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G.R. No. 164349 January 31, 2006

RADIO COMMUNICATIONS OF THE PHILIPPINES, INC. (RCPI),Petitioner,

vs.
ALFONSO VERCHEZ, GRACE VERCHEZ-INFANTE, MARDONIO INFANTE, ZENAIDA VERCHEZ-CATIBOG, AND
FORTUNATO CATIBOG, Respondents.

DECISION

CARPIO MORALES, J.:

On January 21, 1991, Editha Hebron Verchez (Editha) was confined at the Sorsogon Provincial Hospital due to an ailment.
On even date, her daughter Grace Verchez-Infante (Grace) immediately hied to the Sorsogon Branch of the Radio
Communications of the Philippines, Inc. (RCPI) whose services she engaged to send a telegram to her sister Zenaida
Verchez-Catibog (Zenaida) who was residing at 18 Legal St., GSIS Village, Quezon City1 reading: "Send check money
Mommy hospital." For RCPIs services, Grace paid P10.502 for which she was issued a receipt.3

As three days after RCPI was engaged to send the telegram to Zenaida no response was received from her, Grace sent a
letter to Zenaida, this time thru JRS Delivery Service, reprimanding her for not sending any financial aid.

Immediately after she received Graces letter, Zenaida, along with her husband Fortunato Catibog, left on January 26, 1991
for Sorsogon. On her arrival at Sorsogon, she disclaimed having received any telegram.

In the meantime, Zenaida and her husband, together with her mother Editha left for Quezon City on January 28, 1991 and
brought Editha to the Veterans Memorial Hospital in Quezon City where she was confined from January 30, 1991 to March
21, 1991.

The telegram was finally delivered to Zenaida 25 days later or on February 15, 1991. 4 On inquiry from RCPI why it took that
long to deliver it, a messenger of RCPI replied that he had nothing to do with the delivery thereof as it was another
messenger who previously was assigned to deliver the same but the address could not be located, hence, the telegram
was resent on February 2, 1991, and the second messenger finally found the address on February 15, 1991.

Edithas husband Alfonso Verchez (Verchez), by letter of March 5, 1991, 5 demanded an explanation from the manager of
the Service Quality Control Department of the RCPI, Mrs. Lorna D. Fabian, who replied, by letter of March 13, 1991, 6 as
follows:

Our investigation on this matter disclosed that subject telegram was duly processed in accordance with our standard
operating procedure. However, delivery was not immediately effected due to the occurrence of circumstances which were
beyond the control and foresight of RCPI. Among others, during the transmission process, the radio link connecting the
points of communication involved encountered radio noise and interferences such that subject telegram did not initially
registered (sic) in the receiving teleprinter machine.

Our internal message monitoring led to the discovery of the above. Thus, a repeat transmission was made and subsequent
delivery was effected. (Underscoring supplied)

Verchezs lawyer thereupon wrote RCPIs manager Fabian, by letter of July 23, 1991, 7 requesting for a conference on a
specified date and time, but no representative of RCPI showed up at said date and time.

On April 17, 1992, Editha died.

On September 8, 1993, Verchez, along with his daughters Grace and Zenaida and their respective spouses, filed a
complaint against RCPI before the Regional Trial Court (RTC) of Sorsogon for damages. In their complaint, the plaintiffs
alleged that, inter alia, the delay in delivering the telegram contributed to the early demise of the late Editha to their damage
and prejudice,8 for which they prayed for the award of moral and exemplary damages9 and attorneys fees.10

After its motion to dismiss the complaint for improper venue11 was denied12 by Branch 5 of the RTC of Sorsogon, RCPI filed
its answer, alleging that except with respect to Grace,13 the other plaintiffs had no privity of contract with it; any delay in the
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sending of the telegram was due to force majeure, "specifically, but not limited to, radio noise and interferences which
adversely affected the transmission and/or reception of the telegraphic message"; 14 the clause in the Telegram
Transmission Form signed by Grace absolved it from liability for any damage arising from the transmission other than the
refund of telegram tolls;15 it observed due diligence in the selection and supervision of its employees; and at all events, any
cause of action had been barred by laches.16

The trial court, observing that "although the delayed delivery of the questioned telegram was not apparently the proximate
cause of the death of Editha," ruled out the presence of force majeure. Respecting the clause in the telegram relied upon
by RCPI, the trial court held that it partakes of the nature of a contract of adhesion.

Finding that the nature of RCPIs business obligated it to dispatch the telegram to the addressee at the earliest possible
time but that it did not in view of the negligence of its employees to repair its radio transmitter and the concomitant delay in
delivering the telegram on time, the trial court, upon the following provisions of the Civil Code, to wit:

Article 2176 Whoever by act or omission causes damage to another, there being at fault or negligence, is obliged to pay
for the damage done. Such fault or negligence if there is no pre-existing contractual relation between the parties, is called
quasi-delict and is governed by the provisions of this Chapter.

Article 1173 defines the fault of (sic) negligence of the obligor as the "omission of the diligence which is required by the
nature of the obligation and corresponds with the circumstances of the person, of the time, or the place."

In the instant case, the obligation of the defendant to deliver the telegram to the addressee is of an urgent nature. Its essence
is the early delivery of the telegram to the concerned person. Yet, due to the negligence of its employees, the defendant
failed to discharge of its obligation on time making it liable for damages under Article 2176.

The negligence on the part of the employees gives rise to the presumption of negligence on the part of the
employer.17 (Underscoring supplied),

rendered judgment against RCPI. Accordingly, it disposed:

WHEREFORE, in the light of the foregoing premises, judgment is hereby rendered in favor of the plaintiffs and against the
defendant, to wit:

Ordering the defendant to pay the plaintiffs the following amount:

1. The amount of One Hundred Thousand (P100,000.00) Pesos as moral damages;

2. The amount of Twenty Thousand (P20,000.00) Pesos as attorneys fees; and

3. To pay the costs.

SO ORDERED.18

On appeal, the Court of Appeals, by Decision of February 27, 2004, 19 affirmed the trial courts decision.

Hence, RCPIs present petition for review on certiorari, it raising the following questions: (1) "Is the award of moral damages
proper even if the trial court found that there was no direct connection between the injury and the alleged negligent
acts?"20 and (2) "Are the stipulations in the Telegram Transmission Form, in the nature "contracts of adhesion" (sic)?21

RCPI insists that respondents failed to prove any causal connection between its delay in transmitting the telegram and
Edithas death.22

RCPIs stand fails. It bears noting that its liability is anchored on culpa contractual or breach of contract with regard to Grace,
and on tort with regard to her co-plaintiffs-herein-co-respondents.

Article 1170 of the Civil Code provides:

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

Passing on this codal provision, this Court explained:

In culpa contractual x x x the mere proof of the existence of the contract and the failure of its compliance justify, prima facie,
a corresponding right of relief. The law, recognizing the obligatory force of contracts, will not permit a party to be set free
from liability for any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof. A breach
upon the contract confers upon the injured party a valid cause for recovering that which may have been lost or suffered. The
remedy serves to preserve the interests of the promissee that may include his "expectation interest," which is his interest
in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been
performed, or his "reliance interest," which is his interest in being reimbursed for loss caused by reliance on the contract
by being put in as good a position as he would have been in had the contract not been made; or his "restitution
interest," which is his interest in having restored to him any benefit that he has conferred on the other party. Indeed,
agreements can accomplish little, either for their makers or for society, unless they are made the basis for action. The effect
of every infraction is to create a new duty, that is, to make recompense to the one who has been injured by the failure of
another to observe his contractual obligation unless he can show extenuating circumstances, like proof of his exercise of
due diligence x x x or of the attendance of fortuitous event, to excuse him from his ensuing liability.23 (Emphasis and
underscoring supplied)

In the case at bar, RCPI bound itself to deliver the telegram within the shortest possible time. It took 25 days, however, for
RCPI to deliver it.

RCPI invokes force majeure, specifically, the alleged radio noise and interferences which adversely affected the
transmission and/or reception of the telegraphic message. Additionally, its messenger claimed he could not locate the
address of Zenaida and it was only on the third attempt that he was able to deliver the telegram.

For the defense of force majeure to prosper,

x x x it is necessary that one has committed no negligence or misconduct that may have occasioned the loss. An act of
God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse consequences of
such a loss. Ones negligence may have concurred with an act of God in producing damage and injury to another;
nonetheless, showing that the immediate or proximate cause of the damage or injury was a fortuitous event would not
exempt one from liability. When the effect is found to be partly the result of a persons participation whether by
active intervention, neglect or failure to act the whole occurrence is humanized and removed from the rules
applicable to acts of God.

xxxx

Article 1174 of the Civil Code states that no person shall be responsible for a fortuitous event that could not be foreseen or,
though foreseen, was inevitable. In other words, there must be an exclusion of human intervention from the cause of
injury or loss.24 (Emphasis and underscoring supplied)

Assuming arguendo that fortuitous circumstances prevented RCPI from delivering the telegram at the soonest possible
time, it should have at least informed Grace of the non-transmission and the non-delivery so that she could have taken
steps to remedy the situation. But it did not. There lies the fault or negligence.

In an earlier case also involving RCPI, this Court held:

Considering the public utility of RCPIs business and its contractual obligation to transmit messages, it should exercise due
diligence to ascertain that messages are delivered to the persons at the given address and should provide a system whereby
in cases of undelivered messages the sender is given notice of non-delivery. Messages sent by cable or wireless
means are usually more important and urgent than those which can wait for the mail.25

xxxx
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People depend on telecommunications companies in times of deep emotional stress or pressing financial needs.
Knowing that messages about the illnesses or deaths of loved ones, births or marriages in a family, important business
transactions, and notices of conferences or meetings as in this case, are coursed through the petitioner and similar
corporations, it is incumbent upon them to exercise a greater amount of care and concern than that shown in this
case. Every reasonable effort to inform senders of the non-delivery of messages should be undertaken.26

(Emphasis and underscoring supplied)

RCPI argues, however, against the presence of urgency in the delivery of the telegram, as well as the basis for the award
of moral damages, thus:27

The request to send check as written in the telegraphic text negates the existence of urgency that private respondents
allegations that time was of the essence imports. A check drawn against a Manila Bank and transmitted to Sorsogon,
Sorsogon will have to be deposited in a bank in Sorsogon and pass thru a minimum clearing period of 5 days before it may
be encashed or withdrawn. If the transmittal of the requested check to Sorsogon took 1 day private respondents could
therefore still wait for 6 days before the same may be withdrawn. Requesting a check that would take 6 days before it could
be withdrawn therefore contradicts plaintiffs claim of urgency or need. 28

At any rate, any sense of urgency of the situation was met when Grace Verchez was able to communicate to Manila via a
letter that she sent to the same addressee in Manila thru JRS.29

xxxx

As far as the respondent courts award for moral damages is concerned, the same has no basis whatsoever since private
respondent Alfonso Verchez did not accompany his late wife when the latter went to Manila by bus. He stayed behind in
Sorsogon for almost 1 week before he proceeded to Manila. 30

When pressed on cross-examination, private respondent Alfonso Verchez could not give any plausible reason as to the
reason why he did not accompany his ailing wife to Manila.31

xxxx

It is also important to consider in resolving private respondents claim for moral damages that private respondent Grace
Verchez did not accompany her ailing mother to Manila.32

xxxx

It is the common reaction of a husband to be at his ailing wifes side as much as possible. The fact that private respondent
Alfonso Verchez stayed behind in Sorsogon for almost 1 week convincingly demonstrates that he himself knew that his wife
was not in critical condition.33

(Emphasis and underscoring supplied)

RCPIs arguments fail. For it is its breach of contract upon which its liability is, it bears repeating, anchored. Since RCPI
breached its contract, the presumption is that it was at fault or negligent. It, however, failed to rebut this presumption.

For breach of contract then, RCPI is liable to Grace for damages.

And for quasi-delict, RCPI is liable to Graces co-respondents following Article 2176 of the Civil Code which provides:

Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage
done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict
and is governed by the provisions of this Chapter. (Underscoring supplied)

RCPIs liability as an employer could of course be avoided if it could prove that it observed the diligence of a good father of
a family to prevent damage. Article 2180 of the Civil Code so provides:
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The obligation imposed by Article 2176 is demandable not only for ones own acts or omissions, but also for those of persons
for whom one is responsible.

xxxx

The owners and managers of an establishment or enterprise are likewise responsible for damages caused by their
employees in the service of the branches in which the latter are employed or on the occasion of their functions.

Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of
their assigned tasks, even though the former are not engaged in any business or industry.

xxxx

The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the
diligence of a good father of a family to prevent damage. (Underscoring supplied)

RCPI failed, however, to prove that it observed all the diligence of a good father of a family to prevent damage.

Respecting the assailed award of moral damages, a determination of the presence of the following requisites to justify the
award is in order:

x x x firstly, evidence of besmirched reputation or physical, mental or psychological suffering sustained by the
claimant; secondly, a culpable act or omission factually established; thirdly, proof that the wrongful act or omission of the
defendant is the proximate cause of damages sustained by the claimant; and fourthly, that the case is predicated on any of
the instances expressed or envisioned by Article 2219 and Article 2220 of the Civil Code. 34

Respecting the first requisite, evidence of suffering by the plaintiffs-herein respondents was correctly appreciated by the CA
in this wise:

The failure of RCPI to deliver the telegram containing the message of appellees on time, disturbed their filial tranquillity.
Family members blamed each other for failing to respond swiftly to an emergency that involved the life of the late Mrs.
Verchez, who suffered from diabetes.35

As reflected in the foregoing discussions, the second and third requisites are present.

On the fourth requisite, Article 2220 of the Civil Code provides:

Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the
circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted
fraudulently or in bad faith. (Emphasis and underscoring supplied)

After RCPIs first attempt to deliver the telegram failed, it did not inform Grace of the non-delivery thereof and waited for 12
days before trying to deliver it again, knowing as it should know that time is of the essence in the delivery of telegrams.
When its second long-delayed attempt to deliver the telegram again failed, it, again, waited for another 12 days before
making a third attempt. Such nonchalance in performing its urgent obligation indicates gross negligence amounting to bad
faith. The fourth requisite is thus also present.

In applying the above-quoted Article 2220, this Court has awarded moral damages in cases of breach of contract where the
defendant was guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligation.36

As for RCPIs tort-based liability, Article 2219 of the Civil Code provides:

Moral damages may be recovered in the following and analogous cases:

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(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35. (Emphasis supplied)

Article 26 of the Civil Code, in turn, provides:

Every person shall respect the dignity, personality, privacy and peace of mind of his neighbors and other persons. The
following and similar acts, though they may not constitute a criminal offense, shall produce a cause of action for damages,
prevention, and other relief:

xxxx

(2) Meddling with or disturbing the private life or family relations of another. (Emphasis supplied)

RCPIs negligence in not promptly performing its obligation undoubtedly disturbed the peace of mind not only of Grace but
also her co-respondents. As observed by the appellate court, it disrupted the "filial tranquillity" among them as they blamed
each other "for failing to respond swiftly to an emergency." The tortious acts and/or omissions complained of in this case
are, therefore, analogous to acts mentioned under Article 26 of the Civil Code, which are among the instances of quasi-
delict when courts may award moral damages under Article 2219 of the Civil Code.

In fine, the award to the plaintiffs-herein respondents of moral damages is in order, as is the award of attorneys fees,
respondents having been compelled to litigate to protect their rights.

Clutching at straws, RCPI insists that the limited liability clause in the "Telegram Transmission Form" is not a contract of
adhesion. Thus it argues:

Neither can the Telegram Transmission Form be considered a contract of adhesion as held by the respondent court. The
said stipulations were all written in bold letters right in front of the Telegram Transmission Form. As a matter of fact they
were beside the space where the telegram senders write their telegraphic messages. It would have been different if the
stipulations were written at the back for surely there is no way the sender will easily notice them. The fact that the stipulations
were located in a particular space where they can easily be seen, is sufficient notice to any sender (like Grace Verchez-
Infante) where she could manifest her disapproval, leave the RCPI station and avail of the services of the other telegram
operators.37 (Underscoring supplied)

RCPI misunderstands the nature of a contract of adhesion. Neither the readability of the stipulations nor their physical
location in the contract determines whether it is one of adhesion.

A contract of adhesion is defined as one in which one of the parties imposes a ready-made form of contract, which the other
party may accept or reject, but which the latter cannot modify. One party prepares the stipulation in the contract, while the
other party merely affixes his signature or his "adhesion" thereto, giving no room for negotiation and depriving the latter
of the opportunity to bargain on equal footing.38 (Emphasis and underscoring supplied)

While a contract of adhesion is not necessarily void and unenforceable, since it is construed strictly against the party who
drafted it or gave rise to any ambiguity therein, it is stricken down as void and unenforceable or subversive of public policy
when the weaker party is imposed upon in dealing with the dominant bargaining party and is reduced to the alternative of
taking it or leaving it, completely deprived of the opportunity to bargain on equal footing. 39

This Court holds that the Court of Appeals finding that the parties contract is one of adhesion which is void is, given the
facts and circumstances of the case, thus well-taken.

WHEREFORE, the petition is DENIED, and the challenged decision of the Court of Appeals is AFFIRMED.

Costs against petitioner.

SO ORDERED.
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G.R. No. 115129 February 12, 1997

IGNACIO BARZAGA, petitioner,

vs.COURT OF APPEALS and ANGELITO ALVIAR, respondents.

BELLOSILLO, J.:

The Fates ordained that Christmas 1990 be bleak for Ignacio Barzaga and his family. On the nineteenth of December
Ignacio's wife succumbed to a debilitating ailment after prolonged pain and suffering. Forewarned by her attending
physicians of her impending death, she expressed her wish to be laid to rest before Christmas day to spare her family from
keeping lonely vigil over her remains while the whole of Christendom celebrate the Nativity of their Redeemer.

Drained to the bone from the tragedy that befell his family yet preoccupied with overseeing the wake for his departed wife,
Ignacio Barzaga set out to arrange for her interment on the twenty-fourth of December in obedience semper fidelis to her
dying wish. But her final entreaty, unfortunately, could not be carried out. Dire events conspired to block his plans that
forthwith gave him and his family their gloomiest Christmas ever.

This is Barzaga's story. On 21 December 1990, at about three o'clock in the afternoon, he went to the hardware store of
respondent Angelito Alviar to inquire about the availability of certain materials to be used in the construction of a niche for
his wife. He also asked if the materials could be delivered at once. Marina Boncales, Alviar's storekeeper, replied that she
had yet to verify if the store had pending deliveries that afternoon because if there were then all subsequent purchases
would have to be delivered the following day. With that reply petitioner left.

At seven o'clock the following morning, 22 December, Barzaga returned to Alviar's hardware store to follow up his purchase
of construction materials. He told the store employees that the materials he was buying would have to be delivered at the
Memorial Cemetery in Dasmarinas, Cavite, by eight o'clock that morning since his hired workers were already at the burial
site and time was of the essence. Marina Boncales agreed to deliver the items at the designated time, date and place. With
this assurance, Barzaga purchased the materials and paid in full the amount of P2,110.00. Thereafter he joined his workers
at the cemetery, which was only a kilometer away, to await the delivery.

The construction materials did not arrive at eight o'clock as promised. At nine o'clock, the delivery was still nowhere in sight.
Barzaga returned to the hardware store to inquire about the delay. Boncales assured him that although the delivery truck
was not yet around it had already left the garage and that as soon as it arrived the materials would be brought over to the
cemetery in no time at all. That left petitioner no choice but to rejoin his workers at the memorial park and wait for the
materials.

By ten o'clock, there was still no delivery. This prompted petitioner to return to the store to inquire about the materials. But
he received the same answer from respondent's employees who even cajoled him to go back to the burial place as they
would just follow with his construction materials.

After hours of waiting which seemed interminable to him Barzaga became extremely upset. He decided to dismiss his
laborers for the day. He proceeded to the police station, which was just nearby, and lodged a complaint against Alviar. He
had his complaint entered in the police blotter. When he returned again to the store he saw the delivery truck already there
but the materials he purchased were not yet ready for loading. Distressed that Alviar's employees were not the least
concerned, despite his impassioned pleas, Barzaga decided to cancel his transaction with the store and look for construction
materials elsewhere.

In the afternoon of that day, petitioner was able to buy from another store. But since darkness was already setting in and
his workers had left, he made up his mind to start his project the following morning, 23 December. But he knew that the
niche would not be finish in time for the scheduled burial the following day. His laborers had to take a break on Christmas
Day and they could only resume in the morning of the twenty-sixth. The niche was completed in the afternoon and Barzaga's
wife was finally laid to rest. However, it was two-and-a-half (2-1/2) days behind schedule.
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On 21 January 1991, tormented perhaps by his inability to fulfill his wife's dying wish, Barzaga wrote private respondent
Alviar demanding recompense for the damage he suffered. Alviar did not respond. Consequently, petitioner sued him before
the Regional Trial Court.1

Resisting petitioner's claim, private respondent contended that legal delay could not be validly ascribed to him because no
specific time of delivery was agreed upon between them. He pointed out that the invoices evidencing the sale did not contain
any stipulation as to the exact time of delivery and that assuming that the materials were not delivered within the period
desired by petitioner, the delivery truck suffered a flat tire on the way to the store to pick up the materials. Besides, his men
were ready to make the delivery by ten-thirty in the morning of 22 December but petitioner refused to accept them. According
to Alviar, it was this obstinate refusal of petitioner to accept delivery that caused the delay in the construction of the niche
and the consequent failure of the family to inter their loved one on the twenty-fourth of December, and that, if at all, it was
petitioner and no other who brought about all his personal woes.

Upholding the proposition that respondent incurred in delay in the delivery of the construction materials resulting in undue
prejudice to petitioner, the trial court ordered respondent Alviar to pay petitioner (a) P2,110.00 as refund for the purchase
price of the materials with interest per annum computed at the legal rate from the date of the filing of the complaint, (b)
P5,000.00 as temperate damages, (c) P20,000.00 as moral damages, (d) P5,000.00 as litigation expenses, and (e)
P5,000.00 as attorney's fees.

On appeal, respondent Court of Appeals reversed the lower court and ruled that there was no contractual commitment as
to the exact time of delivery since this was not indicated in the invoice receipts covering the sale. 2

The arrangement to deliver the materials merely implied that delivery should be made within a reasonable time but that the
conclusion that since petitioner's workers were already at the graveyard the delivery had to be made at that precise moment,
is non-sequitur. The Court of Appeals also held that assuming that there was delay, petitioner still had sufficient time to
construct the tomb and hold his wife's burial as she wished.

We sustain the trial court. An assiduous scrutiny of the record convinces us that respondent Angelito Alviar was negligent
and incurred in delay in the performance of his contractual obligation. This sufficiently entitles petitioner Ignacio Barzaga to
be indemnified for the damage he suffered as a consequence of delay or a contractual breach. The law expressly provides
that those who in the performance of their obligation are guilty of fraud, negligence, or delay and those who in any manner
contravene the tenor thereof, are liable for damages.3

Contrary to the appellate court's factual determination, there was a specific time agreed upon for the delivery of the materials
to the cemetery. Petitioner went to private respondent's store on 21 December precisely to inquire if the materials he
intended to purchase could be delivered immediately. But he was told by the storekeeper that if there were still deliveries to
be made that afternoon his order would be delivered the following day. With this in mind Barzaga decided to buy the
construction materials the following morning after he was assured of immediate delivery according to his time frame. The
argument that the invoices never indicated a specific delivery time must fall in the face of the positive verbal commitment of
respondent's storekeeper. Consequently it was no longer necessary to indicate in the invoices the exact time the purchased
items were to be brought to the cemetery. In fact, storekeeper Boncales admitted that it was her custom not to indicate the
time of delivery whenever she prepared invoices.4

Private respondent invokes fortuitous event as his handy excuse for that "bit of delay" in the delivery of petitioner's
purchases. He maintains that Barzaga should have allowed his delivery men a little more time to bring the construction
materials over to the cemetery since a few hours more would not really matter and considering that his truck had a flat tire.
Besides, according to him, Barzaga still had sufficient time to build the tomb for his wife.

This is a gratuitous assertion that borders on callousness. Private respondent had no right to manipulate petitioner's
timetable and substitute it with his own. Petitioner had a deadline to meet. A few hours of delay was no piddling matter to
him who in his bereavement had yet to attend to other pressing family concerns. Despite this, respondent's employees still
made light of his earnest importunings for an immediate delivery. As petitioner bitterly declared in court " . . . they
(respondent's employees) were making a fool out of me."5

We also find unacceptable respondent's justification that his truck had a flat tire, for this event, if indeed it happened, was
forseeable according to the trial court, and as such should have been reasonably guarded against. The nature of private
respondent's business requires that he should be ready at all times to meet contingencies of this kind. One piece of
testimony by respondent's witness Marina Boncales has caught our attention - that the delivery truck arrived a little late than
 9

usual because it came from a delivery of materials in Langcaan, Dasmarinas, Cavite.6Significantly, this information was
withheld by Boncales from petitioner when the latter was negotiating with her for the purchase of construction materials.
Consequently, it is not unreasonable to suppose that had she told petitioner of this fact and that the delivery of the materials
would consequently be delayed, petitioner would not have bought the materials from respondent's hardware store but
elsewhere which could meet his time requirement. The deliberate suppression of this information by itself manifests a certain
degree of bad faith on the part of respondent's storekeeper.

The appellate court appears to have belittled petitioner's submission that under the prevailing circumstances time was of
the essence in the delivery of the materials to the grave site. However, we find petitioner's assertion to be anchored on solid
ground. The niche had to be constructed at the very least on the twenty-second of December considering that it would take
about two (2) days to finish the job if the interment was to take place on the twenty-fourth of the month. Respondent's delay
in the delivery of the construction materials wasted so much time that construction of the tomb could start only on the twenty-
third. It could not be ready for the scheduled burial of petitioner's wife. This undoubtedly prolonged the wake, in addition to
the fact that work at the cemetery had to be put off on Christmas day.

This case is clearly one of non-performance of a reciprocal obligation.7 In their contract of purchase and sale, petitioner had
already complied fully with what was required of him as purchaser, i.e., the payment of the purchase price of P2,110.00. It
was incumbent upon respondent to immediately fulfill his obligation to deliver the goods otherwise delay would attach.

