected only upon the posting of a cash or surety bond issued by a
the transaction as valid and binding.92chanrobleslaw reputable bonding company duly accredited by the Commission in the amount
equivalent to the monetary award in the judgment appealed from. (Emphases
In this case, respondent admits that she had a full understanding93 of the terms and supplied)
conditions of the Quitclaim and Release and voluntarily signed it. The bone of The requirement of an appeal bond is further emphasized in Section 6,99 Rule VI of
contention is the reasonableness of the amount of USD 900 as consideration for the the 2011 NLRC Rules of Procedure. This provision clarifies that damages and
waiver of all other purported claims against petitioner. According to respondent, this attorney's fees awarded by the labor arbiter shall not be included in the computation
amount is minimal compared to the USD 5,400 in salaries to which she is entitled for of the bond to be posted.
the unexpired portion of the Contract of Employment. 94chanrobleslaw
In several pronouncements,100 this Court has adopted a particular understanding of
To reiterate, the entitlement to the salaries for the unexpired portion of the the word "only" in the phrase "an appeal by the employer may be perfected only upon
employment contract obtains only for illegally dismissed employees. In view of our the posting of a cash or surety bond." It has regarded the phrase as the legislative's
finding that respondent was not illegally dismissed, she is not entitled to such salaries. unequivocal declaration that the posting of a cash or surety bond is the exclusive
means by which an employer's appeal from a labor arbiter's decision may be
Respondent's contentions that she "was in dire need of cash" 95 and that "[s]he was perfected.
forced by circumstances of need to sign the document" 96 do not qualify as coercion or
undue influence that give rise to a vice of consent. "Dire necessity" is an acceptable The reason for the requirement was also enunciated by the Court in Viron Garments
ground to nullify quitclaims only if the consideration is unconscionably low and the Manufacturing, Co., Inc. v. NLRC,101 in which we said:chanRoblesvirtualLawlibrary
employee was tricked into accepting it.97chanrobleslaw The requirement that the employer post a cash or surety bond to perfect its/his appeal
is apparently intended to assure the workers that if they prevail in the case, they will
As aptly observed by the NLRC, respondent is a learned professional and a teacher receive the money judgment in their favor upon the dismissal of the employer's
no less. Anyone would be hard put to trick her into agreeing to something like signing appeal. It was intended to discourage employers from using an appeal to delay, or
a waiver. In this case, no proof was presented to show that petitioner had defrauded even evade, their obligation to satisfy their employees' just and lawful claims.102
or deceived her into signing the document. Absent that proof, we are bound to uphold Proceeding from this rationale, the intention of the requirement is fulfilled when the
the Quitclaim and Release as valid and binding. employer is able to deposit with the NLRC an amount that is equivalent to the
monetary award adjudged by the labor arbiter in the employee's favor, and that shall
III. subsist until the final resolution of the appeal.

Petitioner's appeal was perfected on time. In People's Broadcasting v. Secretary of the DOLE,103 we ruled that the Deed of
Assignment of savings made by the employer in favor of the employee validly served
According to respondent, the check issued by petitioner for the appeal bond was the purpose of an appeal bond. We said that the posting of the bond in this manner
presented for payment only on the last day of the period for appeal from the Decision insured, during the period of appeal, against any occurrence that would defeat or
of the labor arbiter. Given that checks have the effect of payment only when they diminish the monetary judgment in favor of the employee if the judgment is eventually
have been encashed - which takes three banking days from the time they are affirmed.104chanrobleslaw
presented for payment - the appeal bond was actually posted beyond the
reglementary period for appeal. That being the case, the appeal was not perfected, In this case, there is no question that the NLRC accepted the appeal bond posted by
and the labor arbiter's ruling attained finality. This position was sustained by the CA. petitioner through a current-dated check, as evidenced by Official Receipt No.
0701550 dated 20 April 2007.105 That check was deposited to the bank account of the
NLRC on 23 April 2007 without incident.106 Furthermore, respondent has never
disputed the sufficiency of the bond posted or petitioner's manifestation before us that
"up to the present, the cash bond posted x x x is still in effect and remains in the
coffers of the x x x NLRC and is susceptible to execution in the unfortunate event that
this Petition fails."107chanrobleslaw

To our mind, the appeal of petitioner has been perfected on time by virtue of its
compliance with the appeal bond requirement. We note that its payment of the appeal
bond through the issuance of a check was not even an issue before the NLRC. The
latter had given due course to petitioner's appeal without any indication of having
found any defect in the appeal bond posted.

Nevertheless, we have had occasion to rule that the appeal bond requirement for
judgments involving monetary awards may be relaxed in meritorious cases,108 as in
instances when a liberal interpretation would serve the desired objective of resolving
controversies on the merits.109 In the recent Balite v. SS Ventures International,
Inc.,110 we recognized that there was a need "to strike a balance between the
constitutional obligation of the state to afford protection to labor on the one hand, and
the opportunity afforded to the employer to appeal on the other." 111 In this kind of
undertaking, the Court is justified in giving employers the amplest opportunity to
pursue their cause while ensuring that employees will receive the money judgment
should the case be ultimately decided in their favor.

We do not see why the same liberality - if at all needed - cannot be applied to this
case in particular, in which it is clear that respondent's allegations of illegal dismissal
and money claims are unfounded. In fine, the CA committed an error when it ascribed
grave abuse of discretion on the part of the NLRC when the latter ruled in favor of
petitioner.

WHEREFORE, the Court of Appeals Decision dated 29 May 2009 and Resolution
dated 24 August 2009 in CA-G.R. SP No. 107378 are REVERSED and SET ASIDE.
The Decision dated 30 July 2008 issued by the National Labor Relations Commission
in NLRC CA No. 052466-07 (5), dismissing respondent's complaint, is REINSTATED.

SO ORDERED.cralawlawlibrary
TWO HUNDRED FORTY THOUSAND PESOS (P240,000.00), Philippine
THIRD DIVISION currency, shall be due and payable upon the execution of this Agreement
and the succeeding annual rents shall be payable every twelve (12) months
thereafter during the effectivity of this Agreement.

[G.R. No. 116896. May 5, 1997] 4. USE OF LEASED PROPERTY - It is understood that the Property shall be
used by the LESSEE as the site, grounds and premises of a rock crushing
plant and field office, sleeping quarters and canteen/mess hall. The
LESSORS hereby grant to the LESSEE the right to erect on the Leased
PHILIPPINE NATIONAL CONSTRUCTION CORPORATION petitioner, vs. COURT Property such structure(s) and/or improvement(s) necessary for or incidental
OF APPEALS, MA. TERESA S. RAYMUNDO-ABARRA, JOSE S. to the LESSEE's purposes.
RAYMUNDO, ANTONIO S. RAYMUNDO, RENE S. RAYMUNDO, and
AMADOR S. RAYMUNDO, respondents. ...

