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

The Courts Ruling
Three elements are needed to create a perfected contract: 1) the consent of
the contracting parties; (2) an object certain which is the subject matter of the contract;
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
deliver and to transfer ownership of a thing or right to the buyer, over which the latter
agrees.[7] From that moment, the parties may demand reciprocal performance.
The Court believes that the April 17, 1988 letter between Licup and Msgr.
Cirilos, the representative of the propertys owners, constituted a perfected
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
as to the object and consideration of the contract.
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-
offers, no contract is perfected since they did not yet give their consent to such
offers.[12]Earnest money applies to a perfected sale.
SSE cannot revert to the original terms stated in Licups letter to Msgr. Cirilos
dated April 17, 1988 since it was not privy to such contract. The parties to it were Licup
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
SSE cannot, therefore, impose the terms Licup stated in his April 17, 1988 letter upon
the owners.
WHEREFORE, the Court DISMISSES the petition and AFFIRMS the Court of
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

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-24968 April 27, 1972
SAURA IMPORT and EXPORT CO., INC., plaintiff-appellee,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES, defendant-appellant.
Mabanag, Eliger and Associates and Saura, Magno and Associates for plaintiff-
appellee.
Jesus A. Avancea and Hilario G. Orsolino for defendant-appellant.
MAKALINTAL, J.:
In Civil Case No. 55908 of the Court of First Instance of Manila, judgment was
rendered on June 28, 1965 sentencing defendant Development Bank of the
Philippines (DBP) to pay actual and consequential damages to plaintiff Saura Import
and Export Co., Inc. in the amount of P383,343.68, plus interest at the legal rate from
the date the complaint was filed and attorney's fees in the amount of P5,000.00. The
present appeal is from that judgment.
In July 1953 the plaintiff (hereinafter referred to as Saura, Inc.) applied to the
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
pay the balance of the purchase price of the jute mill machinery and equipment; and
P9,100.00 as additional working capital.
Parenthetically, it may be mentioned that the jute mill machinery had already been
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
the said bank.
On January 7, 1954 RFC passed Resolution No. 145 approving the loan application
for P500,000.00, to be secured by a first mortgage on the factory building to be
constructed, the land site thereof, and the machinery and equipment to be installed.
Among the other terms spelled out in the resolution were the following:
1. 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 240,900.00
For working capital 9,100.00
T O T A L P500,000.00
4. That Mr. & Mrs. Ramon E. Saura, Inocencia Arellano, Aniceto Caolboy and
Gregoria Estabillo and China Engineers, Ltd. shall sign the promissory notes jointly
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
buildings progresses, to be certified to by an appraiser of this Corporation;"
Saura, Inc. was officially notified of the resolution on January 9, 1954. The day before,
however, evidently having otherwise been informed of its approval, Saura, Inc. wrote
a letter to RFC, requesting a modification of the terms laid down by it, namely: that in
lieu of having China Engineers, Ltd. (which was willing to assume liability only to the
extent of its stock subscription with Saura, Inc.) sign as co-maker on the
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
shares in Saura, Inc.
In view of such request RFC approved Resolution No. 736 on February 4, 1954,
designating of the members of its Board of Governors, for certain reasons stated in
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
at the next meeting of the Board."
On March 24, 1954 Saura, Inc. wrote RFC that China Engineers, Ltd. had again
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
applied for, as stated in Resolution No. 736, the parties named their respective
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
novate, or accept new conditions to, the agreement already) entered into," referring to
its acceptance of the terms and conditions mentioned in Resolution No. 145.
On April 13, 1954 the loan documents were executed: the promissory note, with F.R.
Halling, representing China Engineers, Ltd., as one of the co-signers; and the
corresponding deed of mortgage, which was duly registered on the following April 17.
It appears, however, that despite the formal execution of the loan agreement the
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
Saura, Inc., was present, it was decided to reduce the loan from P500,000.00 to
P300,000.00. Resolution No. 3989 was approved as follows:
RESOLUTION No. 3989. Reducing the Loan Granted Saura Import & Export Co., Inc.
under Resolution No. 145, C.S., from P500,000.00 to P300,000.00. Pursuant to Bd.
Res. No. 736, c.s., authorizing the re-examination of all the various aspects of the
loan granted the Saura Import & Export Co. under Resolution No. 145, c.s., for the
purpose of financing the manufacture of jute sacks in Davao, with special reference
as to the advisability of financing this particular project based on present conditions
obtaining in the operation of jute mills, and after having heard Ramon E. Saura and
after extensive discussion on the subject the Board, upon recommendation of the
Chairman, RESOLVED that the loan granted the Saura Import & Export Co. be
REDUCED from P500,000 to P300,000 and that releases up to P100,000 may be
authorized as may be necessary from time to time to place the factory in actual
operation: PROVIDED that all terms and conditions of Resolution No. 145, c.s., not
inconsistent herewith, shall remain in full force and effect."
On June 19, 1954 another hitch developed. F.R. Halling, who had signed the
promissory note for China Engineers Ltd. jointly and severally with the other RFC that
his company no longer to of the loan and therefore considered the same as cancelled
as far as it was concerned. A follow-up letter dated July 2 requested RFC that the
registration of the mortgage be withdrawn.
In the meantime Saura, Inc. had written RFC requesting that the loan of P500,000.00
be granted. The request was denied by RFC, which added in its letter-reply that it was
"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
loan insofar as they are concerned."
On July 24, 1954 Saura, Inc. took exception to the cancellation of the loan and
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
you.".
On December 17, 1954 RFC passed Resolution No. 9083, restoring the loan to the
original amount of P500,000.00, "it appearing that China Engineers, Ltd. is now willing
to sign the promissory notes jointly with the borrower-corporation," but with the
following proviso:
That in view of observations made of the shortage and high cost of
imported raw materials, the Department of Agriculture and Natural
Resources shall certify to the following:
1. That the raw materials needed by the borrower-corporation to
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 of the factory."
The action thus taken was communicated to Saura, Inc. in a letter of RFC dated
December 22, 1954, wherein it was explained that the certification by the Department
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
available raw materials." This point is important, and sheds light on the subsequent
actuations of the parties. Saura, Inc. does not deny that the factory he was building in
Davao was for the manufacture of bags from local raw materials. The cover page of
its brochure (Exh. M) describes the project as a "Joint venture by and between the
Mindanao Industry Corporation and the Saura Import and Export Co., Inc. to finance,
manage and operate a Kenaf mill plant, to manufacture copra and corn bags, runners,
floor mattings, carpets, draperies; out of 100% local raw materials, principal kenaf."
The explanatory note on page 1 of the same brochure states that, the venture "is the
first serious attempt in this country to use 100% locally grown raw materials
notably kenaf which is presently grown commercially in theIsland of Mindanao where
the proposed jutemill is located ..."
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
from the Department of Agriculture and Natural Resources as to the availability of
local raw materials to provide adequately for the requirements of the factory. Saura,
Inc. itself confirmed the defendant's stand impliedly in its letter of January 21, 1955:
(1) stating that according to a special study made by the Bureau of Forestry
"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
to bring in sufficient jute materials as may be necessary for the full operation of the
jute mill;" and (3) asking that releases of the loan be made as follows:
a) For the payment of the receipt for jute mill
machineries with the Prudential Bank &
Trust Company P250,000.00
(For immediate release)
b) For the purchase of materials and equip-
ment per attached list to enable the jute
mill to operate 182,413.91
c) For raw materials and labor 67,586.09
 1) P25,000.00 to be released on the open-
ing of the letter of credit for raw jute
for $25,000.00.
2) P25,000.00 to be released upon arrival
of raw jute.
3) P17,586.09 to be released as soon as the
mill is ready to operate.
On January 25, 1955 RFC sent to Saura, Inc. the following reply:
Dear Sirs:
This is with reference to your letter of January 21,
1955, regarding the release of your loan under
consideration of P500,000. As stated in our letter
of December 22, 1954, the releases of the loan, if
revived, are proposed to be made from time to
time, subject to availability of funds towards the
end that the sack factory shall be placed in actual
operating status. We shall be able to act on your
request for revised purpose and manner of
releases upon re-appraisal of the securities
offered for the loan.
With respect to our requirement that the
Department of Agriculture and Natural Resources
certify that the raw materials needed are
available in the immediate vicinity and that there
is prospect of increased production thereof to
provide adequately the requirements of the
factory, we wish to reiterate that the basis of the
original approval is to develop the manufacture of
sacks on the basis of the locally available raw
materials. Your statement that you will have to
rely on the importation of jute and your request
that we give you assurance that your company
will be able to bring in sufficient jute materials as
may be necessary for the operation of your
factory, would not be in line with our principle in
approving the loan.
With the foregoing letter the negotiations came to a standstill. Saura, Inc. did not
pursue the matter further. Instead, it requested RFC to cancel the mortgage, and so,
on June 17, 1955 RFC executed the corresponding deed of cancellation and
delivered it to Ramon F. Saura himself as president of Saura, Inc.
It appears that the cancellation was requested to make way for the registration of a
mortgage contract, executed on August 6, 1954, over the same property in favor of
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
heretofore mentioned. It appears further that for failure to pay the said obligation the
Prudential Bank and Trust Co. sued Saura, Inc. on May 15, 1955.
On January 9, 1964, ahnost 9 years after the mortgage in favor of RFC was cancelled
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
preventing the plaintiff from completing or paying contractual commitments it had
entered into, in connection with its jute mill project.
The trial court rendered judgment for the plaintiff, ruling that there was a perfected
contract between the parties and that the defendant was guilty of breach thereof. The
defendant pleaded below, and reiterates in this appeal: (1) that the plaintiff's cause of
action had prescribed, or that its claim had been waived or abandoned; (2) that there
was no perfected contract; and (3) that assuming there was, the plaintiff itself did not
comply with the terms thereof.
We hold that there was indeed a perfected consensual contract, as recognized in
Article 1934 of the Civil Code, which provides:
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
delivery of the object of the contract.
There was undoubtedly offer and acceptance in this case: the application of Saura,
Inc. for a loan of P500,000.00 was approved by resolution of the defendant, and the
corresponding mortgage was executed and registered. But this fact alone falls short
of resolving the basic claim that the defendant failed to fulfill its obligation and the
plaintiff is therefore entitled to recover damages.
It should be noted that RFC entertained the loan application of Saura, Inc. on the
assumption that the factory to be constructed would utilize locally grown raw
materials, principally kenaf. There is no serious dispute about this. It was in line with
such assumption that when RFC, by Resolution No. 9083 approved on December 17,
1954, restored the loan to the original amount of P500,000.00. it imposed two
conditions, to wit: "(1) that the raw materials needed by the borrower-corporation to
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
of the factory." The imposition of those conditions was by no means a deviation from
the terms of the agreement, but rather a step in its implementation. There was nothing
in said conditions that contradicted the terms laid down in RFC Resolution No. 145,
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.


Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 170134 June 17, 2015
ANGEL V. TALAMPAS, JR., Petitioner,
vs.
MOLDEX REALTY, INC., Respondent.
DECISION
BRION, J.:
We resolve the petition for review on certiorari1
assailing the June 27, 2005
decision2 and October 21, 2005 resolution3 of the Court of Appeals (CA) in CA-G.R.
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 Facts
The petitioner is the owner and general manager of Angel V. Talampas, Jr.
Construction (AVTJ Construction), a business engaged in general engineering and
building.5
On December 16, 1992, the petitioner entered into a contract 6 with the respondent to
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.
The petitioner undertook to perform roadworks, earthworks and site-grading,7 and to
procure materials, labor, equipment, tools and facilities, 8 for the contract price of
10,500,000.00,9 to be paid by the respondent through progress billings. The
respondent made an initial down payment of 500,000.00 at the start of the
contract.10
Construction works on the Metrogate project started on January 14, 1993 11 and was
projected to be completed by the petitioner within three hundred (300) calendar days
from this starting date.12
On May 14, 1993, Metrogates Project Manager, Engr. Honorio Boidi Almeida, asked
the petitioner tosuspend construction work on the site for one week due to a change
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
letter14 dated June 1, 1993, the petitioner inquired from Engr. Almeida whether the
respondent would still push through with the project.