We therefore sustain the award of moral damages. It cannot be denied that petitioner and his family suffered wounded
feelings, mental anguish and serious anxiety while keeping watch on Christmas day over the remains of their loved one
who could not be laid to rest on the date she herself had chosen. There is no gainsaying the inexpressible pain and sorrow
Ignacio Barzaga and his family bore at that moment caused no less by the ineptitude, cavalier behavior and bad faith of
respondent and his employees in the performance of an obligation voluntarily entered into.

We also affirm the grant of exemplary damages. The lackadaisical and feckless attitude of the employees of respondent
over which he exercised supervisory authority indicates gross negligence in the fulfillment of his business obligations.
Respondent Alviar and his employees should have exercised fairness and good judgment in dealing with petitioner who
was then grieving over the loss of his wife. Instead of commiserating with him, respondent and his employees contributed
to petitioner's anguish by causing him to bear the agony resulting from his inability to fulfill his wife's dying wish.

We delete however the award of temperate damages. Under Art. 2224 of the Civil Code, temperate damages are more than
nominal but less than compensatory, and may be recovered when the court finds that some pecuniary loss has been
suffered but the amount cannot, from the nature of the case, be proved with certainty. In this case, the trial court found that
plaintiff suffered damages in the form of wages for the hired workers for 22 December 1990 and expenses incurred during
the extra two (2) days of the wake. The record however does not show that petitioner presented proof of the actual amount
of expenses he incurred which seems to be the reason the trial court awarded to him temperate damages instead. This is
an erroneous application of the concept of temperate damages. While petitioner may have indeed suffered pecuniary losses,
these by their very nature could be established with certainty by means of payment receipts. As such, the claim falls
unequivocally within the realm of actual or compensatory damages. Petitioner's failure to prove actual expenditure
consequently conduces to a failure of his claim. For in determining actual damages, the court cannot rely on mere assertions,
speculations, conjectures or guesswork but must depend on competent proof and on the best evidence obtainable regarding
the actual amount of loss.8

We affirm the award of attorney's fees and litigation expenses. Award of damages, attorney's fees and litigation costs is left
to the sound discretion of the court, and if such discretion be well exercised, as in this case, it will not be disturbed on
appeal.9

WHEREFORE, the decision of the Court of Appeals is REVERSED and SET ASIDE except insofar as it GRANTED on a
motion for reconsideration the refund by private respondent of the amount of P2,110.00 paid by petitioner for the
construction materials. Consequently, except for the award of P5,000.00 as temperate damages which we delete, the
decision of the Regional Trial Court granting petitioner (a) P2,110.00 as refund for the value of materials with interest
computed at the legal rate per annum from the date of the filing of the case; (b) P20,000.00 as moral damages; (c)
P10,000.00 as exemplary damages; (d) P5,000.00 as litigation expenses; and (4) P5,000.00 as attorney's fees, is
AFFIRMED. No costs. SO ORDERED.
 10

G.R. No. 165662 May 3, 2006

SELEGNA MANAGEMENT AND DEVELOPMENT CORPORATION; and Spouses EDGARDO and ZENAIDA
ANGELES, Petitioners,
vs. UNITED COCONUT PLANTERS BANK,* Respondent.

DECISION

PANGANIBAN, CJ:

A writ of preliminary injunction is issued to prevent an extrajudicial foreclosure, only upon a clear showing of a violation of
the mortgagors unmistakable right. Unsubstantiated allegations of denial of due process and prematurity of a loan are not
sufficient to defeat the mortgagees unmistakable right to an extrajudicial foreclosure.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the May 4, 2004 Amended Decision2 and
the October 12, 2004 Resolution3 of the Court of Appeals (CA) in CA-GR SP No. 70966. The challenged Amended Decision
disposed thus:

"WHEREFORE, the Motion for Reconsideration is GRANTED. The July 18, 2003 Decision is hereby REVERSED and SET
ASIDE and another one entered GRANTING the petition and REVERSING and SETTING ASIDE the March 15, 2002 Order
of the Regional Trial Court, Branch 58, Makati City in Civil Case No. 99-1061."4

The assailed Resolution denied reconsideration.

The Facts

On September 19, 1995, Petitioners Selegna Management and Development Corporation and Spouses Edgardo and
Zenaida Angeles were granted a credit facility in the amount of P70 million by Respondent United Coconut Planters Bank
(UCPB). As security for this credit facility, petitioners executed real estate mortgages over several parcels of land located
in the cities of Muntinlupa, Las Pias, Antipolo and Quezon; and over several condominium units in Makati. Petitioners were
likewise required to execute a promissory note in favor of respondent every time they availed of the credit facility. As required
in these notes, they paid the interest in monthly amortizations.

The parties stipulated in their Credit Agreement dated September 19, 1995, 5 that failure to pay "any availment of the
accommodation or interest, or any sum due" shall constitute an event of default, 6 which shall consequently allow respondent
bank to "declare [as immediately due and payable] all outstanding availments

of the accommodation together with accrued interest and any other sum payable." 7

In need of further business capital, petitioners obtained from UCPB an increase in their credit facility. 8 For this purpose, they
executed a Promissory Note for P103,909,710.82, which was to mature on March 26, 1999. 9 In the same note, they agreed
to an interest rate of 21.75 percent per annum, payable by monthly amortizations.

On December 21, 1998, respondent sent petitioners a demand letter, worded as follows:

"Gentlemen:

"With reference to your loan with principal outstanding balance of [P103,909,710.82], it appears from the records of United
Coconut Planters Bank that you failed to pay interest amortizations amounting to [P14,959,525.10] on the Promissory Note
on its due date, 30 May 1998.

"x x x xxx xxx

 11

"Accordingly, formal demand is hereby made upon you to pay your outstanding obligations in the total amount of
P14,959,525.10, which includes unpaid interest and penalties as of 21 December 1998 due on the promissory note, eight
(8) days from date hereof."10

Respondent decided to invoke the acceleration provision in their Credit Agreement. Accordingly, through counsel, it relayed
its move to petitioners on January 25, 1999 in a letter, which we quote:

"Gentlemen:

"x x x xxx xxx

"It appears from the record of [UCPB] that you failed to pay the monthly interest due on said obligation since May 30, 1998
as well as the penalty charges due thereon. Despite repeated demands, you refused and continue to refuse to pay the
same. Under the Credit Agreements/Letter Agreements you executed, failure to pay when due any installments of the loan
or interest or any sum due thereunder, is an event of default.

"Consequently, we hereby inform you that our client has declared your principal obligation in the amount of
[P103,909,710.82], interest and sums payable under the Credit Agreement/Letter Agreement/Promissory Note to be
immediately due and payable.

"Accordingly, formal demand is hereby made upon you to please pay within five (5) days from date hereof or up to January
29, 1999 the principal amount of [P103,909,710.82], with the interest, penalty and other charges due thereon, which as of
January 25, 1999 amounts to [P17,351,478.55]."11

Respondent sent another letter of demand on March 4, 1999. It contained a final demand on petitioners "to settle in full
[petitioners] said past due obligation to [UCPB] within five (5) days from [petitioners] receipt of [the] letter." 12

In response, petitioners paid respondent the amount of P10,199,473.96 as partial payment of the accrued
interests.13 Apparently unsatisfied, UCPB applied for extrajudicial foreclosure of petitioners mortgaged properties.

When petitioners received the Notice of Extra Judicial Foreclosure Sale on May 18, 1999, they requested UCPB to give
them a period of sixty (60) days to update their accrued interest charges; and to restructure or, in the alternative, to negotiate
for a takeout of their account.14

On May 25, 1999, the Bank denied petitioners request in these words:

"This is to reply to your letter dated May 20, 1999, which confirms the request you made the previous day when you paid
us a visit.

"As earlier advised, your account has been referred to external counsel for appropriate legal action. Demand has also been
made for the full settlement of your account.

"We regret that the Bank is unable to grant your request unless a definite offer is made for settlement." 15

In order to forestall the extrajudicial foreclosure scheduled for May 31, 1999, petitioners filed a Complaint16(docketed as
Civil Case No. 99-1061) for "Damages, Annulment of Interest, Penalty Increase and Accounting with Prayer for Temporary
Restraining Order/Preliminary Injunction." All subsequent proceedings in the trial court and in the CA involved only the
propriety of issuing a TRO and a writ of preliminary injunction.

Judge Josefina G. Salonga,17 then executive judge of the Regional Trial Court (RTC) of Makati City, denied the Urgent Ex-
parte Motion for Immediate Issuance of a Temporary Restraining Order (TRO), filed by petitioners. Judge Salonga denied
their motion on the ground that no great or irreparable injury would be inflicted on them if the parties would first be
heard.18 Unsatisfied, petitioners filed an Ex-Parte Motion for Reconsideration, by reason of which the case was eventually
raffled to Branch 148, presided by Judge Oscar B. Pimentel.19
 12

After due hearing, Judge Pimentel issued an Order dated May 31, 1999, granting a 20-day TRO on the scheduled
foreclosure of the Antipolo properties, on the ground that the Notice of Foreclosure had indicated an inexistent auction
venue.20 To resolve that issue, respondent filed a Manifestation21 that it would withdraw all its notices relative to the
foreclosure of the mortgaged properties, and that it would re-post or re-publish a new set of notices. Accordingly, in an Order
dated September 6, 1999,22 Judge Pimentel denied petitioners application for a TRO for having been rendered moot by
respondents Manifestation.23

Subsequently, respondent filed new applications for foreclosure in the cities where the mortgaged properties were located.
Undaunted, petitioners filed another Motion for the Issuance of a TRO/Injunction and a Supplementary Motion for the
Issuance of TRO/Injunction with Motion to Clarify Order of September 6, 1999. 24

On October 27, 1999, Judge Pimentel issued an Order 25 granting a 20-day TRO in favor of petitioners. After several
hearings, he issued his November 26, 1999 Order, 26 granting their prayer for a writ of preliminary injunction on the
foreclosures, but only for a period of twenty (20) days. The Order states:

"Admitted by defendant witness is the fact that in all the notices of foreclosure sale of the properties of the plaintiffs x x x it
is stated in each notice that the property will be sold at public auction to satisfy the mortgage indebtedness of plaintiffs which
as of August 31, 1999 amounts to P131,854,773.98.

"x x x xxx xxx

"As the court sees it, this is the problem that should be addressed by the defendant in this case and in the meantime, the
notice of foreclosure sale should be held in abeyance until such time as these matters are clarified and cleared by the
defendants x x x Should the defendant be able to remedy the situation this court will have no more alternative but to allow
the defendant to proceed to its intended action.

"x x x xxx xxx

"WHEREFORE, premises considered, and finding compelling reason at this point in time to grant the application for
preliminary injunction, the same is hereby granted upon posting of a preliminary injunction bond in the amount of
P3,500,000.00 duly approved by the court, let a writ of preliminary injunction be issued."27

The corresponding Writ of Preliminary Injunction28 was issued on November 29, 1999.

Respondent moved for reconsideration. On the other hand, petitioners filed a Motion to Clarify Order of November 26, 1999.
Conceding that the November 26 Order had granted an injunction during the pendency of the case, respondent contended
that the injunctive writ merely restrained it for a period of 20 (twenty) days.

On December 29, 2000, Judge Pimentel issued an Order 29 granting respondents Motion for Reconsideration and clarifying
his November 26, 1999 Order in this manner:

"There may have been an error in the Writ of Preliminary Injunction issued dated November 29, 1999 as the same [appeared
to be actually] an extension of the TRO issued by this Court dated 27 October 1999 for another 20 days period. Plaintiffs
seeks to enjoin defendants for an indefinite period pending trial of the case.

"Be that as it may, the Court actually did not have any intention of restraining the defendants from foreclosing plaintiff[s]
property for an indefinite period and during the entire proceeding of the case x x x.

"x x x xxx xxx

"What the [c]ourt wanted the defendants to do was to merely modify the notice of [the] auction sale in order that the amount
of P131,854,773.98 x x x would not appear to be the value of each property being sold on auction. x x x. 30

"WHEREFORE, premises considered and after finding merit on the arguments raised by herein defendants to be impressed
with merit, and having stated in the Order dated 26 November 1999 that no other alternative recourse is available than to
allow the defendants to proceed with their intended action, the Court hereby rules:
 13

"1.] To give due course to defendant[]s motion for reconsideration, as the same is hereby GRANTED, however, with
reservation that this Order shall take effect upon after its[] finality[.]" 31

Consequently, respondent proceeded with the foreclosure sale of some of the mortgaged properties. On the other hand,
petitioners filed an "[O]mnibus [M]otion [for Reconsideration] and to [S]pecify the [A]pplication of the P92 [M]illion [R]ealized
from the [F]oreclosure [S]ale x x x."32 Before this Omnibus Motion could be resolved, Judge Pimentel inhibited himself from
hearing the case.33

The case was then re-raffled to Branch 58 of the RTC of Makati City, presided by Judge Escolastico U. Cruz. 34 The
proceedings before him were, however, all nullified by the Supreme Court in its En Banc Resolution dated September 18,
2001.35 He was eventually dismissed from service.36

The case was re-raffled to the pairing judge of Branch 58, Winlove M. Dumayas. On March 15, 2002, Judge Dumayas
granted petitioners Omnibus Motion for Reconsideration and Specification of the Foreclosure Proceeds, as follows:

"WHEREFORE, premises considered, the Motion to Reconsider the Order dated December 29, 2000 is hereby granted and
the Order of November 26, 1999 granting the preliminary injunction is reinstated subject however to the condition that all
properties of plaintiffs which were extrajudicially foreclosed though public bidding are subject to an accounting. [A]nd for
this purpose defendant bank is hereby given fifteen (15) days from notice hereof to render an accounting on the proceeds
realized from the foreclosure of plaintiffs mortgaged properties located in Antipolo, Makati, Muntinlupa and Las Pias." 37

The aggrieved respondent filed before the Court of Appeals a Petition for Certiorari, seeking the nullification of the RTC
Order dated March 15, 2002, on the ground that it was issued with grave abuse of discretion. 38

The Special Fifteenth Division, speaking through Justice Rebecca de Guia-Salvador, affirmed the ruling of Judge Dumayas.
It held that petitioners had a clear right to an injunction, based on the fact that respondent had kept them in the dark as to
how and why their principal obligation had ballooned to almost P132 million. The CA held that respondents refusal to give
them a detailed accounting had prevented the determination of the maturity of the obligation and precluded the possibility
of a foreclosure of the mortgaged properties. Moreover, their payment of P10 million had the effect of updating, and thereby
averting the maturity of, the outstanding obligation.39

Respondent filed a Motion for Reconsideration, which was granted by a Special Division of Five of the Former Special
Fifteenth Division.

Ruling of the Court of Appeals

Citing China Banking Corporation v. Court of Appeals,40 the appellate court held in its Amended Decision41 that the
foreclosure proceedings should not be enjoined in the light of the clear failure of petitioners to meet their obligations upon
maturity.42

Also citing Zulueta v. Reyes,43 the CA, through Justice Jose Catral Mendoza, went on to say that a pending question on
accounting did not warrant an injunction on the foreclosure.

Parenthetically, the CA added that petitioners were not without recourse or protection. Further, it noted their pending action
for annulment of interest, damages and accounting. It likewise said that they could protect themselves by causing the
annotation of lis pendens on the titles of the mortgaged or foreclosed properties.

In his Separate Concurring Opinion, 44 Justice Magdangal M. de Leon added that a prior accounting was not essential to
extrajudicial foreclosure. He cited Abaca Corporation v. Garcia, 45 which had ruled that Act No. 3135 did not require
mortgaged properties to be sold by lot or by only as much as would cover just the obligation. Thus, he concluded that a
request for accounting -- for the purpose of determining whether the proceeds of the auction would suffice to cover the
indebtedness -- would not justify an injunction on the foreclosure.

Petitioners filed a Motion for Reconsideration dated May 31, 2004, which the appellate court denied. 46

Hence, this Petition.47

 14

Issues

Petitioners raise the following issues for our consideration:

p align="center">"I

"Whether or not the Honorable Court of Appeals denied the petitioners of due process.

"II

"Whether or not the Honorable Court of Appeals supported its Amended Decision by invoking jurisprudence not applicable
and completely identical with the instant case.

"III

"Whether or not the Honorable Court of Appeals failed to establish its finding that RTC Judge Winlove Dumayas has acted
with grave abuse of discretion."48

The resolution of this case hinges on two issues: 1) whether petitioners are in default; and 2) whether there is basis for
preliminarily enjoining the extrajudicial foreclosure. The other issues raised will be dealt with in the resolution of these two
main questions.

The Courts Ruling

The Petition has no merit.

First Issue:

Default

The resolution of the present controversy necessarily begins with a determination of respondents right to foreclose the
mortgaged properties extrajudicially.

It is a settled rule of law that foreclosure is proper when the debtors are in default of the payment of their obligation. In fact,
the parties stipulated in their credit agreements, mortgage contracts and promissory notes that respondent was authorized
to foreclose on the mortgages, in case of a default by petitioners. That this authority was granted is not disputed.

Mora solvendi, or debtors default, is defined as a delay49 in the fulfillment of an obligation, by reason of a cause imputable
to the debtor.50 There are three requisites necessary for a finding of default. First, the obligation is demandable and
liquidated; second, the debtor delays performance; third, the creditor judicially or extrajudicially requires the debtors
performance.51

Mortgagors Default of Monthly Interest Amortizations

In the present case, the Promissory Note executed on March 29, 1998, expressly states that petitioners had an obligation
to pay monthly interest on the principal obligation. From respondents demand letter, 52 it is clear and undisputed by
petitioners that they failed to meet those monthly payments since May 30, 1998. Their nonpayment is defined as an "event
of default" in the parties Credit Agreement, which we quote:

"Section 8.01. Events of Default. Each of the following events and occurrences shall constitute an Event of Default of this
AGREEMENT:

"1. The CLIENT shall fail to pay, when due, any availment of the Accommodation or interest, or any other sum due
thereunder in accordance with the terms thereof;1avvphil.net
 15

"x x x xxx x x x"

"Section 8.02. Consequences of Default. (a) If an Event of Default shall occur and be continuing, the Bank may:

"1. By written notice to the CLIENT, declare all outstanding availments of the Accommodation together with accrued interest
and any other sum payable hereunder to be immediately due and payable without presentment, demand or notice of any
kind, other than the notice specifically required by this Section, all of which are expressly waived by the CLIENT[.]" 53

Considering that the contract is the law between the parties, 54 respondent is justified in invoking the acceleration clause
declaring the entire obligation immediately due and payable.55 That clause obliged petitioners to pay the entire loan on
January 29, 1999, the date fixed by respondent.56

Petitioners failure to pay on that date set into effect Article IX of the Real Estate Mortgage, 57 worded thus:

"If, at any time, an event of default as defined in the credit agreements, promissory notes and other related loan documents
referred to in paragraph 5 of ARTICLE I hereof (sic), or the MORTGAGOR and/or DEBTOR shall fail or refuse to pay the
SECURED OBLIGATIONS, or any of the amortization of such indebtedness when due, or to comply any (sic) of the
conditions and stipulations herein agreed, x x x then all the obligations of the MORTGAGOR secured by this MORTGAGE
and all the amortizations thereof shall immediately become due, payable and defaulted and the MORTGAGEE may
immediately foreclose this MORTGAGE judicially in accordance with the Rules of Court, or extrajudicially in accordance
with Act No. 3135, as amended, and Presidential Decree No. 385. For the purpose of extrajudicial foreclosure, the
MORTGAGOR hereby appoints the MORTGAGEE his/her/its attorney-in-fact to sell the property mortgaged under Act No.
3135, as amended, to sign all documents and perform any act requisite and necessary to accomplish said purpose and to
appoint its substitutes as such attorney-in-fact with the same powers as above specified. x x x[.]"58

The foregoing discussion satisfactorily shows that UCPB had every right to apply for extrajudicial foreclosure on the basis
of petitioners undisputed and continuing default.

Petitioners Debt Considered Liquidated Despite the Alleged

Lack of Accounting

Petitioners do not even attempt to deny the aforementioned matters. They assert, though, that they have a right to a detailed
accounting before they can be declared in default. As regards the three requisites of default, they say that the first requisite
-- liquidated debt -- is absent. Continuing with foreclosure on the basis of an unliquidated obligation allegedly violates their
right to due process. They also maintain that their partial payment of P10 million averted the maturity of their obligation. 59

On the other hand, respondent asserts that questions regarding the running balance of the obligation of petitioners are not
valid reasons for restraining the foreclosure. Nevertheless, it maintains that it has furnished them a detailed monthly
statement of account.

A debt is liquidated when the amount is known or is determinable by inspection of the terms and conditions of the relevant
promissory notes and related documentation.60 Failure to furnish a debtor a detailed statement of account does not ipso
facto result in an unliquidated obligation.

Petitioners executed a Promissory Note, in which they stated that their principal obligation was in the amount of
P103,909,710.82, subject to an interest rate of 21.75 percent per annum. 61 Pursuant to the parties Credit Agreement,
petitioners likewise know that any delay in the payment of the principal obligation will subject them to a penalty charge of
one percent per month, computed from the due date until the obligation is paid in full.62

It is in fact clear from the agreement of the parties that when the payment is accelerated due to an event of default, the
penalty charge shall be based on the total principal amount outstanding, to be computed from the date of acceleration until
the obligation is paid in full.63 Their Credit Agreement even provides for the application of payments.64 It appears from the
agreements that the amount of total obligation is known or, at the very least, determinable.

Moreover, when they made their partial payment, petitioners did not question the principal, interest or penalties demanded
from them. They only sought additional time to update their interest payments or to negotiate a possible restructuring of
 16

their account.65 Hence, there is no basis for their allegation that a statement of account was necessary for them to know
their obligation. We cannot impair respondents right to foreclose the properties on the basis of their unsubstantiated
allegation of a violation of due process.

In Spouses Estares v. CA,66 we did not find any justification to grant a preliminary injunction, even when the mortgagors
were disputing the amount being sought from them. We held in that case that "[u]pon the nonpayment of the loan, which
was secured by the mortgage, the mortgaged property is properly subject to a foreclosure sale." 67

Compared with Estares, the denial of injunctive relief in this case is even more imperative, because the present petitioners
do not even assail the amounts due from them. Neither do they contend that a detailed accounting would show that they
are not in default. A pending question regarding the due amount was not a sufficient reason to enjoin the foreclosure in
Estares. Hence, with more reason should injunction be denied in the instant case, in which there is no dispute as to the
outstanding obligation of petitioners.

At any rate, whether respondent furnished them a detailed statement of account is a question of fact that this Court need
not and will not resolve in this instance. As held in Zulueta v. Reyes, 68 in which there was no genuine controversy as to the
amounts due and demandable, the foreclosure should not be restrained by the unnecessary question of accounting.

Maturity of the Loan Not Averted by Partial Compliance with Respondents Demand

Petitioners allege that their partial payment of P10 million on March 25, 1999, had the effect of forestalling the maturity of
the loan;69 hence the foreclosure proceedings are premature. 70 We disagree.

To be sure, their partial payment did not extinguish the obligation. The Civil Code states that a debt is not paid "unless the
thing x x x in which the obligation consists has been completely delivered x x x."71 Besides, a late partial payment could not
have possibly forestalled a long-expired maturity date.

The only possible legal relevance of the partial payment was to evidence the mortgagees amenability to granting the
mortgagor a grace period. Because the partial payment would constitute a waiver of the mortgagees vested right to
foreclose, the grant of a grace period cannot be casually assumed;72 the banks agreement must be clearly shown. Without
a doubt, no express agreement was entered into by the parties. Petitioners only assumed that their partial payment had
satisfied respondents demand and obtained for them more time to update their account. 73

Petitioners are mistaken. When creditors receive partial payment, they are not ipso facto deemed to have abandoned their
prior demand for full payment. Article 1235 of the Civil Code provides:

"When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest
or objection, the obligation is deemed fully complied with."

Thus, to imply that creditors accept partial payment as complete performance of their obligation, their acceptance must be
made under circumstances that indicate their intention to consider the performance complete and to renounce their claim
arising from the defect.74

There are no circumstances that would indicate a renunciation of the right of respondent to foreclose the mortgaged
properties extrajudicially, on the basis of petitioners continuing default. On the contrary, it asserted its right by filing an
application for extrajudicial foreclosure after receiving the partial payment. Clearly, it did not intend to give petitioners more
time to meet their obligation.

Parenthetically, respondent cannot be reproved for accepting their partial payment. While Article 1248 of the Civil Code
states that creditors cannot be compelled to accept partial payments, it does not prohibit them from accepting such
payments.

Second Issue:

Enjoining the Extrajudicial Foreclosure

 17

A writ of preliminary injunction is a provisional remedy that may be resorted to by litigants, only to protect or preserve their
rights or interests during the pendency of the principal action. To authorize a temporary injunction, the plaintiff must show,
at least prima facie, a right to the final relief. 75 Moreover, it must show that the invasion of the right sought to be protected
is material and substantial, and that there is an urgent and paramount necessity for the writ to prevent serious damage. 76

In the absence of a clear legal right, the issuance of the injunctive writ constitutes grave abuse of discretion. Injunction is
not designed to protect contingent or future rights. It is not proper when the complainants right is doubtful or disputed. 77

As a general rule, courts should avoid issuing this writ, which in effect disposes of the main case without trial. 78 In Manila
International Airport Authority v. CA,79 we urged courts to exercise caution in issuing the writ, as follows:

"x x x. We remind trial courts that while generally the grant of a writ of preliminary injunction rests on the sound discretion
of the court taking cognizance of the case, extreme caution must be observed in the exercise of such discretion. The
discretion of the court a quo to grant an injunctive writ must be exercised based on the grounds and in the manner provided
by law. Thus, the Court declared in Garcia v. Burgos:

It has been consistently held that there is no power the exercise of which is more delicate, which requires greater caution,
deliberation and sound discretion, or more dangerous in a doubtful case, than the issuance of an injunction. It is the strong
arm of equity that should never be extended unless to cases of great injury, where courts of law cannot afford an adequate
or commensurate remedy in damages.

Every court should remember that an injunction is a limitation upon the freedom of action of the defendant and should not
be granted lightly or precipitately. It should be granted only when the court is fully satisfied that the law permits it and the
emergency demands it."80 (Citations omitted)

Petitioners do not have any clear right to be protected. As shown in our earlier findings, they failed to substantiate their
allegations that their right to due process had been violated and the maturity of their obligation forestalled. Since they
indisputably failed to meet their obligations in spite of repeated demands, we hold that there is no legal justification to enjoin
respondent from enforcing its undeniable right to foreclose the mortgaged properties.