DECISION 11. TERMINATION OF LEASE - This Agreement may be terminated by mutual


agreement of the parties. Upon the termination or expiration of the period of
DAVIDE, JR., J.: lease without the same being renewed, the LESSEE shall vacate the
Leased Property at its expense.
This petition for review on certiorari has its roots in Civil Case No. 53444, which
was sparked by the petitioner's refusal to pay the rentals as stipulated in the contract On 7 January 1986, petitioner obtained from the Ministry of Human Settlements
of lease[1] on an undivided portion of 30,000 square meters of a parcel of land owned a Temporary Use Permit[2] for the proposed rock crushing project. The permit was to
by the private respondents. be valid for two years unless sooner revoked by the Ministry.
The lease contract, executed on 18 November 1985, reads in part as follows: On 16 January 1986, private respondents wrote petitioner requesting payment of
the first annual rental in the amount of P240,000 which was due and payable upon the
1. TERM OF LEASE - This lease shall be for a period of five (5) years, execution of the contract. They also assured the latter that they had already stopped
commencing on the date of issuance of the industrial clearance by the considering the proposals of other aggregates plants to lease the property because of
Ministry of Human Settlements, renewable for a like or other period at the the existing contract with petitioner.[3]
option of the LESSEE under the same terms and conditions.
In its reply-letter, petitioner argued that under paragraph 1 of the lease contract,
payment of rental would commence on the date of the issuance of an industrial
2. RATE OF RENT - LESSEE shall pay to the LESSOR rent at the monthly rate clearance by the Ministry of Human Settlements, and not from the date of signing of
of TWENTY THOUSAND PESOS (P20,000.00), Philippine Currency, in the the contract. It then expressed its intention to terminate the contract, as it had decided
manner set forth in Paragraph 3 below. This rate shall be increased yearly to cancel or discontinue with the rock crushing project "due to financial, as well as
by Five Percent (5%) based on the agreed monthly rate of P20,000.00 as technical, difficulties."[4]
follows:
The private respondents refused to accede to petitioner's request for the
Monthly Rate Period Applicable pretermination of the lease contract. They insisted on the performance of petitioner's
obligation and reiterated their demand for the payment of the first annual rental. [5]
P21,000.00 Starting on the 2nd year Petitioner objected to the claim of the private respondents and argued that it was
"only obligated to pay ... the amount of P20,000.00 as rental payments for the one-
P22,000.00 Starting on the 3rd year month period of lease, counted from 07 January 1986 when the Industrial Permit was
issued by the Ministry of Human Settlements up to 07 February 1986 when the Notice
of Termination was served"[6] on private respondents.
P23,000.00 Starting on the 4th year
On 19 May 1986, the private respondents instituted with the Regional Trial Court
P24,000.00 Starting on the 5th year of Pasig an action against petitioner for Specific Performance with Damages. [7] The
case was docketed as Civil Case No. 53444 at Branch 160 of the said court. After the
filing by petitioner of its Answer with Counterclaim, the case was set for trial on the
3. TERMS OF PAYMENT - The rent stipulated in Paragraph 2 above shall be merits.
paid yearly in advance by the LESSEE. The first annual rent in the amount of
What transpired next was summarized by the trial court in this wise: suspensive condition without which the rights under the contract would not be
acquired. The Temporary Use Permit is not the industrial clearance referred to in the
Plaintiffs rested their case on September 7, 1987 (p. 87 rec.). Defendant asked for contract; for the said permit requires that a clearance from the National Production
postponement of the reception of its evidence scheduled on August 10, 1988 and as Control Commission be first secured, and besides, there is a finding in the permit that
prayed for, was reset to August 25, 1988 (p. 91 rec.) Counsel for defendant again the proposed project does not conform to the Zoning Ordinance of Rodriguez, (formerly
asked for postponement, through representative, as he was presently indisposed. The Montalban), Rizal, where the leased property is located. Without the industrial
case was reset, intransferable to September 15 and 26, 1988 (p. 94 rec.) On clearance the lease contract could not become effective and petitioner could not be
September 2, 1988, the office of the Government Corporate Counsel entered its compelled to perform its obligation under the contract.
appearance for defendant (p. 95, rec.) and the original counsel later withdrew his Petitioner is now estopped from claiming that the Temporary Use Permit was not
appearance. On September 15, 1988 the Government Corporate Counsel asked for the industrial clearance contemplated in the contract. In its letter dated 24 April 1986,
postponement, represented by Atty. Elpidio de Vega, and with his conformity in open petitioner states:
court, the hearing was reset, intransferable to September 26 and October 17,
1988. (p. 98, rec.) On September 26, 1988 during the hearing, defendant's counsel
filed a motion for postponement (urgent) as he had "sore eyes", a medical certificate We wish to reiterate PNCC Management's previous stand that it is only
attached. obligated to pay your clients the amount of P20,000.00 as rental payments for
the one-month period of the lease, counted from 07 January 1986 when the
Industrial Permit was issued by the Ministry of Human Settlements up to 07
Counsel for plaintiffs objected to the postponement and the court considered the February 1986 when the Notice of Termination was served on your
evidence of the government terminated or waived. The case was deemed submitted clients.[11] (Underscoring Supplied).
for decision upon the filing of the memorandum. Plaintiffs filed their memorandum on
October 26, 1988. (p. 111, rec.).
The "Industrial Permit" mentioned in the said letter could only refer to the Temporary
Use Permit issued by the Ministry of Human Settlements on 7 January 1986. And it can
On October 18, 1988 in the meantime, the defendant filed a motion for be gleaned from this letter that petitioner has considered the permit as industrial
reconsideration of the order of the court on September 26, 1988 (p. 107, rec.)The clearance; otherwise, petitioner could have simply told the private respondents that its
motion was not asked to be set for hearing (p. 110 rec.) There was also no proof of obligation to pay rentals has not yet arisen because the Temporary Use Permit is not
notice and service to counsel for plaintiff. The court in the interest of justice set the the industrial clearance contemplated by them. Instead, petitioner recognized its
hearing on the motion on November 29, 1988. (p. 120, rec.) but despite notice, again obligation to pay rental counted from the date the permit was issued.
defendant's counsel was absent (p. 120-A, dorsal side, rec.) without reason. The
court reset the motion to December 16, 1988, in the interest of justice. The motion for Also worth noting is the earlier letter of petitioner; thus:
reconsideration was denied by the court. A second motion for reconsideration was
filed and counsel set for hearing the motion on January 19, 1989. During the hearing, [P]lease be advised of PNCC Management's decision to cancel or
counsel for the government was absent. The motion was deemed abandoned but the discontinue with the rock crushing project due to financial as well as
court at any rate, after a review of the incidents and the grounds relied upon in the technical difficulties. In view thereof, we would like to terminate our Lease
earlier motion of defendant, found no reason to disturb its previous order.[8] Contract dated 18 November, 1985. Should you agree to the mutual
termination of our Lease Contract, kindly indicate your conformity hereto by
affixing your signature on the space provided below.May we likewise request
On 12 April 1989, the trial court rendered a decision ordering petitioner to pay the Messrs. Rene, Jose and Antonio, all surnamed Raymundo and Mrs. Socorro
private respondents the amount of P492,000 which represented the rentals for two A. Raymundo as Attorney-in-Fact of Amador S. Raymundo to sign on the
years, with legal interest from 7 January 1986 until the amount was fully paid, plus spaces indicated below.[12]
attorney's fees in the amount of P20,000 and costs.[9]
It can be deduced from this letter that the suspensive condition - issuance of
Petitioner then appealed to the Court of Appeals alleging that the trial court erred industrial clearance - has already been fulfilled and that the lease contract has become
in ordering it to pay the private respondent the amount of P492,000 and in denying it operative. Otherwise, petitioner did not have to solicit the conformity of the private
the right to be heard. respondents to the termination of the contract for the simple reason that no juridical
Upon the affirmance of the trial court's decision[10] and the denial of its motion for relation was created because of the non-fulfillment of the condition.
reconsideration, petitioner came to this Court ascribing to the respondent Court of Moreover, the reason of petitioner in discontinuing with its project and in
Appeals the same alleged errors and reiterating their arguments. consequently cancelling the lease contract was financial as well as technical difficulties,
First. Petitioner invites the attention of this Court to paragraph 1 of the lease not the alleged insufficiency of the Temporary Use Permit.
contract, which reads: "This lease shall be for a period of five (5) years, commencing Second. Invoking Article 1266 and the principle of rebus sic stantibus, petitioner
on the date of issuance of the industrial clearance by the Ministry of Human asserts that it should be released from the obligatory force of the contract of lease
Settlements...." It then submits that the issuance of an industrial clearance is a because the purpose of the contract did not materialize due to unforeseen events and
causes beyond its control, i.e., due to abrupt change in political climate after the EDSA demonstrations, unprecedented, inflation, peace and order deterioration, the
Revolution and financial difficulties. Aquino trial and many other things that brought about the hatred of people
even against crony corporations. On November 3, 1985, Pres. Marcos,
It is a fundamental rule that contracts, once perfected, bind both contracting being interviewed live on U.S. television announced that there would be a
parties, and obligations arising therefrom have the force of law between the parties and snap election scheduled for February 7, 1986.
should be complied with in good faith.[13] But the law recognizes exceptions to the
principle of the obligatory force of contracts. One exception is laid down in Article 1266 On November 18, 1985, notwithstanding the above, petitioner PNCC
of the Civil Code, which reads: "The debtor in obligations to do shall also be released entered into the contract of lease with private respondents with open eyes of
when the prestation becomes legally or physically impossible without the fault of the the deteriorating conditions of the country.
obligor."
Anent petitioners alleged poor financial condition, the same will neither release
Petitioner cannot, however, successfully take refuge in the said article, since it is petitioner from the binding effect of the contract of lease. As held in Central Bank v.
applicable only to obligations "to do", and not to obligations "to give". [14] An obligation Court of Appeals,[22] cited by the private respondents, mere pecuniary inability to fulfill
"to do" includes all kinds of work or service; while an obligation "to give" is a prestation an engagement does not discharge a contractual obligation, nor does it constitute a
which consists in the delivery of a movable or an immovable thing in order to create a defense to an action for specific performance.
real right, or for the use of the recipient, or for its simple possession, or in order to return
it to its owner.[15] With regard to the non-materialization of petitioners particular purpose in entering
into the contract of lease, i.e., to use the leased premises as a site of a rock crushing
The obligation to pay rentals[16] or deliver the thing in a contract of lease [17] falls plant, the same will not invalidate the contract. The cause or essential purpose in a
within the prestation to give; hence, it is not covered within the scope of Article 1266. At contract of lease is the use or enjoyment of a thing.[23] As a general principle, the motive
any rate, the unforeseen event and causes mentioned by petitioner are not the legal or or particular purpose of a party in entering into a contract does not affect the validity or
physical impossibilities contemplated in said article. Besides, petitioner failed to state existence of the contract; an exception is when the realization of such motive or
specifically the circumstances brought about by the abrupt change in the political particular purpose has been made a condition upon which the contract is made to
climate in the country except the alleged prevailing uncertainties in government policies depend.[24] The exception is not apply here.
on infrastructure projects.
Third. According to petitioner, the award of P492,000 representing the rent for two
The principle of rebus sic stantibus[18] neither fits in with the facts of the years is excessive, considering that it did not benefit from the property. Besides, the
case. Under this theory, the parties stipulate in the light of certain prevailing conditions, temporary permit, conformably with the express provision therein, was deemed
and once these conditions cease to exist the contract also ceases to exist. [19] This automatically revoked for failure of petitioner to use the same within one year from the
theory is said to be the basis of Article 1267 of the Civil Code, which provides: issuance thereof. Hence, the rent payable should only be for one year.
ART. 1267. When the service has become so difficult as to be manifestly Petitioner cannot be heard to complain that the award is excessive. The
beyond the contemplation of the parties, the obligor may also be released temporary permit was valid for two years but was automatically revoked because of its
therefrom, in whole or in part. non-use within one year from its issuance. The non-use of the permit and the non-entry
into the property subject of the lease contract were both imputable to petitioner and
This article, which enunciates the doctrine of unforeseen events, is not, however, cannot, therefore, be taken advantage of in order to evade or lessen petitioners
an absolute application of the principle of rebus sic stantibus, which would endanger monetary obligation. The damage or prejudice to private respondents is beyond
the security of contractual relations. The parties to the contract must be presumed to dispute. They unquestionably suffered pecuniary losses because of their inability to use
have assumed the risks of unfavorable developments. It is therefore only in absolutely the leased premises. Thus, in accordance with Article 1659 of the Civil Code,[25] they
exceptional changes of circumstances that equity demands assistance for the are entitled to indemnification for damages; and the award of P492,000 is fair and just
debtor.[20] under the circumstances of the case.
In this case, petitioner wants this Court to believe that the abrupt change in the Finally, petitioner submits that the trial court gravely abused its discretion in
political climate of the country after the EDSA Revolution and its poor financial condition denying petitioner the right to be heard.
rendered the performance of the lease contract impractical and inimical to the corporate
survival of the petitioner. We disagree. The trial court was in fact liberal in granting several
postponements[26] to petitioner before it deemed terminated and waived the
This Court cannot subscribe to this argument. As pointed out by private presentation of evidence in petitioners behalf.
respondents:[21]
It must be recalled that private respondents rested their case on 7 September
It is a matter of record that petitioner PNCC entered into a contract with 1987 yet.[27] Almost a year after, or on 10 August 1988 when it was petitioners turn to
private respondents on November 18, 1985. Prior thereto, it is of judicial present evidence, petitioners counsel asked for postponement of the hearing to 25
notice that after the assassination of Senator Aquino on August 21, 1983, August 1988 due to conflict of schedules,[28] and this was granted.[29] At the
the country has experienced political upheavals, turmoils, almost daily mass rescheduled hearing, petitioners counsel, through a representative, moved anew for
postponement, as he was allegedly indisposed.[30] The case was then reset
intransferable to September 15 and 26, 1988.[31] On 2 September 1988, the Office of
the Government Corporate Counsel, through Atty. Elpidio J. Vega, entered its
appearance for the petitioner,[32] and later the original counsel withdrew his
appearance.[33] On 15 September 1988, Atty. Vega requested for postponement to
enable him to go over the records of the case.[34] With his conformity, the hearing was
reset intransferable to September 26 and October 17, 1988. [35] In the morning of 26
September 1988, the court received Atty. Vegas Urgent Motion for Postponement on
the ground that he was afflicted with conjunctivitis or sore eyes. [36] This time, private
respondents objected; and upon their motion, the court deemed terminated and waived
the presentation of evidence for the petitioner.[37] Nevertheless, before the court
considered the case submitted for decision, it required the parties to submit their
respective memoranda within thirty days.[38] But petitioner failed to file one.
Likewise, the court was liberal in respect to petitioners motion for
reconsideration. Notwithstanding the lack of request for hearing and proof of notice and
service to private respondents, the court set the hearing of the said motion on 29
November 1988.[39] Upon the denial of the said motion for lack of merit,[40] petitioner
filed a second motion for reconsideration. But during the hearing of the motion on a
date selected by him, Atty. Vega was absent for no reason at all, despite due notice. [41]
From the foregoing narration of procedural antecedents, it cannot be said that the
petitioner was deprived of its day in court. The essence of due process is simply an
opportunity to be heard.[42] To be heard does not only mean oral arguments in court;
one may be heard also through pleadings. Where opportunity to be heard, either
through oral arguments or pleadings, is accorded, there is no denial of procedural due
process.[43]
WHEREFORE, the instant petition is DENIED and the challenged decision of the
Court of Appeals is AFFIRMED in toto.
No pronouncements as to costs.
SO ORDERED
EN BANC 3. Costs of the suit.