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
to terminate the parties contract. The April 23, 1993 letter stated:
Gentlemen:
This has reference to our site development contract for METROGATE SILANG
ESTATES dated 16 December 1992.
Please be informed that we have decided to suspend implementation of the site
development works for the subject project. Consequently, we are constrained to
cause the termination of the abovecited contract effective immediately.
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
finally decide to resume development works, you will be duly notified. (emphasis
supplied)
The letter bore the signature of Engr. Almeida and gave the petitioner the go signal
to demobilize his equipment from the site.16
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
from May 14, 1993 to June16, 1993 the period of suspension of construction works on
the Metrogate project, and (b) 2,100,000.00or twenty percent (20%) of the
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,
1993,18 but refused to heed the petitioners demands.
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
committed the following acts: (1) breach of contract for unilaterally terminating their
agreement, and (2) fraud for failing to disclose the Metrogate projects lack of a
conversion clearance certificate from the Department of Agrarian Reform (DAR),
which he claimed to be the real reason why the respondent terminated their contract.
In a decision19 dated September 9, 1999, the RTC found the respondent liable for
breach of contract because the respondents reason for termination, i.e., "project
redesign," was not a stipulated ground for the unilateral termination under the parties
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
subdivision. The RTC considered the conversion clearance to be a material
consideration for the petitioner in entering the contract with the respondent.21
Consequently, the RTC ordered the respondent to pay: (a) 1,485,000.00 as unpaid
construction equipment rentals from May 14, 1993 to June 16, 1993; (b)
2,100,000.00 as unrealized profits; (c) 300,000.00 as moral damages; (d)
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
On appeal, the CA reversed and set aside the RTCs ruling and dismissed the
petitioners complaint for breach of contract for lack of cause of action. 23 The CA held:
The pieces of evidence presented and offered by the plaintiff-appellee do not clearly
prove that the subject contract was unilaterally terminated by the defendant-appellant.
While the trial court cited the letter of defendant-appellant dated April 23, 1993 as an
evidence of unilateral rescission, said court however, failed to consider the letter of
the plaintiff-appellee dated June 15, 1993, showing that he agreed to terminate the
contract. Thus:
June 15, 1993.
ENGR. JOSE PO
Vice-President
Moldex Realty, Inc.
West Avenue, Q.C.
Subject: Earthwork and Preparation
Moldex Silang Estates
Silang, Cavite
Sir:
Please be informed that as of this writing, we have not received your official letter
regarding the untimely termination of our contract with you, due to reason that
stoppage of work is due to business decision.
In order for us to demobilize our personnel, construction equipments (sic), we need
your official letter of termination (sic) soonest possible time.
Thank you.
Very truly yours,
ANGEL V. TALAMPAS, JR.
General Manager
This letter of June 15, 1993 of Angel Talampas, Jr. to Engr. Jose Po, Sr., Vice-
President of Moldex Realty, Inc., confirms that previous to said date or specifically on
May 21, 1993, Engr. Jose Po, Sr. met with Jose Angel Talampas, the Project
Manager of the plaintiff-appellee, to discuss the possibility of either suspending or
terminating the contract due to a redesign of the project necessitated by the
acquisition of a larger tract of land adjacent to the original project. Engr. Talampas
opted for the termination of the contract instead of its suspension.
This letter was never considered by the court a quo.24 (emphasis supplied)
The CA, likewise, dismissed the petitioners allegation of fraud, under the following
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
defendant-appellant, failure to obtain the same at the time of the execution of the
contract would not convincingly show that the plaintiff-appellee was defrauded. The
omission to obtain conversion clearance could be in good faith since the records
show that it was eventually obtained. Fraud must be established by clear and
convincing evidence. Mere preponderance of evidence is not enough. Besides, it
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
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
established that the failure of the defendant-appellant to seek conversion clearance of
the subject property was the real reason for the termination of the contract. On the
contrary, the June 15, 1993 letter of Angel V. Talampas admits that the reason for the
termination was "due to business decision."25
The petitioner moved to reconsider the CAs decision, but the CA denied his motion in
a resolution26 dated October 21, 2005. The denial opened the way for the filing of the
present petition for review on certiorari with this Court.
The Petition
The petitioner raised the following issues:
1. Whether, as found by the trial court, the subject development contract was
unilaterally abrogated by respondent without justifiable cause, or whether, as
opined by the Court of Appeals, the contract termination was upon the
mutual agreement of the parties.
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
of the subject contract, was the true reason of the respondent in ordering
stoppage of work and in eventually terminating the subject contract, or
whether, as opined by the Court of Appeals, the reason for the contract
termination was "due to business decision" of the respondent.
3. Whether or not it was respondents responsibility prior to the bidding or
execution of the contract, to disclose to the petitioner, the lack of conversion
clearance certificate from DAR and/or its agrarian problem; and if in the
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
was an integrated whole, not divisible contract, or whether, as opined by the
Court of Appeals, subject contract is a divisible contract.
5. Whether or not petitioner is entitled to the damages awarded to him by the
trial court for breach of contract by respondent.27
In a resolution28 dated June 28, 2006, this Court gave due course to the petition and
required the parties to submit their respective memoranda.
The Case for the Respondent
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
contract;29 that, in a meeting held on May 21, 1993, the petitioners son, Engr. Jose
Angel Talampas, the Project Manager and Vice-President of AVTJ Construction,
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
the respondent, as the petitioner would not have requested for such letter had he not
earlier agreed/consented to the termination.31
Moreover, the respondent argues that the petitioner is estopped to claim further
damages, as he had already been paid the amounts of: (a) 297,090.43representing
the contractors unpaid actual work accomplishment at the time of termination (paid
on August 13, 1993); (b) 109,551.00representing unrecouped costs of equipment
mobilization and demobilization, and unrecouped payment of insurance bond (paid on
September 14, 1993); and (c) 209,606.56 representing the release of all retention
fees.32 The respondent contends that the petitioner, by accepting these payments,
ratified, if not consented to, the termination of their contract.33
The respondent strongly denies the petitioners allegation of fraud and maintains that
the real reason for the termination of their contract was the redesign of the Metrogate
Silang Estates project, not the projects lack of conversion clearance from the DAR. 34
The Court's Ruling
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
breach of contract is a factual matter that we do not review in a Rule 45 petition. 36 But
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
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
immediately" due to a "business decision," but the termination was not immediately
implemented.
On May 14, 1993, the respondent, through Engr. Almeida, ordered the suspension of
construction work on the site, instead of terminating the project in accordance with the
respondents instructions in its (belatedly received) April 23, 1993 letter to the
petitioner.
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
contract or the suspension of construction works on the Metrogate project. In this
meeting, Engr. Talampas chose to terminate their contract.
On June 1, 1993, the petitioner wrote Engr. Almeida to ask for the confirmation of the
Metrogate projects status.
On June 10, 1993, the petitioner received from the respondent the amount of
474,679.28 as payment for Progress Billing No. 339 (which billing the petitioner
requested in a letter40 to the respondent dated May 31, 1993).
On June 15, 1993, the petitioner wrote Engr. Po, informing the latter that he had not
yet received from the respondent the letter officially terminating their contract.
On June 16, 1993, the petitioner received from the respondent a letter dated April 23,
1993, expressing the respondents decision to terminate the parties contract. The
petitioner alleged that it was only then (June 16, 1993) that he was formally informed
of the respondents decision to terminate their contract.
On August 13, 1993, the petitioner received from the respondent the amount of
297,090.43 as payment for earthworks and road base preparations done on the
Metrogate subdivision as of July 12, 1993 (Progress Billing No. 4).41
On August 18, 1993, the petitioner sent a demand letter to the respondent for the
payment of 1,485,000.00 for unpaid construction equipment rentals from May 14,
1993 to June 16, 1993, and 2,100,000.00 as unrealized profits, among others.
Meanwhile, the petitioner received from the respondent the amount of 209,606.56
for the release of all "retention fees"42 withheld by the respondent from the petitioners
billings.43
On November 5, 1993, the petitioner filed a complaint for breach of contract against
the respondent. This is the root-complaint of the present case.
The parties contract is the law between them
and must be complied with in good faith.
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
the other contracting party.45
In the present case, we find that the respondent failed to comply with its contractual
stipulations on the unilateral termination when it terminated their contract due to the
redesign of the Metrogate Silang Estates subdivision plan.
Paragraph 8 of the parties contract limits the instances when the respondent
(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,
paragraph 8.1 of the contract specifically provides:
8.1. The OWNER may terminate this CONTRACT upon ten (10) days written notice to
the CONTRACTOR in the event of any default by the CONTRACTOR. It shall be
considered a default by the CONTRACTOR whenever he shall:
a) declare bankruptcy, become insolvent, dissolve the corporation, or assign its
assets for the benefit of his creditors;
b) disregard, violate or not comply with important provisions of the Plans and
Specifications or the OWNERs instructions, or incur a delay of more than fifteen
percent (15%) in the prosecution of the work as evaluated against the work schedule
to be submitted by the CONTRACTOR; or
c) fail to provide a qualified superintendent, competent workmen, or materials or
equipment meeting the requirements of the Plans and Specifications.
xxxx
The respondent could not have validly and unilaterally terminated its contract with the
petitioner, as the latter has not committed any of the stipulated acts of default. In fact,
the petitioner at that time was willing and able to perform his obligations under their
contract; he expressed this in his June 1, 1993 letter to the respondent, which stated:
Dear Sir:
Please be advised that as per last meeting, you made mention that works at Silang
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
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
area which is also a big factor for our early completion of our contract with you.
Kindly inform us in writing regarding this matter, so that we can act accordingly. 46
Thus, the respondents termination of the subject contract violated the parties
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
Paragraph 8.1 of their contract.
The respondent failed to prove the petitioners consent,
express or implied, to the termination of the subject contract.
The respondent alleged that there had been mutual termination of the parties
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
supported by evidence.
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
meeting took place, the respondent presented no other evidence to prove that Engr.
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
been made despite the importance of their alleged discussion. The questions that this
evidentiary gap raised cannot but be resolved against the respondent.
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
petitioners claimed agreement or consent to the termination of the construction
contract.
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
necessarily mean consent to the termination; by itself, the request for an official letter
of termination does not really signify an agreement; it was nothing more than a
request for a final decision from the respondent.
A close reading of petitioners June15, 1993 letter shows that the petitioners intent
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
respondent stated:
Sir:
Please be informed that as of this writing, we have not received your official letter
regarding the untimely termination of our contract with you, due to reason that
stoppage of work is due to business decision.
In order for us to demobilize our personnel, construction equipments, we need your
official letter of termination soonest possible time.
Thank you.
To our mind, the petitioner fully disclosed the intent behind his letter and it was not
consent. Thus, we find it erroneous to conclude, based on this letter, that the
petitioner had consented to the termination of the construction contract.
The respondent also contended that the petitioner ratified the termination of their
contract by accepting payments for progress billings, costs of equipment
mobilization/demobilization, refund of insurance bond payments, and the release of
retention fees. However, we do not see the petitioners receipt of these payments to
be acts of ratification or consent to the contracts termination.
Consent is manifested by the meeting of the offer and the acceptance upon the thing
and the cause which are to constitute the contract.47 The offer must be certain, and
the acceptance, whether express or implied, must be absolute.48 An acceptance is
considered absolute and unqualified when it is identical in all respects with that of the
offer so as to produce consent or a
meeting of the minds.49
We find no such meeting of the minds between the parties on the matter of
termination because the petitioners acceptance of the respondents offer to terminate
was not absolute.
To terminate their contract, the respondent offered to pay the petitioner billings for
accomplished works, unrecouped costs of equipment mobilization and demobilization,
unrecouped payment of insurance bond, and the release of all retention fees
payments that the petitioner accepted or received.
But despite receipt of payments, no absolute acceptance of the respondents offer
took place because the petitioner still demanded the payment of equipment rentals,
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
acceptance or a counteroffer,50 which the respondent did not accept. Under these
circumstances, we see no full consent.
The petitioner is entitled to the payment of:
(a) equipment rentals during the period of work suspension, and
(b) cost of opportunity lost.