In any case, petitioners will not be deprived outrightly of their property. Pursuant to Section 47 of the General Banking Law
of 2000,81 mortgagors who have judicially or extrajudicially sold their real property for the full or partial payment of their
obligation have the right to redeem the property within one year after the sale. They can redeem their real estate by paying
the amount due, with interest rate specified, under the mortgage deed; as well as all the costs and expenses incurred by
the bank.82

Moreover, in extrajudicial foreclosures, petitioners have the right to receive any surplus in the selling price. This right was
recognized in Sulit v. CA,83 in which the Court held that "if the mortgagee is retaining more of the proceeds of the sale than
he is entitled to, this fact alone will not affect the validity of the sale but simply gives the mortgagor a cause of action to
recover such surplus."84

Petitioners failed to demonstrate the prejudice they would probably suffer by reason of the foreclosure. Also, it is clear that
they would be adequately protected by law. Hence, we find no legal basis to reverse the assailed Amended Decision of the
CA dated May 4, 2004.

WHEREFORE, the Petition is DENIED and the assailed Amended Decision and Resolution AFFIRMED. Costs against
petitioners.

SO ORDERED.
 18

G.R. No. 193723 July 20, 2011

GENERAL MILLING CORPORATION, Petitioner,

vs. SPS. LIBRADO RAMOS and REMEDIOS RAMOS, Respondents.

DECISION

VELASCO, JR., J.:

The Case

This is a petition for review of the April 15, 2010 Decision of the Court of Appeals (CA) in CA-G.R. CR-H.C. No. 85400
entitled Spouses Librado Ramos & Remedios Ramos v. General Milling Corporation, et al., which affirmed the May 31, 2005
Decision of the Regional Trial Court (RTC), Branch 12 in Lipa City, in Civil Case No. 00-0129 for Annulment and/or
Declaration of Nullity of Extrajudicial Foreclosure Sale with Damages.

The Facts

On August 24, 1989, General Milling Corporation (GMC) entered into a Growers Contract with spouses Librado and
Remedios Ramos (Spouses Ramos). Under the contract, GMC was to supply broiler chickens for the spouses to raise on
their land in Barangay Banaybanay, Lipa City, Batangas. 1 To guarantee full compliance, the Growers Contract was
accompanied by a Deed of Real Estate Mortgage over a piece of real property upon which their conjugal home was built.
The spouses further agreed to put up a surety bond at the rate of PhP 20,000 per 1,000 chicks delivered by GMC. The
Deed of Real Estate Mortgage extended to Spouses Ramos a maximum credit line of PhP 215,000 payable within an
indefinite period with an interest of twelve percent (12%) per annum.2

The Deed of Real Estate Mortgage contained the following provision:

WHEREAS, the MORTGAGOR/S has/have agreed to guarantee and secure the full and faithful compliance of
[MORTGAGORS] obligation/s with the MORTGAGEE by a First Real Estate Mortgage in favor of the MORTGAGEE, over
a 1 parcel of land and the improvements existing thereon, situated in the Barrio/s of Banaybanay, Municipality of Lipa City,
Province of Batangas, Philippines, his/her/their title/s thereto being evidenced by Transfer Certificate/s No./s T-9214 of the
Registry of Deeds for the Province of Batangas in the amount of TWO HUNDRED FIFTEEN THOUSAND (P 215,000.00),
Philippine Currency, which the maximum credit line payable within a x x x day term and to secure the payment of the same
plus interest of twelve percent (12%) per annum.

Spouses Ramos eventually were unable to settle their account with GMC. They alleged that they suffered business losses
because of the negligence of GMC and its violation of the Growers Contract. 3

On March 31, 1997, the counsel for GMC notified Spouses Ramos that GMC would institute foreclosure proceedings on
their mortgaged property.4

On May 7, 1997, GMC filed a Petition for Extrajudicial Foreclosure of Mortgage. On June 10, 1997, the property subject of
the foreclosure was subsequently sold by public auction to GMC after the required posting and publication. 5 It was
foreclosed for PhP 935,882,075, an amount representing the losses on chicks and feeds exclusive of interest at 12% per
annum and attorneys fees.6 To complicate matters, on October 27, 1997, GMC informed the spouses that its Agribusiness
Division had closed its business and poultry operations.7

On March 3, 2000, Spouses Ramos filed a Complaint for Annulment and/or Declaration of Nullity of the Extrajudicial
Foreclosure Sale with Damages. They contended that the extrajudicial foreclosure sale on June 10, 1997 was null and void,
since there was no compliance with the requirements of posting and publication of notices under Act No. 3135, as amended,
or An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages. They
likewise claimed that there was no sheriffs affidavit to prove compliance with the requirements on posting and publication
of notices. It was further alleged that the Deed of Real Estate Mortgage had no fixed term. A prayer for moral and exemplary
damages and attorneys fees was also included in the complaint.8Librado Ramos alleged that, when the property was
foreclosed, GMC did not notify him at all of the foreclosure.9
 19

During the trial, the parties agreed to limit the issues to the following: (1) the validity of the Deed of Real Estate Mortgage;
(2) the validity of the extrajudicial foreclosure; and (3) the party liable for damages.10

In its Answer, GMC argued that it repeatedly reminded Spouses Ramos of their liabilities under the Growers Contract. It
argued that it was compelled to foreclose the mortgage because of Spouses Ramos failure to pay their obligation. GMC
insisted that it had observed all the requirements of posting and publication of notices under Act No. 3135. 11

The Ruling of the Trial Court

Holding in favor of Spouses Ramos, the trial court ruled that the Deed of Real Estate Mortgage was valid even if its term
was not fixed. Since the duration of the term was made to depend exclusively upon the will of the debtors-spouses, the trial
court cited jurisprudence and said that "the obligation is not due and payable until an action is commenced by the mortgagee
against the mortgagor for the purpose of having the court fix the date on and after which the instrument is payable and the
date of maturity is fixed in pursuance thereto."12

The trial court held that the action of GMC in moving for the foreclosure of the spouses properties was premature, because
the latters obligation under their contract was not yet due.

The trial court awarded attorneys fees because of the premature action taken by GMC in filing extrajudicial foreclosure
proceedings before the obligation of the spouses became due.

The RTC ruled, thus:

WHEREFORE, premises considered, judgment is rendered as follows:

1. The Extra-Judicial Foreclosure Proceedings under docket no. 0107-97 is hereby declared null and void;

2. The Deed of Real Estate Mortgage is hereby declared valid and legal for all intents and puposes;

3. Defendant-corporation General Milling Corporation is ordered to pay Spouses Librado and Remedios Ramos
attorneys fees in the total amount of P 57,000.00 representing acceptance fee of P30,000.00 and P3,000.00
appearance fee for nine (9) trial dates or a total appearance fee of P 27,000.00;

4. The claims for moral and exemplary damages are denied for lack of merit.

IT IS SO ORDERED.13

The Ruling of the Appellate Court

On appeal, GMC argued that the trial court erred in: (1) declaring the extrajudicial foreclosure proceedings null and void;
(2) ordering GMC to pay Spouses Ramos attorneys fees; and (3) not awarding damages in favor of GMC.

The CA sustained the decision of the trial court but anchored its ruling on a different ground. Contrary to the findings of the
trial court, the CA ruled that the requirements of posting and publication of notices under Act No. 3135 were complied with.
The CA, however, still found that GMCs action against Spouses Ramos was premature, as they were not in default when
the action was filed on May 7, 1997.14

The CA ruled:

In this case, a careful scrutiny of the evidence on record shows that defendant-appellant GMC made no demand to spouses
Ramos for the full payment of their obligation. While it was alleged in the Answer as well as in the Affidavit constituting the
direct testimony of Joseph Dominise, the principal witness of defendant-appellant GMC, that demands were sent to spouses
Ramos, the documentary evidence proves otherwise. A perusal of the letters presented and offered as evidence by
defendant-appellant GMC did not "demand" but only request spouses Ramos to go to the office of GMC to "discuss" the
settlement of their account.15
 20

According to the CA, however, the RTC erroneously awarded attorneys fees to Spouses Ramos, since the presumption of
good faith on the part of GMC was not overturned.

The CA disposed of the case as follows:

WHEREFORE, and in view of the foregoing considerations, the Decision of the Regional Trial Court of Lipa City, Branch
12, dated May 21, 2005 is hereby AFFIRMED with MODIFICATION by deleting the award of attorneys fees to plaintiffs-
appellees spouses Librado Ramos and Remedios Ramos.16

Hence, We have this appeal.

The Issues

A. WHETHER [THE CA] MAY CONSIDER ISSUES NOT ALLEGED AND DISCUSSED IN THE LOWER COURT
AND LIKEWISE NOT RAISED BY THE PARTIES ON APPEAL, THEREFORE HAD DECIDED THE CASE NOT IN
ACCORD WITH LAW AND APPLICABLE DECISIONS OF THE SUPREME COURT.

B. WHETHER [THE CA] ERRED IN RULING THAT PETITIONER GMC MADE NO DEMAND TO RESPONDENT
SPOUSES FOR THE FULL PAYMENT OF THEIR OBLIGATION CONSIDERING THAT THE LETTER DATED
MARCH 31, 1997 OF PETITIONER GMC TO RESPONDENT SPOUSES IS TANTAMOUNT TO A FINAL DEMAND
TO PAY, THEREFORE IT DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDINGS.17

The Ruling of this Court

Can the CA consider matters not alleged?

GMC asserts that since the issue on the existence of the demand letter was not raised in the trial court, the CA, by
considering such issue, violated the basic requirements of fair play, justice, and due process. 18

In their Comment,19 respondents-spouses aver that the CA has ample authority to rule on matters not assigned as errors
on appeal if these are indispensable or necessary to the just resolution of the pleaded issues.

In Diamonon v. Department of Labor and Employment,20 We explained that an appellate court has a broad discretionary
power in waiving the lack of assignment of errors in the following instances:

(a) Grounds not assigned as errors but affecting the jurisdiction of the court over the subject matter;

(b) Matters not assigned as errors on appeal but are evidently plain or clerical errors within contemplation of law;

(c) Matters not assigned as errors on appeal but consideration of which is necessary in arriving at a just decision
and complete resolution of the case or to serve the interests of a justice or to avoid dispensing piecemeal justice;

(d) Matters not specifically assigned as errors on appeal but raised in the trial court and are matters of record having
some bearing on the issue submitted which the parties failed to raise or which the lower court ignored;

(e) Matters not assigned as errors on appeal but closely related to an error assigned;

(f) Matters not assigned as errors on appeal but upon which the determination of a question properly assigned, is
dependent.

Paragraph (c) above applies to the instant case, for there would be a just and complete resolution of the appeal if there is
a ruling on whether the Spouses Ramos were actually in default of their obligation to GMC.

Was there sufficient demand?

 21

We now go to the second issue raised by GMC. GMC asserts error on the part of the CA in finding that no demand was
made on Spouses Ramos to pay their obligation. On the contrary, it claims that its March 31, 1997 letter is akin to a demand.

We disagree.

There are three requisites necessary for a finding of default. First, the obligation is demandable and liquidated; second, the
debtor delays performance; and third, the creditor judicially or extrajudicially requires the debtors performance. 21

According to the CA, GMC did not make a demand on Spouses Ramos but merely requested them to go to GMCs office
to discuss the settlement of their account. In spite of the lack of demand made on the spouses, however, GMC proceeded
with the foreclosure proceedings. Neither was there any provision in the Deed of Real Estate Mortgage allowing GMC to
extrajudicially foreclose the mortgage without need of demand.

Indeed, Article 1169 of the Civil Code on delay requires the following:

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

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

(1) When the obligation or the law expressly so declares; x x x

As the contract in the instant case carries no such provision on demand not being necessary for delay to exist, We agree
with the appellate court that GMC should have first made a demand on the spouses before proceeding to foreclose the real
estate mortgage.

Development Bank of the Philippines v. Licuanan finds application to the instant case:

The issue of whether demand was made before the foreclosure was effected is essential.1avvphi1 If demand was made
and duly received by the respondents and the latter still did not pay, then they were already in default and foreclosure was
proper. However, if demand was not made, then the loans had not yet become due and demandable. This meant that
respondents had not defaulted in their payments and the foreclosure by petitioner was premature. Foreclosure is valid only
when the debtor is in default in the payment of his obligation.22

In turn, whether or not demand was made is a question of fact.23 This petition filed under Rule 45 of the Rules of Court shall
raise only questions of law. For a question to be one of law, it must not involve an examination of the probative value of the
evidence presented by the litigants or any of them. The resolution of the issue must rest solely on what the law provides on
the given set of circumstances. Once it is clear that the issue invites a review of the evidence presented, the question posed
is one of fact.24 It need not be reiterated that this Court is not a trier of facts. 25 We will defer to the factual findings of the trial
court, because petitioner GMC has not shown any circumstances making this case an exception to the rule.

WHEREFORE, the petition is DENIED. The CA Decision in CA-G.R. CR-H.C. No. 85400 is AFFIRMED.

SO ORDERED.
 22

G.R. No. 167346 April 2, 2007

SOLIDBANK CORPORATION/ METROPOLITAN BANK AND TRUST COMPANY,* Petitioner,

vs. SPOUSES PETER and SUSAN TAN, Respondents.

DECISION

CORONA, J.:

Assailed in this petition for review by certiorari under Rule 45 of the Rules of Court are the decision 1 and resolution2of the
Court of Appeals (CA) dated November 26, 2004 and March 1, 2005, respectively, in CA-G.R. CV No. 58618,3 affirming the
decision of the Regional Trial Court (RTC) of Manila, Branch 31. 4

On December 2, 1991, respondents representative, Remigia Frias, deposited with petitioner ten checks worth 455,962.
Grace Neri, petitioners teller no. 8 in its Juan Luna, Manila Branch, received two deposit slips for the checks, an original
and a duplicate. Neri verified the checks and their amounts in the deposit slips then returned the duplicate copy to Frias and
kept the original copy for petitioner.

In accordance with the usual practice between petitioner and respondents, the latters passbook was left with petitioner for
the recording of the deposits on the banks ledger. Later, respondents retrieved the passbook and discovered that one of
the checks, Metropolitan Bank and Trust Company (Metrobank) check no. 403954, payable to cash in the sum of 250,000
was not posted therein.

Immediately, respondents notified petitioner of the problem. Petitioner showed respondent Peter Tan a duplicate

copy of a deposit slip indicating the list of checks deposited by Frias. But it did not include the missing check. The deposit
slip bore the stamp mark "teller no. 7" instead of "teller no. 8" who previously received the checks.

Still later, respondent Peter Tan learned from Metrobank (where he maintained an account) that Metrobank check no.
403954 had cleared after it was inexplicably deposited by a certain Dolores Lagsac in Premier Bank in San Pedro, Laguna.
Respondents demanded that petitioner pay the amount of the check but it refused, hence, they filed a case for collection of
a sum of money in the RTC of Manila, Branch 31.

In its answer, petitioner averred that the deposit slips Frias used when she deposited the checks were spurious. Petitioner
accused respondents of engaging in a scheme to illegally exact money from it. It added that, contrary to the claim of
respondents, it was "teller no. 7" who received the deposit slips and, although respondents insisted that Frias deposited ten
checks, only nine checks were actually received by said teller. By way of counterclaim, it sought payment of 1,000,000 as
actual and moral damages and 500,000 as exemplary damages.

After trial, the RTC found petitioner liable to respondents:

Upon examination of the oral, as well as of the documentary evidence which the parties presented at the trial in support of
their respective contentions, and after taking into consideration all the circumstances of the case, this Court believes that
the loss of Metrobank Check No. 403954 in the sum of 250,000.00 was due to the fault of [petitioner][It] retained the
original copy of the [deposit slip marked by "Teller No. 7"]. There is a presumption in law that evidence willfully suppressed
would be adverse if produced.

Art. 1173 of the Civil Code states that "the fault or negligence of the obligor consists in the omission of that diligence which
is required by the nature of the obligation and corresponds with the circumstances of the person of the time and of the
place"; and that "if the law or contract does not state the diligence which is to be observed in the performance, the same as
expected of a good father of a family shall be required."

For failure to comply with its obligation, [petitioner] is presumed to have been at fault or to have acted negligently unless
they prove that they observe extraordinary diligence as prescribed in Arts. 1733 and 1735 of the Civil Code (Art. 1756)

xxx xxx xxx

 23

WHEREFORE, premises considered, judgment is hereby rendered in favor of [respondents], ordering [petitioner] to pay the
sum of 250,000, with legal interest from the time the complaint [for collection of a sum of money] was filed until satisfied;
25,000.00 moral damages; 25,000.00 exemplary damages plus 20% of the amount due [respondents] as and for
attorneys fees. With costs.

SO ORDERED.5

Petitioner appealed to the CA which affirmed in toto the RTCs assailed decision:

Serious doubt [was] engendered by the fact that [petitioner] did not present the original of the deposit slip marked with
"Teller No. 7" and on which the entry as to Metrobank Check No. 403954 did not appear. Even the most cursory look at the
handwriting thereon reveal[ed] a very marked difference with that in the other deposit slips filled up [by Frias] on December
2, 1991. Said circumstances spawn[ed] the belief thus, the said deposit slip was prepared by [petitioner] itself to cover up
for the lost check.6

Petitioner filed a motion for reconsideration but the CA dismissed it. Hence, this appeal.1a\^/phi1.net

Before us, petitioner faults the CA for upholding the RTC decision. Petitioner argues that: (1) the findings of the RTC and
the CA were not supported by the evidence and records of the case; (2) the award of damages in favor of respondents was
unwarranted and (3) the application by the RTC, as affirmed by the CA, of the provisions of the Civil Code on common
carriers to the instant case was erroneous.7

The petition must fail.

On the first issue, petitioner contends that the lower courts erred in finding it negligent for the loss of the subject check.
According to petitioner, the fact that the check was deposited in Premier Bank affirmed its claim that it did not receive the
check.

At the outset, the Court stresses that it accords respect to the factual findings of the trial court and, unless it overlooked
substantial matters that would alter the outcome of the case, this Court will not disturb such findings.8We meticulously
reviewed the records of the case and found no reason to deviate from the rule. Moreover, since the CA affirmed these
findings on appeal, they are final and conclusive on us.9 We therefore sustain the RTCs and CAs findings that petitioner
was indeed negligent and responsible for respondents lost check.

On the issue of damages, petitioner argues that the moral and exemplary damages awarded by the lower courts had no
legal basis. For the award of moral damages to stand, petitioner avers that respondents should have proven the existence
of bad faith by clear and convincing evidence. According to petitioner, simple negligence cannot be a basis for its award. It
insists that the award of exemplary damages is justified only when the act complained of was done in a wanton, fraudulent
and oppressive manner.10

We disagree.

While petitioner may argue that simple negligence does not warrant the award of moral damages, it nonetheless cannot
insist that that was all it was guilty of. It refused to produce the original copy of the deposit slip which could have proven its
claim that it did not receive respondents missing check. Thus, in suppressing the best evidence that could have bolstered
its claim and confirmed its innocence, the presumption now arises that it withheld the same for fraudulent purposes. 11

Moreover, in presenting a false deposit slip in its attempt to feign innocence, petitioners bad faith was apparent and
unmistakable. Bad faith imports a dishonest purpose or some moral obliquity or conscious doing of a wrong that partakes
of the nature of fraud.12

As to the award of exemplary damages, the law allows it by way of example for the public good. The business of banking
is impressed with public interest and great reliance is made on the banks sworn profession of diligence and meticulousness
in giving irreproachable service.13 For petitioners failure to carry out its responsibility and to account for respondents lost
check, we hold that the lower courts did not err in awarding exemplary damages to the latter.
 24

On the last issue, we hold that the trial court did not commit any error.1awphi1.nt A cursory reading of its decision reveals
that it anchored its conclusion that petitioner was negligent on Article 1173 of the Civil Code. 14

In citing the different provisions of the Civil Code on common carriers, 15 the trial court merely made reference to the kind of
diligence that petitioner should have performed under the circumstances. In other words, like a common carrier whose
business is also imbued with public interest, petitioner should have exercised extraordinary diligence to negate its liabilit y
to respondents.

Assuming arguendo that the trial court indeed used the provisions on common carriers to pin down liability on petitioner,
still we see no reason to strike down the RTC and CA rulings on this ground alone.

In one case,16 the Court did not hesitate to apply the doctrine of last clear chance (commonly used in transportation laws
involving common carriers) to a banking transaction where it adjudged the bank responsible for the encashment of a forged
check. There, we enunciated that the degree of diligence required of banks is more than that of a good father of a family in
keeping with their responsibility to exercise the necessary care and prudence in handling their clients money.

We find no compelling reason to disallow the application of the provisions on common carriers to this case if only to
emphasize the fact that banking institutions (like petitioner) have the duty to exercise the highest degree of diligence when
transacting with the public. By the nature of their business, they are required to observe the highest standards of integrity
and performance, and utmost assiduousness as well.17

WHEREFORE, the assailed decision and resolution of the Court of Appeals dated November 26, 2004 and March 1, 2005,
respectively, in CA-G.R. CV No. 58618 are hereby AFFIRMED. Accordingly, the petition is DENIED. Costs against
petitioner. SO ORDERED.
 25

G.R. No. 147324 May 25, 2004

PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION, petitioner,

vs. GLOBE TELECOM, INC. (formerly Globe Mckay Cable and Radio Corporation), respondents.

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

GLOBE TELECOM, INC., petitioner,

vs. PHILIPPINE COMMUNICATION SATELLITE CORPORATION, respondent.

DECISION

TINGA, J.:

Before the Court are two Petitions for Review assailing the Decision of the Court of Appeals, dated 27 February 2001, in
CA-G.R. CV No. 63619.1

The facts of the case are undisputed.

For several years prior to 1991, Globe Mckay Cable and Radio Corporation, now Globe Telecom, Inc. (Globe), had been
engaged in the coordination of the provision of various communication facilities for the military bases of the United States
of America (US) in Clark Air Base, Angeles, Pampanga and Subic Naval Base in Cubi Point, Zambales. The said
communication facilities were installed and configured for the exclusive use of the US Defense Communications Agency
(USDCA), and for security reasons, were operated only by its personnel or those of American companies contracted by it
to operate said facilities. The USDCA contracted with said American companies, and the latter, in turn, contracted with
Globe for the use of the communication facilities. Globe, on the other hand, contracted with local service providers such as
the Philippine Communications Satellite Corporation (Philcomsat) for the provision of the communication facilities.

On 07 May 1991, Philcomsat and Globe entered into an Agreement whereby Philcomsat obligated itself to establish, operate
and provide an IBS Standard B earth station (earth station) within Cubi Point for the exclusive use of the USDCA. 2 The term
of the contract was for 60 months, or five (5) years. 3 In turn, Globe promised to pay Philcomsat monthly rentals for each
leased circuit involved.4

At the time of the execution of the Agreement, both parties knew that the Military Bases Agreement between the Republic
of the Philippines and the US (RP-US Military Bases Agreement), which was the basis for the occupancy of the Clark Air
Base and Subic Naval Base in Cubi Point, was to expire in 1991. Under Section 25, Article XVIII of the 1987 Constitution,
foreign military bases, troops or facilities, which include those located at the US Naval Facility in Cubi Point, shall not be
allowed in the Philippines unless a new treaty is duly concurred in by the Senate and ratified by a majority of the votes cast
by the people in a national referendum when the Congress so requires, and such new treaty is recognized as such by the
US Government.

Subsequently, Philcomsat installed and established the earth station at Cubi Point and the USDCA made use of the same.

On 16 September 1991, the Senate passed and adopted Senate Resolution No. 141, expressing its decision not to concur
in the ratification of the Treaty of Friendship, Cooperation and Security and its Supplementary Agreements that was
supposed to extend the term of the use by the US of Subic Naval Base, among others. 5 The last two paragraphs of the
Resolution state:

FINDING that the Treaty constitutes a defective framework for the continuing relationship between the two countries
in the spirit of friendship, cooperation and sovereign equality: Now, therefore, be it Resolved by the Senate, as it is
hereby resolved, To express its decision not to concur in the ratification of the Treaty of Friendship, Cooperation
and Security and its Supplementary Agreements, at the same time reaffirming its desire to continue friendly relations
with the government and people of the United States of America.6

On 31 December 1991, the Philippine Government sent a Note Verbale to the US Government through the US Embassy,
notifying it of the Philippines termination of the RP-US Military Bases Agreement. The Note Verbalestated that since the
 26

RP-US Military Bases Agreement, as amended, shall terminate on 31 December 1992, the withdrawal of all US military
forces from Subic Naval Base should be completed by said date.

In a letter dated 06 August 1992, Globe notified Philcomsat of its intention to discontinue the use of the earth station effective
08 November 1992 in view of the withdrawal of US military personnel from Subic Naval Base after the termination of the
RP-US Military Bases Agreement. Globe invoked as basis for the letter of termination Section 8 (Default) of the Agreement,
which provides:

Neither party shall be held liable or deemed to be in default for any failure to perform its obligation under this
Agreement if such failure results directly or indirectly from force majeure or fortuitous event. Either party is thus
precluded from performing its obligation until such force majeure or fortuitous event shall terminate. For the purpose
of this paragraph, force majeure shall mean circumstances beyond the control of the party involved including, but
not limited to, any law, order, regulation, direction or request of the Government of the Philippines, strikes or other
labor difficulties, insurrection riots, national emergencies, war, acts of public enemies, fire, floods, typhoons or other
catastrophies or acts of God.

Philcomsat sent a reply letter dated 10 August 1992 to Globe, stating that "we expect [Globe] to know its commitment to
pay the stipulated rentals for the remaining terms of the Agreement even after [Globe] shall have discontinue[d] the use of
the earth station after November 08, 1992."7 Philcomsat referred to Section 7 of the Agreement, stating as follows:

7. DISCONTINUANCE OF SERVICE

Should [Globe] decide to discontinue with the use of the earth station after it has been put into operation, a written
notice shall be served to PHILCOMSAT at least sixty (60) days prior to the expected date of termination.
Notwithstanding the non-use of the earth station, [Globe] shall continue to pay PHILCOMSAT for the rental of the
actual number of T1 circuits in use, but in no case shall be less than the first two (2) T1 circuits, for the remaining
life of the agreement. However, should PHILCOMSAT make use or sell the earth station subject to this agreement,
the obligation of [Globe] to pay the rental for the remaining life of the agreement shall be at such monthly rate as
may be agreed upon by the parties.8

After the US military forces left Subic Naval Base, Philcomsat sent Globe a letter dated 24 November 1993 demanding
payment of its outstanding obligations under the Agreement amounting to US$4,910,136.00 plus interest and attorneys
fees. However, Globe refused to heed Philcomsats demand.