THIRD DIVISION SO ORDERED.[7]

On February 14, 2005, Santos moved for execution pending Comglasco's appeal,
[ G.R. No. 202989, March 25, 2015 ] which the trial court granted on May 12, 2005. In its appeal, Comglasco interposed
the following issues for resolution:
COMGLASCO CORPORATION/AGUILA GLASS, PETITIONER, VS. SANTOS CAR
CHECK CENTER CORPORATION, RESPONDENT.

DECISION 1. Whether or not judgment on the pleadings was properly invoked by the trial
court as basis for rendering its decision;
REYES, J.: 2. Whether or not material issues were raised in [Comglasco's] Answer;
3. Whether or not damages may be granted by the trial court without proof and
On August 16, 2000, respondent Santos Car Check Center Corporation (Santos),
legal basis.[8]
owner of a showroom located at 75 Delgado Street, in Iloilo City, leased out the said
space to petitioner Comglasco Corporation (Comglasco), an entity engaged in the
sale, replacement and repair of automobile windshields, for a period of five years at a
monthly rental of P60,000.00 for the first year, P66,000.00 on the second year, and In its Decision[9] dated August 10, 2011, the Court of Appeals (CA) affirmed the
P72,600.00 on the third through fifth years.[1] judgment of the RTC but reduced the award of attorney's fees to P100,000.00 and
deleted the award of litigation expenses and exemplary damages.
On October 4, 2001, Comglasco advised Santos through a letter[2] that it was pre-
terminating their lease contract effective December 1, 2001. Santos refused to
accede to the pre-termination, reminding Comglasco that their contract was for five Petition for Review to the Supreme Court
years. On January 15, 2002, Comglasco vacated the leased premises and stopped
paying any further rentals. Santos sent several demand letters, which Comglasco In this petition, Comglasco raises the following issues:
completely ignored. On September 15, 2003, Santos sent its final demand
letter,[3] which Comglasco again ignored. On October 20, 2003, Santos filed suit for
breach of contract.[4]
1. Whether or not judgment on the pleadings was properly invoked by the trial
Summons and a copy of the complaint, along with the annexes, were served on court as basis for rendering its decision?
Comglasco on January 21, 2004, but it moved to dismiss the complaint for improper 2. Whether or not material issues were raised in [Comglasco's] answer?
service. The Regional Trial Court (RTC) of Iloilo City, Branch 37, dismissed the 3. Whether or not summary judgment or judgment on the pleadings is the
motion and ordered the summons served anew. On June 28, 2004, Comglasco filed proper remedy for [Santos] under the circumstances of the present case?
its Answer.[5] Santos moved for a judgment on the pleadings, which the RTC 4. Whether or not the amount deposited for advance rental and deposit should
granted. On August 18, 2004, the trial court rendered its judgment, [6] the dispositive be credited to [Comglasco's] account?
portion of which reads: 5. Whether or not attorney's fees may be granted by the trial court without proof
and legal basis?[10]

WHEREFORE, judgment is hereby rendered in favor of [Santos] and against


[Comglasco]:
Paragraph 15 of the parties' lease contract[11] permits pre-termination with cause in
1. Ordering [Comglasco] to faithfully comply with [its] obligation under the Contract of the first three years and without cause after the third year. Citing business reverses
Lease and pay its unpaid rentals starting January 16, 2002 to August 15, 2003 in the which it ascribed to the 1997 Asian financial crisis, Comglasco insists that under
total amount of Php1,333,200.00, plus 12% interest per annum until fully paid; Article 1267 of the Civil Code it is exempted from its obligation under the contract,
because its business setback is the "cause" contemplated in their lease which
2. To pay [Santos]: authorized it to pre-terminate the same. Article 1267 provides:

a) Php200,000.00 as attorney's fees;


b) [Php]50,000.00 as litigation expenses; Art. 1267. When the service has become so difficult as to be manifestly beyond the
c) [Php]400,000.00 as exemplary damages. contemplation of the parties, the obligor may also be released therefrom, in whole or
in part.
This article, which enunciates the doctrine of unforeseen events, is not, however, an
Comglasco argues that it cannot be said to have admitted in its Answer the material absolute application of the principle of rebus sic stantibus, which would endanger the
allegations of the complaint precisely because it invoked therein a valid cause for its security of contractual relations. The parties to the contract must be presumed to
decision to pre-terminate the lease before the lapse of three years; that therefore, in have assumed the risks of unfavorable developments. It is therefore only in
view of its pleaded "cause" for reneging on its rentals (the 1997 Asian financial crisis), absolutely exceptional changes of circumstances that equity demands assistance for
the RTC should have ordered the reception of evidence for this purpose, after which a the debtor.
summary judgment would then have been proper, not a judgment on the
pleadings. After all, Santos has claimed in its Motion for Summary Judgment that In this case, petitioner wants this Court to believe that the abrupt change in the
Comglasco's cited "cause" for pre-termination was fictitious or a sham, whereas in political climate of the country after the EDSA Revolution and its poor financial
truth the prevailing business climate which ensued after the 1997 currency crisis condition "rendered the performance of the lease contract impractical and inimical to
resulted in great difficulty on its part to comply with the terms of the lease "as to be the corporate survival of the petitioner."
manifestly beyond the contemplation of the parties"; thus, Comglasco should be
deemed released from the lease. This Court cannot subscribe to this argument. As pointed out by private respondents:

Next, Comglasco insists that its advance rentals and deposit totaling P309,000.00 xxxx
should be deducted from any sum awarded to Santos while it also insists that there is
no factual and legal basis for the award of damages. Anent petitioner's alleged poor financial condition, the same will neither release
petitioner from the binding effect of the contract of lease. As held in Central Bank v.
Court of Appeals, cited by private respondents, mere pecuniary inability to fulfill an
Ruling of the Court engagement does not discharge a contractual obligation, nor does it constitute a
defense to an action for specific performance.[14]
The petition is denied.
Relying on Article 1267 of the Civil Code to justify its decision to pre-terminate
The first three issues being related will be discussed together. its lease with Santos, Comglasco invokes the 1997 Asian currency crisis as causing it
much difficulty in meeting its obligations. But in PNCC,[15] the Court held that the
Comglasco maintains that the RTC was wrong to rule that its answer to Santos' payment of lease rentals does not involve a prestation "to do" envisaged in Articles
complaint tendered no issue, or admitted the material allegations therein; that the 1266 and 1267 which has been
court should have heard it out on the reason it invoked to justify its action to pre- rendered legally or physically impossible without the fault of the obligor-
terminate the parties' lease; that therefore a summary judgment would have been the lessor. Article 1267 speaks of a prestation involving service which has been rendered
proper recourse, after a hearing. so difficult by unforeseen subsequent events as to be manifestly beyond the
contemplation of the parties. To be sure, the Asian currency crisis befell the region
In Philippine National Construction Corporation v. CA[12] (PNCC), which also involves from July 1997 and for sometime thereafter, but Comglasco cannot be permitted to
the termination of a lease of property by the lessee "due to financial, as well as blame its difficulties on the said regional economic phenomenon because it entered
technical, difficulties,"[13] the Court ruled: into the subject lease only on August 16, 2000, more than three years after it began,
and by then Comglasco had known what business risks it assumed when it opened a
new shop in Iloilo City.
The obligation to pay rentals or deliver the thing in a contract of lease falls within the
prestation "to give"; hence, it is not covered within the scope of Article 1266. At any This situation is no different from the Court's finding in PNCC wherein PNCC cited the
rate, the unforeseen event and causes mentioned by petitioner are not the legal or assassination of Senator Benigno Aquino Jr. (Senator Aquino) on August 21, 1983
physical impossibilities contemplated in said article. Besides, petitioner failed to state and the ensuing national political and economic crises as putting it in such a difficult
specifically the circumstances brought about by "the abrupt change in the political business climate that it should be deemed released from its lease contract. The
climate in the country" except the alleged prevailing uncertainties in government Court held that the political upheavals, turmoils, almost daily mass demonstrations,
policies on infrastructure projects. unprecedented inflation, and peace and order deterioration which followed Senator
Aquino's death were a matter of judicial notice, yet despite this business climate,
The principle of rebus sic stantibus neither fits in with the facts of the case. Under this PNCC knowingly entered into a lease with therein respondents on November 18,
theory, the parties stipulate in the light of certain prevailing conditions, and once these 1985, doing so with open eyes of the deteriorating conditions of the country. The
conditions cease to exist, the contract also ceases to exist. This theory is said to be Court rules now, as in PNCC, that there are no "absolutely exceptional changes of
the basis of Article 1267 of the Civil Code, which provides: circumstances that equity demands assistance for the debtor." [16]

Art. 1267. When the service has become so difficult as to be manifestly beyond the As found by the CA, Comglasco's Answer admitted the material allegations in the
contemplation of the parties, the obligor may also be released therefrom, in whole or complaint, to wit: a) that Santos holds absolute title to a showroom space; b) that
in part. Comglasco leased the said showroom from Santos; c) that after a little over a year,
Comglasco pre-terminated the lease; d) that, disregarding Santos' rejection of the agrees with the CA that the lesser amount of P100,000.00 it awarded to Santos
pre-termination of their lease, Comglasco vacated the leased premises on January instead of P200,000.00 adjudged by the RTC, is more reasonable.
15, 2002; e) that Comglasco never denied the existence and validity of the parties'
lease contract. Specifically, the CA noted that Paragraph 2 of the Answer admitted WHEREFORE, premises considered, the petition is DENIED for lack of merit.
the allegations in Paragraphs 2, 3 and 4 of the complaint that the lease was for five
years, starting on August 16, 2000 and to expire on August 15, 2005, at a monthly SO ORDERED.
rental of P60,000.00 on the first year, P66,000.00 on the second year, and
P72,600.00 on the third up to the fifth year.

The RTC acted correctly in resorting to Section 1 of Rule 34, on Judgment on the
Pleadings, to cut short a needless trial. This Court agrees with the CA that
Comglasco cannot cite Article 1267 of the Civil Code, and that it must be deemed to
have admitted the material allegations in the complaint. Section 1, Rule 34 reads:

Sec. 1. Judgment on the pleadings. - Where an answer fails to tender an issue, or


otherwise admits the material allegations of the adverse party's pleading, the court
may, on motion of that party, direct judgment on such pleading. However, in actions
for declaration of nullity or annulment of marriage or for legal separation, the material
facts alleged in the complaint shall always be proved.

A judgment on the pleadings is a judgment on the facts as pleaded, [17] and is based
exclusively upon the allegations appearing in the pleadings of the parties and the
accompanying annexes.[18] It is settled that the trial court has the discretion to grant a
motion for judgment on the pleadings filed by a party if there is no controverted matter
in the case after the answer is filed.[19] A genuine issue of fact is that which requires
the presentation of evidence, as distinguished from a sham, fictitious, contrived or
false issue.[20] Come to think of it, under Rule 35, on Summary Judgments,
Comglasco had recourse to move for summary judgment, wherein it could have
adduced supporting evidence to justify its action on the parties' lease, but it did not do
so. Section 2 of Rule 35 provides:

Sec. 2. Summary judgment for defending party. - A party against whom a claim,
counterclaim, or cross-claim is asserted or a declaratory relief is sought may, at any
time, move with supporting affidavits, depositions or admissions for a summary
judgment in his favor as to all or any part thereof.

Concerning, now, whether Comglasco's alleged rental deposit and advance rentals of
P309,000.00 should be credited to Comglasco's account, let it suffice to state that it
never raised this matter in its answer to the complaint, nor in its appeal to the
CA. Certainly, it cannot do so now.

Finally, as to whether attorney's fees may be recovered by Santos, Article 2208(2) of


the Civil Code justifies the award thereof, in the absence of stipulation, where the
defendant's act or omission has compelled the plaintiff to incur expenses to protect
his interest. The pre-termination of the lease by Comglasco was not due to any fault
of Santos, and Comglasco completely ignored all four demands of Santos to pay the
rentals due from January 16, 2002 to August 15, 2003, thereby compelling Santos to
sue to obtain relief. It is true that the policy of the Court is that no premium should be
placed on the right to litigate,[21] but it is also true that attorney's fees are in the nature
of actual damages, the reason being that litigation costs money. [22] But the Court
In his letter dated November 12, 1979,7 the respondent notified the petitioner that he
FIRST DIVISION was suspending his amortizations because the amenities had not been constructed in
accordance with the undertaking. Despite receipt of the respondent's other
communications requesting updates on the progress of the construction of the
G.R. No. 160033, July 01, 2015 amenities so that he could resume his amortization,8 the petitioner did not reply.
Instead, on June 10, 1985, the petitioner sent to him a statement of account
TAGAYTAY REALTY CO., INC., Petitioner, v. ARTURO G. GACUTAN, Respondent. demanding the balance of the price, plus interest and penalty. 9 He refused to pay the
interest and penalty.
DECISION
On October 4, 1990, the respondent sued the petitioner for specific performance in
the HLURB, praying that the petitioner be ordered to accept his payment of the
BERSAMIN, J.: balance of the contract without interest and penalty, and to deliver to him the title of
the property.10cralawrednad
The Court reiterates the right of the installment buyer of a subdivision lot to withhold
payment of his amortizations for the duration that the subdivision developer has not In its answer,11 the petitioner sought to be excused from performing its obligations
complied with its contractual undertaking to build the promised amenities in the under the contract, invoking Article 1267 of the Civil Code as its basis. It contended
subdivision. that the depreciation of the Philippine Peso since the time of the execution of the
contract, the increase in the cost of labor and construction materials, and the increase
The Case in the value of the lot in question were valid justifications for its release from the
obligation to construct the amenities.
On appeal by the subdivision developer is the decision promulgated on May 29,
2003,1 whereby the Court of Appeals (CA) upheld the ruling in favor of the installment In its positiOn paper,12 the petitiOner stated that it had purposely suspended the
buyer issued on December 6, 2001 by the Office of the President (OP). 2 By such construction of the amenities which would have deteriorated at any rate because its
ruling, the OP affirmed the July 14, 1997 decision3 rendered by the Housing and Land lot buyers had not constructed their houses in the subdivision.
Use Regulatory Board (HLURB) Board of Commissioners adopting the HLURB
Arbiter's decision dated March 22, 1995.4cralawrednad On March 22, 1995, the HLURB Arbiter ruled m favor of the respondent,13 to
wit:cralawlawlibrary
Antecedents WHEREFORE, premises considered, respondents are hereby ordered to accept the
payment of the balance of the contract price in the amount of Eight Thousand Five
Hundred Eighty Seven and 80/100 Pesos (P8,587.80) without regular and penalty
On September 6, 1976, the respondent entered into a contract to sell with the
interest and, thereafter, to execute and deliver to complainant the absolute deed of
petitioner for the purchase on installment of a residential lot with an area of 308
square meters situated in the Foggy Heights Subdivision then being developed by the sale covering the sale of property subj,ct of this complaint, together with the valid title
petitioner.5 Earlier, on June 30, 1976, the petitioner executed an express undertaking over the said lot.14
The petitioner appealed, but the HLURB Board of Commissioners affirmed the ruling
in favor of the respondent, as follows:6
of the HLURB Arbiter on July 14, 1997.15 Upon the denial of its motion for
We hereby undertake to complete the development of the roads, curbs, gutters,
reconsideration, the petitioner appealed to the OP.16cralawrednad
drainage system, water and electrical systems, as well as all the amenities to be
introduced in FOGGY HEIGHTS SUBDIVISION, such as, swimming pool, pelota
On December 6, 2001, the OP upheld the decision of the HLURB Board of
court, tennis and/or basketball court, bath house, children's playground and a
Commissioners.17 The OP later denied the petitioner's motion for
clubhouse within a period of two years from 15 July 1976, on the understanding that
reconsideration.18cralawrednad
failure on their part to complete such development within the stipulated period shall
give the VENDEE the option to suspend payment of the monthly amortization on the
On appeal, the CA affirmed the OP through the assailed decision promulgated on
lot/s he/she purchased until completion of such development without incurring penalty
May 29, 2003,19disposing:cralawlawlibrary
interest.
WHEREFORE, premises considered and finding no reversible error in the challenged
It is clearly understood, however, that the period or periods during which we cannot Decision and Order dated December 6, 2001, and July 1, 2002, respectively, of the
pursue said development by reason of any act of God, any act or event constituting Office of the President in OP Case No. 98-C-8261 said Decision and Order
are AFFIRMED and UPHELD, and the petition is DISMISSED for lack of merit.
force majeure or fortuitous event, or any restriction, regulation, or prohibition by the
government or any of its branches or instrumentalities, shall suspend the running of
SO ORDERED.20
said 2-year period and the running thereof shall resume upon the cessation of the
cause of the stoppage or suspension of said development. The CA denied the petitioner's motion for reconsideration. 21cralawrednad