A. On equipment rentals incurred during the suspension of construction works
The respondent does not deny that the petitioners equipment was idled from May 14,
1993 to June 16, 1993,but refused to pay the petitioner equipment rentals because
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
consent to terminate their contract. Also, it questioned the petitioners use of
ACEL51 rates in the computation of the accrued rent.
The petitioner cannot be faulted for the idling of his equipment on the project site.
First and foremost, the order to suspend the construction work on May 14, 1993 came
from the respondent. Second, the suspension of construction works was supposedly
temporary; thus, the petitioners equipment were placed on standby at the site. Third,
it was only on June 16, 1993, that the respondent gave the final word and formal
authority for the demobilization of the petitioners equipment.
Hence, even assuming that the petitioner had earlier given his consent, such consent
was for the suspension of the contract, not for its termination. The petitioner could not
have properly demobilized his equipment earlier than June 16, 1993 without an official
and definite letter of termination from the respondent.
The petitioner undeniably lost expected profits when he placed the rented equipment
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
for three weeks), the petitioner was compelled to keep his personnel and his rented
equipment on standby at the site, and was prevented from renting out his own
equipment to others.
Under these facts, the petitioner should be entitled to the payment of the rent for his
equipment amounting to 1,485,000.00, incurred from May 14, 1993 to June 16,
1993.
We uphold the amount of rent arrived at by the petitioner as the use of prevailing
ACEL rates in the computation of the rent was reasonable based on industry
standards.
B. On cost of opportunity lost
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
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.
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
price of 10,500,000.00 as the petitioner had already been compensated for a part of
the construction work done.
We find merit in the respondents contention that the basis of the cost of opportunity
lost should not be the total contract price, as the cost of opportunity lost must
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
that the respondent gave at the start of the contract; the difference would be the basis
for determining the cost of opportunity lost.
On record, the petitioner received the following amounts for work accomplished: (a)
292,682.90, paid by the respondent on March 10, 1993; (b) 319,922.32, paid on
May 14, 1993; (c) 474,679.28, paid on June 10, 1993; and (d) 297,090.43, paid on
August 13, 1993. By subtracting these amounts and the 500,000.00 down payment
from the total contract price of 10,500,000.00, we arrive at the amount of
8,615,625.07, which represents the petitioners unrealized gross earnings from the
contract.
damages, the wrongful act must be accompanied by bad faith, such as when the
guilty party acted in a wanton, fraudulent, reckless or malevolent manner. 53
We cannot also award attorneys fees to the petitioner. Attorneys fees are not
awarded every time a party wins a suit.54 Attorneys fees cannot be awarded even if a
claimant is compelled to litigate or to incur expenses to protect his rights due to the
defendants act or omission,55 where no sufficient showing of bad faith exists; a
partys persistence based solely on its erroneous conviction of the righteousness of
his cause, does not necessarily amount to bad faith.56 In the present case, the
respondent was not shown to have acted in bad faith in appealing and zealously
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
under the circumstances, considering that one hundred fifty (150) days had lapsed
(out of the three hundred (300) days-completion period under the contract) at the time
the petitioner received the respondents letter confirming the termination of their
contract on June 16, 1993.
In these lights, we award the petitioner the amount of 1,723,125.01(equivalent of
20% of 8,615,625.07) as cost of opportunity lost.
Awards of moral and exemplary damages,
and attorneys fees are unwarranted
due to the absence of fraud and bad faith
on the part of the respondent.
WHEREFORE, premises considered, we GRANT the appeal and REVERSE and SET
ASIDE the decision dated June 27, 2005, and resolution dated October 21, 2005, of
the Court of Appeals in CA-G.R. CV No. 64715.
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
June 16, 1993, and (b) 1,723,125.01, as cost of opportunity lost. The sum of these
amounts shall earn legal interest of six percent (6%) per annum from the finality of
this Decision until full payment.
No pronouncement as to costs.
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

FIRST DIVISION
G.R. No. 189262, July 06, 2015
GBMLT MANPOWER SERVICES, INC., Petitioner, v. MA. VICTORIA H.
MALINAO, Respondent.
DECISION
SERENO, C.J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
assailing the Court of Appeals (CA) Decision1 dated 29 May 2009 and
Resolution2 dated 24 August 2009 in CA-G.R. SP No. 107378.
The CA found grave abuse of discretion on the part of the National Labor Relations
Commission (NLRC) when the latter reversed the decision of the labor arbiter, which
granted respondent's money claims under her complaint for illegal dismissal against
petitioner. The CA Resolution denied petitioner's motion for reconsideration.
Facts
Sometime in May 2005, respondent applied to petitioner for a job as teacher for
deployment abroad.3She went through the usual application process and was later
called for an interview by the president of an Ethiopian university. 4 The interviewer
endorsed her for the post of accounting lecturer.5 Petitioner issued her a wage
response slip,6 which provided that she would receive a monthly salary of USD 900.
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
Personnel8 (Contract of Employment) covering a period of two academic years. The
contract had been approved by the Philippine Overseas Employment Administration
(POEA).
On 12 December 2005, respondent departed for Ethiopia. Upon her arrival, she was
informed by the Vice Minister of the Ministry of Education that her credentials would
have to be re-evaluated, because it appeared that she did not have a master's
degree.9 Respondent was given a new contract for signing, which at first she refused
to sign. However, upon reading that it was a duplicate of the original contract, she
affixed her signature.10chanrobleslaw
Respondent was assigned to teach at the Alemaya University. 11 On 10 January 2006,
she unilaterally decided to discontinue teaching the course in cooperative accounting
that had been assigned to her.12The reason she gave was that auditing, not
accounting, was her specialization. Another lecturer took over the course, and
respondent spent the rest of the semester without a teaching load.
On 1 March 2006, Alemaya University Academic and Research Vice President Tena
Alamirew (Vice President Alamirew) circulated a memorandum 13 addressed to the
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
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
salary.15 In particular, respondent's designation was lowered from lecturer to assistant
lecturer16 with a monthly salary of USD 600.17chanrobleslaw
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
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
allowed to speak before this meeting. Alemaya University does not need your
services anymore, you are terminated, you are fired."20chanrobleslaw
Later that afternoon, Vice President Alamirew apologized to respondent for the
retort,21 saying that she thought the latter was the leader of the protest before the
Ministry of Education. Nevertheless, in a letter22 dated 28 March 2006, respondent
requested Vice President Alamirew to issue a notice of termination to her "in order not
to prolong [her] agony."23chanrobleslaw
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
Economics that due to a students' petition, another instructor had been assigned to
replace respondent in Auditing II. The latter was again left idle. Attached to the
memorandum was the class compliance on the performance of respondent, together
with the individual signatures of the students.25 Respondent checked the signatures
and found that some had signed twice, while two were not in her
class.26chanrobleslaw
Another memorandum27 of the same date was issued by Workneh Kassa, Dean of
the Faculty of Business and Economics (Dean Kassa) addressed to Vice President
Alamirew. Dean Kassa indicated that the qualification of respondent had been highly
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
Department of Accounting had to replace respondent in her course assignment,
because "she has never handled any course effectively." 28 Dean Kassa requested
Vice President Alamirew to take the necessary action, because keeping an idle
expatriate staff was unacceptable.
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
responded30 to the memorandum on the same day stating that in the Philippines, a
person who had a law degree and passed the bar examinations has a degree more
than a master's, but less than a doctorate. She recognized that the university had the
right to terminate her at any time, but insisted that there was no need to discredit
her.31chanrobleslaw
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
reads:chanRoblesvirtualLawlibrary
Despite the efforts of the head of the Department, the dean of the faculty and myself
to bring you on board, it seems that you are not fitting anywhere. On the contrary, to
cover up your incompetence and personal problems, you are insulting students, the
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
here any longer. But as per Article X Sub-article 2 of the contract, we are obliged to
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
given by your Department. Please note that if you continue insulting and abusing any
of the students, the Department or the Faculty Community, we shall be forced either
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
contract three months from now. In the mean time, however, you're strongly advised
to have an iota of decency and behave rationally.33
To this notice, respondent replied in a letter dated 7 April 2006, which
reads:chanRoblesvirtualLawlibrary
Dear Dr. Tena:ChanRoblesVirtualawlibrary
You did it first! I only defended myself from all the insults I received from the students,
the staff and management. I believe this is within my constitutional rights. I did not
insult anybody!
I cannot resort to such vile tactics because I am not an incompetent person, as you
perceived me to be. All the incidents that had happened were the aftermath of your
evaluation and as a subsequence, the defamation committed against me when you
insulted me and fired me from my job before my colleagues.
Your accusations are merely based on hearsays, and hearsays are inadmissible in
evidence under the law. They remain allegations unless proven by substantial
evidence under administrative proceedings and beyond reasonable doubt under
criminal procedure.
You cannot legally base your decision in terminating my contract on facts not
proven. Your statement that it will be difficult to expect positive contribution by
keeping me here is a mere speculation. In law, it must be conclusive, not speculative.
It must be a fact that must be proved, substantially and procedurally, as required by
due process.
If you really believe I am guilty as charged, what could have prevented you anyway
from enforcing it before the court of law? I am ready to face any charges because I
know I have not violated the rights of other people and the law. I could have
appreciated it better had you filed the case in court; at least I could have been
accorded my day in court.
I cannot understand why there is a need for you to open an old issue about
Cooperative Accounting Course, and use this against me, when it has already been
resolved a long time ago. And please be reminded that Auditing is an area in
Accounting and you know very well that this was not my reason when I refused to
handle the abovementioned course.
In addition, your incompetent statement that Auditing is my self-acclaimed
specializationshows sarcasm; very damaging not only to my person, but also to my
profession, and ultimately, to my government, and the Professional Regulations
Commission itself which conferred to me the license of being a Certified Public
Accountant.
For your further information, I am not only an expert in financial audit, but I am
actually an expert in the audit of management systems.
Again, your last sentence on the notice of termination is provocative, malicious and
defamatory. You mean, I am indecent and behaving irrationally? That is very hard to
prove. I guess it is not only the undersigned that should behave rationally.
Giving three months prior notice to the other party is required only if the termination is
for no cause. To reiterate, you are not under obligation to give me three months
advance notice as per Art. X, par. 3 of the employment contract, unless you really
believe that there exists no valid ground to terminate my contract.
Thank you very much.34
While waiting for the three-month period to expire, respondent was offered a post at
the Internal Audit Department by Alemaya University President Belay Kassa
(President Kassa). She accepted the job through a letter dated 19 April
2006.35chanrobleslaw
However, in another letter36 dated 27 April 2006 addressed to President Kassa,
respondent signified her change of mind and rejected the offered post at the Internal
Audit Department. She narrated that on her first day on the job, she was made to wait
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
Amharic, which she did not understand. She was also assigned to work under the
acting head, who was merely a holder of a diploma in accounting. Respondent
manifested that "[she does] not deserve to be insulted." 37chanrobleslaw
Respondent was repatriated on 27 June 2006.38 She later signed a Quitclaim and
Release dated 5 July 2006 in favor of petitioner. The waiver reads as
follows:chanRoblesvirtualLawlibrary
That for and in consideration of the sum of NINE HUNDRED DOLLARS ($900 USD),
and for other invaluable considerations extended to me by GBMLT MANPOWER
SERVICES, INC., receipt of which is hereby acknowledged to my full and complete
satisfaction, I hereby forever release and discharge said GBMLT MANPOWER
SERVICES, INC., all its Officers and Directors, from any and all claims by way of
unpaid salaries, wages, and all other monetary claims or otherwise due me in
connection with my deployment as lecturer/teacher in Ethiopia.
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
kind, whether past, present and/or contingent against GBMLT MANPOWER
SERVICES, INC.[,] its Officers and Directors as a consequence of such
deployment.39
On 18 July 2006, respondent filed a complaint before the labor arbiter against
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
damages, and attorney's fees.