On 27 January 1995, Philcomsat filed with the Regional Trial Court of Makati a Complaint against Globe, praying that the
latter be ordered to pay liquidated damages under the Agreement, with legal interest, exemplary damages, attorneys fees
and costs of suit. The case was raffled to Branch 59 of said court.

Globe filed an Answer to the Complaint, insisting that it was constrained to end the Agreement due to the termination of the
RP-US Military Bases Agreement and the non-ratification by the Senate of the Treaty of Friendship and Cooperation, which
events constituted force majeure under the Agreement. Globe explained that the occurrence of said events exempted it
from paying rentals for the remaining period of the Agreement.

On 05 January 1999, the trial court rendered its Decision, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Ordering the defendant to pay the plaintiff the amount of Ninety Two Thousand Two Hundred Thirty Eight
US Dollars (US$92,238.00) or its equivalent in Philippine Currency (computed at the exchange rate
prevailing at the time of compliance or payment) representing rentals for the month of December 1992 with
interest thereon at the legal rate of twelve percent (12%) per annum starting December 1992 until the
amount is fully paid;

2. Ordering the defendant to pay the plaintiff the amount of Three Hundred Thousand (P300,000.00) Pesos
as and for attorneys fees;

3. Ordering the DISMISSAL of defendants counterclaim for lack of merit; and

 27

4. With costs against the defendant.

SO ORDERED.9

Both parties appealed the trial courts Decision to the Court of Appeals.

Philcomsat claimed that the trial court erred in ruling that: (1) the non-ratification by the Senate of the Treaty of Friendship,
Cooperation and Security and its Supplementary Agreements constitutes force majeure which exempts Globe from
complying with its obligations under the Agreement; (2) Globe is not liable to pay the rentals for the remainder of the term
of the Agreement; and (3) Globe is not liable to Philcomsat for exemplary damages.

Globe, on the other hand, contended that the RTC erred in holding it liable for payment of rent of the earth station for
December 1992 and of attorneys fees. It explained that it terminated Philcomsats services on 08 November 1992; hence,
it had no reason to pay for rentals beyond that date.

On 27 February 2001, the Court of Appeals promulgated its Decision dismissing Philcomsats appeal for lack of merit and
affirming the trial courts finding that certain events constituting force majeure under Section 8 the Agreement occurred and
justified the non-payment by Globe of rentals for the remainder of the term of the Agreement.

The appellate court ruled that the non-ratification by the Senate of the Treaty of Friendship, Cooperation and Security, and
its Supplementary Agreements, and the termination by the Philippine Government of the RP-US Military Bases Agreement
effective 31 December 1991 as stated in the Philippine Governments Note Verbale to the US Government, are acts,
directions, or requests of the Government of the Philippines which constitute force majeure. In addition, there were
circumstances beyond the control of the parties, such as the issuance of a formal order by Cdr. Walter Corliss of the US
Navy, the issuance of the letter notification from ATT and the complete withdrawal of all US military forces and personnel
from Cubi Point, which prevented further use of the earth station under the Agreement.

However, the Court of Appeals ruled that although Globe sought to terminate Philcomsats services by 08 November 1992,
it is still liable to pay rentals for the December 1992, amounting to US$92,238.00 plus interest, considering that the US
military forces and personnel completely withdrew from Cubi Point only on 31 December 1992. 10

Both parties filed their respective Petitions for Review assailing the Decision of the Court of Appeals.

In G.R. No. 147324,11 petitioner Philcomsat raises the following assignments of error:

A. THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING A DEFINITION OF FORCE

MAJEUREDIFFERENT FROM WHAT ITS LEGAL DEFINITION FOUND IN ARTICLE 1174 OF THE CIVIL CODE,
PROVIDES, SO AS TO EXEMPT GLOBE TELECOM FROM COMPLYING WITH ITS OBLIGATIONS UNDER THE
SUBJECT AGREEMENT.

B. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT GLOBE TELECOM IS NOT LIABLE TO
PHILCOMSAT FOR RENTALS FOR THE REMAINING TERM OF THE AGREEMENT, DESPITE THE CLEAR
TENOR OF SECTION 7 OF THE AGREEMENT.

C. THE HONORABLE OCURT OF APPEALS ERRED IN DELETING THE TRIAL COURTS AWARD OF
ATTORNEYS FEES IN FAVOR OF PHILCOMSAT.

D. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT GLOBE TELECOM IS NOT LIABLE TO
PHILCOMSAT FOR EXEMPLARY DAMAGES.12

Philcomsat argues that the termination of the RP-US Military Bases Agreement cannot be considered a fortuitous event
because the happening thereof was foreseeable. Although the Agreement was freely entered into by both parties, Section
8 should be deemed ineffective because it is contrary to Article 1174 of the Civil Code. Philcomsat posits the view that the
validity of the parties definition of force majeure in Section 8 of the Agreement as "circumstances beyond the control of the
party involved including, but not limited to, any law, order, regulation, direction or request of the Government of the
Philippines, strikes or other labor difficulties, insurrection riots, national emergencies, war, acts of public enemies, fire,
 28

floods, typhoons or other catastrophies or acts of God," should be deemed subject to Article 1174 which defines fortuitous
events as events which could not be foreseen, or which, though foreseen, were inevitable. 13

Philcomsat further claims that the Court of Appeals erred in holding that Globe is not liable to pay for the rental of the earth
station for the entire term of the Agreement because it runs counter to what was plainly stipulated by the parties in Section
7 thereof. Moreover, said ruling is inconsistent with the appellate courts pronouncement that Globe is liable to pay rentals
for December 1992 even though it terminated Philcomsats services effective 08 November 1992, because the US military
and personnel completely withdrew from Cubi Point only in December 1992. Philcomsat points out that it was Globe which
proposed the five-year term of the Agreement, and that the other provisions of the Agreement, such as Section 4.1 14 thereof,
evince the intent of Globe to be bound to pay rentals for the entire five-year term.15

Philcomsat also maintains that contrary to the appellate courts findings, it is entitled to attorneys fees and exemplary
damages.16

In its Comment to Philcomsats Petition, Globe asserts that Section 8 of the Agreement is not contrary to Article 1174 of the
Civil Code because said provision does not prohibit parties to a contract from providing for other instances when they would
be exempt from fulfilling their contractual obligations. Globe also claims that the termination of the RP-US Military Bases
Agreement constitutes force majeure and exempts it from complying with its obligations under the Agreement. 17 On the
issue of the propriety of awarding attorneys fees and exemplary damages to Philcomsat, Globe maintains that Philcomsat
is not entitled thereto because in refusing to pay rentals for the remainder of the term of the Agreement, Globe only acted
in accordance with its rights.18

In G.R. No. 147334,19 Globe, the petitioner therein, contends that the Court of Appeals erred in finding it liable for the
amount of US$92,238.00, representing rentals for December 1992, since Philcomsats services were actually terminated
on 08 November 1992.20

In its Comment, Philcomsat claims that Globes petition should be dismissed as it raises a factual issue which is not
cognizable by the Court in a petition for review on certiorari.21

On 15 August 2001, the Court issued a Resolution giving due course to Philcomsats Petition in G.R. No.

147324 and required the parties to submit their respective memoranda.22

Similarly, on 20 August 2001, the Court issued a Resolution giving due course to the Petition filed by Globe in G.R. No.
147334 and required both parties to submit their memoranda.23

Philcomsat and Globe thereafter filed their respective Consolidated Memoranda in the two cases, reiterating their
arguments in their respective petitions.

The Court is tasked to resolve the following issues: (1) whether the termination of the RP-US Military Bases Agreement, the
non-ratification of the Treaty of Friendship, Cooperation and Security, and the consequent withdrawal of US military forces
and personnel from Cubi Point constitute force majeure which would exempt Globe from complying with its obligation to pay
rentals under its Agreement with Philcomsat; (2) whether Globe is liable to pay rentals under the Agreement for the month
of December 1992; and (3) whether Philcomsat is entitled to attorneys fees and exemplary damages.

No reversible error was committed by the Court of Appeals in issuing the assailed Decision; hence the petitions are denied.

There is no merit is Philcomsats argument that Section 8 of the Agreement cannot be given effect because the enumeration
of events constituting force majeure therein unduly expands the concept of a fortuitous event under Article 1174 of the Civil
Code and is therefore invalid.

In support of its position, Philcomsat contends that under Article 1174 of the Civil Code, an event must be unforeseen in
order to exempt a party to a contract from complying with its obligations therein. It insists that since the expiration of the
RP-US Military Bases Agreement, the non-ratification of the Treaty of Friendship, Cooperation and Security and the
withdrawal of US military forces and personnel from Cubi Point were not unforeseeable, but were possibilities known to it
and Globe at the time they entered into the Agreement, such events cannot exempt Globe from performing its obligation of
paying rentals for the entire five-year term thereof.
 29

However, Article 1174, which exempts an obligor from liability on account of fortuitous events or force majeure, refers not
only to events that are unforeseeable, but also to those which are foreseeable, but inevitable:

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

A fortuitous event under Article 1174 may either be an "act of God," or natural occurrences such as floods or typhoons,24 or
an "act of man," such as riots, strikes or wars.25

Philcomsat and Globe agreed in Section 8 of the Agreement that the following events shall be deemed events
constituting force majeure:

1. Any law, order, regulation, direction or request of the Philippine Government;

2. Strikes or other labor difficulties;

3. Insurrection;

4. Riots;

5. National emergencies;

6. War;

7. Acts of public enemies;

8. Fire, floods, typhoons or other catastrophies or acts of God;

9. Other circumstances beyond the control of the parties.

Clearly, the foregoing are either unforeseeable, or foreseeable but beyond the control of the parties. There is nothing in the
enumeration that runs contrary to, or expands, the concept of a fortuitous event under Article 1174.

Furthermore, under Article 130626 of the Civil Code, parties to a contract may establish such stipulations, clauses, terms
and conditions as they may deem fit, as long as the same do not run counter to the law, morals, good customs, public order
or public policy.27

Article 1159 of the Civil Code also provides that "[o]bligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith."28 Courts cannot stipulate for the parties nor amend their
agreement where the same does not contravene law, morals, good customs, public order or public policy, for to do so would
be to alter the real intent of the parties, and would run contrary to the function of the courts to give force and effect thereto.29

Not being contrary to law, morals, good customs, public order, or public policy, Section 8 of the Agreement which Philcomsat
and Globe freely agreed upon has the force of law between them.30

In order that Globe may be exempt from non-compliance with its obligation to pay rentals under Section 8, the concurrence
of the following elements must be established: (1) the event must be independent of the human will; (2) the occurrence
must render it impossible for the debtor to fulfill the obligation in a normal manner; and (3) the obligor must be free of
participation in, or aggravation of, the injury to the creditor. 31

The Court agrees with the Court of Appeals and the trial court that the abovementioned requisites are present in the instant
case. Philcomsat and Globe had no control over the non-renewal of the term of the RP-US Military Bases Agreement when
the same expired in 1991, because the prerogative to ratify the treaty extending the life thereof belonged to the Senate.
Neither did the parties have control over the subsequent withdrawal of the US military forces and personnel from Cubi Point
in December 1992:
 30

Obviously the non-ratification by the Senate of the RP-US Military Bases Agreement (and its Supplemental
Agreements) under its Resolution No. 141. (Exhibit "2") on September 16, 1991 is beyond the control of the parties.
This resolution was followed by the sending on December 31, 1991 o[f] a "Note Verbale" (Exhibit "3") by the
Philippine Government to the US Government notifying the latter of the formers termination of the RP-US Military
Bases Agreement (as amended) on 31 December 1992 and that accordingly, the withdrawal of all U.S. military
forces from Subic Naval Base should be completed by said date. Subsequently, defendant [Globe] received a formal
order from Cdr. Walter F. Corliss II Commander USN dated July 31, 1992 and a notification from ATT dated July
29, 1992 to terminate the provision of T1s services (via an IBS Standard B Earth Station) effective November 08,
1992. Plaintiff [Philcomsat] was furnished with copies of the said order and letter by the defendant on August 06,
1992.

Resolution No. 141 of the Philippine Senate and the Note Verbale of the Philippine Government to the US
Government are acts, direction or request of the Government of the Philippines and circumstances beyond the
control of the defendant. The formal order from Cdr. Walter Corliss of the USN, the letter notification from ATT and
the complete withdrawal of all the military forces and personnel from Cubi Point in the year-end 1992 are also acts
and circumstances beyond the control of the defendant.

Considering the foregoing, the Court finds and so holds that the afore-narrated circumstances constitute "force
majeure or fortuitous event(s) as defined under paragraph 8 of the Agreement.

From the foregoing, the Court finds that the defendant is exempted from paying the rentals for the facility for the
remaining term of the contract.

As a consequence of the termination of the RP-US Military Bases Agreement (as amended) the continued stay of
all US Military forces and personnel from Subic Naval Base would no longer be allowed, hence, plaintiff would no
longer be in any position to render the service it was obligated under the Agreement. To put it blantly (sic), since
the US military forces and personnel left or withdrew from Cubi Point in the year end December 1992, there was no
longer any necessity for the plaintiff to continue maintaining the IBS facility. 32 (Emphasis in the original.)

The aforementioned events made impossible the continuation of the Agreement until the end of its five-year term without
fault on the part of either party. The Court of Appeals was thus correct in ruling that the happening of such fortuitous events
rendered Globe exempt from payment of rentals for the remainder of the term of the Agreement.

Moreover, it would be unjust to require Globe to continue paying rentals even though Philcomsat cannot be compelled to
perform its corresponding obligation under the Agreement. As noted by the appellate court:

We also point out the sheer inequity of PHILCOMSATs position. PHILCOMSAT would like to charge GLOBE rentals
for the balance of the lease term without there being any corresponding telecommunications service subject of the
lease. It will be grossly unfair and iniquitous to hold GLOBE liable for lease charges for a service that was not and
could not have been rendered due to an act of the government which was clearly beyond GLOBEs control. The
binding effect of a contract on both parties is based on the principle that the obligations arising from contracts have
the force of law between the contracting parties, and there must be mutuality between them based essentially on
their equality under which it is repugnant to have one party bound by the contract while leaving the other party free
therefrom (Allied Banking Corporation v. Court of Appeals, 284 SCRA 357).33

With respect to the issue of whether Globe is liable for payment of rentals for the month of December 1992, the Court
likewise affirms the appellate courts ruling that Globe should pay the same.

Although Globe alleged that it terminated the Agreement with Philcomsat effective 08 November 1992 pursuant to the formal
order issued by Cdr. Corliss of the US Navy, the date when they actually ceased using the earth station subject of the
Agreement was not established during the trial.34 However, the trial court found that the US military forces and personnel
completely withdrew from Cubi Point only on 31 December 1992.35 Thus, until that date, the USDCA had control over the
earth station and had the option of using the same. Furthermore, Philcomsat could not have removed or rendered ineffective
said communication facility until after 31 December 1992 because Cubi Point was accessible only to US naval personnel
up to that time. Hence, the Court of Appeals did not err when it affirmed the trial courts ruling that Globe is liable for payment
of rentals until December 1992.
 31

Neither did the appellate court commit any error in holding that Philcomsat is not entitled to attorneys fees and exemplary
damages.

The award of attorneys fees is the exception rather than the rule, and must be supported by factual, legal and equitable
justifications.36 In previously decided cases, the Court awarded attorneys fees where a party acted in gross and evident
bad faith in refusing to satisfy the other partys claims and compelled the former to litigate to protect his rights; 37 when the
action filed is clearly unfounded,38 or where moral or exemplary damages are awarded. 39 However, in cases where both
parties have legitimate claims against each other and no party actually prevailed, such as in the present case where the
claims of both parties were sustained in part, an award of attorneys fees would not be warranted.40

Exemplary damages may be awarded in cases involving contracts or quasi-contracts, if the erring party acted in a wanton,
fraudulent, reckless, oppressive or malevolent manner. 41 In the present case, it was not shown that Globe acted wantonly
or oppressively in not heeding Philcomsats demands for payment of rentals. It was established during the trial of the case
before the trial court that Globe had valid grounds for refusing to comply with its contractual obligations after 1992.

WHEREFORE, the Petitions are DENIED for lack of merit. The assailed Decision of the Court of Appeals in CA-G.R. CV
No. 63619 is AFFIRMED.

SO ORDERED.

Puno*, Quisumbing, Austria-Martinez, and Callejo, Sr., JJ., concur.

 32

G.R. No. 185798 January 13, 2014

FIL-ESTATE PROPERTIES, INC. AND FIL-ESTATE NETWORK INC., Petitioners,

vs.
SPOUSES CONRADO AND MARIA VICTORIA RONQUILLO, Respondents.

DECISION

PEREZ, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules .of Civil Procedure assailing the
Decision1 of the Court of Appeals in CA-G.R. SP No. 100450 which affirmed the Decision of the Office of the President in
O.P. Case No. 06-F-216.

As culled from the records, the facts are as follow:

Petitioner Fil-Estate Properties, Inc. is the owner and developer of the Central Park Place Tower while co-petitioner Fil-
Estate Network, Inc. is its authorized marketing agent. Respondent Spouses Conrado and Maria Victoria Ronquillo
purchased from petitioners an 82-square meter condominium unit at Central Park Place Tower in Mandaluyong City for a
pre-selling contract price of FIVE MILLION ONE HUNDRED SEVENTY-FOUR THOUSAND ONLY (5,174,000.00). On 29
August 1997, respondents executed and signed a Reservation Application Agreement wherein they deposited 200,000.00
as reservation fee. As agreed upon, respondents paid the full downpayment of 1,552,200.00 and had been paying the
63,363.33 monthly amortizations until September 1998.

Upon learning that construction works had stopped, respondents likewise stopped paying their monthly amortization.
Claiming to have paid a total of 2,198,949.96 to petitioners, respondents through two (2) successive letters, demanded a
full refund of their payment with interest. When their demands went unheeded, respondents were constrained to file a
Complaint for Refund and Damages before the Housing and Land Use Regulatory Board (HLURB). Respondents prayed
for reimbursement/refund of 2,198,949.96 representing the total amortization payments, 200,000.00 as and by way of
moral damages, attorneys fees and other litigation expenses.

On 21 October 2000, the HLURB issued an Order of Default against petitioners for failing to file their Answer within the
reglementary period despite service of summons.2

Petitioners filed a motion to lift order of default and attached their position paper attributing the delay in construction to the
1997 Asian financial crisis. Petitioners denied committing fraud or misrepresentation which could entitle respondents to an
award of moral damages.

On 13 June 2002, the HLURB, through Arbiter Atty. Joselito F. Melchor, rendered judgment ordering petitioners to jointly
and severally pay respondents the following amount:

a) The amount of TWO MILLION ONE HUNDRED NINETY-EIGHT THOUSAND NINE HUNDRED FORTY NINE
PESOS & 96/100 (2,198,949.96) with interest thereon at twelve percent (12%) per annum to be computed from
the time of the complainants demand for refund on October 08, 1998 until fully paid,

b) ONE HUNDRED THOUSAND PESOS (100,000.00) as moral damages,

c) FIFTY THOUSAND PESOS (50,000.00) as attorneys fees,

d) The costs of suit, and

e) An administrative fine of TEN THOUSAND PESOS (10,000.00) payable to this Office fifteen (15) days upon
receipt of this decision, for violation of Section 20 in relation to Section 38 of PD 957.3
 33

The Arbiter considered petitioners failure to develop the condominium project as a substantial breach of their obligation
which entitles respondents to seek for rescission with payment of damages. The Arbiter also stated that mere economic
hardship is not an excuse for contractual and legal delay.

Petitioners appealed the Arbiters Decision through a petition for review pursuant to Rule XII of the 1996 Rules of Procedure
of HLURB. On 17 February 2005, the Board of Commissioners of the HLURB denied4 the petition and affirmed the Arbiters
Decision. The HLURB reiterated that the depreciation of the peso as a result of the Asian financial crisis is not a fortuitous
event which will exempt petitioners from the performance of their contractual obligation.

Petitioners filed a motion for reconsideration but it was denied5 on 8 May 2006. Thereafter, petitioners filed a Notice of
Appeal with the Office of the President. On 18 April 2007, petitioners appeal was dismissed6 by the Office of the President
for lack of merit. Petitioners moved for a reconsideration but their motion was denied 7 on 26 July 2007.

Petitioners sought relief from the Court of Appeals through a petition for review under Rule 43 containing the same
arguments they raised before the HLURB and the Office of the President:

I.

THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE DECISION OF THE HONORABLE
HOUSING AND LAND USE REGULATORY BOARD AND ORDERING PETITIONERS-APPELLANTS TO REFUND
RESPONDENTS-APPELLEES THE SUM OF 2,198,949.96 WITH 12% INTEREST FROM 8 OCTOBER 1998 UNTIL
FULLY PAID, CONSIDERING THAT THE COMPLAINT STATES NO CAUSE OF ACTION AGAINST PETITIONERS-
APPELLANTS.

II.

THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE DECISION OF THE OFFICE BELOW
ORDERING PETITIONERS-APPELLANTS TO PAY RESPONDENTS-APPELLEES THE SUM OF 100,000.00 AS
MORAL DAMAGES AND 50,000.00 AS ATTORNEYS FEES CONSIDERING THE ABSENCE OF ANY FACTUAL OR
LEGAL BASIS THEREFOR.

III.

THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE DECISION OF THE HOUSING AND LAND
USE REGULATORY BOARD ORDERING PETITIONERS-APPELLANTS TO PAY 10,000.00 AS ADMINISTRATIVE FINE
IN THE ABSENCE OF ANY FACTUAL OR LEGAL BASIS TO SUPPORT SUCH FINDING.8

On 30 July 2008, the Court of Appeals denied the petition for review for lack of merit. The appellate court echoed the HLURB
Arbiters ruling that "a buyer for a condominium/subdivision unit/lot unit which has not been developed in accordance with
the approved condominium/subdivision plan within the time limit for complying with said developmental requirement may
opt for reimbursement under Section 20 in relation to Section 23 of Presidential Decree (P.D.) 957 x x x." 9 The appellate
court supported the HLURB Arbiters conclusion, which was affirmed by the HLURB Board of Commission and the Office
of the President, that petitioners failure to develop the condominium project is tantamount to a substantial breach which
warrants a refund of the total amount paid, including interest. The appellate court pointed out that petitioners failed to prove
that the Asian financial crisis constitutes a fortuitous event which could excuse them from the performance of their
contractual and statutory obligations. The appellate court also affirmed the award of moral damages in light of petitioners
unjustified refusal to satisfy respondents claim and the legality of the administrative fine, as provided in Section 20 of
Presidential Decree No. 957.

Petitioners sought reconsideration but it was denied in a Resolution10 dated 11 December 2008 by the Court of Appeals.

Aggrieved, petitioners filed the instant petition advancing substantially the same grounds for review:

A.
 34

THE HONORABLE COURT OF APPEALS ERRED WHEN IT AFFIRMED IN TOTO THE DECISION OF THE OFFICE OF
THE PRESIDENT WHICH SUSTAINED RESCISSION AND REFUND IN FAVOR OF THE RESPONDENTS DESPITE
LACK OF CAUSE OF ACTION.

B.

GRANTING FOR THE SAKE OF ARGUMENT THAT THE PETITIONERS ARE LIABLE UNDER THE PREMISES, THE
HONORABLE COURT OF APPEALS ERRED WHEN IT AFFIRMED THE HUGE AMOUNT OF INTEREST OF TWELVE
PERCENT (12%).

C.

THE HONORABLE COURT OF APPEALS LIKEWISE ERRED WHEN IT AFFIRMED IN TOTO THE DECISION OF THE
OFFICE OF THE PRESIDENT INCLUDING THE PAYMENT OF 100,000.00 AS MORAL DAMAGES, 50,000.00 AS
ATTORNEYS FEES AND 10,000.00 AS ADMINISTRATIVE FINE IN THE ABSENCE OF ANY FACTUAL OR LEGAL
BASIS TO SUPPORT SUCH CONCLUSIONS.11

Petitioners insist that the complaint states no cause of action because they allegedly have not committed any act of
misrepresentation amounting to bad faith which could entitle respondents to a refund. Petitioners claim that there was a
mere delay in the completion of the project and that they only resorted to "suspension and reformatting as a testament to
their commitment to their buyers." Petitioners attribute the delay to the 1997 Asian financial crisis that befell the real estate
industry. Invoking Article 1174 of the New Civil Code, petitioners maintain that they cannot be held liable for a fortuitous
event.

Petitioners contest the payment of a huge amount of interest on account of suspension of development on a project. They
liken their situation to a bank which this Court, in Overseas Bank v. Court of Appeals, 12 adjudged as not liable to pay interest
on deposits during the period that its operations are ordered suspended by the Monetary Board of the Central Bank.

Lastly, petitioners aver that they should not be ordered to pay moral damages because they never intended to cause delay,
and again blamed the Asian economic crisis as the direct, proximate and only cause of their failure to complete the project.
Petitioners submit that moral damages should not be awarded unless so stipulated except under the instances enumerated
in Article 2208 of the New Civil Code. Lastly, petitioners refuse to pay the administrative fine because the delay in the project
was caused not by their own deceptive intent to defraud their buyers, but due to unforeseen circumstances beyond their
control.

Three issues are presented for our resolution: 1) whether or not the Asian financial crisis constitute a fortuitous event which
would justify delay by petitioners in the performance of their contractual obligation; 2) assuming that petitioners are liable,
whether or not 12% interest was correctly imposed on the judgment award, and 3) whether the award of moral damages,
attorneys fees and administrative fine was proper.

It is apparent that these issues were repeatedly raised by petitioners in all the legal fora. The rulings were consistent that
first, the Asian financial crisis is not a fortuitous event that would excuse petitioners from performing their contractual
obligation; second, as a result of the breach committed by petitioners, respondents are entitled to rescind the contract and
to be refunded the amount of amortizations paid including interest and damages; and third, petitioners are likewise obligated
to pay attorneys fees and the administrative fine.

This petition did not present any justification for us to deviate from the rulings of the HLURB, the Office of the President and
the Court of Appeals.