Issues
could unilaterally and upon his own exclusive volition escape his obligations under the
In this appeal by petition for review on certiorari, the petitioner contends that the CA contract unless for causes sufficient in law and pronounced adequate by a competent
erred in affirming the incorrect findings of the OP in a way probably not in accord with tribunal; that correlative to Article 1159 is Article 1308 of the Civil Code which holds
law; and in declaring that the respondent was not guilty of laches. that the validity or compliance of a contract cannot be left to the will of one party; that
a party could not revoke or renounce a contract without the consent of the other, nor
The petitioner submits that the CA, by observing that the petitioner did not fulfill its could a party have a contract set aside on the ground that he had made a bad
obligation to finish the subdivision project and that it had itself admitted not having bargain; that he was not liable for the interest because it was not expressly stipulated
finished the project, did not consider that it must be discharged because extraordinary in the contract pursuant to Article 1956 of the Civil Code; that no penalty should be
and unforeseeable circumstances had rendered its duty to perform its obligation so imposed on him by virtue of the undertaking clearly stating that the two-year period for
onerous that to insist on the performance would have resulted in its economic ruin; the completion of the amenities would be suspended only if the development could
that the Court should consider the practical circumstances surrounding the not be pursued "by reason of any act God, any act or event constituting force majeure
construction of the luxurious amenities of the project; that the luxurious amenities of or fortuitous event; or any restriction, regulation, or prohibition by the government or
the project would only be exposed to the elements, resulting in wastage and loss of any of its branches or instrumentalities;" that the reason given by the petitioner that
resources, because none of the lot buyers had constructed any house in the "the contemplated amenities could not be constructed as they would have only been
subdivision; that delaying the construction for that reason was reasonable on its part left exposed to the elements and would have come to naught on account of the fact
considering that no one would have benefited from the amenities anyway, and was that there are no persons residing thereat" did not justify or excuse the non
also a sound business practice because the construction would be at great cost to it construction of the amenities; that the petitioner could not seek refuge in Article 1267
as the developer; that another justification for the non-construction was its having of the Civil Code by merely alleging inflation without laying down the legal and factual
suffered extreme economic hardships during the political and economic turmoil of the basis to justify the release from its obligation; that his written extrajudicial demands
1980s that the parties did not foresee at the time they entered into their contract; that negated the defense of laches; that he did not fail to assert his right, or abandon it;
under Article 1267 of the Civil Code, equity demanded a certain economic equilibrium and that his written extrajudicial demands wiped out the period that had already
between the prestation and the counter-prestation, and did not permit the unlimited lapsed and started the prescriptive period anew.
impoverishment of one party for the benefit of the other by the excessive rigidity of the
principle of the obligatory force of contracts; that as the debtor, it should be partially In short, was the petitioner released from its obligation to construct the amenities in
excused or altogether released from its obligations due to the extraordinary obstacles the Foggy Heights Subdivision?
to the prestation, which could be overcome only by a sacrifice that would be
absolutely disproportionate, or with very grave risks, or by violating some important Ruling of the Court
duties; and that the CA thereby erred in closing its eyes to the realities, and in opting
not to apply the principles of equity in favor of applying the terms of the agreement The appeal is partly meritorious.
even if doing so would cause the economic ruin of one of the parties.
1.
The petitioner further submits that the CA erred in declaring that it was apparent that
there was no "unreasonable failure" on the part of the respondent because he had Petitioner was not relieved from its statutory and contractual obligations to
made timely written demands on November 12, 1979, February 11, 1983, March 20, complete the amenities
1984, June 24, 1985 and November 16, 1988. It urges that the CA's error consisted in
its confusing laches as the failure to assert a right, notwithstanding that jurisprudence The arguments of the petitioner to be released from its obligation to construct the
has considered laches to be the unreasonable failure to assert a claim that, by amenities lack persuasion.
exercising due diligence, could or should be done earlier; that laches was not, in legal
significance, mere delay, but a delay that worked a disadvantage to another; that the To start with, the law is not on the side of the petitioner.
letters of the respondent could hardly be construed as motivated by prudence and
good faith; that the economy had worsened between 1979 and 1988, and such Under Section 20 of Presidential Decree No. 957, all developers, including the
worsening became a factor that raised the cost of real estate development by leaps petitioner, are mandated to complete their subdivision projects, including the
and bounds; and that the respondent, whose actuations smacked of bad faith and amenities, within one year from the issuance of their licenses. The provision
opportunism at its expense, had then appeared out of nowhere to seize the reads:cralawlawlibrary
opportunity presented by the real estate boom of the early 1990s, despite having Section 20. Time of Completion. - Every owner or developer shall construct and
been silent and having failed to act for a long time, evincing his belief of not having provide the facilities, improvements, infrastructures and other forms of development,
any right at all. including water supply and lighting facilities, which are offered and indicated in the
approved subdivision or condominium plans, brochures, prospectus, printed matters,
In his comment, the respondent asserts that the submissions of the petitioner did not letters or in any form of advertisement, within one year from the date of the issuance
warrant the non-construction of the amemt1es; that Article 1159 of the Civil of the license for the subdivision or condominium project or such other period of time
Code provides that obligations arising from contracts have the force of law between as maybe fixed by the Authority.
the contracting parties and should be complied with in good faith; that neither party
Pursuant to Section 30 of Presidential Decree No. 957,22 the amenities, once
constructed, are to be maintained by the developer like the petitioner until a Paragraph 2.b, first sentence, of the contract to sell stipulated the 12% annual
homeowners' association has been organized to manage the amenities. interest, as follows:cralawlawlibrary
xxxx
There is no question that the petitioner did not comply with its legal obligation to
complete the construction of the subdivision project, including the amenities, within 2.) The VENDEE/S hereby agree/s to pay the purchase price of TWENTY SEVEN
one year from the issuance of the license. Instead, it unilaterally opted to suspend the THOUSAND SEVEN HUNDRED TWENTY ONLY PESOS (P27,720.00), Philippine
construction of the amenities to avoid incurring maintenance expenses. In so opting, it Currency, at the office of the VENDOR at Makati, Rizal, without necessity of demand
was not driven by any extremely difficult situation that would place it at any or the services of a collector in the following manner:ChanRoblesvirtualLawlibrary
disadvantage, but by its desire to benefit from cost savings. Such cost-saving strategy
dissuaded the lot buyers from constructing their houses in the subdivision, and from a.) As downpayment, the amount of FOUR THOUSAND ONE HUNDRED FIFTY
residing therein. EIGHT ONLY PESOS (P4,158.00) upon the execution of the contract.