Ruling of the Labor Arbiter
In a Decision41 dated 29 March 2007, the labor arbiter found respondent to have been
unduly repatriated in breach of the employment contract. 42 Petitioner and Alemaya
University were ordered to pay her in solidum the amounts of USD 4,500 as
unrealized income - from which the amount paid to her under the Quitclaim and
Release had already been deducted - Php 30,000 as moral damages, Php 20,000 as
exemplary damages, plus costs.43chanrobleslaw
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
bachelor of laws degree. Some law schools in the Philippines actually confer the
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
University to allow respondent to finish her two-year employment contract instead of
forcing her to sign a new contract with lower pay, just because she did not have a
master's degree.46chanrobleslaw
The labor arbiter also ruled that the protest of respondent and her colleagues before
the Ministry of Education, as well as the question of whether she was the leader of
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
contract.47chanrobleslaw
The labor arbiter gave no credence either to the allegation that respondent was
dismissed for incompetence based on the students' petition. It was noted that the
petition only came out after she was fired by Vice President Alamirew during the
meeting.48 Furthermore, the alleged petition contained double signatures and
signatures of students not included in the class list.
In the end, the labor arbiter found that respondent had been constructively dismissed.
She was supposedly forced to quit because continued employment became
unbearable, not only due to demotion in rank and diminution in pay, but also due to
the discrimination and disdain on the part of her employer. 49 Further, no procedural
due process was accorded to respondent because no panel of her peers was ever
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 labor arbiter also declared that the Quitclaim and Release could not work to bar
the claims of respondent, because when compared to the amount that she was
entitled to receive under Section 1051of Republic Act No. (R.A.) 8042 (Migrant
Workers and Overseas Filipinos Act of 1995), the amount of USD 900 was
unreasonable and prejudicial to her.52chanrobleslaw
According to the labor arbiter, respondent was also entitled to moral damages in view
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
emulating the acts of petitioner and Alemaya University. 54chanrobleslaw
Petitioner filed an appeal before the NLRC.55 For her part, respondent filed before the
NLRC a pleading entitled "Omnibus Motion,"56 which was divided into three parts.
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
April 2007 within which to perfect its appeal.57 When petitioner filed its memorandum
of appeal on 20 April 2007, it issued a check as payment for the appeal bond. The
check was presented for payment only on 23 April 2007. Considering that it takes
three days for checks to clear - and that checks only produce the effect of payment
when they have been cashed - the appeal bond was posted beyond the 10-day
reglementary period.58 Hence, according to respondent, petitioner's appeal was not
perfected, and the labor arbiter's ruling had attained finality. 59chanrobleslaw
In the Motion to Deny Due Course for Lack of Merit, respondent gave her counter-
arguments on the allegations of petitioner in the latter's appeal.
In the final part, the Motion for Revision/Modification of Award, respondent requested
that the NLRC revise the award made by the labor arbiter. She argued that in the
dispositive portion of the decision, the labor arbiter had left out the full reimbursement
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
damages to Php 250,000 each, and the award of attorney's fees equivalent to 10% of
the total award.62chanrobleslaw
Ruling of the NLRC
The NLRC issued a Decision63 dated 30 July 2008 dismissing respondent's
complaint, because her claims had been the subject of a valid release, waiver and
quitclaim.64chanrobleslaw
The NLRC ruled that respondent could no longer question the termination of her
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
did not take effect when respondent and the university agreed to the continuance of
her employment, albeit in another capacity. Thus, when respondent later wrote to
President Kassa that she did not want the new post after all and requested to be
repatriated, it was she who terminated the contract.66 Contrary to the ruling of the
labor arbiter, respondent was not constructively dismissed.
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
could hardly be "duped into signing any document that would be detrimental to her
cause, if she was not willing [to agree] to the terms and conditions [provided in] what
she was signing [or] entering into."67chanrobleslaw
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
on the part of the NLRC.
Ruling of the CA
In the assailed Decision70 dated 29 May 2009, the CA reinstated the Decision of the
labor arbiter with modifications. Aside from upholding the awards made by the labor
arbiter, the appellate court ordered petitioner and Alemaya University to reimburse
respondent for the full amount of the placement fee she had paid, with interest at the
rate of 12% per annum, as well as her airfare from Dire Dawa to Addis Ababa in
Ethiopia.71 The awards of moral and exemplary damages were both increased to Php
50,000, plus attorney's fees equivalent to 10% of the monetary
award.72chanrobleslaw
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
unexpired portion of the contract.73 Hence, the waiver and quitclaim was invalid.
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
necessity, for she was in dire need of money.74chanrobleslaw
The appellate court observed that while respondent accepted the offer of President
Kassa to work at the Internal Audit Department, such arrangement was in the purview
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
contracts when it required respondent to sign a second contract upon her arrival in
Ethiopia, and when it attempted in vain to have her sign a third contract demoting her
in rank and lowering her salary.76 Considering that a representative of the Ethiopian
government went to the Philippines to screen respondent and check her
qualifications, the review of her credentials in Ethiopia was "truly mind
boggling."77chanrobleslaw
As regards the appeal bond before the NLRC, the CA ruled that since petitioner's
check payment was encashed only after the reglementary period within which to
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
bond, and noncompliance with the rule was fatal to petitioner's cause.
Petitioner provided the plane ticket from Addis Ababa to the Philippines. However, it
did not reimburse the airfare of respondent from Dire Dawa, her place of work, to
Addis Ababa. Thus, the CA ordered a reimbursement of the airfare for the latter route,
but did not allow the claim for hotel accommodations for lack of sufficient
evidence.79chanrobleslaw
After its Motion for Reconsideration80 was denied in the challenged
Resolution81 dated 24 August 2009, petitioner filed the instant petition before us.
Issues
1. Whether respondent was illegally dismissed
2. Whether the Quitclaim and Release was valid
3. Whether petitioner's appeal was perfected on time
Our Ruling
Mode of Review
The instant petition is one for review of the CA Decision issued under a petition for
certiorari, in which the CA found that the NLRC had committed grave abuse of
discretion when the latter upheld the validity of the Quitclaim and Release. As
in Montoya v. Trammed Manila Corp.,82 we shall examine in the instant Rule 45
petition the correctness of the Rule 65 decision rendered by the CA by answering this
question: Did the CA correctly determine whether the NLRC committed grave abuse
of discretion in ruling on the case?
I.
Respondent was not illegally dismissed.
In ruling that the Quitclaim and Release was ineffective to bar recovery by
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
Employment. This reasoning presupposes that respondent is entitled to the salaries
for the unexpired portion of her employment contract.
Under Section 1083 of R.A. 8042, workers who are illegally terminated are entitled to
their salaries for the unexpired portion of their employment contracts or for three
months for every year of the unexpired term, whichever is less, in addition to the
reimbursement of their placement fee with interest at the rate of 12% per annum.
A plain reading of the provision reveals that it applies only to an illegally dismissed
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
provided in Section 10 of R.A. 8042 finds no application to cases in which the
overseas Filipino worker was not illegally dismissed.
In this case, we find that respondent was not illegally dismissed.
Article X of the POEA-approved Contract of Employment, as well as the second
contract given to respondent for signing upon her arrival in Ethiopia,
provides:chanRoblesvirtualLawlibrary
ARTICLE X-TERMINATION
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
and conditions set forth in Article III here of [sic]. In such an event[,] the Employee
shall be entitled to his/her salary and allowances due up to the date of termination.
2. This contract may be terminated by the Employer in case of illness or disability
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
entitled to his/her salary and allowances due up to the date of commencement of said
illness or disability.
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
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
termination.85 (Emphasis supplied)
Based on the foregoing provisions, the Contract of Employment may be terminated by
either party for cause or at any time for no cause, as long as a three-month notice is
given to the other party. In the latter case, respondent shall still be fully engaged and
entitled to her salary and allowances for the three-month period provided in the notice
of termination.
The Contract of Employment signed by respondent is first and foremost a contract,
which has the force of law between the parties as long as its stipulations are not
contrary to law, morals, public order, or public policy. We had occasion to rule that
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
terminate the contract at will, it cannot not act purposely to injure the
other.87chanrobleslaw
There is no need to delve on the attempted demotion of respondent for the reason
that she did not have a master's degree. We are more inclined to believe that the
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
has a master's degree by virtue of her law degree here in the Philippines, it is clearly
not the master's degree that the Ministry of Education of Ethiopia required. This
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
apparent upon her arrival in Ethiopia. Thus, the misunderstanding was not the result
of bad faith on the part of either party. It is for this reason that their acts regarding the
matter should not be taken against either one of them. In any case, the demotion did
not materialize, and respondent maintained her salary and benefits until she was
repatriated.
Neither can we impute bad faith on the part of Alemaya University in the exercise of
its right to terminate the Contract of Employment at will for several reasons.
First, we regard the alleged statements of Vice President Alamirew during the
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
apologized to respondent for the blunder and confessed it was because she thought
respondent led the group protest before the Ministry of Education.
Second, while it was Vice President Alamirew who eventually issued the notice of
termination, the ground cited therein was respondent's supposed failure to handle her
teaching load effectively. Respondent had previously caused some inconvenience to
the management of Alemaya University when she decided to discontinue teaching the
course assigned to her and spent the rest of the semester without any teaching load
but still with pay. It also alluded to her tendency to insult students, staff, management
and Ethiopians in general.
Third, respondent never denied the grounds cited in the notice of termination. In fact,
in her letter dated 31 March 2006 addressed to Mr. Keno, she affirmed that the
students "told [her] bluntly that they do not want [her] style [of
teaching]."88chanrobleslaw
In the exercise of the right to terminate a contract without cause, one party need only
to give the other prior written notice as provided in the contract.89 Despite the grounds
cited in the notice of termination, Alemaya University opted to take the "no cause"
route in terminating the Contract of Employment. In this case, the contract provided
that the other party be given a three-month advance notice, a requirement that
Alemaya University complied with.
It is well to note that the right to terminate the Contract of Employment at will was also
available to respondent, who exercised that right when she signified her change of
mind and rejected the job at the Internal Audit Department. This detail was
appreciated even by the labor arbiter who found that respondent had quit her job.
It cannot be denied that when respondent accepted the post offered at the Internal
Audit Department, the parties had decided to revert to the status quo ante of
harmonious employment relationship and to do away with the previous termination of
her employment. Respondent's letter to President Kassa is illuminative of this
point:chanRoblesvirtualLawlibrary
Dear Prof. Belay:ChanRoblesVirtualawlibrary
I am glad to accept the job at the Internal Audit Department. It is an honor to work
under the Office of the President. Be rest assured that I will try my very best to live up
to your expectations.
My only concern is the proximity of my residence in Harar to the campus.
Convenience is necessary for the effective and efficient performance of my duties and
responsibilities. The job is a tough one that will need my full attention and
concentration. I may make use of Saturdays and Sundays for the job.
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
when the family of Ms. Irene Ycoy arrives on the second week of May.
In consideration thereof, may I request that I be provided with a separate housing unit
inside the campus?
Thank you very much.90
Nothing in the letter gives the impression that respondent understood that the
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
unit inside the campus. As correctly found by the NLRC, the logical conclusion is that
the parties had agreed to let her employment continue in the university under the
Contract of Employment, albeit in a different capacity. When respondent later decided
that she did not want the new job for personal reasons, she exercised her right to
terminate the Contract of Employment.
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
termination is still in force and effect"91cannot operate to transfer responsibility for the
termination of the Contract of Employment to Alemaya University. Ultimately, it was
she who terminated the Contract of Employment, and she cannot now claim that she
was illegally dismissed.
II.
The Quitclaim and Release is valid.
We also find that the NLRC did not commit grave abuse of discretion when it
sustained the validity of the Quitclaim and Release executed by respondent in favor of
petitioner.
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
credible and reasonable consideration, we have no choice on the matter but to uphold
the transaction as valid and binding.92chanrobleslaw
In this case, respondent admits that she had a full understanding93 of the terms and
conditions of the Quitclaim and Release and voluntarily signed it. The bone of
contention is the reasonableness of the amount of USD 900 as consideration for the
waiver of all other purported claims against petitioner. According to respondent, this
amount is minimal compared to the USD 5,400 in salaries to which she is entitled for
the unexpired portion of the Contract of Employment. 94chanrobleslaw
To reiterate, the entitlement to the salaries for the unexpired portion of the
employment contract obtains only for illegally dismissed employees. In view of our
finding that respondent was not illegally dismissed, she is not entitled to such salaries.