Indeed, the non-performance of petitioners obligation entitles respondents to rescission under Article 1191 of the New Civil
Code which states:

Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with payment of damages in either
case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
 35

More in point is Section 23 of Presidential Decree No. 957, the rule governing the sale of condominiums, which provides:

Section 23. Non-Forfeiture of Payments.1wphi1 No installment payment made by a buyer in a subdivision or condominium
project for the lot or unit he contracted to buy shall be forfeited in favor of the owner or developer when the buyer, after due
notice to the owner or developer, desists from further payment due to the failure of the owner or developer to develop the
subdivision or condominium project according to the approved plans and within the time limit for complying with the same.
Such buyer may, at his option, be reimbursed the total amount paid including amortization interests but excluding
delinquency interests, with interest thereon at the legal rate. (Emphasis supplied).

Conformably with these provisions of law, respondents are entitled to rescind the contract and demand reimbursement for
the payments they had made to petitioners.

Notably, the issues had already been settled by the Court in the case of Fil-Estate Properties, Inc. v. Spouses
Go13promulgated on 17 August 2007, where the Court stated that the Asian financial crisis is not an instance of caso fortuito.
Bearing the same factual milieu as the instant case, G.R. No. 165164 involves the same company, Fil-Estate, albeit about
a different condominium property. The company likewise reneged on its obligation to respondents therein by failing to
develop the condominium project despite substantial payment of the contract price. Fil-Estate advanced the same argument
that the 1997 Asian financial crisis is a fortuitous event which justifies the delay of the construction project. First off, the
Court classified the issue as a question of fact which may not be raised in a petition for review considering that there was
no variance in the factual findings of the HLURB, the Office of the President and the Court of Appeals. Second, the Court
cited the previous rulings of Asian Construction and Development Corporation v. Philippine Commercial International
Bank14 and Mondragon Leisure and Resorts Corporation v. Court of Appeals 15 holding that the 1997 Asian financial crisis
did not constitute a valid justification to renege on obligations. The Court expounded:

Also, we cannot generalize that the Asian financial crisis in 1997 was unforeseeable and beyond the control of a business
corporation. It is unfortunate that petitioner apparently met with considerable difficulty e.g. increase cost of materials and
labor, even before the scheduled commencement of its real estate project as early as 1995. However, a real estate
enterprise engaged in the pre-selling of condominium units is concededly a master in projections on commodities and
currency movements and business risks. The fluctuating movement of the Philippine peso in the foreign exchange market
is an everyday occurrence, and fluctuations in currency exchange rates happen everyday, thus, not an instance of caso
fortuito.16

The aforementioned decision becomes a precedent to future cases in which the facts are substantially the same, as in this
case. The principle of stare decisis, which means adherence to judicial precedents, applies.

In said case, the Court ordered the refund of the total amortizations paid by respondents plus 6% legal interest computed
from the date of demand. The Court also awarded attorneys fees. We follow that ruling in the case before us.

The resulting modification of the award of legal interest is, also, in line with our recent ruling in Nacar v. Gallery
Frames,17 embodying the amendment introduced by the Bangko Sentral ng Pilipinas Monetary Board in BSP-MB Circular
No. 799 which pegged the interest rate at 6% regardless of the source of obligation.

We likewise affirm the award of attorneys fees because respondents were forced to litigate for 14 years and incur expenses
to protect their rights and interest by reason of the unjustified act on the part of petitioners. 18 The imposition of 10,000.00
administrative fine is correct pursuant to Section 38 of Presidential Decree No. 957 which reads:

Section 38. Administrative Fines. The Authority may prescribe and impose fines not exceeding ten thousand pesos for
violations of the provisions of this Decree or of any rule or regulation thereunder. Fines shall be payable to the Authority
and enforceable through writs of execution in accordance with the provisions of the Rules of Court.

Finally, we sustain the award of moral damages. In order that moral damages may be awarded in breach of contract cases,
the defendant must have acted in bad faith, must be found guilty of gross negligence amounting to bad faith, or must have
acted in wanton disregard of contractual obligations.19 The Arbiter found petitioners to have acted in bad faith when they
breached their contract, when they failed to address respondents grievances and when they adamantly refused to refund
respondents' payment.

In fine, we find no reversible error on the merits in the impugned Court of Appeals' Decision and Resolution.
 36

WHEREFORE, the petition is PARTLY GRANTED. The appealed Decision is AFFIRMED with the MODIFICATION that the
legal interest to be paid is SIX PERCENT (6%) on the amount due computed from the time of respondents' demand for
refund on 8 October 1998.

SO ORDERED.
 37

G.R. No. 191189 January 29, 2014

MANLAR RICE MILL, INC., Petitioner,

vs. LOURDES L. DEYTO, doing business under the trade name "J.D. Grains Center" and JENNELITA DEYTO
ANG, a.k.a. "JANET ANG," Respondents.

DECISION

DEL CASTILLO, J.:

As a general rule, a contract affects only the parties to it, and cannot be enforced by or against a person who is not a party
thereto.

This Petition for Review on Certiorari1 seeks to set aside the October 30, 2009 Decision 2 of the Court of Appeals (CA) in
CA-G.R. CV No. 91239, entitled "Maniar Rice Mill, Inc., Plaintiff-Appellee, versus Lourdes L. Deyto, doing business under
the trade name JD Grains Center, Defendant-Appellant," as well as its February 9, 2010 Resolution3denying reconsideration
of the assailed judgment.

Factual Antecedents

Petitioner Maniar Rice Mill, Inc. (Maniar), organized and existing under Philippine laws, is engaged in the business of rice
milling and selling of grains. Respondent Lourdes L. Deyto (Deyto) does business under the trade name "JD Grains Center"
and is likewise engaged in the business of milling and selling of grains. Respondent Jennelita Deyto Ang or Janet Ang (Ang)
is Deytos daughter and, prior to her alleged absconding, operated her own rice trading business through her own store,
"Janet Commercial Store".4

It appears that in October 2000, Ang entered into a rice supply contract with Manlar, with the former purchasing rice from
the latter amounting to 3,843,220.00. The transaction was covered by nine postdated checks issued by Ang from her
personal bank/checking account with Chinabank,5 to wit:

Check Number Date Amount (PhP)

146514 October 19, 2000 P 204,660.00

146552 October 20, 2000 472,200.00

146739 October 27, 2000 327,600.00

146626 October 26, 2000 212,460.00

1466276 October 27, 2000 565,600.00

146740 October 30, 2000 515,000.00

146628 October 31, 2000 358,500.00

146630 November 4, 2000 593,600.00

146555 November 6, 2000 593,600.00

TOTAL P 3,843,220.00

Upon presentment, the first two checks were dishonored for having been drawn against insufficient funds; the remaining
seven checks were dishonored for being drawn against a closed account. Manlar made oral and written demands upon
both Deyto and Ang, which went unheeded.7 It appears that during the time demand was being made upon Deyto, she
informed Manlar, through its Sales Manager Pablo Pua (Pua), that Ang could not be located. 8

On November 24, 2000,9 Manlar filed a Complaint10 for sum of money against Deyto and Ang before the Regional Trial
Court (RTC) of Quezon City. The case was docketed as Civil Case No. Q-00-42527 and assigned to Branch 215. The
 38

Complaint essentially sought to hold Deyto and Ang solidarily liable on the rice supply contract. Manlar prayed for actual
damages in the total amount of 3,843,220.00, with interest; 300,000.00 attorneys fees, with charges for appearance
fees; and attachment bond and attachment expenses.

Deyto filed her Answer with Compulsory Counterclaim,11 claiming that she did not contract with Manlar or any of its
representatives regarding the purchase and delivery of rice; that JD Grains Center was solely owned by her, and Ang had
no participation therein, whether as employee, consultant, agent or other capacity; that JD Grains Center was engaged in
rice milling and not in the buying and selling of rice; and that one of her customers was her daughter Ang, who was engaged
in the buying and selling of rice under the trade name "Janet Commercial Store." Deyto prayed among others that the
Complaint be dismissed.

For her part, Ang failed to file an Answer despite summons by publication; for this reason, she was declared in default.

On June 7, 2001, Manlar submitted to the trial court a notarized minutes of a special meeting of its board of directors 12 dated
November 8, 2000, indicating that Pua was authorized to file and prosecute the Complaint in Civil Case No. Q-00-42527.

In a July 31, 2001 Resolution,13 the trial court resolved to deny Deytos special/affirmative defenses contained in her Answer.
Regarding her objection to Puas authority to prosecute the case for lack of the proper board resolution to such effect, the
trial court held that the issue had been rendered moot by Manlars submission on June 7, 2001 of the notarized board
resolution.

During trial, Manlar presented its lone witness, Pua, who testified that he knew Deyto and Ang since 1995; that Ang was
the Operations Manager of JD Grains Center; that they (Deyto and Ang) bought rice from Manlar on "cash on delivery"
basis from 1995 up to 2000; that since 2000, they increased the volume of their purchases and requested that they pay
Manlar by postdated checks on a weekly basis, to which Manlar acceded; that Manlar agreed to this arrangement because
Deyto induced Pua to deliver rice on the assurance that Deyto had extensive assets, financial capacity and a thriving
business, and Deyto provided Pua with copies of JD Grains Centers certificate of registration, business permit, business
card, and certificates of title covering property belonging to Deyto; that when rice deliveries were made by Manlar, Deyto
was not around; that it was solely Ang who issued the subject checks and delivered them to Pua or Manlar; that initially,
they (Deyto and Ang) faithfully complied with the arrangement; that later on, they defaulted in their payments thus resulting
in the dishonor of the subject nine checks previously issued to Manlar; that by then, Manlar had delivered rice to them
totaling 3,843,220.00; that he went to the residence of Deyto at No. 93 Bulusan Street, La Loma, Quezon City on five
occasions to demand payment from Deyto; and that he likewise went to Angs residence at No. 4 Sabucoy 14 Street, San
Francisco del Monte, Quezon City to demand payment.15

On cross-examination, Pua testified that no rice deliveries were in fact made by Manlar at Deytos Bulusan Street residence;
that Deyto guaranteed Angs checks, although the guarantee was made verbally; that although he ordered Manlars drivers
to deliver rice at Deytos residence at Bulusan Street, the deliveries would actually end up at Angs Sabucoy residence.16

On the other hand, the defense presented three witnesses: Deyto, her son Jose D. Ang, and Homer Petallano (Petallano),
Chinabank del Monte branch Operations Head. Deyto testified that she did not know Pua; that Pua was a liar and that she
did not enter into a contract with him for the purchase and delivery of rice; that she did not receive at any time any rice
delivery from Manlar; that while she had a house at No. 93 Bulusan Street, La Loma, Quezon City, she actually resided in
Santiago City, Isabela; that she met Pua for the first time when the latter went to her La Loma residence sometime in
November or December 2000 looking for Ang, and claiming that Ang was indebted to Manlar; that she had nothing to do
with the obligations of Ang incurred for rice deliveries made to her or JD Grains Center, as Ang was not connected with JD
Grains Center, and it was her son, Jose D. Ang, who managed and ran the business; that all the checks issued to Manlar
were drawn by Ang from her own bank account, as a businessperson in her own right and with her own business and
receipts; that as of 2000, Ang was the proprietress of Jane Commercial with address at No. 49 Corumi Street, Masambong,
San Francisco del Monte, Quezon City, and not at No. 93 Bulusan Street, La Loma, Quezon City; that the last time she saw
Ang was in June 2000, during the blessing of Angs Sabucoy residence; that she was not on talking terms with her daughter
as early as June 2000 on account of Angs activities and involvements; that one of Angs children was living with her after
the child was recovered from a kidnapping perpetrated by Angs best friend; that Angs other child lived with the childs
father; and that Angs whereabouts could not be ascertained.17

Jose D. Ang, on the other hand, testified that he is Deytos son; that from the start, JD Grains Center has been under his
supervision and control as Manager and Deyto had no participation in the actual operation thereof; that JD Grains Center
was registered in the name of Deyto for convenience, to avoid jealousy or intrigue among his siblings, and because they
 39

used Deytos properties as collateral to borrow money for the business; that Ang was originally an agent of JD Grains
Center, but was removed in 1997 for failure to remit her collections.18

Finally, Petallano testified that he was the Operations Head of Chinabank del Monte branch and that Ang is the sole owner
and depositor of the account from which the subject checks were drawn. 19

Ruling of the Trial Court

On November 22, 2007, a Decision20 was rendered by the trial court in Civil Case No. Q-00-42527, the dispositive portion
of which reads, as follows:

WHEREFORE, premises considered, judgment is hereby rendered finding the defendants liable to the plaintiff jointly and
severally and ordering them as follows:

1. To pay plaintiff actual damages in the sum of 3,843,200.00 21 plus interest [thereon] at 6% per annum reckoned
from the time of demand up to the time of payment thereof;

2. To pay plaintiff attorneys fees in the sum of 200,000.00 plus 2,500.00 as per appearance fee; and

3. To pay the costs of this suit.

SO ORDERED.22

Essentially, the trial court believed Puas declarations that both Deyto and Ang personally transacted with him in purchasing
rice from Manlar for JD Grains Center with Ang paying for the deliveries with her personal checks and his testimony that
both Deyto and Ang received Manlars rice deliveries. For these reasons, the trial court ruled that both defendants should
be held solidarily liable for the unpaid and outstanding Manlar account.

Ruling of the Court of Appeals

Deyto went up to the CA on appeal, assailing the Decision of the trial court and claiming that there was no evidence to show
her participation in the transactions between Manlar and Ang, or that rice deliveries were even made to her; that she had
no legal obligation to pay Manlar what Ang owed the latter in her personal capacity; that the evidence proved that Ang had
overpaid Manlar; that the Complaint in Civil Case No. Q-00-42527 was defective for lack of the required board resolution
authorizing Pua to sign the Complaint, verification, and certification against forum shopping on behalf of Manlar; and that
the trial court erred in not awarding damages in her favor.

On October 30, 2009, the CA issued the assailed Decision, which held thus:

WHEREFORE, premises considered, the assailed Decision dated November 22, 2007 in Civil Case No. Q-00-42527 of the
Regional Trial Court, Branch 215, Quezon City is REVERSED and SET ASIDE, and a new one entered, DISMISSING the
complaint for lack of merit.

SO ORDERED.23

The CA held that in the absence of a board resolution from Manlar authorizing Pua to sign the verification and certification
against forum shopping, the Complaint in Civil Case No. Q-00-42527 should have been dismissed; the subsequent
submission on June 7, 2001 or six months after the filing of the case of the notarized minutes of a special meeting of
Manlars board of directors cannot have the effect of curing or amending the defective Complaint, as Revised Supreme
Court Circular No. 28-9124 enjoins strict compliance. Substantial compliance does not suffice.

The CA added that the trial courts Decision overlooked, misapprehended, and failed to appreciate important facts and
circumstances of the case. Specifically, it held that Manlar failed to present documentary evidence to prove deliveries of
rice to Deyto, yet the trial court sweepingly concluded that she took actual delivery of Manlars rice. Likewise, Puas
declaration that Manlar delivered rice to Deyto at her La Loma residence was not based on personal knowledge or
experience, but on Manlars drivers supposed accounts of events. Because these drivers were not called to testify on such
 40

fact or claim, the CA held that Puas testimony regarding Deytos alleged acceptance of rice deliveries from Manlar was
hearsay.

The appellate court conceded that if Ang indeed contracted with Manlar, she did so on her own; the evidence failed to
indicate that Deyto had any participation in the supposed transactions between her daughter and Manlar. The record reveals
that Deyto and Ang owned separate milling and grains businesses: JD Grains Center and Janet Commercial Store. If Ang
did business with Manlar, it is likely that she did so on her own or in her personal capacity, and not for and in behalf of
Deytos JD Grains Center. Besides, the subject checks were drawn against Angs personal bank account, therefore Ang,
not Deyto is bound to make good on the dishonored checks.

Thus, the CA concluded that there is no legal basis to hold Deyto solidarily liable with Ang for what the latter may owe
Manlar.

Manlar moved for reconsideration, but in its February 9, 2010 Resolution, the CA stood its ground. Hence, Manlar took the
present recourse.

Issues

Manlar raises the following issues in its Petition:

1. THE COURT OF APPEALS COMMITTED CLEAR REVERSIBLE ERROR WHEN IT SET ASIDE THE
JUDGMENT OF THE TRIAL COURT BY SWEEPINGLY AND BASELESSLY CONCLUDING THAT THE
VERIFICATION AND CERTIFICATE AGAINST FORUM SHOPPING IN THE COMPLAINT WERE ALLEGEDLY
"DEFECTIVE" IN THAT PABLO PUA, THE SALES MANAGER, WAS SUPPOSEDLY "NOT AUTHORIZED" TO
SIGN THE VERIFICATION AND CERTIFICATE OF NON-FORUM SHOPPING FOR MANLAR RICE MILL, INC.

2. THE CONCLUSION OF THE COURT OF APPEALS THAT THE ALL-ENCOMPASSING PHRASE IN THE
BOARD RESOLUTION THAT "MR. PABLO PUA IS AUTHORIZED TO SIGN ANY DOCUMENT, PAPERS, FOR
AND IN BEHALF OF THE COMPANY, AND TO REPRESENT THE COMPANY IN ANY SUCH CASE OR CASES"
IS ALLEGEDLY "NOT SUFFICIENT" AUTHORITY FOR PABLO PUA TO SIGN THE VERIFICATION AND
CERTIFICATE AGAINST FORUM SHOPPING IS GROSSLY ERRONEOUS AND MANIFESTLY MISTAKEN
BECAUSE IT IS DIRECTLY NEGATED AND DISPROVED BY THE EXPRESS TERMS OF HIS AUTHORITY.

3. FURTHER, THE SERIOUS AND GLARING ERROR OF THE COURT OF APPEALS IN CONCLUDING THAT
PABLO PUA WAS ALLEGEDLY NOT AUTHORIZED TO SIGN THE VERIFICATION AND CERTIFICATE OF NON-
FORUM SHOPPING HAD BEEN PREVIOUSLY RAISED AND SQUARELY RESOLVED BY THE TRIAL COURT
AND ITS RESOLUTION ON THIS ISSUE HAD LONG BECOME FINAL AND EXECUTORY WITHOUT LOURDES
L. DEYTO TAKING ANY APPELLATE REMEDY.

4. THE COURT OF APPEALS ALSO COMMITTED REVERSIBLE ERROR IN SAYING THAT "THERE WAS NO
DOCUMENTARY EVIDENCE TO PROVE ACTUAL DELIVERIES OF RICE" AS BASIS FOR THE DISMISSAL OF
THE CASE BECAUSE THIS IS MANIFESTLY MISTAKEN AND NEGATED BY THE RECORDS SINCE
RESPONDENTS (MOTHER AND DAUGHTER) ISSUED NINE (9) POSTDATED CHECKS TO PETITIONER
THRU PABLO PUA IN THE TOTAL AMOUNT OF 3,843,2[2]0.00 IN PAYMENT OF THE RICE DELIVERED TO
THEM.

5. THE CONTRACTS OF SALE OF RICE WERE PERFECTED BY THE DELIVERY OF RICE TO RESPONDENTS
MOTHER AND DAUGHTER AND THEIR ISSUANCE OF NINE (9) POSTDATED CHECKS (3,843,220.00) AS
PAYMENT THEREOF BY RESPONDENTS, BUT THAT THE NINE (9) POSTDATED CHECKS OF
RESPONDENTS WERE LATER DISHONORED.

6. THE SWEEPING STATEMENT OF THE COURT OF APPEALS THAT ALLEGEDLY "THE PARTICIPATION OF
APPELLANT (LOURDES L. DEYTO) TO WHATEVER BUSINESS TRANSACTIONS HER DAUGHTER (CO-
RESPONDENT JENNELITA DEYTO ANG) HAD WITH MANLAR RICE MILL INC. WAS NOT DULY PROVEN" IS
NOT ONLY A PURE SPECULATION BUT IS SQUARELY NEGATED AND DISPROVED BY THE
OVERWHELMING EVIDENCE OF THE CONSPIRACY AND COLLABORATIVE EFFORTS OF BOTH MOTHER
AND DAUGHTER IN KNOWINGLY DEFRAUDING PETITIONER.25
 41

Petitioners Arguments

In its Petition and Reply,26 Manlar insists that the CAs findings and conclusions are not supported by the evidence on
record. On the procedural issue, it reiterates the trial courts pronouncement that its subsequent submission on June 7,
2001, or six months after the filing of Civil Case No. Q-00-42527 of the notarized minutes of a special meeting of its board
of directors authorizing Pua to file and prosecute Civil Case No. Q-00-42527, effectively cured the defective Complaint, or
rendered the issue of lack of proper authority moot and academic, and should not result in the dismissal of the case. Because
Deyto did not question this ruling through the proper petition or appeal, it should stand; besides, the trial courts disposition
on the matter is sound and just.

Next, Manlar disputes the CA ruling that Manlar failed to present documentary evidence to prove deliveries of rice to Deyto,
apart from that delivered to Ang in her personal capacity. It points to "compelling and convincing evidence" that both Deyto
and Ang induced it to deliver rice to them, and that both of them issued the subject postdated checks. It claims that it was
Deyto who delivered the checks to Pua at his office in Manila; that Deyto induced Pua to deliver rice to respondents on the
assurance that Deyto had extensive assets, financial capacity and a thriving business; and that Deyto provided Pua with
copies of JD Grains Centers certificate of registration, business permit, business card, and certificates of title covering
property belonging to Deyto.

Manlar adds that Deyto disposed of some of her personal properties specifically delivery/cargo trucks in fraud of her
creditors, including Manlar. It is also argued that the fact that Deyto was in possession of Angs negotiated checks proved
that both of them connived to defraud Manlar by using the said checks to convince and induce Pua to contract with them.

Manlar goes on to argue that Ang and another of Deytos children, Judith Ang Yu (Judith), were charged and the latter
convicted of estafa for defrauding another rice trader, a certain Sergio Casaclang, of 3,800,000.00 attaching a certified
true copy of the Decision of Branch 215 of the RTC of Quezon City in Criminal Case No. Q-01-105698, indicating that Judith
was sentenced to three months of arresto mayor and to pay a fine and indemnity.

Next, Manlar argues that it is not necessary to further show proof of deliveries of rice to Deyto and Ang in order to prove the
existence of their obligation; the issuance of the subject postdated checks as payment established the obligation.

Manlar thus prays that the Court annul and set aside the assailed CA dispositions and thus reinstate the trial courts
November 22, 2007 Decision finding Deyto liable under the rice supply contract.

Respondents Arguments

Praying that the Petition be denied, respondent Deyto in her Comment 27 essentially argues that petitioner Manlars claims
are "products of pure imagination", having no factual and legal basis, and that Manlars impleading her is simply a desperate
strategy or attempt to recover its losses from her, considering that Ang can no longer be located. Furthermore, Deyto claims
that Manlars alleged rice deliveries are not covered by sufficient documentary evidence, and while it may appear that Ang
had transacted with Manlar, she did so in her sole capacity; thus, Deyto may not be held liable under a transaction in which
she took no part.

Deyto adds that Puas basis for claiming that deliveries were made at her Bulusan Street residence is unfounded,
considering that it springs from hearsay, or on the mere affirmation of Manlars drivers who were not presented in court to
testify on such fact. Pua himself had no personal knowledge of such fact, and thus could not be believed in testifying that
rice was indeed delivered to Deyto at her Bulusan Street residence. She argues further that overall, Pua Manlars lone
witness proved to be an unreliable witness, constantly changing his testimony when the inconsistencies of his previous
declarations were called out.

Finally, Deyto reiterates the CA ruling that Manlars Complaint in Civil Case No. Q-00-42527 was defective for lack of the
required board resolution authorizing Pua to sign the verification and certification against forum shopping, characterizing
the belated submission of the required resolution six months later as a mere afterthought.

Our Ruling

The Court denies the Petition.

 42

It is a basic rule in evidence that he who alleges must prove his case or claim by the degree of evidence required.

x x x Ei incumbit probatio qui dicit, non qui negat. This Court has consistently applied the ancient rule that "if the plaintiff,
upon whom rests the burden of proving his cause of action, fails to show in a satisfactory manner the facts upon which he
bases his claim, the defendant is under no obligation to prove his exception or defense." 28

In civil cases, the quantum of proof required is preponderance of evidence, which connotes "that evidence that is of greater
weight or is more convincing than that which is in opposition to it. It does not mean absolute truth; rather, it means that the
testimony of one side is more believable than that of the other side, and that the probability of truth is on one side than on
the other."29

The CA is correct in concluding that there is no legal basis to hold Deyto solidarily liable with Ang for what the latter may
owe Manlar. The evidence does not support Manlars view that both Deyto and Ang contracted with Manlar for the delivery
of rice on credit; quite the contrary, the preponderance of evidence indicates that it was Ang alone who entered into the rice
supply agreement with Manlar. Puas own direct testimony indicated that whenever rice deliveries were made by Manlar,
Deyto was not around; that it was solely Ang who issued the subject checks and delivered them to Pua or Manlar. On cross-
examination, he testified that no rice deliveries were in fact made by Manlar at Deytos Bulusan Street residence; that
although Deyto guaranteed Angs checks, this guarantee was made verbally; and that while he ordered Manlars drivers to
deliver rice at Deytos residence at Bulusan Street, the deliveries would actually end up at Angs Sabucoy residence.

The documentary evidence, on the other hand, shows that the subject checks were issued from a bank account in
Chinabank del Monte branch belonging to Ang alone. They did not emanate from an account that belonged to both Ang and
Deyto. This is supported by no less than the testimony of Chinabank del Monte branch Operations Head Petallano.1wphi1

The evidence on record further indicates that Deyto was an old lady who owned vast tracts of land in Isabela province, and
other properties in Metro Manila; that she is a reputable businessperson in Isabela; that Ang originally worked for JD Grains
Center, but was removed in 1997 for failure to remit collections; that as early as June 2000, or prior to the alleged transaction
with Manlar, Ang and Deyto were no longer on good terms as a result of Angs activities; that Deyto took custody of one of
Angs children, who was previously recovered from a kidnapping perpetrated by no less than Angs best friend; and that
Ang appears to have abandoned her own family and could no longer be located. This shows not only what kind of person
Ang is; it likewise indicates the improbability of Deytos involvement in Angs activities, noting her age, condition, reputation,
and the extent of her business activities and holdings.