Considering that the petitioner's unilateral suspension of the construction of the b.) The balance of TWENTY THREE THOUSAND FIVE HUNDRED SIXTY TWO
amenities was intended to save itself from costs, its plea for relief from its contractual ONLY PESOS (P23,562.00) in eighty four (84) consecutive monthly installments of
obligations was properly rejected because it would thereby gain a position of FOUR HUNDRED FIFTEEN & 95/100 PESOS (P415.95) each installment, including
advantage at the expense of the lot owners like the respondent. Its invocation of interest at the rate of twelve (12%) percent per annum on all outstanding
Article 1267 of the Civil Code, which provides that "(w)hen the service has become so balances, the first of such monthly installment to be paid on or before the
difficult as to be manifestly beyond the contemplation of the parties, the obligor may 6th day of each month, beginning October, 1976. It is understood that unpaid
also be released therefrom in whole or in part," was factually unfounded. For Article installments or installments in arrears shall earn a penalty interest of one (1%)
1267 to apply, the following conditions should concur, namely: (a) the event or percent per month until fully paid.27 (Bold underscoring supplied for emphasis of the
change in circumstances could not have been foreseen at the time of the execution of relevant portion)
the contract; (b) it makes the performance of the contract extremely difficult but not
impossible; (c) it must not be due to the act of any of the parties; and (d) the contract xxxx
is for a future prestation.23 The requisites did not concur herein because the difficulty Accordingly, the parties agreed to an 84-month or seven-year term of installment on
of performance under Article 1267 of the Civil Code should be such that one party the net contract price of P23,562.00 at the monthly rate of P415.95, the monthly rate
would be placed at a disadvantage by the unforeseen event. 24 Mere inconvenience, being inclusive of the 12% interest per annum. Such monthly installment of P415.95
or unexepected impediments, or increased expenses did not suffice to relieve the included the principal and the annual interest, the latter being legally termed the
debtor from a bad bargain.25cralawredcralawrednad amortization interest. The annual interest was designed to compensate the petitioner
for waiting seven years before receiving the total principal amount. As such, the total
And, secondly, the unilateral suspension of the construction had preceded the cost of the lot purchased by the respondent for the seven-year term would be
worsening of economic conditions in 1983; hence, the latter could not reasonably P39,097.80, which amount would be inclusive of the contract price of the lot and the
justify the petitioner's plea for release from its statutory and contractual obligations to amortization interest.28cralawrednad
its lot buyers, particularly the respondent. Besides, the petitioner had the legal
obligation to complete the amenities within one year from the issuance of the license The imposition of the annual or amortization interest on the price for the purchase of a
(under Section 20 of Presidential Decree No. 957), or within two years from July 15, lot on installment was valid and enforceable. As the Court has explained in Relucio v.
1976 (under the express undertaking of the petitioner). Hence, it should have Brillante-Garfin:29
complied with its obligation by July 15, 1978 at the latest, long before the worsening x x x The contract price of P10,800.00 may thus be seen to be the cash price of the
of the economy in 1983. subdivision lots, that is, the amount payable if the price of the lots were to be paid
in cashand in full at the execution of the contract; it is not the amount that the vendor
2. will have received in the aggregate after fifteen (15) years if the vendee shall have
religiously paid the monthly installments. The installment price, upon the other hand,
Respondent as instalment buyer should pay the annual interest but not the of the subdivision lots-the sum total of the monthly installments (i.e., P16,101.00)
penalty typically, as in the instant case, has an interest component which compensates the
vendor for waiting fifteen (15) years before receiving the total principal amount of
The respondent insists that his unpaid obligation was only the balance of the contract P10,600.00. Economically or financially, P10,600.00 delivered in full today is simply
price amounting to P8,587.80.26 He declines to pay the interest and the penalty on the worth much more than a long series of small payments totalling, after fifteen (15)
ground that the petitioner had not constructed the amenities as promised under the years, P10,600.00. For the vendor, upon receiving the full cash price, could have
undertaking. deposited that amount in a bank, for instance, and earned interest income which at
six percent (6%) per year and for fifteen (15) years, would precisely total P5,501.00
The Court holds that the respondent was liable for the stipulated annual interest of (the difference between the installment price of P16,101.00 and the cash price of
12% but not the penalty. P10,600.00) To suppose, as private respondent argues, that mere prompt payment of
the monthly installments as they fell due would obviate application of the interest
charge of six percent (6%) per annum, is to ignore that simple economic fact. That The CA correctly declared that laches did not set in to bar the claim of the respondent
economic fact is, of course, recognized by law, which authorizes the payment of because he had made periodic written demands upon the petitioner that indicated that
interest when contractually stipulated for by the parties or when implied in recognized he had not abandoned or declined to assert the claim. In 1979, he manifested the
commercial custom or usage. intention to avail himself of his right to suspend the payment of his amortizations
pursuant to the undertaking. Since then until 1984, he had continuously requested the
Vendor and vendee are legally free to stipulate for the payment of either the petitioner for updates on the progress of the construction of the amenities so that he
cash price of a subdivision lot or its installment price. Should the vendee opt to could resume his amortizations. The petitioner did not respond to his requests. His
purchase a subdivision lot via the installment payment system, he is in effect paying efforts to have the petitioner construct the amenities so that he would already pay for
interest on the cash price, whether the fact and rate of such interest payment is the lot demonstrated his prudence and alacrity in insisting on his rights, negating any
disclosed in the contract or not. The contract for the purchase and sale of a piece of hint of bad faith or of lack of diligence on his part.
land on the installment payment system in the case at bar is not only quite lawful; it
also reflects a very wide spread usage or custom in our present day commercial life. 30 WHEREFORE, the Court AFFIRMS the judgment promulgated on May 29, 2003
In view of the foregoing, the respondent's insistence on condoning his liability for the subject to the MODIFICATIONS, as follows: (1) the respondent shall pay to the
contractually-stipulated 12% annual amortization interest is unwarranted. The petitioner the amount of P19,965.60; (2) the petitioner shall execute the deed of
condonation will impose a harsh burden upon the petitioner, even as it will result in absolute sale covering the property, and shall deliver the property to the respondent
the unjust enrichment of the respondent. We cannot ignore that the former has waited together with the pertinent certificate of title in accordance with the terms of their
for a very long period of time before it would be able to use the proceeds of the lot contract; and (3) the petitioner shall pay the costs of suit.
sold to the respondent.
SO ORDERED.
The 1% monthly penalty sought to be charged on the arrears for failure to pay the
amortizations on time until the arrears would be fully paid was also stipulated in
paragraph 2.b, second sentence, of the contract to sell, supra. But such stipulation
could not be enforced against the respondent because the petitioner waived the
penalty should the subdivision development not be completed by July 15, 1978. The
waiver should stand considering that the suspension of the amortization payment in
1979 was excusable on account of the failure to construct the amenities by July 15,
1978, and considering further that the petitioner did not contest the suspension of
payment of the monthly amortization.31cralawrednad

Under Tamayo v. Huang,32 the buyer has the option to demand the reimbursement of
the total amounts paid, or to await the further development of the subdivision; when
the buyer opts for the latter alternative, he may suspend the payment of his
installments until the time when the developer has fulfilled its obligation to him; should
the developer persist in refusing to complete the facilities, the National Housing
Authority may take over or cause the development and completion of the subdivision
at the expense of the developer.33cralawrednad

In this case, the respondent initially opted to suspend the payment of his
amortizations, but then offered to complete the payment upon realizing that the
petitioner did not anymore intend to build the amenities. His payments from October
6, 1976 to October 6, 1979 corresponded to 36 monthly amortizations totaling
P14,974.20, leaving 48 installments unpaid totaling P19,965.60.34cralawrednad

3.

Claim of respondent was not barred by laches

Laches is the failure of or neglect for an unreasonable and unexplained length of time
to do that which by exercising due diligence could or should have been done earlier,
or to assert a right within a reasonable time. It warrants a presumption that the party
entitled thereto has either abandoned it or declined to assert it. 35cralawrednad
resolution, the Court noted the motion of respondent BDO Capital and Investment
Republic of the Philippines Corporation (BDO Capital) to admit its Opposition to the Petition.
SUPREME COURT
Manila The relevant factual antecedents:

EN BANC Sometime in 2003, SSS, a government financial institution (GFI) created pursuant to
Republic Act (RA) No. 11617and placed under the direction and control of SSC, took
G.R. No. 165272 September 13, 2007 steps to liquefy its long-term investments and diversify them into higher-yielding and
less volatile investment products. Among its assets determined as needing to be
liquefied were its shareholdings in EPCIB. The principal reason behind the intended
SERGIO R. OSMEA III, JUAN M. FLAVIER, RODOLFO G. BIAZON, ALFREDO S. disposition, as explained by respondent Dela Paz during the February 4, 2004
LIM, JAMBY A.S. MADRIGAL, LUIS F. SISON, AND PATRICIA C. hearing conducted by the Senate Committee on Banks, Financial Institutions and
SISON, Petitioners, Currencies, is that the shares in question have substantially declined in value and the
vs. SSS could no longer afford to continue holding on to them at the present level of
SOCIAL SECURITY SYSTEM OF THE PHILIPPINES, SOCIAL SECURITY EPCIBs income.
COMMISSION, CORAZON S. DELA PAZ, THELMO Y. CUNANAN, PATRICIA A.
STO. TOMAS, FE TIBAYAN-PANLILEO, DONALD DEE, SERGIO R. ORTIZ-LUIS,
JR., EFREN P. ARANZAMENDEZ, MARIANITA O. MENDOZA, and RAMON J. Some excerpts of what respondent Dela Paz said in that hearing:
JABAR, in their capacities as Members of the Social Security Commission, AND
BDO CAPITAL & INVESTMENT CORPORATION, Respondents. The market value of Equitable-PCI Bank had actually hovered at P34.00 since July
2003. At some point after the price went down to P16 or P17 after the September 11
DECISION , it went up to P42.00 but later on went down to P34.00. xxx. We looked at the
prices in about March of 2001 and noted that the trade prices then ranged from P50
to P57.
GARCIA, J.:
xxx xxx xxx
Senator Sergio R. Osmea III1 and four (4) other members2 of the Philippine Senate,
joined by Social Security System (SSS) members Luis F. Sison and Patricia C. Sison,
specifically seek in this original petition for certiorari and prohibition the nullification of I have to concede that [EPCIB] has started to recover, .
the following issuances of respondent Social Security Commission (SSC):
Perhaps the fact that there had been this improved situation in the bank that attracted
1) RESOLUTION No. 4283 dated July 14, 2004; and Banco de Oro . xxx. I wouldnt know whether the prices would eventually go up to
60 of (sic) 120. But on the basis of my being the vice-chair on the bank, I believe that
this is the subject of a lot of conjecture. It can also go down . So, in the present
2) RESOLUTION No. 4854 dated August 11, 2004. situation where the holdings of SSS in [EPCIB] consists of about 10 percent of the
total reserve fund, we cannot afford to continue holding it at the present level of
The first assailed resolution approved the proposed sale of the entire equity stake of income .xxx. And therefore, on that basis, an exposure to certain form of assets
the SSS in what was then the Equitable PCI Bank, Inc. (EPCIB or EPCI), consisting of whose price can go down to 16 to 17 which is a little over 20 percent of what we have
187,847,891 common shares, through the Swiss Challenge bidding procedure, and in our books, is not a very prudent way or conservative way of handling those funds.
authorized SSS President Corazon S. Dela Paz (Dela Paz) to constitute a bidding We need not continue experiencing opportunity losses but have an amount that will
committee that would formulate the terms of reference of the Swiss Challenge bidding give us a fair return to that kind of value (Words in bracket added.)
mode. The second resolution approved the Timetable and Instructions to Bidders.
Albeit there were other interested parties, only Banco de Oro Universal Bank (BDO)
Petitioners5 also ask that a prohibitive writ issue to permanently enjoin public and its investment subsidiary, respondent BDO Capital,8 appeared in earnest to
respondents from implementing Res. Nos. 428 and 485 or otherwise proceeding with acquire the shares in question. Following talks between them, BDO and SSS signed,
the sale of subject shares through the Swiss Challenge method. on December 30, 2003, a Letter- Agreement,9 for the sale and purchase of some
187.8 million EPCIB common shares (the Shares, hereinafter), at 43.50 per share,
By Resolution6 dated October 5, 2004, the Court en banc required the parties to which represents a premium of 30% of the then market value of the EPCIB shares. At
observe the status quo ante the passage of the assailed resolutions. In the same about this time, the Shares were trading at an average of 34.50 @ share.
In the same Letter-Agreement,10 the parties agreed "to negotiate in good faith a Under the Swiss Challenge format, one of the bidders is given the option or
mutually acceptable Share Sale and Purchase Agreement and execute the same not preferential "right to match" the winning bid.
later than thirty (30) business days from [December 30, 2003]."
Petitioners assert, in gist, that a public bidding with a Swiss Challenge component is
On April 19, 2004, the Commission on Audit (COA),11 in response to respondent Dela contrary to COA Circular No. 89-296 and public policy which requires adherence to
Pazs letter-query on the applicability of the public bidding requirement under COA competitive public bidding in a government-contract award to assure the best price
Circular No. 89-29612 on the divestment by the SSS of its entire EPICB equity possible for government assets. Accordingly, the petitioners urge that the planned
holdings, stated that the "circular covers all assets of government agencies except disposition of the Shares through a Swiss Challenge method be scrapped. As argued,
those merchandize or inventory held for sale in the regular course of business." And the Swiss Challenge feature tends to discourage would-be-bidders from undertaking
while it expressed the opinion13 that the sale of the subject Shares are "subject to the expense and effort of bidding if the chance of winning is diminished by the
guidelines in the Circular," the COA qualified its determination with a statement that preferential "right to match" clause. Pushing the point, petitioners aver that the Shares
such negotiated sale would partake of a stock exchange transaction and, therefore, are in the nature of long-term or non-current assets not regularly traded or held for
would be adhering to the general policy of public auction. Wrote the COA: sale in the regular course of business. As such, their disposition must be governed by
the aforementioned COA circular which, subject to several exceptions, prescribes
Nevertheless, since activities in the stock exchange which offer to the general public "public auction" as a primary mode of disposal of GFIs assets. And obviously finding
stocks listed therein, the proposed sale, although denominated as "negotiated sale" the proposed purchase price to be inadequate, the petitioners expressed the belief
substantially complies with the general policy of public auction as a mode of that "if properly bidded out in accordance with [the] COA Circular , the Shares could
divestment. This is so for shares of stocks are actually being auctioned to the general be sold at a price of at least Sixty Pesos (60.00) per share." Other supporting
public every time that the stock exchanges are openly operating. arguments for allowing certiorari are set forth in some detail in the basic petition.

Following several drafting sessions, SSS and BDO Capital, the designated buyers of Against the petitioners stance, public respondents inter alia submit that the sale of
the Banco de Oro Group, agreed on a final draft version of the Share Purchase subject Shares is exempt from the tedious public bidding requirement of COA.
Agreement14 (SPA). In it, the parties mutually agreed to the purchase by the BDO Obviously stressing the practical side of the matter, public respondents assert that if
Capital and the sale by SSS of all the latters EPCIB shares at the closing date at the they are to hew to the bidding requirement in the disposition of SSSs Philippine Stock
specified price of 43.50 per share or a total of 8,171,383,258.50. Exchange (PSE)-listed stocks, it would place the System at a disadvantage vis--vis
other stock market players who certainly enjoy greater flexibility in reacting to the
vagaries of the market and could sell their holdings at a moments notice when the
The proposed SPA, together with the Letter-Agreement, was then submitted to the price is right. Public respondents hasten to add, however, that the bidding-exempt
Department of Justice (DOJ) which, in an Opinion15 dated April 29, 2004, concurred status of the Shares did not prevent the SSS from prudently proceeding with the
with the COAs opinion adverted to and stated that it did not find anything bidding as contemplated in the assailed resolutions as a measure to validate the
objectionable with the terms of both documents. adequacy of the unit price BDO Capital offered therefor and to possibly obtain a
higher price than its definitive offer of 43.50 per share.20 Public respondents also
On July 14, 2004, SSC passed Res. No. 42816 approving, as earlier stated, the sale advanced the legal argument, also shared by their co-respondent BDO Capital, in its
of the EPCIB shares through the Swiss Challenge method. A month later, the equally Comment,21 that the proposed sale is not covered by COA Circular No. 89-296 since
assailed Res. No. 48517 was also passed. the Shares partake of the nature of merchandise or inventory held for sale in the
regular course of SSSs business.
On August 23, 24, and 25, 2004, SSS advertised an Invitation to Bid 18 for the block
purchase of the Shares. The Invitation to Bid expressly provided that the "result of the Pending consideration of the petition, supervening events and corporate movements
bidding is subject to the right of BDO Capital to match the highest bid." October 20, transpired that radically altered the factual complexion of the case. Some of these
2004 was the date set for determining the winning bid. undisputed events are detailed in the petitioners separate Manifestation & Motion to
Take Judicial Notice22 and their respective annexes. To cite the relevant ones:
The records do not show whether or not any interested group/s submitted bids. The
bottom line, however, is that even before the bid envelopes, if any, could be opened, 1. In January 2006, BDO made public its intent to merge with EPCIB. Under
the herein petitioners commenced the instant special civil action for certiorari, setting what BDO termed as "Merger of Equals", EPCIB shareholders would get 1.6
their sights primarily on the legality of the Swiss Challenge angle and a provision in BDO shares for every EPCIB share.23
the Instruction to Bidders under which the SSS undertakes to offer the Shares to BDO
should no bidder or prospective bidder qualifies. And as earlier mentioned, the Court, 2. In early January 2006, the GSIS publicly announced receiving from an
via a status quo order,19 effectively suspended the proceedings on the proposed sale. undisclosed entity an offer to buy its stake in EPCIB 12% of the banks
outstanding capital stock at P92.00 per share.24
3. On August 31, 2006, SM Investments Corporation, an affiliate of BDO share stated in the Invitation to Bid. It is their posture, however, that unless SSS
and BDO Capital, in consortium with Shoemart, Inc. et al., (collectively, withdraws the sale of the subject shares by way of the Swiss Challenge, the offer
the SM Group) commenced, through the facilities of the PSE and pursuant price of 92 per share cannot render the case moot and academic.
to R.A. No. 879925 , a mandatory tender offer (Tender Offer) covering the
purchase of the entire outstanding capital stock of EPCIB at P92.00 per Meanwhile, the positive response to the Tender Offer enabled the SM-BDO Group to
share. Pursuant to the terms of the Tender Offer, which was to start on acquire controlling interests over EPCIB and paved the way for a BDO-EPCIB
August 31, 2006 and end on September 28, 2006 the Tender Offer Period merger. The merger was formalized by subsequent submission of the necessary
all shares validly tendered under it by EPCIB shareholders of record shall merger documents35 to the SEC.
be deemed accepted for payment on closing date subject to certain
conditions.26 Among those who accepted the Tender Offer of the SM Group
was EBC Investments, Inc., a subsidiary of EPCIB. On May 25, 2007, the SEC issued a Certificate of Filing of the Article and Plan of
Merger36 approving the merger between BDO and EPCIB, relevant portions of which
are reproduced hereunder:
4. A day or two later, BDO filed a Tender Offer Report with the Securities
and Exchange Commission (SEC) and the PSE.27
THIS IS TO CERTIFY that the Plan and Articles of Merger
executed on December 28, 2006 by and between:
Owing to the foregoing developments, the Court, on October 3, 2006, issued a
Resolution requiring the parties to CONFIRM news reports that price of subject
shares has been agreed upon at 92; and if so, to MANIFEST whether this case has BANCO DE ORO UNIVERSAL BANK,
become moot." Now BANCO DE ORO-EPCI, INC.
(Surviving Corporation)
First to comply with the above were public respondents SSS et al., by filing their
Compliance and Manifestation,28therein essentially stating that the case is now moot and
in view of the SM-BDO Groups Tender Offer at 92.00 @ unit share, for the subject
EPCIB common shares, inclusive of the SSS shares subject of the petition. They also EQUITABLE PCI BANK, INC.
stated the observation that the petitioners Manifestation and Motion to Take Judicial (Absorbed Corporation)
Notice,29 never questioned the Tender Offer, thus confirming the dispensability of a
competitive public bidding in the disposition of subject Shares. approved by a majority of the Board of Directors on November 06, 2006 and by a
vote of the stockholders owning or representing at least two-thirds of the outstanding
For perspective, a "tender offer" is a publicly announced intention by a person acting capital stock of constituent corporations on December 27, 2006, signed by the
alone or in concert with other persons to acquire equity securities of a public Presidents, certified by their respective Corporate Secretaries, whereby the entire
company, i.e., one listed on an exchange, among others. 30 The term is also defined assets of [EPCI] Inc. will be transferred to and absorbed by [BDO] UNIVERSAL BANK
as "an offer by the acquiring person to stockholders of a public company for them to now BANCO DE ORO-EPCI, INC. was approved by this Office on this date but which
tender their shares therein on the terms specified in the offer"31 Tender offer is in approval shall be effective on May 31, 2007 pursuant to the provisions of (Word in
place to protect the interests of minority stockholders of a target company against any bracket added; emphasis in the original)
scheme that dilutes the share value of their investments. It affords such minority
shareholders the opportunity to withdraw or exit from the company under reasonable In line with Section 80 of the Corporation Code and as explicitly set forth in Article 1.3
terms, a chance to sell their shares at the same price as those of the majority of the Plan of Merger adverted to, among the effects of the BDO-EPCIB merger are
stockholders.32 the following:

Next to comply with the same Resolution of the Court was respondent BDO a. BDO and EPCI shall become a single corporation, with BDO as the
Capital via its Compliance,33thereunder practically reiterating public respondents surviving corporation. [EPCIB] shall cease to exist;
position on the question of mootness and the need, under the premises, to go into
public bidding. It added the arguments that the BDO-SM Groups Tender Offer,
involving as it did a general offer to buy all EPCIB common shares at the stated price xxx xxx xxx
and terms, were inconsistent with the idea of public bidding; and that the Tender Offer
rules actually provide for an opportunity for competing groups to top the Tender Offer c. All the rights, privileges, immunities, franchises and powers of EPCI shall
price. be deemed transferred to and possessed by the merged Bank; and

On the other hand, petitioners, in their Manifestation,34 concede the huge gap
between the unit price stated in the Tender Offer and the floor price of 43.50 per
d. All the properties of EPCI, real or personal, tangible or intangible shall subject: the Shares the 187.84 Million EPCIB common shares. It cannot be
be deemed transferred to the Merged Bank without further act or deed. overemphasized, however, that the Shares, as a necessary consequence of the
BDO-EPCIB merger46 which saw EPCIB being absorbed by the surviving BDO, have
Per Article 2 of the Plan of Merger on the exchange of shares mechanism, "all the been transferred to BDO and converted into BDO common shares under the
issued and outstanding common stock of [EPCIB] (EPCI shares) shall be converted exchange ratio set forth in the BDO-EPCIB Plan of Merger. As thus converted, the
into fully-paid and non assessable common stock of BDO (BDO common shares) at subject Shares are no longer equity security issuances of the now defunct EPCIB, but
the ratio of 1.80 BDO Common shares for each issued [EPCIB] share (the Exchange those of BDO-EPCI, which, needless to stress, is a totally separate and distinct entity
Ratio)."And under the exchange procedure, "BDO shall issue BDO Common Shares from what used to be EPCIB. In net effect, therefore, the 187.84 Million EPCIB
to EPCI stockholders corresponding to each EPCI Share held by them in accordance common shares are now lost or inexistent. And in this regard, the Court takes judicial
with the aforesaid Exchange Ratio." notice of the disappearance of EPCIB stocks from the local bourse listing. Instead,
BDO-EPCI Stocks are presently listed and being traded in the PSE.
It appears that BDO, or BDO-EPCI, Inc. to be precise, has since issued BDO
common shares to respondent SSS corresponding to the number of its former EPCIB Under the law on obligations and contracts, the obligation to give a determinate thing
shareholdings under the ratio and exchange procedure prescribed in the Plan of is extinguished if the object is lost without the fault of the debtor. 47 And per Art. 1192
Merger. In net effect, SSS, once the owner of a block of EPCIB shares, is now a large (2) of the Civil Code, a thing is considered lost when it perishes or disappears in such
stockholder of BDO-EPCI, Inc. a way that it cannot be recovered.48 In a very real sense, the interplay of the ensuing
factors: a) the BDO-EPCIB merger; and b) the cancellation of subject Shares and
their replacement by totally new common shares of BDO, has rendered the erstwhile
On the postulate that the instant petition has now become moot and academic, BDO 187.84 million EPCIB shares of SSS "unrecoverable" in the contemplation of the
Capital supplemented its earlier Compliance and Manifestation37 with a formal Motion adverted Civil Code provision.
to Dismiss.38
With the above consideration, respondent SSS or SSC cannot, under any
By Resolution dated July 10, 2007, the Court required petitioners and respondent circumstance, cause the implementation of the assailed resolutions, let alone proceed
SSS to comment on BDO Capitals motion to dismiss "within ten (10) days from with the planned disposition of the Shares, be it via the traditional competitive bidding
notice." or the challenged public bidding with a Swiss Challenge feature.1wphi1

To date, petitioners have not submitted their compliance. On the other hand, SSS, by At any rate, the moot-and-academic angle would still hold sway even if it were to be
way of comment, reiterated its position articulated in respondents Compliance and assumed hypothetically that the subject Shares are still existing. This is so, for the
Motion39 that the SM-BDO Group Tender Offer at the price therein stated had supervening BDO-EPCIB merger has so effected changes in the circumstances of
rendered this case moot and academic. And respondent SSS confirmed the following: SSS and BDO/BDO Capital as to render the fulfillment of any of the obligations that
a) its status as BDO-EPCIB stockholder; b) the Tender Offer made by the SM Group each may have agreed to undertake under either the Letter-Agreement, the SPA or
to EPCIB stockholders, including SSS, for their shares at P92.00 per share; and c) the Swiss Challenge package legally impossible. When the service has become so
SSS acceptance of the Tender Offer thus made. difficult as to be manifestly beyond the contemplation of the parties,49total or partial
release from a prestation and from the counter-prestation is allowed.
A case or issue is considered moot and academic when it ceases to present a
justiciable controversy by virtue of supervening events, 40 so that an adjudication of Under the theory of rebus sic stantibus,50 the parties stipulate in the light of certain
the case or a declaration on the issue would be of no practical value or use.41 In such prevailing conditions, and once these conditions cease to exist, the contract also
instance, there is no actual substantial relief which a petitioner would be entitled to, ceases to exist.51 Upon the facts obtaining in this case, it is abundantly clear that the
and which would be negated by the dismissal of the petition. 42 Courts generally conditions in which SSS and BDO Capital and/or BDO executed the Letter-
decline jurisdiction over such case or dismiss it on the ground of mootness -- save Agreement upon which the pricing component at 43.50 per share of
when, among others, a compelling constitutional issue raised requires the formulation the Invitation to Bid was predicated, have ceased to exist. Accordingly, the
of controlling principles to guide the bench, the bar and the public; or when the case is implementation of the Letter- Agreement or of the challenged Res. Nos. 428 and 485
capable of repetition yet evading judicial review.43 cannot plausibly push through, even if the central figures in this case are so minded.

The case, with the view we take of it, has indeed become moot and academic for Lest it be overlooked, BDO-EPCI, in a manner of speaking, stands now as the
interrelated reasons. issuer52 of what were once the subject Shares. Consequently, should SSS opt to exit
from BDO and BDO Capital, or BDO Capital, in turn, opt to pursue SSSs
We start off with the core subject of this case. As may be noted, the Letter- shareholdings in EPCIB, as thus converted into BDO shares, the sale-purchase ought
Agreement,44 the SPA,45 the SSC resolutions assailed in this recourse, and to be via an Issuer Tender Offer -- a phrase which means a publicly announced
the Invitation to Bid sent out to implement said resolutions, all have a common intention by an issuer to acquire any of its own class of equity securities or by an
affiliate of such issuer to acquire such securities .53 In that eventuality, BDO or BDO
Capital cannot possibly exercise the "right to match" under the Swiss
Challenge procedure, a tender offer being wholly inconsistent with public bidding. The
offeror or buyer in an issue tender offer transaction proposes to buy or acquire, at the
stated price and given terms, its own shares of stocks held by its own stockholder
who in turn simply have to accept the tender to effect the sale. No bidding is involved
in the process.

While the Court ends up dismissing this petition because the facts and legal situation
call for this kind of disposition, petitioners have to be commended for their efforts in
initiating this proceeding. For, in the final analysis, it was their petition which initially
blocked implementation of the assailed SSC resolutions, and, in the process, enabled
the SSS and necessarily their members to realize very much more for their
investments.

WHEREFORE, the instant petition is DISMISSED.

No costs.

SO ORDERED.