Respondent's contentions that she "was in dire need of cash" 95 and that "[s]he was
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
ground to nullify quitclaims only if the consideration is unconscionably low and the
employee was tricked into accepting it.97chanrobleslaw
As aptly observed by the NLRC, respondent is a learned professional and a teacher
no less. Anyone would be hard put to trick her into agreeing to something like signing
a waiver. In this case, no proof was presented to show that petitioner had defrauded
or deceived her into signing the document. Absent that proof, we are bound to uphold
the Quitclaim and Release as valid and binding.
III.
Petitioner's appeal was perfected on time.
According to respondent, the check issued by petitioner for the appeal bond was
presented for payment only on the last day of the period for appeal from the Decision
of the labor arbiter. Given that checks have the effect of payment only when they
have been encashed - which takes three banking days from the time they are
presented for payment - the appeal bond was actually posted beyond the
reglementary period for appeal. That being the case, the appeal was not perfected,
and the labor arbiter's ruling attained finality. This position was sustained by the CA.
Nonetheless, we find otherwise and rule that petitioner has complied with the
requirements of the law with regard to the posting of the appeal bond.
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
provides:chanRoblesvirtualLawlibrary
ARTICLE 228. Appeal. Decisions, awards, or orders of the Labor Arbiter are final
and executory unless appealed to the Commission by any or both parties within ten
(10) calendar days from receipt of such decisions, awards, or orders.
xxxx
In case of a judgment involving a monetary award, an appeal by the employer
may be perfected only upon the posting of a cash or surety bond issued by a
reputable bonding company duly accredited by the Commission in the amount
equivalent to the monetary award in the judgment appealed from. (Emphases
supplied)
The requirement of an appeal bond is further emphasized in Section 6,99 Rule VI of
the 2011 NLRC Rules of Procedure. This provision clarifies that damages and
attorney's fees awarded by the labor arbiter shall not be included in the computation
of the bond to be posted.
In several pronouncements,100 this Court has adopted a particular understanding of
the word "only" in the phrase "an appeal by the employer may be perfected only upon
the posting of a cash or surety bond." It has regarded the phrase as the legislative's
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
perfected.
The reason for the requirement was also enunciated by the Court in Viron Garments
Manufacturing, Co., Inc. v. NLRC,101 in which we said:chanRoblesvirtualLawlibrary
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
receive the money judgment in their favor upon the dismissal of the employer's
appeal. It was intended to discourage employers from using an appeal to delay, or
even evade, their obligation to satisfy their employees' just and lawful claims.102
Proceeding from this rationale, the intention of the requirement is fulfilled when the
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
subsist until the final resolution of the appeal.
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
the purpose of an appeal bond. We said that the posting of the bond in this manner
insured, during the period of appeal, against any occurrence that would defeat or
diminish the monetary judgment in favor of the employee if the judgment is eventually
affirmed.104chanrobleslaw
In this case, there is no question that the NLRC accepted the appeal bond posted by
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

THIRD DIVISION
[G.R. No. 116896. May 5, 1997]
PHILIPPINE NATIONAL CONSTRUCTION CORPORATION petitioner, vs. COURT
OF APPEALS, MA. TERESA S. RAYMUNDO-ABARRA, JOSE S.
RAYMUNDO, ANTONIO S. RAYMUNDO, RENE S. RAYMUNDO, and
AMADOR S. RAYMUNDO, respondents.
DECISION
DAVIDE, JR., J.:
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
of lease[1] on an undivided portion of 30,000 square meters of a parcel of land owned
by the private respondents.
The lease contract, executed on 18 November 1985, reads in part as follows:
1. TERM OF LEASE - This lease shall be for a period of five (5) years,
commencing on the date of issuance of the industrial clearance by the
Ministry of Human Settlements, renewable for a like or other period at the
option of the LESSEE under the same terms and conditions.
2. RATE OF RENT - LESSEE shall pay to the LESSOR rent at the monthly rate
of TWENTY THOUSAND PESOS (P20,000.00), Philippine Currency, in the
manner set forth in Paragraph 3 below. This rate shall be increased yearly
by Five Percent (5%) based on the agreed monthly rate of P20,000.00 as
follows:
Monthly Rate Period Applicable
P21,000.00 Starting on the 2nd year
P22,000.00 Starting on the 3rd year
P23,000.00 Starting on the 4th year
P24,000.00 Starting on the 5th year
3. TERMS OF PAYMENT - The rent stipulated in Paragraph 2 above shall be
paid yearly in advance by the LESSEE. The first annual rent in the amount of
TWO HUNDRED FORTY THOUSAND PESOS (P240,000.00), Philippine
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.
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
Property such structure(s) and/or improvement(s) necessary for or incidental
to the LESSEE's purposes.
...
11. TERMINATION OF LEASE - This Agreement may be terminated by mutual
agreement of the parties. Upon the termination or expiration of the period of
lease without the same being renewed, the LESSEE shall vacate the
Leased Property at its expense.
On 7 January 1986, petitioner obtained from the Ministry of Human Settlements
a Temporary Use Permit[2] for the proposed rock crushing project. The permit was to
be valid for two years unless sooner revoked by the Ministry.
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
execution of the contract. They also assured the latter that they had already stopped
considering the proposals of other aggregates plants to lease the property because of
the existing contract with petitioner.[3]
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
clearance by the Ministry of Human Settlements, and not from the date of signing of
the contract. It then expressed its intention to terminate the contract, as it had decided
to cancel or discontinue with the rock crushing project "due to financial, as well as
technical, difficulties."[4]
The private respondents refused to accede to petitioner's request for the
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]
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-
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.
On 19 May 1986, the private respondents instituted with the Regional Trial Court
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
merits.
 What transpired next was summarized by the trial court in this wise:
Plaintiffs rested their case on September 7, 1987 (p. 87 rec.). Defendant asked for
postponement of the reception of its evidence scheduled on August 10, 1988 and as
prayed for, was reset to August 25, 1988 (p. 91 rec.) Counsel for defendant again
asked for postponement, through representative, as he was presently indisposed. The
case was reset, intransferable to September 15 and 26, 1988 (p. 94 rec.) On
September 2, 1988, the office of the Government Corporate Counsel entered its
appearance for defendant (p. 95, rec.) and the original counsel later withdrew his
appearance. On September 15, 1988 the Government Corporate Counsel asked for
postponement, represented by Atty. Elpidio de Vega, and with his conformity in open
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
attached.
Counsel for plaintiffs objected to the postponement and the court considered the
evidence of the government terminated or waived. The case was deemed submitted
for decision upon the filing of the memorandum. Plaintiffs filed their memorandum on
October 26, 1988. (p. 111, rec.).
On October 18, 1988 in the meantime, the defendant filed a motion for
reconsideration of the order of the court on September 26, 1988 (p. 107, rec.)The
motion was not asked to be set for hearing (p. 110 rec.) There was also no proof of
notice and service to counsel for plaintiff. The court in the interest of justice set the
hearing on the motion on November 29, 1988. (p. 120, rec.) but despite notice, again
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
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,
counsel for the government was absent. The motion was deemed abandoned but the
court at any rate, after a review of the incidents and the grounds relied upon in the
earlier motion of defendant, found no reason to disturb its previous order.[8]
On 12 April 1989, the trial court rendered a decision ordering petitioner to pay the
private respondents the amount of P492,000 which represented the rentals for two
years, with legal interest from 7 January 1986 until the amount was fully paid, plus
attorney's fees in the amount of P20,000 and costs.[9]
Petitioner then appealed to the Court of Appeals alleging that the trial court erred
in ordering it to pay the private respondent the amount of P492,000 and in denying it
the right to be heard.
Upon the affirmance of the trial court's decision[10] and the denial of its motion for
reconsideration, petitioner came to this Court ascribing to the respondent Court of
Appeals the same alleged errors and reiterating their arguments.
First. Petitioner invites the attention of this Court to paragraph 1 of the lease
contract, which reads: "This lease shall be for a period of five (5) years, commencing
on the date of issuance of the industrial clearance by the Ministry of Human
Settlements...." It then submits that the issuance of an industrial clearance is a
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
contract; for the said permit requires that a clearance from the National Production
Control Commission be first secured, and besides, there is a finding in the permit that
the proposed project does not conform to the Zoning Ordinance of Rodriguez, (formerly
Montalban), Rizal, where the leased property is located. Without the industrial
clearance the lease contract could not become effective and petitioner could not be
compelled to perform its obligation under the contract.
Petitioner is now estopped from claiming that the Temporary Use Permit was not
the industrial clearance contemplated in the contract. In its letter dated 24 April 1986,
petitioner states:
We wish to reiterate PNCC Management's previous stand that it is only
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
February 1986 when the Notice of Termination was served on your
clients.[11] (Underscoring Supplied).
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
be gleaned from this letter that petitioner has considered the permit as industrial
clearance; otherwise, petitioner could have simply told the private respondents that its
obligation to pay rentals has not yet arisen because the Temporary Use Permit is not
the industrial clearance contemplated by them. Instead, petitioner recognized its
obligation to pay rental counted from the date the permit was issued.
Also worth noting is the earlier letter of petitioner; thus:
[P]lease be advised of PNCC Management's decision to cancel or
discontinue with the rock crushing project due to financial as well as
technical difficulties. In view thereof, we would like to terminate our Lease
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
Messrs. Rene, Jose and Antonio, all surnamed Raymundo and Mrs. Socorro
A. Raymundo as Attorney-in-Fact of Amador S. Raymundo to sign on the
spaces indicated below.[12]
It can be deduced from this letter that the suspensive condition - issuance of
industrial clearance - has already been fulfilled and that the lease contract has become
operative. Otherwise, petitioner did not have to solicit the conformity of the private
respondents to the termination of the contract for the simple reason that no juridical
relation was created because of the non-fulfillment of the condition.
Moreover, the reason of petitioner in discontinuing with its project and in
consequently cancelling the lease contract was financial as well as technical difficulties,
not the alleged insufficiency of the Temporary Use Permit.
Second. Invoking Article 1266 and the principle of rebus sic stantibus, petitioner
asserts that it should be released from the obligatory force of the contract of lease
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
Revolution and financial difficulties.
It is a fundamental rule that contracts, once perfected, bind both contracting
parties, and obligations arising therefrom have the force of law between the parties and
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
of the Civil Code, which reads: "The debtor in obligations to do shall also be released
when the prestation becomes legally or physically impossible without the fault of the
obligor."
Petitioner cannot, however, successfully take refuge in the said article, since it is
applicable only to obligations "to do", and not to obligations "to give". [14] An obligation
"to do" includes all kinds of work or service; while an obligation "to give" is a prestation
which consists in the delivery of a movable or an immovable thing in order to create a
real right, or for the use of the recipient, or for its simple possession, or in order to return
it to its owner.[15]
The obligation to pay rentals[16] or deliver the thing in a contract of lease [17] falls
within the prestation to give; hence, it is not covered within the scope of Article 1266. At
any rate, the unforeseen event and causes mentioned by petitioner are not the legal or
physical impossibilities contemplated in said article. Besides, petitioner failed to state
specifically the circumstances brought about by the abrupt change in the political
climate in the country except the alleged prevailing uncertainties in government policies
on infrastructure projects.
The principle of rebus sic stantibus[18] neither fits in with the facts of the
case. Under this theory, the parties stipulate in the light of certain prevailing conditions,
and once these conditions cease to exist the contract also ceases to exist. [19] This
theory is said to be the basis of Article 1267 of the Civil Code, which provides:
ART. 1267. When the service has become so difficult as to be manifestly
beyond the 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 absolute application of the principle of rebus sic stantibus, which would endanger
the security of contractual relations. The parties to the contract must be presumed to
have assumed the risks of unfavorable developments. It is therefore only in absolutely
exceptional changes of circumstances that equity demands assistance for the
debtor.[20]
In this case, petitioner wants this Court to believe that the abrupt change in the
political climate of the country after the EDSA Revolution and its poor financial condition
rendered the performance of the lease contract impractical and inimical to the corporate
survival of the petitioner.