This Court cannot believe Manlars claims that Deyto induced Pua to transact with her and Ang by providing him with copies
of JD Grains Centers certificate of registration, business permit, business card, and certificates of title covering property
belonging to Deyto to show her creditworthiness, extensive assets, financial capacity and a thriving business. The
documents presented by Manlar during trial copies of JD Grains Centers certificate of registration, business permit, and
certificates of title covering Deytos landholdings are public documents which Manlar could readily obtain from appropriate
government agencies; it is improbable that Deyto provided Manlar with copies of these documents in order to induce the
latter to contract with her. Considering that both Manlar and Deyto were in the same line of business in the same province,
it may be said that Manlar knew Deyto all along without the latter having to supply it with actual proof of her creditworthiness.

The allegations that Deyto guaranteed Angs checks and that she consented to be held solidarily liable with Ang under the
latters rice supply contract with Manlar are hardly credible. Pua in fact admitted that this was not in writing, just a verbal
assurance. But this will not suffice. "Well-entrenched is the rule that solidary obligation cannot lightly be inferred. There is a
solidary liability only when the obligation expressly so states, when the law so provides or when the nature of the obligation
so requires."30

What this Court sees is an attempt to implicate Deyto in a transaction between Manlar and Ang so that the former may
recover its losses, since it could no longer recover them from Ang as a result of her absconding; this conclusion is indeed
consistent with what the totality of the evidence on record appears to show. This, however, may not be allowed. As a general
rule, a contract affects only the parties to it, and cannot be enforced by or against a person who is not a party thereto. "It is
a basic principle in law that contracts can bind only the parties who had entered into it; it cannot favor or prejudice a third
person."31 Under Article 1311 of the Civil Code, contracts take effect only between the parties, their assigns and heirs. Thus,
Manlar may sue Ang, but not Deyto, who the Court finds to be not a party to the rice supply contract.

Having decided the case in the foregoing manner, the Court finds no need to resolve the other issues raised by the parties.
 43

WHEREFORE, the Petition is DENIED. The assailed dispositions of the Court of Appeals are AFFIRMED.

SO ORDERED.

G.R. No. 82036 May 22, 1997

TRAVELLERS INSURANCE & SURETY CORPORATION, petitioner,

vs.
HON. COURT OF APPEALS and VICENTE MENDOZA, respondents.

HERMOSISIMA, JR., J.:

The petition herein seeks the review and reversal of the decision 1 of respondent Court of Appeals 2 affirming in totothe
judgment 3 of the Regional Trial Court 4 in an action for damages 5 filed by private respondent Vicente Mendoza, Jr. as heir
of his mother who was killed in a vehicular accident.

Before the trial court, the complainant lumped the erring taxicab driver, the owner of the taxicab, and the alleged insurer of
the vehicle which featured in the vehicular accident into one complaint. The erring taxicab was allegedly covered by a third-
party liability insurance policy issued by petitioner Travellers Insurance & Surety Corporation.

The evidence presented before the trial court established the following facts:

At about 5:30 o'clock in the morning of July 20, 1980, a 78-year old woman by the name of Feliza Vineza
de Mendoza was on her way to hear mass at the Tayuman Cathedral. While walking along Tayuman corner
Gregorio Perfecto Streets, she was bumped by a taxi that was running fast. Several persons witnessed the
accident, among whom were Rolando Marvilla, Ernesto Lopez and Eulogio Tabalno. After the bumping, the
old woman was seen sprawled on the pavement. Right away, the good Samaritan that he was, Mavilla ran
towards the old woman and held her on his lap to inquire from her what had happened, but obviously she
was already in shock and could not talk. At this moment, a private jeep stopped. With the driver of that
vehicle, the two helped board the old woman on the jeep and brought her to the Mary Johnston Hospital in
Tondo.

. . . Ernesto Lopez, a driver of a passenger jeepney plying along Tayuman Street from Pritil, Tondo, to Rizal
Avenue and vice-versa, also witnessed the incident. It was on his return trip from Rizal Avenue when Lopez
saw the plaintiff and his brother who were crying near the scene of the accident. Upon learning that the two
were the sons of the old woman, Lopez told them what had happened. The Mendoza brothers were then
able to trace their mother at the Mary Johnston Hospital where they were advised by the attending physician
that they should bring the patient to the National Orthopedic Hospital because of her fractured bones.
Instead, the victim was brought to the U.S.T. Hospital where she expired at 9:00 o'clock that same morning.
Death was caused by "traumatic shock" as a result of the severe injuries she sustained . . .

. . . The evidence shows that at the moment the victim was bumped by the vehicle, the latter was running
fast, so much so that because of the strong impact the old woman was thrown away and she fell on the
pavement. . . . In truth, in that related criminal case against defendant Dumlao . . . the trial court found as a
fact that therein accused "was driving the subject taxicab in a careless, reckless and imprudent manner
and at a speed greater than what was reasonable and proper without taking the necessary precaution to
avoid accident to persons . . . considering the condition of the traffic at the place at the time aforementioned"
. . . Moreover, the driver fled from the scene of the accident and without rendering assistance to the victim.
...

. . . Three (3) witnesses who were at the scene at the time identified the taxi involved, though not necessarily
the driver thereof. Marvilla saw a lone taxi speeding away just after the bumping which, when it passed by
him, said witness noticed to be a Lady Love Taxi with Plate No. 438, painted maroon, with baggage bar
attached on the baggage compartment and with an antenae [sic] attached at the right rear side. The same
descriptions were revealed by Ernesto Lopez, who further described the taxi to have . . . reflectorized
 44

decorations on the edges of the glass at the back . . . A third witness in the person of Eulogio Tabalno . . .
made similar descriptions although, because of the fast speed of the taxi, he was only able to detect the
last digit of the plate number which is "8". . . . [T]he police proceeded to the garage of Lady Love Taxi and
then and there they took possession of such a taxi and later impounded it in the impounding area of the
agency concerned. . . . [T]he eyewitnesses . . . were unanimous in pointing to that Lady Love Taxi with
Plate No. 438, obviously the vehicle involved herein.

. . . During the investigation, defendant Armando Abellon, the registered owner of Lady Love Taxi bearing
No. 438-HA Pilipinas Taxi 1980, certified to the fact "that the vehicle was driven last July 20, 1980 by one
Rodrigo Dumlao. . ." . . . It was on the basis of this affidavit of the registered owner that caused the police
to apprehend Rodrigo Dumlao, and consequently to have him prosecuted and eventually convicted of the
offense . . . . . . . [S]aid Dumlao absconded in that criminal case, specially at the time of the promulgation
of the judgment therein so much so that he is now a fugitive from justice. 6

Private respondent filed a complaint for damages against Armando Abellon as the owner of the Lady Love Taxi and Rodrigo
Dumlao as the driver of the Lady Love taxicab that bumped private respondent's mother. Subsequently, private respondent
amended his complaint to include petitioner as the compulsory insurer of the said taxicab under Certificate of Cover No.
1447785-3.

After trial, the trial court rendered judgment in favor of private respondent, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff, or more particularly the "Heirs of the
late Feliza Vineza de Mendoza," and against defendants Rodrigo Dumlao, Armando Abellon and Travellers
Insurance and Surety Corporation, by ordering the latter to pay, jointly and severally, the former the
following amounts:

(a) The sum of P2,924.70, as actual and compensatory damages, with interest thereon at
the rate of 12% per annum from October 17, 1980, when the complaint was filed, until the
said amount is fully paid;

(b) P30,000.00 as death indemnity;

(c) P25,000.00 as moral damages;

(d) P10,000.00 as by way of corrective or exemplary damages; and

(e) Another P10,000.00 by way of attorney's fees and other litigation expenses.

Defendants are further ordered to pay, jointly and severally, the costs of this suit.

SO ORDERED. 7

Petitioner appealed from the aforecited decision to the respondent Court of Appeals. The decision of the trial court was
affirmed by respondent appellate court. Petitioner's Motion for Reconsideration 8 of September 22, 1987 was denied in a
Resolution 9 dated February 9, 1988.

Hence this petition.

Petitioner mainly contends that it did not issue an insurance policy as compulsory insurer of the Lady Love Taxi and that,
assuming arguendo that it had indeed covered said taxicab for third-party liability insurance, private respondent failed to file
a written notice of claim with petitioner as required by Section 384 of P.D. No. 612, otherwise known as the Insurance Code.

We find the petition to be meritorious.

I
 45

When private respondent filed his amended complaint to implead petitioner as party defendant and therein alleged that
petitioner was the third-party liability insurer of the Lady Love taxicab that fatally hit private respondent's mother, private
respondent did not attach a copy of the insurance contract to the amended complaint. Private respondent does not deny
this omission.

It is significant to point out at this juncture that the right of a third person to sue the insurer depends on whether the contract
of insurance is intended to benefit third persons also or only the insured.

[A] policy . . . whereby the insurer agreed to indemnify the insured "against all sums . . . which the Insured
shall become legally liable to pay in respect of: a. death of or bodily injury to any person . . . is one for
indemnity against liability; from the fact then that the insured is liable to the third person, such third person
is entitled to sue the insurer.

The right of the person injured to sue the insurer of the party at fault (insured), depends on whether the
contract of insurance is intended to benefit third persons also or on the insured And the test applied has
been this: Where the contract provides for indemnity against liability to third persons, then third persons to
whom the insured is liable can sue the insurer. Where the contract is for indemnity against actual loss or
payment, then third persons cannot proceed against the insurer, the contract being solely to reimburse the
insured for liability actually discharged by him thru payment to third persons, said third persons' recourse
being thus limited to the insured alone. 10

Since private respondent failed to attach a copy of the insurance contract to his complaint, the trial court could not have
been able to apprise itself of the real nature and pecuniary limits of petitioner's liability. More importantly, the trial court could
not have possibly ascertained the right of private respondent as third person to sue petitioner as insurer of the Lady Love
taxicab because the trial court never saw nor read the insurance contract and learned of its terms and conditions.

Petitioner, understandably, did not volunteer to present any insurance contract covering the Lady Love taxicab that fatally
hit private respondent's mother, considering that petitioner precisely presented the defense of lack of insurance coverage
before the trial court. Neither did the trial court issue a subpoena duces tecum to have the insurance contract produced
before it under pain of contempt.

We thus find hardly a basis in the records for the trial court to have validly found petitioner liable jointly and severally with
the owner and the driver of the Lady Love taxicab, for damages accruing to private respondent.

Apparently, the trial court did not distinguish between the private respondent's cause of action against the owner and the
driver of the Lady Love taxicab and his cause of action against petitioner. The former is based on torts and quasi-
delicts while the latter is based on contract. Confusing these two sources of obligations as they arise from the same act of
the taxicab fatally hitting private respondent's mother, and in the face of overwhelming evidence of the reckless imprudence
of the driver of the Lady Love taxicab, the trial court brushed aside its ignorance of the terms and conditions of the insurance
contract and forthwith found all three the driver of the taxicab, the owner of the taxicab, and the alleged insurer of the
taxicab jointly and severally liable for actual, moral and exemplary damages as well as attorney's fees and litigation
expenses. This is clearly a misapplication of the law by the trial court, and respondent appellate court grievously erred in
not having reversed the trial court on this ground.

While it is true that where the insurance contract provides for indemnity against liability to third persons,
such third persons can directly sue the insurer, however, the direct liability of the insurer under indemnity
contracts against third-party liability does not mean that the insurer can be held solidarily liable with the
insured and/or the other parties found at fault. The liability of the insurer is based on contract; that of the
insured is based on tort. 11

Applying this principle underlying solidary obligation and insurance contracts, we ruled in one case that:

In solidary obligation, the creditor may enforce the entire obligation against one of the solidary debtors. On
the other hand, insurance is defined as "a contract whereby one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an unknown or contingent event."
 46

In the case at bar, the trial court held petitioner together with respondents Sio Choy and San Leon Rice
Mills Inc. solidarily liable to respondent Vallejos for a total amount of P29,103.00, with the qualification that
petitioner's liability is only up to P20,000.00. In the context of a solidary obligation, petitioner may be
compelled by respondent Vallejos to pay the entire obligation of P29,103.00, notwithstanding the
qualification made by the trial court. But, how can petitioner be obliged to pay the entire obligation when
the amount stated in its insurance policy with respondent Sio Choy for indemnity against third-party liability
is only P20,000.00? Moreover, the qualification made in the decision of the trial court to the effect that
petitioner is sentenced to pay up to P20,000.00 only when the obligation to pay P29,103.00 is made solidary
is an evident breach of the concept of a solidary obligation. 12

The above principles take on more significance in the light of the counter-allegation of petitioner that, assuming arguendo
that it is the insurer of the Lady Love taxicab in question, its liability is limited to only P50,000.00, this being its standard
amount of coverage in vehicle insurance policies. It bears repeating that no copy of the insurance contract was ever
proffered before the trial court by the private respondent, notwithstanding knowledge of the fact that the latter's complaint
against petitioner is one under a written contract. Thus, the trial court proceeded to hold petitioner liable for an award of
damages exceeding its limited liability of P50,000.00. This only shows beyond doubt that the trial court was under the
erroneous presumption that petitioner could be found liable absent proof of the contract and based merely on the proof of
reckless imprudence on the part of the driver of the Lady Love taxicab that fatally hit private respondent's mother.

II

Petitioner did not tire in arguing before the trial court and the respondent appellate court that, assuming arguendo that it
had issued the insurance contract over the Lady Love taxicab, private respondent's cause of action against petitioner did
not successfully accrue because he failed to file with petitioner a written notice of claim within six (6) months from the date
of the accident as required by Section 384 of the Insurance Code.

At the time of the vehicular incident which resulted in the death of private respondent's mother, during which time the
Insurance Code had not yet been amended by Batas Pambansa (B.P.) Blg. 874, Section 384 provided as follows:

Any person having any claim upon the policy issued pursuant to this chapter shall, without any unnecessary
delay, present to the insurance company concerned a written notice of claim setting forth the amount of his
loss, and/or the nature, extent and duration of the injuries sustained as certified by a duly licensed
physician. Notice of claim must be filed within six months from date of the accident, otherwise, the claim
shall be deemed waived. Action or suit for recovery of damage due to loss or injury must be brought in
proper cases, with the Commission or the Courts within one year from date of accident, otherwise the
claimant's right of action shall prescribe [emphasis supplied].

In the landmark case of Summit Guaranty and Insurance Co., Inc. v. De Guzman, 13 we ruled that the one year prescription
period to bring suit in court against the insurer should be counted from the time that the insurer rejects the written claim filed
therewith by the insured, the beneficiary or the third person interested under the insurance policy. We explained:

It is very obvious that petitioner company is trying to use Section 384 of the Insurance Code as a cloak to
hide itself from its liabilities. The facts of these cases evidently reflect the deliberate efforts of petitioner
company to prevent the filing of a formal action against it. Bearing in mind that if it succeeds in doing so
until one year lapses from the date of the accident it could set up the defense of prescription, petitioner
company made private respondents believe that their claims would be settled in order that the latter will not
find it necessary to immediately bring suit. In violation of its duties to adopt and implement reasonable
standards for the prompt investigation of claims and to effectuate prompt, fair and equitable settlement of
claims, and with manifest bad faith, petitioner company devised means and ways of stalling the settlement
proceeding . . . [N]o steps were taken to process the claim and no rejection of said claim was ever made
even if private respondent had already complied with all the requirements. . . .

This Court has made the observation that some insurance companies have been inventing excuses to
avoid their just obligations and it is only the State that can give the protection which the insuring public
needs from possible abuses of the insurers. 14
 47

It is significant to note that the aforecited Section 384 was amended by B.P. Blg. 874 to categorically provide that "action or
suit for recovery of damage due to loss or injury must be brought in proper cases, with the Commissioner or the Courts
within one year from denial of the claim, otherwise the claimant's right of action shall prescribe" [emphasis ours]. 15

We have certainly ruled with consistency that the prescriptive period to bring suit in court under an insurance policy, begins
to run from the date of the insurer's rejection of the claim filed by the insured, the beneficiary or any person claiming under
an insurance contract. This ruling is premised upon the compliance by the persons suing under an insurance contract, with
the indispensable requirement of having filed the written claim mandated by Section 384 of the insurance Code before and
after its amendment. Absent such written claim filed by the person suing under an insurance contract, no cause of action
accrues under such insurance contract, considering that it is the rejection of that claim that triggers the running of the one-
year prescriptive period to bring suit in court, and there can be no opportunity for the insurer to even reject a claim if none
has been filed in the first place, as in the instant case.

The one-year period should instead be counted from the date of rejection by the insurer as this is the time
when the cause of action accrues. . . .

In Eagle Star Insurance Co., Ltd., et al. vs. Chia Yu, this Court ruled:

The plaintiff's cause of action did not accrue until his claim was finally rejected by the insurance company.
This is because, before such final rejection, there was no real necessity for bringing suit.

The philosophy of the above pronouncement was pointed out in the case of ACCFA vs. Alpha Insurance
and Surety Co., viz:

Since a cause of action requires, as essential elements, not only a legal right of the plaintiff and a correlative
obligation of the defendant but also an act or omission of the defendant in violation of said legal right, the
cause of action does not accrue until the party obligated refuses, expressly or impliedly, to comply with its
duty. 16

When petitioner asseverates, thus, that no written claim was filed by private respondent and rejected by petitioner, and
private respondent does not dispute such asseveration through a denial in his pleadings, we are constrained to rule that
respondent appellate court committed reversible error in finding petitioner liable under an insurance contract the existence
of which had not at all been proven in court. Even if there were such a contract, private respondent's cause of action can
not prevail because he failed to file the written claim mandated by Section 384 of the Insurance Code. He is deemed, under
this legal provision, to have waived his rights as against petitioner-insurer.

WHEREFORE, the instant petition is HEREBY GRANTED. The decision of the Court of Appeals in CA-G.R. CV No. 09416
and the decision of the Regional Trial Court in Civil Case No. 135486 are REVERSED and SET ASIDE insofar as Travelers
Insurance & Surety Corporation was found jointly and severally liable to pay actual, moral and exemplary damages, death
indemnity, attorney's fees and litigation expenses in Civil Case No. 135486. The complaint against Travellers Insurance &
Surety Corporation in said case is hereby ordered dismissed.

No pronouncement as to costs.

SO ORDERED.

G.R. No. 193426 September 29, 2014

SUBIC BAY LEGEND RESORTS AND CASINOS, INC., Petitioner,

vs.
BERNARD C. FERNANDEZ, Respondent.

DECISION

DEL CASTILLO, J.:

 48

This Petition for Review on Certiorari1 assails the April 27, 2010 Decision2 and August 24, 2010 Resolution3 of the Court of
Appeals (CA) in CA-G.R. CV No. 91758, entitled "Bernard C. Fernandez, Plaintiff-Appellee, versus Subic Bay Legend
Resorts and Casinos, Inc., Defendant-Appellant," which affirmed in toto the May 17, 2006 Decision4 of the Regional Trial
Court (RTC) of Olongapo City, Branch 74, in Civil Case No. 237-0-97.

Factual Antecedents

Petitioner Subic Bay Legend Resorts d Casinos, Inc., a duly organized and e)(isting corporation operating under Philippine
laws, operates the Legenda Hotel and Casino (Legenda) located in the Subic Bay Freeport Zone in Zambales. On the other
hand, respondent Bernard C. Fernandez is the plaintiff in Civil Case No. 237-0-97 prosecuted against petitioner in Olongapo
RTC.

As determined by the CA, the facts of the case are as follows:

At around eleven o'clock in the evening of 6 June 1997, the appellee's 5 brother[,] Ludwin Fernandez[,] visited the Legenda
Hotel and Casino x x x owned and operated by the appellant6 and located along the Waterfront Road, Subic Bay Freep011
Zone. Legenda had strategically installed several closedcircuit television (CCTV) cameras as part of security measures
required by its business. The monitors revealed that Ludwin changed x x x $5,000.00 w011h of chips into smaller
denominations. Legenda admitted in its brief that its surveillance staff paid close attention to Ludwin simply because it was
"wmsual" for a Filipino to play using dollar-denominated chips. After Ludwin won $200.00 in a game of baccarat, he
redeemed the value of chips worth $7,200.00. A review of the CCTV recordings showed that the incident was not the first
time Ludwin visited the Casino, as he had also been there on 5 June 1997.

An operation was launched by Legenda to zero-in on Ludwin whose picture was furnished its security section. Thus,
unbeknownst to him, he was already closely watched on 13 June 1997 when he went with another brother, Deoven[,] to the
casino at around the same time or at 11: 17 p.m. After playing (and losing $100.00) only one round of baccarat, the siblings
had their chips encashed at two separate windows. Since the cashiers were apprised of a supposed irregularity, they "froze"
the transaction.

Shortly thereafter, Legenda's internal security officers accosted Ludwin and Deoven and ordered them to return the cash
and they complied without ado because they were being pulled away. The two were eventually escorted to private rooms
where they were separately interrogated about the source of the chips they brought. They were held for about seven hours
w1til the wee hours of the morning, without food or sleep. The ultimaturn was simple: they confess that the chips were given
by a certain employee, Michael Cabrera, or they would not be released from questioning. The same line of questioning
confronted them when they were later twned-over for blotter preparation to the Intelligence and Investigation Office of the
Subic Bay Metropolitan Authority (IIO SBMA). Finally, the brothers succwnbed to Legenda's instruction to execute a joint
statement implicating Cabrera as the illegal source of the chips. Due to hunger pangs and fatigue, they did not disown the
statement even when they subscribed the same before the prosecutor in whose office they were [later] brought. On the
other hand, they signed for basically the san1e reason a document purporting to show that they were "released to [their]
brother's custody in good condition." At the time, Deoven was about 21 years old, in his second year of engineering studies
and was not familiar with the so-called "estafa" with which the security personnel threatened to sue him for; although he
was quite aware of the consequences of a crime such as direct assault because he had previously been convicted thereof.
About two weeks later, Deoven exec ted a retraction in Baguio City where he took up his engineering course. 7

On July 1, 1997, respondent filed Civil Case No. 237-0-97 for recovery of sum of money with damages against petitioner,
on the premise that on June 13, 1997, he went to Legenda with his brothers Ludwin and Deoven; that he handed over
Legenda casino chips worth US$6,000.00, which belonged to him, to his brothers for the latter to use at the casino; that
petitioner accosted his brothers and unduly and illegally confiscated his casino chips equivalent to US$5,900.00; and that
petitioner refused and continues to refuse to return the same to him despite demand. His Complaint8 prayed for the return
of the casino chips and an award of 50,000.00 moral damages, 50,000.00 exemplary damages, 30,000.00 attorney's
fees, 20,000.00 litigation expenses, and costs.

Petitioner's Answer with Compulsory Counterclaim 9 essentially alleged that right after Ludwin and Deoven's transactions
with the Legenda cashier were frozen on June 13, 1997, they voluntarily agreed to proceed to the Legenda security office
upon invitation, where Ludwin voluntarily informed security officers that it was a certain Michael Cabrera (Cabrera) - a
Legenda table inspector at the time - who gave him the casino chips for encashment, taught him how to play baccarat and
thereafter encash the chips, and rewarded him with Pl,000.00 for every $1,000.00 he encashed; that Ludwin pointed to a
picture of Cabrera in a photo album of casino employees shown to him; that Ludwin and Deoven were then brought to the
 49

IIO SBMA, where they reiterated their statements made at the Legenda security office; that they volunteered to testify
against Cabrera; that respondent himself admitted that it was Cabrera who gave him the casino chips; that Ludwin and
Deoven voluntarily executed a joint affidavit before the Olongapo City Prosecutor's Office, which they subsequently
recanted; that respondent had no cause of action since the confiscated casino chips worth US$5,900.00 were stolen from
it, and thus it has the right to retain them. By way of counterclaim, petitioner sought an award of P 1 million moral damages,
1 million exemplary damages, and P.5 million attorney's fees and litigation expenses.

Respondent filed his Answer10 to petitioner's counterclaim.

Ruling of the Regional Trial Court

After pre-trial and trial, the trial court rendered its May 17, 2006 Decision, which decreed as follows:

WHEREFORE, finding that the evidence preponderates in favor of the plaintiff, judgment is rendered against the defendant
ordering it to:

1) Return to plaintiff casino chips worth USD $5,900.00 or its equivalent in Philippine Peso at the rate of 38.00 to
USD $1 in 1997.

2) Pay plaintiff attorney's fees in the amount of 30,000.00 3) [Pay] [c]ost of this suit.

SO DECIDED.11

In arriving at the above conclusion, the trial court held:

The primordial issue is whether or not plaintiff can be considered the lawful owner of the USD $5,900 worth of casino chips
that were confiscated.

There is no dispute that the subject chips were in the possession of the plaintiff. He claims he got hold of them as payment
for car services he rendered to a Chinese individual. Defendant however, contends that said chips were stolen from the
casino and it is the lawful owner of the same.

The onus fell on defendant to prove that the casino chips were stolen. The proof adduced however, is wanting. The
statements of Deoven and Ludwin C. Fernandez, confessing to the source of the chips were recanted hence, have little
probative value. The testimony of defendant's witnesses narrated defendant's action responding to the suspicious
movements of the Fernandez brothers based on surveillance tapes. The tapes, however, do not show how these persons
got hold of the chips. The alleged source in the person of Mike Cabrera, a table inspector of the casino[,] was based on the
recanted declarations of the brothers. No criminal charge was shown to have been filed against him nor the plaintiff and his
brothers. Neither was there an explanation given as to how those chips came into the possession of Mike Cabrera much
less that he passed them on to the brothers for the purpose of encashing and dividing the proceeds amongst themselves.
All told therefore, there is no direct evidence to prove the theory of the defendant and the circumstantial evidence present
is, to the mind of the court, not sufficient to rebut the legal presw11ption that a person in possession of personal property is
the lawful owner of the same (Art. 559, Civil Code of the Philippines). 12

Ruling of the Court of Appeals

Petitioner appealed the May 1 7, 2006 Decision of the trial court, arguing that Ludwin and Deoven's admission in their joint
affidavit before the Olongapo City Prosecutor's Office that it was Cabrera who gave them the casino chips strongly indicates
that the chips were stolen from Legenda; that the subsequent recantation by Ludwin and Deoven of their joint affidavit
should be looked upon with disfavor, given that recanted testimony is unreliable and recantations can be easily secured
from poor and ignorant witnesses and for monetary consideration or through intimidation; that respondent's explanation that
he gave the chips to his brothers Ludwin and Deoven for them to play in the casino is highly doubtful; that the true purpose
of Ludwin and Deoven was to encash the stolen chips; that no force or intimidation attended the treatment accorded Ludwin
and Deoven when they were accosted and asked to explain their possession of the chips; and that the trial court erred in
awarding attorney's fees and costs for the filing of a baseless suit solely aimed at unjustly enriching respondent at petitioner's
expense.
 50

On April 27, 2010, the CA issued the assailed Decision which affirmed the trial court's May 17, 2006 Decision. Petitioner's
Motion for Reconsideration was rebuffed as well.

In deciding against petitioner, the CA held that, applying Article 559 of the Civil Code, 13 respondent had the legal
presumption of title to or ownership of the casino chips. This conclusion springs from respondent's admission during trial
that the chips represented payment by a Chinese customer for services he rendered to the latter in his car shop. The CA
added that since respondent became the owner of the chips, he could very well have given them to Ludwin and Deoven,
who likewise held them as "possessors in good faith and for value" and with "presumptive title" derived from the respondent.
On the other hand, petitioner failed to convincingly show that the chips were stolen; for one, it did not even file a criminal
case against the supposed mastermind, Cabrera - nor did it charge Ludwin or Deoven - for the alleged theft or taking of its
chips.

The CA likewise held that Ludwin' s and Deoven' s statements and admissions at the Legenda security office are
inadmissible because they were obtained in violation of their constitutional rights: they were held in duress, denied the right
to counsel and the opportunity to contact respondent, and deprived of sleep, which is one of the "more subtler [sic]
techniques of physical and psychological torture to coerce a confession." 14 It found that the actions and methods of the
Legenda security personnel in detaining and extracting confessions from Ludwin and Deoven were illegal and in gross
violation of Ludwin's and Deoven's constitutional rights.15

Finally, the CA held that petitioner was guilty of bad faith in advancing its theory and claim against respondent by unduly
accusing him of dealing in stolen casino chips, which thus entitles respondent to the reduced award of attorney's fees in the
amount of 30,000.00

Issues

Petitioner raises the following issues:

a) The Honorable Court seriously erred in ruling that the recanted statements of Deoven Fernandez and Ludwin C.
Fernandez have [no] probative value;

b) The Honorable Court seriously erred in ruling that the circumstantial evidence present is not sufficient to rebut
the legal presumption that a person in possession of personal property is the lawful owner of the same;

c) The Honorable Court seriously erred in finding that the evidence preponderates in favor of the herein respondent;
[and]

d) The Honorable Court seriously erred in awarding attorney's fees and costs of suit I favor of the respondent.16

Petitioner's Arguments

In its Petition and Reply,17 petitioner mainly argues that the assailed dispositions are grounded entirely on speculation, and
the inferences made are manifestly mistaken and based on a misappreciation of the facts and law; that the CA failed to
consider the testimonial and documentary evidence it presented to prove the fact that the casino chips were missing and
were stolen by Cabrera, who thereafter gave them to respondent's brothers, Ludwin and Deoven. Petitioner maintains that
the presumption of title under Article 559 cannot extend to respondent's brothers, who admitted during the investigation at
the Legenda security office and in their Joint Affidavit 18 that the chips came from Cabrera, and not responcient; that the
subsequent Sworn Statement19 recanting the Joint Affidavit should not be given credence, as affidavits of recantation can
easily be secured - which thus makes them unreliable; and that no duress attended the taking of the brothers' Joint Affidavit,
which was prepared by Henry Marzo of the Intelligence and Investigation Office (IIO) of the Subic Bay Metropolitan Authority
(SBMA).

Petitioner asserts that it is unbelievable that respondent would give US$6,000.00 worth of casino chips to his brothers with
which to play at the casino; that with the attending circumstances, the true intention of respondent's brothers was to encash
the stolen chips which Cabrera handed to them, and not to play at the casino. Petitioner thus concludes that no coercion
could have attended the investigation of Ludwin and Deoven; that their subsequent recantation should not be given weight;
and that for suing on a baseless claim, respondent is not entitled to attorney's fees and costs of litigation.
 51

Petitioner thus prays for the reversal of the assailed dispositions and the corresponding dismissal of Civil Case No. 237-0-
97.

Respondent's Arguments

In his Comment,20 respondent generally echoes the pronouncement of the CA. He likewise notes that petitioner has raised
only questions of fact; that the Petition is being prosecuted to delay the proceedings; that the trial and appellate courts are
correct in finding that petitioner failed to prove its case and show that the casino chips were stolen; that petitioner failed to
rebut the presumption that a person in possession of personal property is the lawful owner of the same, pursuant to Article
559 of the Civil Code; and that the 30,000.00 award of attorney's fees should be increased to 100,000.00.

Our Ruling

The Petition is denied.

Petitioner's underlying theory is that the subject casino chips were in fact stolen by its employee Cabrera, then handed over
to respondent's brothers, Ludwin and Deoven, for encashment at the casino; that Ludwin and Deoven played at the casino
only for show and to conceal their true intention, which is to encash the chips; that respondent's claim that he owned the
chips, as they were given to him in payment of services he rendered to a Chinese client, is false. These arguments require
the Court to examine in greater detail the facts involved. However, this may not be done because the Court is not a trier of
facts and does not normally undertake the re-examination of the evidence presented during trial; the resolution of factual
issues is the function of lower courts, whose findings thereon are received with respect and are binding on the Court subject
only to specific exceptions. 21 In tum, the factual findings of the Court of Appeals carry even more weight when they are
identical to those of the trial court's.22

Besides, a question of fact cannot properly be raised in a petition for review on certiorari.23 Moreover, if petitioner should
stick to its theory that Cabrera stole the subject casino chips, then its failure to file a criminal case against the latter -including
Ludwin and Deoven for that matter - up to this point certainly does not help to convince the Court of its position, especially
considering that the supposed stolen chips represent a fairly large amount of money. Indeed, for purposes of this
proceeding, there appears to be no evidence on record - other than mere allegations and suppositions - that Cabrera stole
the casino chips in question; such conclusion came unilaterally from petitioner, and for it to use the same as foundation to
the claim that Ludwin, Deoven and respondent are dealing in stolen chips is clearly irregular and unfair.

Thus, there should be no basis to suppose that the casino chips found in Ludwin's and Deoven's possession were stolen;
petitioner acted arbitrarily in confiscating the same without basis. Their Joint Affidavit - which was later recanted - does not
even bear such fact; it merely states that the chips came from Cabrera. If it cannot be proved, in the first place, that Cabrera
stole these chips, then there is no more reason to suppose that Ludwin and Deoven were dealing in or possessed stolen
goods; unless the independent fact that Cabrera stole the chips can be proved, it cannot be said that they must be
confiscated when found to be in Ludwin's and Deoven's possession.

It is not even necessary to resolve whether Ludwin's and Deoven's Joint Affidavit was obtained by duress or otherwise; the
document is irrelevant to petitioner's cause, as it does not suggest at all that Cabrera stole the subject casino chips. At
most, it only shows that Cabrera gave Ludwin and Deoven casino chips, if this fact is true at all - since such statement has
since been recanted.

The fact that Ludwin and Deoven appear to be indecisive as to who gave them the casino chips does not help petitioner at
all.1wphi1 It cannot lead to the conclusion that Cabrera stole the chips and then gave them to the two; as earlier stated,
petitioner had to prove this fact apart from Ludwin's and Deoven's claims, no matter how incredible they may seem.

Though casino chips do not constitute legal tender,24 there is no law which prohibits their use or trade outside of the casino
which issues them. In any case, it is not unusual nor is it unlikely that respondent could be paid by his Chinese client at
the former' s car shop with the casino chips in question; said transaction, if not common, is nonetheless not unlawful. These
chips are paid for anyway; petitioner would not have parted with the same if their corresponding representative equivalent
- in legal tender, goodwill, or otherwise was not received by it in return or exchange. Given this premise - that casino chips
are considered to have been exchanged with their corresponding representative value - it is with more reason that this Court
should require petitioner to prove convincingly and persuasively that the chips it confiscated from Ludwin and Deoven were
indeed stolen from it; if so, any Tom, Dick or Harry in possession of genuine casino chips is presumed to have paid for their
 52

representative value in exchange therefor. If petitioner cannot prove its loss, then Article 559 cannot apply; the presumption
that the chips were exchanged for value remains.

Finally, the Court sustains the award of attorney's fees. Under Article 2208 of the Civil Code, 25 attorney's fees may be
recovered when the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and
demandable claim, or in any other case where the court deems it just and equitable that attorney's fees and expenses of
litigation should be recovered. Petitioner's act of arbitrarily confiscating the casino chips and treating Ludwin and Deoven
the way it did, and in refusing to satisfy respondent's claim despite the fact that it had no basis to withhold the chips, confirm
its bad faith, and should entitle respondent to an award.

With the foregoing view of the case, a discussion of the other issues raised is deemed irrelevant and unnecessary.

WHEREFORE, the Petition is DENIED. The assailed April 27, 2010 Decision and August 24, 2010 Resolution of the Court
of Appeals in CA-G.R. CV No. 91758 are AFFIRMED.

SO ORDERED.

G.R. No. 180069 March 5, 2014

PHILIPPINE COMMERCIAL INTERNATIONAL BANK (now BDO UNIBANK, INC.), Petitioner,

vs.
ARTURO P. FRANCO, substituted by his heirs, namely: MAURICIA P. FRANCO, FLORIBEL P. FRANCO, AND
ALEXANDER P. FRANC0,1 Respondents.

DECISION

PERALTA, J.:

Assailed in this petition for review on certiorari under Rule 45 of the Rules of Court are the July 31, 2007 Decision 2and
October 4, 2007 Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 82340, which affirmed the October 21, 2003
Decision4 of the Makati City Regional Trial Court (RTC), Branch 61.

The pertinent facts, as narrated by the trial court and as adopted both by the CA, as well as petitioner Philippine Commercial
International Bank (Bank),5 are as follows:
 53

This is an action for damages filed [on September 5, 2000] by plaintiff Arturo P. Franco against Philippine Commercial
International Bank (PCIB), now known as Equitable-PCIBank, and Equitable Banking Corp.

The complaint essentially alleges, among others, that plaintiff secured from defendant PCIB the following Trust Indenture
Certificates:

Number Issued Maturity Amount Interest

094846 (Exh. "B") Dec. 8, 1986 Jan. 7, 1987 100,000.00 8.75% p.a.
135928 (Exh. "C") Jan. 19, 1987 Feb. 18, 1987 850,594.54 7.75% p.a.
205007 (Exh. "D") May 13, 1987 June 15, 1987 500,000.00 8.50% p.a.
205146 (Exh. "E") July 15, 1987 Aug 14, 1987 502,958.90 9.25% p.a.

that despite demands, defendants refused and still refuses to return to plaintiff the trust amounts, plus the stipulated
interest[;] that in all of the trust transactions that defendant PCIB had entered into with the plaintiff, defendant PCIB
represented to plaintiff that[,] in making the trust investment, plaintiff was actually providing for his future since the money
invested was going to be managed and administered by their PCIB-Trust Services Group and will be commingled, pooled
and automatically rolled- over for better investment return; that believing the representation of the bank, the plaintiff invested
his lifetime savings in the hope that the defendant bank will actually provide for their future by reinvesting and rolling-over
their investment automatically, without any need for the plaintiff to take any further action; that on the few occasions that
plaintiff had visited the defendant bank to request for a status on his investments, bank officers would normally pull out his
(sic) ledger card and show plaintiff the updated amount due him; that sometime in 1995, plaintiff discovered that one of his
children had leukemia and[,] in the ensuing hospitalization and treatment, plaintiff spent a lot of money; that because his
funds were already exhausted, plaintiff then turned to his Trust Indenture Certificates and started inquiring as to how he
could liquidate the trust; that in the beginning, defendant bank constantly asked for time to look for his records, at one time
[on June 18, 1998], promising to have an answer before July 15, 1998, then writing plaintiff on May 18, 2000 saying that
the bank [had] coordinated with their Branch and Trust Department but that it might take [some time] to retrieve their records;
[and] that to plaintiffs surprise, on June 22, 2000, he received a letter signed by defendants counsel, Curato Divina &
Partners, in effect denying plaintiffs request for payment by stating that due to the conversion of all outstanding PCIBank
trust indenture accounts into common trust certificates, all such PCIBank trust indenture certificates have been rendered
"null and void." Plaintiff prays for the payment of the amounts under the Trust Indenture Certificates, plus interest, moral
and exemplary damages and attorneys fees.

In their Answer, defendants admit the issuance by defendant PCIB of the Trust Indenture Certificates subject matter of the
complaint, but deny the allegation that the investments subject of the Trust Indenture Certificates are automatically rolled-
over as such certificates have their own fixed term and maturity date, and that the present action had already prescribed.

As stated in the Pre-Trial Order issued by this court on 15 February 2002, the following issues were defined and agreed
upon by the parties, to wit:

1. Whether or not the plaintiff is entitled to the relief he seeks; and

2. Whether or not the cause of action as exerted (sic) by the defendant has already prescribed.

Plaintiff presented as its witness plaintiff Arturo P. Franco himself [who] testified, among others[:] that he is the proprietor of
Fair Marketing Freight Services[,] which is the investor named in Trust Indenture Certificate 094846; that[,] in 1986, he
decided to save up for his retirement and to invest his hard earned money; that he was then 51 years old and his choice
was to deposit his funds with defendant PCIB which later on merged with defendant Equitable Banking Corp. and is now
known as Equitable PCIBank; that he chose defendant PCIB for the latters representation that by making such investment,
he was actually providing for his future since his investment would be commingled, pooled and automatically rolled-over for
better investment return and which will provide for his needs upon retirement, without need for him to take any further action;
that he was a loyal client of the defendants from 1986 up to 1997; that he entered into a trust agreement with defendant
PCIB for which the latter issued subject Trust Indenture Certificates ([TICs], for brevity); that sometime in 1997, when he
was then 62 years old, he [tried] to encash the trust indenture certificates only to be given a run-around by the defendants;
that sometime in 1995, his son, Arthur, was diagnosed to be afflicted with leukemia and eventually died on October 24,
1997; that because of his sons illness, he was forced to go to defendants and try to encash his trust indenture certificates
 54

but was denied by defendant bank; that in a letter dated June 22, 2000, defendants, through their counsel, informed plaintiff
that the subject [TICs] are "null and void"; that when he received the letter of June 22, 2000, he was at first speechless and
totally defeated and at a loss; that he and his wife begun to experience sleepless nights, became anxious because their
hope to secure their life in their old age had fallen apart[;] that instead of just enjoying a secured life with his wife and
enjoying his grandchildren and spending more time with the Lord, he was now in debt and burdened with the fact that his
lifetime savings just disappeared before his very eyes without a trace; [and] that plaintiff was constrained to file this case
and [spend] 22,117.80 in filing fees, to engage the services of counsel for the amount of 50,000.00 with appearance fee
of 3,000.00 per hearing, and that he suffered moral damages in the amount of 200,000.00.

The foregoing facts were not rebutted by defendants. The court finds the witness and his testimony credible as the witness
testified in a simple and straightforward manner. Upon admission of plaintiffs exhibits, plaintiff rested his case.

The defendants presented Cecilia P. Soriano and Antonio M. Fortuno as their witnesses.

Cecilia P. Soriano, Operations Officer of defendant Equitable-PCIBank, testified that she came to know plaintiff in 1987
when she was assigned at PCIB Gil Puyat Branch; that plaintiff was one of the banks valued clients[;] and that plaintiff
secured the [TICs] subject matter of the complaint. On cross-examination, the witness admitted that she has seen only the
photocopies of plaintiffs [TICs]; that she had no direct dealing with plaintiff regarding the [TICs] and she had no idea what
happened to plaintiffs [TICs] after their respective maturity dates; [and] that valued clients of the bank were given special
privileges, such as allowing these clients to withdraw or encash [TICs] or investments over the phone[,] but she did not
receive any call from plaintiff withdrawing or encashing the plaintiffs [TICs].

The testimony of their next witness, Antonio Martin S. Fortuno, was offered to prove, among others, that [TICs] expired upon
maturity and after which, they were automatically rolled-over.

Antonio Martin S. Fortuno, Operations Officer of defendant Equitable-PCIBank, testified that he is familiar with the Trust
Indenture Certificates issued by defendant bank; that when a client would like to secure a Trust Indenture Certificate from
the bank, they would ask the client, among others, to sign [roll-over] agreement/rules and regulations; that when a client
would like to withdraw his proceeds from the certificate upon maturity, they follow the following steps: (1) they retrieve the
old certificates from client, (2) they have [the] client sign on the back portion of the certificate, (3) they prepare mode of
payment MC or credit to other accounts, and (4) they file the paid certificate to paid/roll-over file; that if the holder of a
certificate does not withdraw the placement upon maturity, they replace the old certificate with a new one; that if the client
is at the branch, the old certificate is replaced with a new certificate, have the client sign at the register copy, then stamp
the old certificate as Old Certificate-Stamp rolled-over/replaced; that if the client is not at the branch, they replace the old
certificate with a new certificate and stamped with rolled-over; that certificates have fixed maturity dates; that interest rates
stated in the certificates vary as they go either up or down depending on the prevailing bank rates as provided by the Trust
Department; that[,] in 1992[,] all existing Trust Indenture Certificates were converted into Common Trust Funds; [and] that
he is not aware of any Trust Indenture Certificate belonging to plaintiff which were converted into Common Trust Funds in
1992.

On cross-examination, the witness admitted that he is familiar with Trust Indenture Certificates; that Trust Indenture
Certificates have been converted into Common Trust Funds; that the change is only in name because they have the same
features and that the only difference is that Common Trust Funds are classified into several product types depending on
the limit of the amount of investment; that there is nothing in the certificate that says it has a roll-over feature; that, however,
if the certificate expires and the client does not claim or withdraw his funds or surrender the certificate, they roll-over the
funds of the client; that if a guest comes with the original Trust Indenture Certificate without any stamp as being taken or
cancelled, the bank should verify with the outstanding copy because the bank should have an outstanding copy of

that Trust Indenture Certificate; that he is not aware that the Trust Indenture Certificates of the plaintiff were verified with
their records; and that he does not know whether plaintiffs Trust Indenture Certificates were actually paid out by the bank
to plaintiff.

Defendants did not conduct any re-direct.6

On October 21, 2003, the RTC rendered a Decision, the dispositive portion of which reads:

WHEREFORE, all the foregoing premises considered, judgment is hereby rendered in favor of plaintiff and ordering
defendant Philippine Commercial International Bank, now known as Equitable-PCIBank, to pay plaintiff the following:
 55

1. On the First Cause of Action, the sum of 100,000.00, plus the stipulated interest of 8.75% per annum for the
period December 8, 1986 to January 7, 1987, plus interest of 6% per annum from January 8, 1987 until fully paid;

2. On the Second Cause of Action, the sum of 840,594.54, plus the stipulated interest of 7.75% per annum for the
period January 19, 1987 to February 18, 1987, plus interest of 6% per annum from February 19, 1987 until fully
paid;

3. On the Third Cause of Action, the sum of 500,000.00, plus the stipulated interest of 8.50% per annum for the
period May 13, 1987 to June 15, 1987, plus interest of 6% per annum from June 16, 1987 until fully paid;

4. On the Fourth Cause of Action, the sum of 502,958.90, plus the stipulated interest of 9.25% per annum for the
period July 15, 1987 to August 14, 1987, plus interest of 6% per annum from August 15, 1987 until fully paid;

5. 50,000.00 as moral damages;

6. 200,000.00 as exemplary damages;

7. Attorneys fees in the amount of 50,000.00, plus 3,000.00 for every hearing attended; and

8. 22,117.80 as reimbursement for filing fees.

The case against Equitable Banking Corporation is dismissed for insufficiency of evidence.

SO ORDERED.7

Considering that the four TICs have not been replaced or cancelled, the RTC held that the relationship of express trust
between petitioner Bank and respondent still subsists at the time the latter demanded the withdrawal of his funds under
them. While the TICs contain a maturity date, the court opined that the same refers only to the gross income expectation or
the applicable interest rate because the funds are automatically rolled-over with varying interest rates depending on the
prevailing interest rates as determined by petitioners Trust Department. With respect, however, to the interest rate
applicable after the stipulated maturity dates, the court deemed it fair and reasonable to impose the legal rate of interest for
want of evidence on the prevailing rate at the time of roll-over. Finally, the court found that petitioner Bank is in bad faith in
its dealings with respondent when it unilaterally declared despite claiming that respondent was one of its valued clients
the TICs as null and void by reason of their conversion to Common Trust Funds in 1991. The absence of good faith was
made more manifest when Fortuno testified that the trust indenture certificate and common trust fund have the same
features and the only difference is in the name and classification of the amount of investment.

On appeal, the CA affirmed the RTC ruling. According to the appellate court, Soriano could not have possibly known if
respondent indeed withdrew any or all of his participation in the subject TICS, because by her very own admission during
the cross-examination, she did not have any direct dealing with him with respect to the TICs at the time they matured or
even thereafter. Likewise, petitioner Bank failed to adduce any documentary evidence to establish the alleged fact that the
four TICs were already paid or cancelled, or that respondents participation therein was already withdrawn. Further,
respondents testimony that he gave verbal instructions to petitioner Bank to roll-over his investment upon their maturity
was bolstered by Fortunos admission in open court that it has been petitioner Banks practice to roll-over investments which
remain unclaimed after their maturity even without instruction from their owners. With all these findings, the CA concluded
that the claim of respondent is not yet barred by prescription, since the maturity dates of the four TICs did not terminate the
express trust created between the parties.

A motion for reconsideration was filed by petitioner, but the CA acted unfavorably; hence, this petition.

We deny.

Upon perusal of the entire case records, the Court finds no reversible error committed by the CA in sustaining the RTC
Decision. Considering the evidence at hand, both courts have applied the law in accordance with the facts of the case.

A quick point, however, on the issue of alleged payment by petitioner Bank on the subject trust certificate indentures.
 56

Jurisprudence abounds that, in civil cases, one who pleads payment has the burden of proving it. 8 Even where the plaintiff
must allege non-payment, the general rule is that the burden rests on the defendant to prove payment, rather than on the
plaintiff to prove non-payment.9 When the creditor is in possession of the document of credit, he need not prove non-
payment for it is presumed.10 The creditor's possession of the evidence of debt is proof that the debt has not been
discharged by payment.11

In this case, respondent's possession of the original copies of the subject TICs strongly supports his claim that petitioner
Bank's obligation to return the principal plus interest of the money placement has not been extinguished. The TICs in the
hands of respondent is a proof of indebtedness and a prima facie evidence that they have not been paid. Petitioner Bank
could have easily presented documentary evidence to dispute the claim, but it did not. In its omission, it may be reasonably
deduced that no evidence to that effect really exist. Worse, the testimonies of petitioner Bank's own witnesses, reinforce,
rather than belie, respondent's allegations of non-payment.

WHEREFORE, premises considered, the instant Petition is DENIED. The July 31, 2007 Decision and October 4, 2007
Resolution of the Court of Appeals in CA-G.R. CV No. 82340, which affirmed the October 21, 2003 Decision of the Makati
City Regional Trial Court, Branch 61, are AFFIRMED.

SO ORDERED.
 57

G.R. No. 171298 April 15, 2013

SPOUSES OSCAR and THELMA CACAYORIN, Petitioners,

vs.
ARMED FORCES AND POLICE MUTUAL BENEFIT ASSOCIATION, INC., Respondent.

DECISION

DEL CASTILLO, J.:

Consignation is necessarily judicial. Article 1258 of the Civil Code specifically provides that consignation shall be made by
depositing the thing or things due at the disposal of judicial authority. The said provision clearly precludes consignation in
venues other than the courts.

Assailed in this Petition for Review on Certiorari1 are the September 29, 2005 Decision2 of the Court of Appeals (CA) which
granted the Petition for Certiorari in CA-G.R. SP No. 84446 and its January 12, 2006 Resolution 3denying petitioners' Motion
for Reconsideration.4

Factual Antecedents

Petitioner Oscar Cacayorin (Oscar) is a member of respondent Armed Forces and Police Mutual Benefit Association, Inc.
(AFPMBAI), a mutual benefit association duly organized and existing under Philippine laws and engaged in the business of
 58

developing low-cost housing projects for personnel of the Armed Forces of the Philippines, Philippine National Police,
Bureau of Fire Protection, Bureau of Jail Management and Penology, and Philippine Coast Guard. He filed an application
with AFPMBAI to purchase a piece of property which the latter owned, specifically Lot 5, Block 8, Phase I, Kalikasan Mutual
Homes, San Pedro, Puerto Princesa City (the property), through a loan facility.

On July 4, 1994, Oscar and his wife and co-petitioner herein, Thelma, on one hand, and the Rural Bank of San Teodoro
(the Rural Bank) on the other, executed a Loan and Mortgage Agreement5 with the former as borrowers and the Rural Bank
as lender, under the auspices of Pag-IBIG or Home Development Mutual Funds Home Financing Program.

The Rural Bank issued an August 22, 1994 letter of guaranty6 informing AFPMBAI that the proceeds of petitioners approved
loan in the amount of 77,418.00 shall be released to AFPMBAI after title to the property is transferred in petitioners name
and after the registration and annotation of the parties mortgage agreement.

On the basis of the Rural Banks letter of guaranty, AFPMBAI executed in petitioners favor a Deed of Absolute Sale, 7 and
a new title Transfer Certificate of Title No. 370178 (TCT No. 37017) was issued in their name, with the corresponding
annotation of their mortgage agreement with the Rural Bank, under Entry No. 3364. 9

Unfortunately, the Pag-IBIG loan facility did not push through and the Rural Bank closed and was placed under receivership
by the Philippine Deposit Insurance Corporation (PDIC). Meanwhile, AFPMBAI somehow was able to take possession of
petitioners loan documents and TCT No. 37017, while petitioners were unable to pay the loan/consideration for the property.