This Court cannot subscribe to this argument. As pointed out by private
respondents:[21]
It is a matter of record that petitioner PNCC entered into a contract with
private respondents on November 18, 1985. Prior thereto, it is of judicial
notice that after the assassination of Senator Aquino on August 21, 1983,
the country has experienced political upheavals, turmoils, almost daily mass
demonstrations, unprecedented, inflation, peace and order deterioration, the
Aquino trial and many other things that brought about the hatred of people
even against crony corporations. On November 3, 1985, Pres. Marcos,
being interviewed live on U.S. television announced that there would be a
snap election scheduled for February 7, 1986.
On November 18, 1985, notwithstanding the above, petitioner PNCC
entered into the contract of lease with private respondents with open eyes of
the deteriorating conditions of the country.
Anent petitioners 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,[22] cited by the private respondents, mere pecuniary inability to fulfill
an engagement does not discharge a contractual obligation, nor does it constitute a
defense to an action for specific performance.
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
plant, the same will not invalidate the contract. The cause or essential purpose in a
contract of lease is the use or enjoyment of a thing.[23] As a general principle, the motive
or particular purpose of a party in entering into a contract does not affect the validity or
existence of the contract; an exception is when the realization of such motive or
particular purpose has been made a condition upon which the contract is made to
depend.[24] The exception is not apply here.
Third. According to petitioner, the award of P492,000 representing the rent for two
years is excessive, considering that it did not benefit from the property. Besides, the
temporary permit, conformably with the express provision therein, was deemed
automatically revoked for failure of petitioner to use the same within one year from the
issuance thereof. Hence, the rent payable should only be for one year.
Petitioner cannot be heard to complain that the award is excessive. The
temporary permit was valid for two years but was automatically revoked because of its
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
cannot, therefore, be taken advantage of in order to evade or lessen petitioners
monetary obligation. The damage or prejudice to private respondents is beyond
dispute. They unquestionably suffered pecuniary losses because of their inability to use
the leased premises. Thus, in accordance with Article 1659 of the Civil Code,[25] they
are entitled to indemnification for damages; and the award of P492,000 is fair and just
under the circumstances of the case.
Finally, petitioner submits that the trial court gravely abused its discretion in
denying petitioner the right to be heard.
We disagree. The trial court was in fact liberal in granting several
postponements[26] to petitioner before it deemed terminated and waived the
presentation of evidence in petitioners behalf.
It must be recalled that private respondents rested their case on 7 September
1987 yet.[27] Almost a year after, or on 10 August 1988 when it was petitioners turn to
present evidence, petitioners counsel asked for postponement of the hearing to 25
August 1988 due to conflict of schedules,[28] and this was granted.[29] At the
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
THIRD DIVISION
[ G.R. No. 202989, March 25, 2015 ]
COMGLASCO CORPORATION/AGUILA GLASS, PETITIONER, VS. SANTOS CAR
CHECK CENTER CORPORATION, RESPONDENT.
DECISION
REYES, J.:
On August 16, 2000, respondent Santos Car Check Center Corporation (Santos),
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
P72,600.00 on the third through fifth years.[1]
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
years. On January 15, 2002, Comglasco vacated the leased premises and stopped
paying any further rentals. Santos sent several demand letters, which Comglasco
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]
Summons and a copy of the complaint, along with the annexes, were served on
Comglasco on January 21, 2004, but it moved to dismiss the complaint for improper
service. The Regional Trial Court (RTC) of Iloilo City, Branch 37, dismissed the
motion and ordered the summons served anew. On June 28, 2004, Comglasco filed
its Answer.[5] Santos moved for a judgment on the pleadings, which the RTC
granted. On August 18, 2004, the trial court rendered its judgment, [6] the dispositive
portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of [Santos] and against
[Comglasco]:
1. Ordering [Comglasco] to faithfully comply with [its] obligation under the Contract of
Lease and pay its unpaid rentals starting January 16, 2002 to August 15, 2003 in the
total amount of Php1,333,200.00, plus 12% interest per annum until fully paid;
2. To pay [Santos]:
a) Php200,000.00 as attorney's fees;
b) [Php]50,000.00 as litigation expenses;
c) [Php]400,000.00 as exemplary damages.
3. Costs of the suit.
SO ORDERED.[7]
On February 14, 2005, Santos moved for execution pending Comglasco's appeal,
which the trial court granted on May 12, 2005. In its appeal, Comglasco interposed
the following issues for resolution:
1. Whether or not judgment on the pleadings was properly invoked by the trial
court as basis for rendering its decision;
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
legal basis.[8]
In its Decision[9] dated August 10, 2011, the Court of Appeals (CA) affirmed the
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.
Petition for Review to the Supreme Court
In this petition, Comglasco raises the following issues:
1. Whether or not judgment on the pleadings was properly invoked by the trial
court as basis for rendering its decision?
2. Whether or not material issues were raised in [Comglasco's] answer?
3. Whether or not summary judgment or judgment on the pleadings is the
proper remedy for [Santos] under the circumstances of the present case?
4. Whether or not the amount deposited for advance rental and deposit should
be credited to [Comglasco's] account?
5. Whether or not attorney's fees may be granted by the trial court without proof
and legal basis?[10]
Paragraph 15 of the parties' lease contract[11] permits pre-termination with cause in
the first three years and without cause after the third year. Citing business reverses
which it ascribed to the 1997 Asian financial crisis, Comglasco insists that under
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
authorized it to pre-terminate the same. Article 1267 provides:
Art. 1267. When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or
in part.

Comglasco argues that it cannot be said to have admitted in its Answer the material
allegations of the complaint precisely because it invoked therein a valid cause for its
decision to pre-terminate the lease before the lapse of three years; that therefore, in
view of its pleaded "cause" for reneging on its rentals (the 1997 Asian financial crisis),
the RTC should have ordered the reception of evidence for this purpose, after which a
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
Comglasco's cited "cause" for pre-termination was fictitious or a sham, whereas in
truth the prevailing business climate which ensued after the 1997 currency crisis
resulted in great difficulty on its part to comply with the terms of the lease "as to be
manifestly beyond the contemplation of the parties"; thus, Comglasco should be
deemed released from the lease.
Next, Comglasco insists that its advance rentals and deposit totaling P309,000.00
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.
Ruling of the Court
The petition is denied.
The first three issues being related will be discussed together.
Comglasco maintains that the RTC was wrong to rule that its answer to Santos'
complaint tendered no issue, or admitted the material allegations therein; that the
court should have heard it out on the reason it invoked to justify its action to pre-
terminate the parties' lease; that therefore a summary judgment would have been the
proper recourse, after a hearing.
In Philippine National Construction Corporation v. CA[12] (PNCC), which also involves
the termination of a lease of property by the lessee "due to financial, as well as
technical, difficulties,"[13] the Court ruled:
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
rate, the unforeseen event and causes mentioned by petitioner are not the legal or
physical impossibilities contemplated in said article. Besides, petitioner failed to state
specifically the circumstances brought about by "the abrupt change in the political
climate in the country" except the alleged prevailing uncertainties in government
policies on infrastructure projects.
The principle of rebus sic stantibus neither fits in with the facts of the case. Under this
theory, the parties stipulate in the light of certain prevailing conditions, and once these
conditions cease to exist, the contract also ceases to exist. This theory is said to be
the basis of Article 1267 of the Civil Code, which provides:
Art. 1267. When the service has become so difficult as to be manifestly beyond the
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
absolute application of the principle of rebus sic stantibus, which would endanger the
security of contractual relations. The parties to the contract must be presumed to
have assumed the risks of unfavorable developments. It is therefore only in
absolutely exceptional changes of circumstances that equity demands assistance for
the debtor.
In this case, petitioner wants this Court to believe that the abrupt change in the
political climate of the country after the EDSA Revolution and its poor financial
condition "rendered the performance of the lease contract impractical and inimical to
the corporate survival of the petitioner."
This Court cannot subscribe to this argument. As pointed out by private respondents:
xxxx
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
engagement does not discharge a contractual obligation, nor does it constitute a
defense to an action for specific performance.[14]
Relying on Article 1267 of the Civil Code to justify its decision to pre-terminate
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
payment of lease rentals does not involve a prestation "to do" envisaged in Articles
1266 and 1267 which has been
rendered legally or physically impossible without the fault of the obligor-
lessor. Article 1267 speaks of a prestation involving service which has been rendered
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
from July 1997 and for sometime thereafter, but Comglasco cannot be permitted to
blame its difficulties on the said regional economic phenomenon because it entered
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.
This situation is no different from the Court's finding in PNCC wherein PNCC cited the
assassination of Senator Benigno Aquino Jr. (Senator Aquino) on August 21, 1983
and the ensuing national political and economic crises as putting it in such a difficult
business climate that it should be deemed released from its lease contract. The
Court held that the political upheavals, turmoils, almost daily mass demonstrations,
unprecedented inflation, and peace and order deterioration which followed Senator
Aquino's death were a matter of judicial notice, yet despite this business climate,
PNCC knowingly entered into a lease with therein respondents on November 18,
1985, doing so with open eyes of the deteriorating conditions of the country. The
Court rules now, as in PNCC, that there are no "absolutely exceptional changes of
circumstances that equity demands assistance for the debtor." [16]
As found by the CA, Comglasco's Answer admitted the material allegations in the
complaint, to wit: a) that Santos holds absolute title to a showroom space; b) that
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

FIRST DIVISION
G.R. No. 160033, July 01, 2015
TAGAYTAY REALTY CO., INC., Petitioner, v. ARTURO G. GACUTAN, Respondent.
DECISION
BERSAMIN, J.:
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
complied with its contractual undertaking to build the promised amenities in the
subdivision.
The Case
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
buyer issued on December 6, 2001 by the Office of the President (OP). 2 By such
ruling, the OP affirmed the July 14, 1997 decision3 rendered by the Housing and Land
Use Regulatory Board (HLURB) Board of Commissioners adopting the HLURB
Arbiter's decision dated March 22, 1995.4cralawrednad
Antecedents
On September 6, 1976, the respondent entered into a contract to sell with the
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
petitioner.5 Earlier, on June 30, 1976, the petitioner executed an express undertaking
in favor of the respondent, as follows:6
We hereby undertake to complete the development of the roads, curbs, gutters,
drainage system, water and electrical systems, as well as all the amenities to be
introduced in FOGGY HEIGHTS SUBDIVISION, such as, swimming pool, pelota
court, tennis and/or basketball court, bath house, children's playground and a
clubhouse within a period of two years from 15 July 1976, on the understanding that
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
lot/s he/she purchased until completion of such development without incurring penalty
interest.
It is clearly understood, however, that the period or periods during which we cannot
pursue said development by reason of any act of God, any act or event constituting
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
said 2-year period and the running thereof shall resume upon the cessation of the
cause of the stoppage or suspension of said development.
In his letter dated November 12, 1979,7 the respondent notified the petitioner that he
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
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
demanding the balance of the price, plus interest and penalty. 9 He refused to pay the
interest and penalty.
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
balance of the contract without interest and penalty, and to deliver to him the title of
the property.10cralawrednad
In its answer,11 the petitioner sought to be excused from performing its obligations
under the contract, invoking Article 1267 of the Civil Code as its basis. It contended
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
in the value of the lot in question were valid justifications for its release from the
obligation to construct the amenities.
In its positiOn paper,12 the petitiOner stated that it had purposely suspended the
construction of the amenities which would have deteriorated at any rate because its
lot buyers had not constructed their houses in the subdivision.
On March 22, 1995, the HLURB Arbiter ruled m favor of the respondent,13 to
wit:cralawlawlibrary
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
interest and, thereafter, to execute and deliver to complainant the absolute deed of
sale covering the sale of property subj,ct of this complaint, together with the valid title
over the said lot.14
The petitioner appealed, but the HLURB Board of Commissioners affirmed the ruling
of the HLURB Arbiter on July 14, 1997.15 Upon the denial of its motion for
reconsideration, the petitioner appealed to the OP.16cralawrednad
On December 6, 2001, the OP upheld the decision of the HLURB Board of
Commissioners.17 The OP later denied the petitioner's motion for
reconsideration.18cralawrednad
On appeal, the CA affirmed the OP through the assailed decision promulgated on
May 29, 2003,19disposing:cralawlawlibrary
WHEREFORE, premises considered and finding no reversible error in the challenged
Decision and Order dated December 6, 2001, and July 1, 2002, respectively, of the
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.
SO ORDERED.20
The CA denied the petitioner's motion for reconsideration. 21cralawrednad
Issues

In this appeal by petition for review on certiorari, the petitioner contends that the CA
erred in affirming the incorrect findings of the OP in a way probably not in accord with
law; and in declaring that the respondent was not guilty of laches.
The petitioner submits that the CA, by observing that the petitioner did not fulfill its
obligation to finish the subdivision project and that it had itself admitted not having
finished the project, did not consider that it must be discharged because extraordinary
and unforeseeable circumstances had rendered its duty to perform its obligation so
onerous that to insist on the performance would have resulted in its economic ruin;
that the Court should consider the practical circumstances surrounding the
construction of the luxurious amenities of the project; that the luxurious amenities of
the project would only be exposed to the elements, resulting in wastage and loss of
resources, because none of the lot buyers had constructed any house in the
subdivision; that delaying the construction for that reason was reasonable on its part
considering that no one would have benefited from the amenities anyway, and was
also a sound business practice because the construction would be at great cost to it
as the developer; that another justification for the non-construction was its having
suffered extreme economic hardships during the political and economic turmoil of the
1980s that the parties did not foresee at the time they entered into their contract; that
under Article 1267 of the Civil Code, equity demanded a certain economic equilibrium
between the prestation and the counter-prestation, and did not permit the unlimited
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
excused or altogether released from its obligations due to the extraordinary obstacles
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
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
even if doing so would cause the economic ruin of one of the parties.
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
made timely written demands on November 12, 1979, February 11, 1983, March 20,
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
has considered laches to be the unreasonable failure to assert a claim that, by
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
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
worsening became a factor that raised the cost of real estate development by leaps
and bounds; and that the respondent, whose actuations smacked of bad faith and
opportunism at its expense, had then appeared out of nowhere to seize the
opportunity presented by the real estate boom of the early 1990s, despite having
been silent and having failed to act for a long time, evincing his belief of not having
any right at all.
In his comment, the respondent asserts that the submissions of the petitioner did not
warrant the non-construction of the amemt1es; that Article 1159 of the Civil
Code provides that obligations arising from contracts have the force of law between
the contracting parties and should be complied with in good faith; that neither party
could unilaterally and upon his own exclusive volition escape his obligations under the
contract unless for causes sufficient in law and pronounced adequate by a competent
tribunal; that correlative to Article 1159 is Article 1308 of the Civil Code which holds
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
could a party have a contract set aside on the ground that he had made a bad
bargain; that he was not liable for the interest because it was not expressly stipulated
in the contract pursuant to Article 1956 of the Civil Code; that no penalty should be
imposed on him by virtue of the undertaking clearly stating that the two-year period for
the completion of the amenities would be suspended only if the development could
not be pursued "by reason of any act God, any act or event constituting force majeure
or fortuitous event; or any restriction, regulation, or prohibition by the government or
any of its branches or instrumentalities;" that the reason given by the petitioner that
"the contemplated amenities could not be constructed as they would have only been
left exposed to the elements and would have come to naught on account of the fact
that there are no persons residing thereat" did not justify or excuse the non
construction of the amenities; that the petitioner could not seek refuge in Article 1267
of the Civil Code by merely alleging inflation without laying down the legal and factual
basis to justify the release from its obligation; that his written extrajudicial demands
negated the defense of laches; that he did not fail to assert his right, or abandon it;
and that his written extrajudicial demands wiped out the period that had already
lapsed and started the prescriptive period anew.
In short, was the petitioner released from its obligation to construct the amenities in
the Foggy Heights Subdivision?
Ruling of the Court
The appeal is partly meritorious.
1.
Petitioner was not relieved from its statutory and contractual obligations to
complete the amenities
The arguments of the petitioner to be released from its obligation to construct the
amenities lack persuasion.
To start with, the law is not on the side of the petitioner.
Under Section 20 of Presidential Decree No. 957, all developers, including the
petitioner, are mandated to complete their subdivision projects, including the
amenities, within one year from the issuance of their licenses. The provision
reads:cralawlawlibrary
Section 20. Time of Completion. - Every owner or developer shall construct and
provide the facilities, improvements, infrastructures and other forms of development,
including water supply and lighting facilities, which are offered and indicated in the
approved subdivision or condominium plans, brochures, prospectus, printed matters,
letters or in any form of advertisement, within one year from the date of the issuance
of the license for the subdivision or condominium project or such other period of time
as maybe fixed by the Authority.
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
homeowners' association has been organized to manage the amenities.
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
one year from the issuance of the license. Instead, it unilaterally opted to suspend the
construction of the amenities to avoid incurring maintenance expenses. In so opting, it
was not driven by any extremely difficult situation that would place it at any
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
residing therein.
Considering that the petitioner's unilateral suspension of the construction of the
amenities was intended to save itself from costs, its plea for relief from its contractual
obligations was properly rejected because it would thereby gain a position of
advantage at the expense of the lot owners like the respondent. Its invocation of
Article 1267 of the Civil Code, which provides that "(w)hen the service has become so
difficult as to be manifestly beyond the contemplation of the parties, the obligor may
also be released therefrom in whole or in part," was factually unfounded. For Article
1267 to apply, the following conditions should concur, namely: (a) the event or
change in circumstances could not have been foreseen at the time of the execution of
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
is for a future prestation.23 The requisites did not concur herein because the difficulty
of performance under Article 1267 of the Civil Code should be such that one party
would be placed at a disadvantage by the unforeseen event. 24 Mere inconvenience,
or unexepected impediments, or increased expenses did not suffice to relieve the
debtor from a bad bargain.25cralawredcralawrednad
And, secondly, the unilateral suspension of the construction had preceded the
worsening of economic conditions in 1983; hence, the latter could not reasonably
justify the petitioner's plea for release from its statutory and contractual obligations to
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
(under Section 20 of Presidential Decree No. 957), or within two years from July 15,
1976 (under the express undertaking of the petitioner). Hence, it should have
complied with its obligation by July 15, 1978 at the latest, long before the worsening
of the economy in 1983.
2.
Respondent as instalment buyer should pay the annual interest but not the
penalty
The respondent insists that his unpaid obligation was only the balance of the contract
price amounting to P8,587.80.26 He declines to pay the interest and the penalty on the
ground that the petitioner had not constructed the amenities as promised under the
undertaking.
The Court holds that the respondent was liable for the stipulated annual interest of
12% but not the penalty.
Paragraph 2.b, first sentence, of the contract to sell stipulated the 12% annual
interest, as follows:cralawlawlibrary
xxxx
2.) The VENDEE/S hereby agree/s to pay the purchase price of TWENTY SEVEN
THOUSAND SEVEN HUNDRED TWENTY ONLY PESOS (P27,720.00), Philippine
Currency, at the office of the VENDOR at Makati, Rizal, without necessity of demand
or the services of a collector in the following manner:ChanRoblesvirtualLawlibrary
a.) As downpayment, the amount of FOUR THOUSAND ONE HUNDRED FIFTY
EIGHT ONLY PESOS (P4,158.00) upon the execution of the contract.
b.) The balance of TWENTY THREE THOUSAND FIVE HUNDRED SIXTY TWO
ONLY PESOS (P23,562.00) in eighty four (84) consecutive monthly installments of
FOUR HUNDRED FIFTEEN & 95/100 PESOS (P415.95) each installment, including
interest at the rate of twelve (12%) percent per annum on all outstanding
balances, the first of such monthly installment to be paid on or before the
6th day of each month, beginning October, 1976. It is understood that unpaid
installments or installments in arrears shall earn a penalty interest of one (1%)
percent per month until fully paid.27 (Bold underscoring supplied for emphasis of the
relevant portion)
xxxx
Accordingly, the parties agreed to an 84-month or seven-year term of installment on
the net contract price of P23,562.00 at the monthly rate of P415.95, the monthly rate
being inclusive of the 12% interest per annum. Such monthly installment of P415.95
included the principal and the annual interest, the latter being legally termed the
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
cost of the lot purchased by the respondent for the seven-year term would be
P39,097.80, which amount would be inclusive of the contract price of the lot and the
amortization interest.28cralawrednad
The imposition of the annual or amortization interest on the price for the purchase of a
lot on installment was valid and enforceable. As the Court has explained in Relucio v.
Brillante-Garfin:29
x x x The contract price of P10,800.00 may thus be seen to be the cash price of the
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
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,
of the subdivision lots-the sum total of the monthly installments (i.e., P16,101.00)
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
P10,600.00. Economically or financially, P10,600.00 delivered in full today is simply
worth much more than a long series of small payments totalling, after fifteen (15)
years, P10,600.00. For the vendor, upon receiving the full cash price, could have
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 difference between the installment price of P16,101.00 and the cash price of
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

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 165272 September 13, 2007
SERGIO R. OSMEA III, JUAN M. FLAVIER, RODOLFO G. BIAZON, ALFREDO S.
LIM, JAMBY A.S. MADRIGAL, LUIS F. SISON, AND PATRICIA C.
SISON, Petitioners,
vs.
SOCIAL SECURITY SYSTEM OF THE PHILIPPINES, SOCIAL SECURITY
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.
JABAR, in their capacities as Members of the Social Security Commission, AND
BDO CAPITAL & INVESTMENT CORPORATION, Respondents.
DECISION
GARCIA, J.:
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
the following issuances of respondent Social Security Commission (SSC):
1) RESOLUTION No. 4283 dated July 14, 2004; and
2) RESOLUTION No. 4854 dated August 11, 2004.
The first assailed resolution approved the proposed sale of the entire equity stake of
the SSS in what was then the Equitable PCI Bank, Inc. (EPCIB or EPCI), consisting of
187,847,891 common shares, through the Swiss Challenge bidding procedure, and
authorized SSS President Corazon S. Dela Paz (Dela Paz) to constitute a bidding
committee that would formulate the terms of reference of the Swiss Challenge bidding
mode. The second resolution approved the Timetable and Instructions to Bidders.
Petitioners5 also ask that a prohibitive writ issue to permanently enjoin public
respondents from implementing Res. Nos. 428 and 485 or otherwise proceeding with
the sale of subject shares through the Swiss Challenge method.
By Resolution6 dated October 5, 2004, the Court en banc required the parties to
observe the status quo ante the passage of the assailed resolutions. In the same
resolution, the Court noted the motion of respondent BDO Capital and Investment
Corporation (BDO Capital) to admit its Opposition to the Petition.
The relevant factual antecedents:
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
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
disposition, as explained by respondent Dela Paz during the February 4, 2004
hearing conducted by the Senate Committee on Banks, Financial Institutions and
Currencies, is that the shares in question have substantially declined in value and the
SSS could no longer afford to continue holding on to them at the present level of
EPCIBs income.
Some excerpts of what respondent Dela Paz said in that hearing:
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
, 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.
xxx xxx xxx
I have to concede that [EPCIB] has started to recover, .
Perhaps the fact that there had been this improved situation in the bank that attracted
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
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
income .xxx. And therefore, on that basis, an exposure to certain form of assets
whose price can go down to 16 to 17 which is a little over 20 percent of what we have
in our books, is not a very prudent way or conservative way of handling those funds.
We need not continue experiencing opportunity losses but have an amount that will
give us a fair return to that kind of value (Words in bracket added.)
Albeit there were other interested parties, only Banco de Oro Universal Bank (BDO)
and its investment subsidiary, respondent BDO Capital,8 appeared in earnest to
acquire the shares in question. Following talks between them, BDO and SSS signed,
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,
which represents a premium of 30% of the then market value of the EPCIB shares. At
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
mutually acceptable Share Sale and Purchase Agreement and execute the same not
later than thirty (30) business days from [December 30, 2003]."
On April 19, 2004, the Commission on Audit (COA),11 in response to respondent Dela
Pazs letter-query on the applicability of the public bidding requirement under COA
Circular No. 89-29612 on the divestment by the SSS of its entire EPICB equity
holdings, stated that the "circular covers all assets of government agencies except
those merchandize or inventory held for sale in the regular course of business." And
while it expressed the opinion13 that the sale of the subject Shares are "subject to
guidelines in the Circular," the COA qualified its determination with a statement that
such negotiated sale would partake of a stock exchange transaction and, therefore,
would be adhering to the general policy of public auction. Wrote the COA:
Nevertheless, since activities in the stock exchange which offer to the general public
stocks listed therein, the proposed sale, although denominated as "negotiated sale"
substantially complies with the general policy of public auction as a mode of
divestment. This is so for shares of stocks are actually being auctioned to the general
public every time that the stock exchanges are openly operating.
Following several drafting sessions, SSS and BDO Capital, the designated buyers of
the Banco de Oro Group, agreed on a final draft version of the Share Purchase
Agreement14 (SPA). In it, the parties mutually agreed to the purchase by the BDO
Capital and the sale by SSS of all the latters EPCIB shares at the closing date at the
specified price of 43.50 per share or a total of 8,171,383,258.50.
The proposed SPA, together with the Letter-Agreement, was then submitted to the
Department of Justice (DOJ) which, in an Opinion15 dated April 29, 2004, concurred
with the COAs opinion adverted to and stated that it did not find anything
objectionable with the terms of both documents.
On July 14, 2004, SSC passed Res. No. 42816 approving, as earlier stated, the sale
of the EPCIB shares through the Swiss Challenge method. A month later, the equally
assailed Res. No. 48517 was also passed.
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
bidding is subject to the right of BDO Capital to match the highest bid." October 20,
2004 was the date set for determining the winning bid.
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,
the herein petitioners commenced the instant special civil action for certiorari, setting
their sights primarily on the legality of the Swiss Challenge angle and a provision in
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,
via a status quo order,19 effectively suspended the proceedings on the proposed sale.
Under the Swiss Challenge format, one of the bidders is given the option or
preferential "right to match" the winning bid.
Petitioners assert, in gist, that a public bidding with a Swiss Challenge component is
contrary to COA Circular No. 89-296 and public policy which requires adherence to
competitive public bidding in a government-contract award to assure the best price
possible for government assets. Accordingly, the petitioners urge that the planned
disposition of the Shares through a Swiss Challenge method be scrapped. As argued,
the Swiss Challenge feature tends to discourage would-be-bidders from undertaking
the expense and effort of bidding if the chance of winning is diminished by the
preferential "right to match" clause. Pushing the point, petitioners aver that the Shares
are in the nature of long-term or non-current assets not regularly traded or held for
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
"public auction" as a primary mode of disposal of GFIs assets. And obviously finding
the proposed purchase price to be inadequate, the petitioners expressed the belief
that "if properly bidded out in accordance with [the] COA Circular , the Shares could
be sold at a price of at least Sixty Pesos (60.00) per share." Other supporting
arguments for allowing certiorari are set forth in some detail in the basic petition.
Against the petitioners stance, public respondents inter alia submit that the sale of
subject Shares is exempt from the tedious public bidding requirement of COA.
Obviously stressing the practical side of the matter, public respondents assert that if
they are to hew to the bidding requirement in the disposition of SSSs Philippine Stock
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
price is right. Public respondents hasten to add, however, that the bidding-exempt
status of the Shares did not prevent the SSS from prudently proceeding with the
bidding as contemplated in the assailed resolutions as a measure to validate the
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
advanced the legal argument, also shared by their co-respondent BDO Capital, in its
Comment,21 that the proposed sale is not covered by COA Circular No. 89-296 since
the Shares partake of the nature of merchandise or inventory held for sale in the
regular course of SSSs business.
Pending consideration of the petition, supervening events and corporate movements
transpired that radically altered the factual complexion of the case. Some of these
undisputed events are detailed in the petitioners separate Manifestation & Motion to
Take Judicial Notice22 and their respective annexes. To cite the relevant ones:
1. In January 2006, BDO made public its intent to merge with EPCIB. Under
what BDO termed as "Merger of Equals", EPCIB shareholders would get 1.6
BDO shares for every EPCIB share.23
2. In early January 2006, the GSIS publicly announced receiving from an
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
and BDO Capital, in consortium with Shoemart, Inc. et al., (collectively,
the SM Group) commenced, through the facilities of the PSE and pursuant
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
share. Pursuant to the terms of the Tender Offer, which was to start on
August 31, 2006 and end on September 28, 2006 the Tender Offer Period
all shares validly tendered under it by EPCIB shareholders of record shall
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.
4. A day or two later, BDO filed a Tender Offer Report with the Securities
and Exchange Commission (SEC) and the PSE.27
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
become moot."
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
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
stated the observation that the petitioners Manifestation and Motion to Take Judicial
Notice,29 never questioned the Tender Offer, thus confirming the dispensability of a
competitive public bidding in the disposition of subject Shares.
For perspective, a "tender offer" is a publicly announced intention by a person acting
alone or in concert with other persons to acquire equity securities of a public
company, i.e., one listed on an exchange, among others. 30 The term is also defined
as "an offer by the acquiring person to stockholders of a public company for them to
tender their shares therein on the terms specified in the offer"31 Tender offer is in
place to protect the interests of minority stockholders of a target company against any
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
terms, a chance to sell their shares at the same price as those of the majority
stockholders.32
Next to comply with the same Resolution of the Court was respondent BDO
Capital via its Compliance,33thereunder practically reiterating public respondents
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
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
price.
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
share stated in the Invitation to Bid. It is their posture, however, that unless SSS
withdraws the sale of the subject shares by way of the Swiss Challenge, the offer
price of 92 per share cannot render the case moot and academic.
Meanwhile, the positive response to the Tender Offer enabled the SM-BDO Group to
acquire controlling interests over EPCIB and paved the way for a BDO-EPCIB
merger. The merger was formalized by subsequent submission of the necessary
merger documents35 to the SEC.
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:
THIS IS TO CERTIFY that the Plan and Articles of Merger
executed on December 28, 2006 by and between:
BANCO DE ORO UNIVERSAL BANK,
Now BANCO DE ORO-EPCI, INC.
(Surviving Corporation)
and
EQUITABLE PCI BANK, INC.
(Absorbed Corporation)
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
capital stock of constituent corporations on December 27, 2006, signed by the
Presidents, certified by their respective Corporate Secretaries, whereby the entire
assets of [EPCI] Inc. will be transferred to and absorbed by [BDO] UNIVERSAL BANK
now BANCO DE ORO-EPCI, INC. was approved by this Office on this date but which
approval shall be effective on May 31, 2007 pursuant to the provisions of (Word in
bracket added; emphasis in the original)
In line with Section 80 of the Corporation Code and as explicitly set forth in Article 1.3
of the Plan of Merger adverted to, among the effects of the BDO-EPCIB merger are
the following:
a. BDO and EPCI shall become a single corporation, with BDO as the
surviving corporation. [EPCIB] shall cease to exist;
xxx xxx xxx
c. All the rights, privileges, immunities, franchises and powers of EPCI shall
be deemed transferred to and possessed by the merged Bank; and
 d. All the properties of EPCI, real or personal, tangible or intangible shall
be deemed transferred to the Merged Bank without further act or deed.
Per Article 2 of the Plan of Merger on the exchange of shares mechanism, "all the
issued and outstanding common stock of [EPCIB] (EPCI shares) shall be converted
into fully-paid and non assessable common stock of BDO (BDO common shares) at
the ratio of 1.80 BDO Common shares for each issued [EPCIB] share (the Exchange
Ratio)."And under the exchange procedure, "BDO shall issue BDO Common Shares
to EPCI stockholders corresponding to each EPCI Share held by them in accordance
with the aforesaid Exchange Ratio."
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
shareholdings under the ratio and exchange procedure prescribed in the Plan of
Merger. In net effect, SSS, once the owner of a block of EPCIB shares, is now a large
stockholder of BDO-EPCI, Inc.
On the postulate that the instant petition has now become moot and academic, BDO
Capital supplemented its earlier Compliance and Manifestation37 with a formal Motion
to Dismiss.38
By Resolution dated July 10, 2007, the Court required petitioners and respondent
SSS to comment on BDO Capitals motion to dismiss "within ten (10) days from
notice."
To date, petitioners have not submitted their compliance. On the other hand, SSS, by
way of comment, reiterated its position articulated in respondents Compliance and
Motion39 that the SM-BDO Group Tender Offer at the price therein stated had
rendered this case moot and academic. And respondent SSS confirmed the following:
a) its status as BDO-EPCIB stockholder; b) the Tender Offer made by the SM Group
to EPCIB stockholders, including SSS, for their shares at P92.00 per share; and c)
SSS acceptance of the Tender Offer thus made.
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
the case or a declaration on the issue would be of no practical value or use.41 In such
instance, there is no actual substantial relief which a petitioner would be entitled to,
and which would be negated by the dismissal of the petition. 42 Courts generally
decline jurisdiction over such case or dismiss it on the ground of mootness -- save
when, among others, a compelling constitutional issue raised requires the formulation
of controlling principles to guide the bench, the bar and the public; or when the case is
capable of repetition yet evading judicial review.43
The case, with the view we take of it, has indeed become moot and academic for
interrelated reasons.
We start off with the core subject of this case. As may be noted, the Letter-
Agreement,44 the SPA,45 the SSC resolutions assailed in this recourse, and
the Invitation to Bid sent out to implement said resolutions, all have a common
subject: the Shares the 187.84 Million EPCIB common shares. It cannot be
overemphasized, however, that the Shares, as a necessary consequence of the
BDO-EPCIB merger46 which saw EPCIB being absorbed by the surviving BDO, have
been transferred to BDO and converted into BDO common shares under the
exchange ratio set forth in the BDO-EPCIB Plan of Merger. As thus converted, the
subject Shares are no longer equity security issuances of the now defunct EPCIB, but
those of BDO-EPCI, which, needless to stress, is a totally separate and distinct entity
from what used to be EPCIB. In net effect, therefore, the 187.84 Million EPCIB
common shares are now lost or inexistent. And in this regard, the Court takes judicial
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.
Under the law on obligations and contracts, the obligation to give a determinate thing
is extinguished if the object is lost without the fault of the debtor. 47 And per Art. 1192
(2) of the Civil Code, a thing is considered lost when it perishes or disappears in such
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
187.84 million EPCIB shares of SSS "unrecoverable" in the contemplation of the
adverted Civil Code provision.
With the above consideration, respondent SSS or SSC cannot, under any
circumstance, cause the implementation of the assailed resolutions, let alone proceed
with the planned disposition of the Shares, be it via the traditional competitive bidding
or the challenged public bidding with a Swiss Challenge feature.1wphi1
At any rate, the moot-and-academic angle would still hold sway even if it were to be
assumed hypothetically that the subject Shares are still existing. This is so, for the
supervening BDO-EPCIB merger has so effected changes in the circumstances of
SSS and BDO/BDO Capital as to render the fulfillment of any of the obligations that
each may have agreed to undertake under either the Letter-Agreement, the SPA or
the Swiss Challenge package legally impossible. When the service has become so
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.
Under the theory of rebus sic stantibus,50 the parties stipulate in the light of certain
prevailing conditions, and once these conditions cease to exist, the contract also
ceases to exist.51 Upon the facts obtaining in this case, it is abundantly clear that the
conditions in which SSS and BDO Capital and/or BDO executed the Letter-
Agreement upon which the pricing component at 43.50 per share of
the Invitation to Bid was predicated, have ceased to exist. Accordingly, the
implementation of the Letter- Agreement or of the challenged Res. Nos. 428 and 485
cannot plausibly push through, even if the central figures in this case are so minded.
Lest it be overlooked, BDO-EPCI, in a manner of speaking, stands now as the
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
shareholdings in EPCIB, as thus converted into BDO shares, the sale-purchase ought
to be via an Issuer Tender Offer -- a phrase which means a publicly announced
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.