AFPMBAI made oral and written demands for petitioners to pay the loan/ consideration for the property. 10

In July 2003, petitioners filed a Complaint11 for consignation of loan payment, recovery of title and cancellation of mortgage
annotation against AFPMBAI, PDIC and the Register of Deeds of Puerto Princesa City. The case was docketed as Civil
Case No. 3812 and raffled to Branch 47 of the Regional Trial Court (RTC) of Puerto Princesa City (Puerto Princesa RTC).
Petitioners alleged in their Complaint that as a result of the Rural Banks closure and PDICs claim that their loan papers
could not be located, they were left in a quandary as to where they should tender full payment of the loan and how to secure
cancellation of the mortgage annotation on TCT No. 37017. Petitioners prayed, thus:

a. That after the filing of this complaint an order be made allowing the consignation x x x of Php77,418.00.

b. For the court to compute and declare the amount of interest to be paid by the plaintiffs and thereafter to allow the
consignation of the interest payments in order to give way for the full discharge of the loan.

c. To order the AFPMBAI to turn over to the custody of the court the loan records and title (T.C.T. No. 37017) of the
plaintiffs if the same are in their possession.

d. To declare the full payment of the principal loan and interest and ordering the full discharge from mortgage of the
property covered by T.C.T. No. 37017.

e. To order the Register of Deeds of Puerto Princesa City to cancel the annotation of real estate mortgage under
Entry No. 3364 at the back of T.C.T. No. 37017.

f. Thereafter, to turn over to the plaintiffs their title free from the aforesaid mortgage loan. 12

AFPMBAI filed a Motion to Dismiss13 claiming that petitioners Complaint falls within the jurisdiction of the Housing and Land
Use Regulatory Board (HLURB) and not the Puerto Princesa RTC, as it was filed by petitioners in their capacity as buyers
of a subdivision lot and it prays for specific performance of contractual and legal obligations decreed under Presidential
Decree No. 95714 (PD 957). It added that since no prior valid tender of payment was made by petitioners, the consignation
case was fatally defective and susceptible to dismissal.

Ruling of the Regional Trial Court

In an October 16, 2003 Order,15 the trial court denied AFPMBAIs Motion to Dismiss, declaring that since title has been
transferred in the name of petitioners and the action involves consignation of loan payments, it possessed jurisdiction to
 59

continue with the case. It further held that the only remaining unsettled transaction is between petitioners and PDIC as the
appointed receiver of the Rural Bank.

AFPMBAI filed a Motion for Reconsideration,16 which the trial court denied in its March 19, 2004 Order.17

Ruling of the Court of Appeals

AFPMBAI thus instituted CA-G.R. SP No. 84446, which is a Petition for Certiorari18 raising the issue of jurisdiction. On
September 29, 2005, the CA rendered the assailed Decision decreeing as follows:

WHEREFORE, premises considered, this Petition is GRANTED. The Assailed 16 October 2003 and 19 March 2004 Orders
of the public respondent judge are hereby ordered VACATED and SET ASIDE.

SO ORDERED.19

The CA held that Civil Case No. 3812 is a case for specific performance of AFPMBAIs contractual and statutory obligations
as owner/developer of Kalikasan Mutual Homes, which makes PD 957 applicable and thus places the case within the
jurisdiction of the HLURB. It said that since one of the remedies prayed for is the delivery to petitioners of TCT No. 37017,
the case is cognizable exclusively by the HLURB.

Petitioners moved for reconsideration which was denied by the CA in its January 12, 2006 Resolution.

Hence, the instant Petition.

Issue

The sole issue that must be resolved in this Petition is: Does the Complaint in Civil Case No. 3812 fall within the exclusive
jurisdiction of the HLURB?

Petitioners Arguments

Petitioners assert that the elements which make up a valid case for consignation are present in their Complaint. They add
that since a deed of absolute sale has been issued in their favor, and possession of the property has been surrendered to
them, not to mention that title has been placed in their name, the HLURB lost jurisdiction over their case. And for this same
reason, petitioners argue that their case may not be said to be one for specific performance of contractual and legal
obligations under PD 957 as nothing more was left to be done in order to perfect or consolidate their title.

Petitioners thus pray that the herein assailed Decision and Resolution of the CA be set aside, and that the trial court be
ordered to continue with the proceedings in Civil Case No. 3812.

Respondent's Arguments

Respondent, on the other hand, insists in its Comment20 that jurisdiction over petitioners case lies with the HLURB, as it
springs from their contractual relation as seller and buyer, respectively, of a subdivision lot. The prayer in petitioners
Complaint involves the surrender or delivery of the title after full payment of the purchase price, which respondent claims
are reciprocal obligations in a sale transaction covered by PD 957. Respondent adds that in effect, petitioners are exacting
specific performance from it, which places their case within the jurisdiction of the HLURB.

Our Ruling

The Court grants the Petition.

The Complaint makes out a case for consignation.

 60

The settled principle is that "the allegations of the Complaint determine the nature of the action and consequently the
jurisdiction of the courts. This rule applies whether or not the plaintiff is entitled to recover upon all or some of the claims
asserted therein as this is a matter that can be resolved only after and as a result of the trial."21

Does the Complaint in Civil Case No. 3812 make out a case for consignation? It alleges that:

6.0 Not long after however, RBST22 closed shop and defendant Philippine Deposit Insurance Corporation (PDIC)
was appointed as its receiver. The plaintiffs, through a representative, made a verbal inquiry to the PDIC regarding
the payment of their loan but were told that it has no information or record of the said loan. This made [sic] the
plaintiffs in quandary as to where or whom they will pay their loan, which they intend to pay in full, so as to cancel
the annotation of mortgage in their title.

7.0 It was discovered that the loan papers of the plaintiffs, including the duplicate original of their title, were in the
possession of defendant AFPMBAI. It was unclear though why the said documents including the title were in the
possession of AFPMBAI. These papers should have been in RBSTs possession and given to PDIC after its closure
in the latters capacity as receiver.

8.0 Plaintiffs are now intending to pay in full their real estate loan but could not decide where to pay the same
because of RBST [sic] closure and PDICs failure to locate the loan records and title. This courts intervention is
now needed in order to determine to [sic] where or whom the loan should be paid.

9.0 Plaintiffs hereby respectfully prays [sic] for this court to allow the deposit of the amount of Php77,418.00 as
full payment of their principal loan, excluding interest, pursuant to the Loan and Mortgage Agreement on 4 July
1994.23

From the above allegations, it appears that the petitioners debt is outstanding; that the Rural Banks receiver, PDIC,
informed petitioners that it has no record of their loan even as it took over the affairs of the Rural Bank, which on record is
the petitioners creditor as per the July 4, 1994 Loan and Mortgage Agreement; that one way or another, AFPMBAI came
into possession of the loan documents as well as TCT No. 37017; that petitioners are ready to pay the loan in full; however,
under the circumstances, they do not know which of the two the Rural Bank or AFPMBAI should receive full payment of
the purchase price, or to whom tender of payment must validly be made.

Under Article 1256 of the Civil Code,24 the debtor shall be released from responsibility by the consignation of the thing or
sum due, without need of prior tender of payment, when the creditor is absent or unknown, or when he is incapacitated to
receive the payment at the time it is due, or when two or more persons claim the same right to collect, or when the title to
the obligation has been lost. Applying Article 1256 to the petitioners case as shaped by the allegations in their Complaint,
the Court finds that a case for consignation has been made out, as it now appears that there are two entities which petitioners
must deal with in order to fully secure their title to the property: 1) the Rural Bank (through PDIC), which is the apparent
creditor under the July 4, 1994 Loan and Mortgage Agreement; and 2) AFPMBAI, which is currently in possession of the
loan documents and the certificate of title, and the one making demands upon petitioners to pay. Clearly, the allegations in
the Complaint present a situation where the creditor is unknown, or that two or more entities appear to possess the same
right to collect from petitioners. Whatever transpired between the Rural Bank or PDIC and AFPMBAI in respect of petitioners
loan account, if any, such that AFPMBAI came into possession of the loan documents and TCT No. 37017, it appears that
petitioners were not informed thereof, nor made privy thereto.

Indeed, the instant case presents a unique situation where the buyer, through no fault of his own, was able to obtain title to
real property in his name even before he could pay the purchase price in full. There appears to be no vitiated consent, nor
is there any other impediment to the consummation of their agreement, just as it appears that it would be to the best interests
of all parties to the sale that it be once and for all completed and terminated. For this reason, Civil Case No. 3812 should at
this juncture be allowed to proceed.

Moreover, petitioners position is buttressed by AFPMBAIs own admission in its Comment 25 that it made oral and written
demands upon the former, which naturally aggravated their confusion as to who was their rightful creditor to whom payment
should be made the Rural Bank or AFPMBAI. Its subsequent filing of the Motion to Dismiss runs counter to its demands
to pay. If it wanted to be paid with alacrity, then it should not have moved to dismiss Civil Case No. 3812, which was brought
precisely by the petitioners in order to be able to finally settle their obligation in full.
 61

Finally, the lack of prior tender of payment by the petitioners is not fatal to their consignation case. They filed the case for
the exact reason that they were at a loss as to which between the two the Rural Bank or AFPMBAI was entitled to such
a tender of payment. Besides, as earlier stated, Article 1256 authorizes consignation alone, without need of prior tender of
payment, where the ground for consignation is that the creditor is unknown, or does not appear at the place of payment; or
is incapacitated to receive the payment at the time it is due; or when, without just cause, he refuses to give a receipt; or
when two or more persons claim the same right to collect; or when the title of the obligation has been lost.

Consignation is necessarily judicial; hence, jurisdiction lies with the RTC, not with the HLURB.

On the question of jurisdiction, petitioners case should be tried in the Puerto Princesa RTC, and not the HLURB.
Consignation is necessarily judicial,26 as the Civil Code itself provides that consignation shall be made by depositing the
thing or things due at the disposal of judicial authority, thus:

Art. 1258. Consignation shall be made by depositing the things due at the disposal of judicial authority, before whom the
tender of payment shall be proved, in a proper case, and the announcement of the consignation in other cases.

The consignation having been made, the interested parties shall also be notified thereof. (Emphasis and underscoring
supplied)

The above provision clearly precludes consignation in venues other than the courts.1wphi1 Elsewhere, what may be made
is a valid tender of payment, but not consignation. The two, however, are to be distinguished.

Tender of payment must be distinguished from consignation. Tender is the antecedent of consignation, that is, an act
preparatory to the consignation, which is the principal, and from which are derived the immediate consequences which the
debtor desires or seeks to obtain. Tender of payment may be extrajudicial, while consignation is necessarily judicial, and
the priority of the first is the attempt to make a private settlement before proceeding to the solemnities of consignation. (8
Manresa 325).27

While it may be true that petitioners claim relates to the terms and conditions of the sale of AFPMBAIs subdivision lot, this
is overshadowed by the fact that since the Complaint in Civil Case No. 3812 pleads a case for consignation, the HLURB is
without jurisdiction to try it, as such case may only be tried by the regular courts.

WHEREFORE, premises considered, the Petition is GRANTED. The September 29, 2005 Decision and January 12, 2006
Resolution of the Court of Appeals in CA-G.R. SP No. 84446 are ANNULLED and SET ASIDE. The October 16, 2003 and
March 19, 2004 Orders of the Regional Trial Court of Puerto Princesa City, Branch 47, are REINSTATED, and the case is
REMANDED to the said court for continuation of the proceedings.

SO ORDERED.
 62

G. R. No. 156627 - June 4, 2004

SPOUSES MANUEL and JOCELYN BARREDO, Petitioners, vs. SPOUSES EUSTAQUIO and EMILDA
LEAO, Respondents.

DECISION

PUNO, J.:

In resolving the case at bar, we hearken back to the time-honored principle in obligations and contracts enunciated by this
Court some 80 years ago in Song Fo & Co. v. Hawaiian Philippine Co.1 that the rescission of contracts will not be
permitted for a slight or casual breach thereof.

The factual antecedents are undisputed. Sometime in 1979, petitioners spouses Manuel and Jocelyn Barredo (Barredo
Spouses) bought a house and lot located along Lilac Road, Pilar Village, Las Pias, Metro Manila, with the proceeds of
a P50,000.00 loan from the Social Security System (SSS) which was payable in 25 years and an P88,400.00 loan from the
 63

Apex Mortgage and Loans Corporation (Apex) which was payable in 20 years. To secure the twin loans, they executed a
first mortgage over the house and lot in favor of SSS and a second one in favor of Apex.

On July 10, 1987, the Barredo Spouses sold their house and lot to respondents Eustaquio and Emilda Leao (Leao
Spouses) by way of a Conditional Deed of Sale with Assumption of Mortgage. The Leao Spouses would pay the Barredo
Spouses P200,000.00, P100,000.00 of which would be payable on July 15, 1987, while the balance of P100,000.00 would
be paid in ten (10) equal monthly installments after the signing of the contract. The Leao Spouses would also assume the
first and second mortgages and pay the monthly amortizations to SSS and Apex beginning July 1987 until both obligations
are fully paid.

In accordance with the agreement, the purchase price of P200,000.00 was paid to the Barredo Spouses who turned over
the possession of the house and lot in favor of the Leao Spouses. Two (2) years later, on September 4, 1989, the Barredo
Spouses initiated a complaint before the Regional Trial Court of Las Pias seeking the rescission of the contract on the
ground that the Leao Spouses despite repeated demands failed to pay the mortgage amortizations to the SSS and Apex
causing the Barredo Spouses great and irreparable damage. The Leao Spouses, however, answered that they were up-
to-date with their amortization payments to Apex but were not able to pay the SSS amortizations because their payments
were refused upon the instructions of the Barredo Spouses.

Meanwhile, allegedly in order to save their good name, credit standing and reputation, the Barredo Spouses took it upon
themselves to settle the mortgage loans and paid the SSS the sum of P27,494.00 on September 11, 1989, and P41,401.91
on January 9, 1990. The SSS issued a Release of Real Estate Mortgage Loan on January 9, 1990. They also settled the
mortgage loan with Apex and paid the sum of P5,379.23 on October 3, 1989, and P64,000.00 on January 9, 1990. Likewise,
Apex issued a Certification of Full Payment of Loan on January 12, 1990. They also paid the real estate property taxes for
the years 1987 up to 1990.

On October 5, 1993, the Regional Trial Court of Las Pias, Br. 275, 2 ruled that the assumption of mortgage debts of the
Barredo Spouses by the Leao Spouses "is a very substantial condition x x x x The credit standing of the (Barredo Spouses)
will be greatly prejudiced should they appear delinquent or not paying at all. This is what the (Barredo Spouses) feared so
much, if foreclosure proceedings are resorted to because of their failure to pay their obligations." 3 The trial court thus
rendered judgment in favor of the plaintiff, the Barredo Spouses

WHEREFORE, and in consideration of the foregoing, by preponderance of evidence, judgment is hereby rendered in favor
of the plaintiffs and against the defendants by: (1) declaring the Conditional Deed of Sale with Assumption of Mortgage
entered into by the plaintiffs and the defendants on July 10, 1987, as rescinded and therefore null and void as of this date;
(2) ordering the defendants jointly and severally to pay the sum of P15,000.00 as actual and litigation expenses, and the
sum of P25,000.00 as and by way of attorneys fees; and (3) to pay the costs.

SO ORDERED.4

Aggrieved, the Leao Spouses who have turned over the possession of the subject house and lot to the Barredo Spouses
appealed to the Court of Appeals. On May 21, 2002, the appellate court reversed and set aside the decision of the trial court
on the ground that the payments of amortization to Apex and SSS were mere collateral matters which do not detract from
the condition of paying the principal consideration. 5 The dispositive portion of the decision reads

WHEREFORE, the questioned decision of the Regional Trial Court of Las Pias, Branch 275, is
hereby REVERSED and SET ASIDE, and another one is entered DISMISSING the complaint for lack of cause of action,
and ordering plaintiff-appellees to:

a) execute the Deed of Absolute Sale and to deliver TCT No. S-104634 in favor of defendants-appellants upon full payment
of the amounts of P68,895.91, P69,379.23 and P2,217.60, or a total of P140,492.74, subject to the legal rate of interest per
annum from the time said payments were made by plaintiffs-appellees until the same are fully paid;

b) to vacate and/or turn over the said property to defendants-appellants;

c) to pay attorneys fees in the sum of P20,000.00 and

d) to pay the costs of litigation.

 64

SO ORDERED.6

On December 10, 2002, the appellate court denied the motion for reconsideration for lack of merit. Hence, this petition for
review on certiorari on a sole assignment of error

CONTRARY TO THE EXPRESS FINDINGS OF THE TRIAL COURT THAT THERE WAS SUBSTANTIAL AND
FUNDAMENTAL BREACH BY THE RESPONDENTS OF THEIR RECIPROCAL OBLIGATIONS TO ASSUME AND PAY
THE MORTGAGE OBLIGATION OF PETITIONERS WITH THE SSS AND APEX, THE COURT OF APPEALS ERRED IN
HOLDING THAT THE PAYMENTS OF AMORTIZATION TO APEX AND SSS ARE MERE COLLATERAL MATTERS AND
DISMISSING PETITIONERS COMPLAINT FOR LACK OF CAUSE OF ACTION.7

Petitioners argue that the terms of the agreement called for the strict compliance of two (2) equally essential and material
obligations on the part of the Leao Spouses, namely, the payment of the P200,000.00 to them and the payment of the
mortgage amortizations to the SSS and Apex. And, the Barredo Spouses undertook to execute the corresponding Deed of
Absolute Sale only upon the faithful compliance by the Leao Spouses of the conditions set forth in their agreement. Thus,
the failure of the Leao Spouses to pay the mortgage amortizations to the SSS and Apex gave rise to the right of the Barredo
Spouses to refrain from executing the deed of sale and in fact ask for rescission, a right accorded to an injured party.

Respondents Leao Spouses, however, contend that they were only obliged to assume the amortization payments of the
Barredo Spouses with the SSS and Apex, which they did upon signing the agreement. The contract does not stipulate as a
condition the full payment of the SSS and Apex mortgages. Granting for arguments sake that their failure to pay in full the
mortgage was not a full compliance of their obligation, they could not be faulted because their payments were not accepted
by the SSS since the Barredo Spouses failed to notify the SSS of the assignment of their debt. In fine, the alleged breach,
if any, was only casual or slight and does not defeat the very object of the parties in entering into the agreement. Moreover,
the Barredo Spouses were not and will never be injured parties since if the amortizations were not paid, it would be the
Leao Spouses who would eventually lose the house and lot. As such, rescission does not obtain.

We quote the pertinent provisions of the Conditional Deed of Sale with Assumption of Mortgage

1. ONE HUNDRED THOUSAND PESOS (P100,000.00) Philippine Currency, shall be paid by the VENDEES to the
VENDORS on July 15, 1987.

2. The balance of ONE HUNDRED THOUSAND PESOS (P100,000.00) Philippine Currency, shall be paid by the VENDEES
to the VENDORS in ten (10) equal monthly installments at the VENDORS residence, after the signing of this Contract,
consisting of ten (10) post-dated checks drawn against the checking account of the VENDEES beginning August 1, 1987,
and the succeeding months x x x x until the amount is fully paid and the checks properly encashed x x x x

3. The VENDEES do hereby accept this Sale and bind themselves to assume as they hereby assume beginning on July 1,
1987, the payment of the unpaid balance of the First Mortgage indebtedness of the VENDORS with the Social Security
System as of June 1, 1987 x x x x and another indebtedness of the VENDORS in a 2nd Mortgage with the Apex Mortgage
and Loans Corporation, as of June 1, 1987, x x x x and that the herein VENDEES do hereby further agree to be bound by
the precise terms and conditions therein contained.

4. That should the VENDEES well and faithfully comply with the conditions set forth in this Contract, then the VENDORS
shall execute the corresponding Absolute Deed of Sale over the property herein conveyed with assumption of the mortgages
aforecited, in favor of the VENDEES herein.

A careful reading of the pertinent provisions of the agreement readily shows that the principal object of the contract was the
sale of the Barredo house and lot, for which the Leao Spouses gave a down payment of P100,000.00 as provided for in
par. 1 of the contract, and thereafter ten (10) equal monthly installments amounting to another P100,000.00, as stipulated
in par. 2 of the same agreement. The assumption of the mortgages by the Leao Spouses over the mortgaged property
and their payment of amortizations are just collateral matters which are natural consequences of the sale of the said
mortgaged property.

Thus, par. 3 of the agreement provides that the Leao Spouses "bind themselves to assume as they hereby assume
beginning on July 1, 1987, the payment of the unpaid balance x x x x" Hence, the Leao Spouses merely bound themselves
to assume, which they actually did upon the signing of the agreement, the obligations of the Barredo Spouses with the SSS
 65

and Apex. Nowhere in the agreement was it stipulated that the sale was conditioned upon their full payment of the loans
with SSS and Apex. When the language of the contract is clear, it requires no interpretation,8 and its terms should not be
disturbed.9 The primary and elementary rule of construction of documents is that when the words or language thereof is
clear and plain or readily understandable by any ordinary reader thereof, there is absolutely no room for interpretation or
construction anymore10 and the literal meaning of its stipulations shall control.11

To include the full payment of the obligations with the SSS and Apex as a condition would be to unnecessarily stretch and
put a new meaning to the provisions of the agreement. For, as a general rule, when the terms of an agreement have been
reduced to writing, such written agreement is deemed to contain all the terms agreed upon and there can be, between the
parties and their successors-in-interest, no evidence of such terms other than the contents of the written agreement. 12 And,
it is a familiar doctrine in obligations and contracts that the parties are bound by the stipulations, clauses, terms and
conditions they have agreed to, which is the law between them, the only limitation being that these stipulations, clauses,
terms and conditions are not contrary to law, morals, public order or public policy. 13 Not being repugnant to any legal
proscription, the agreement entered into by the parties must be respected and each is bound to fulfill what has been
expressly stipulated therein.14

But even if we consider the payment of the mortgage amortizations to the SSS and Apex as a condition on which the sale
is based on, still rescission would not be available since non-compliance with such condition would just be a minor or casual
breach thereof as it does not defeat the very object of the parties in entering into the contract. A cursory reading of the
agreement easily reveals that the main consideration of the sale is the payment of P200,000.00 to the vendors within the
period agreed upon. The assumption of mortgage by the Leao Spouses is a natural consequence of their buying a
mortgaged property. In fact, the Barredo Spouses do not stand to benefit from the payment of the amortizations by the
Leao Spouses directly to the SSS and Apex simply because the Barredo Spouses have already parted with their property,
for which they were already fully compensated in the amount of P200,000.00.

Thus, as adverted to in Song Fo & Co. v. Hawaiian Philippine Co.,15 we ruled that a delay in the payment for a small
quantity of molasses for some twenty (20) days is not such a violation of an essential condition of the contract that warrants
rescission due to non-performance. In Philippine Amusement Enterprise, Inc. v. Natividad,16 we declined rescission for
"the occasional failure of the phonograph to operate, not frequent enough to render it unsuitable and unserviceable."
In Laforteza v. Machuca,17 we said that the delay of one month in payment was a mere casual breach that would not entitle
the respondents to rescind the contract. In Ang v. Court of Appeals,18 we held that the failure to remove and clear the
subject property of all occupants and obstructions and deliver all the pertinent papers to the vendees for the registration
and issuance of a certificate of title in their name were not essential conditions but merely incidental undertakings which will
not permit rescission. In Power Commercial and Industrial Corp. v. Court of Appeals,19 we went a step further and
considered the failure of the vendor to eject the occupants of a lot sold as a "usual warranty against eviction," and not a
condition that was not met, and thus, rescission was not allowed. And, in Del Castillo v. Nanguiat,20 we ruled that the
failure to pay in full the purchase price stipulated in a deed of sale does not ipso facto grant the seller the right to rescind
the agreement. In all these cases, we were consistent in holding that rescission of a contract will not be permitted for a slight
or casual breach, but only such substantial and fundamental breach as would defeat the very object of the parties in making
the agreement.

If the Barredo Spouses were really protective of their reputation and credit standing, they should have sought the consent,
or at least notified the SSS and Apex of the assumption by the Leao Spouses of their indebtedness. Besides, in ordering
rescission, the trial court should have likewise ordered the Barredo Spouses to return the P200,000.00 they received as
purchase price plus interests. Art. 1385 of the Civil Code provides that "[r]escission creates the obligation to return the things
which were the object of the contract, together with their fruits, and the price with its interest."21 The vendor is therefore
obliged to return the purchase price paid to him by the buyer if the latter rescinds the sale. 22 Thus, where a contract is
rescinded, it is the duty of the court to require both parties to surrender that which they have respectively received and place
each other as far as practicable in his original situation.23

IN VIEW WHEREOF, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 44009 promulgated
May 21, 2002, and its Resolution therein dated December 10, 2002, are hereby AFFIRMED. Costs against petitioners.

SO ORDERED.

Quisumbing, Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.

 66

G.R. No. 116792 March 29, 1996

BANK OF THE PHILIPPINES ISLAND and GRACE ROMERO, petitioners,

vs.
COURT OF APPEALS and EDVIN F. REYES, respondents.

PUNO, J.:p

Petitioners seek a review of the Decision1 of respondent Court of Appeals in CA-G.R. CV No. 41543 reversing the
Decision2 of the Regional Trial Court of Quezon City, Branch 79, and ordering petitioners to credit private respondent's
Savings Account No. 3185-0172-56 with P10,556,00 plus interest.

The facts reveal that on September 25, 1985, private respondent Edvin F. Reyes opened Savings Account No. 3185-0172-
56 at petitioner Bank of the Philippine Islands (BPI) Cubao, Shopping Center Branch. It is a joint "AND/OR" account with
his wife, Sonia S. Reyes.

Private respondent also held a joint "AND/OR" Savings Account No. 3185-0128-82 with his grandmother, Emeteria M.
Fernandez, opened on February 11, 1986 at the same BPI branch. He regularly deposited in this account the U.S. Treasury
Warrants payable to the order of Emeteria M. Fernandez as her monthly pension.

Emeteria M. Fernandez died on December 28, 1989 without the knowledge of the U.S. Treasury Department. She was still
sent U.S. Treasury Warrant No. 21667302 dated January 1, 1990 in the amount of U.S. $377.003 or P10,556.00.
On January 4, 1990, private respondent deposited the said U.S. treasury check of Fernandez in Savings Account No. 3185-
0128-82. The U.S. Veterans Administration Office in Manila conditionally cleared the check. 4 The check was then sent to
the United States for further clearing.5

Two months after or on March 8, 1990, private respondent closed Savings Account No. 3185-0128-82 and transferred its
funds amounting to P13,112.91 to Savings Account No. 3185-0172-56, the joint account with his wife.

On January 16, 1991, U.S. Treasury Warrant No. 21667302 was dishonored as it was discovered that Fernandez
died three (3) days prior to its issuance. The U.S. Department of Treasury requested petitioner bank for a refund. 6For the
first time petitioner bank came to know of the death of Fernandez.
 67

On February 19, 1991, private-respondent received a PT&T urgent telegram from petitioner bank requesting him to contact
Manager Grace S. Romero or Assistant Manager Carmen Bernardo. When he called up the bank, he was informed that the
treasury check was the subject of a claim by Citibank NA, correspondent of petitioner bank. He assured petitioners that he
would drop by the bank to look into the matter. He also verbally authorized them to debit from his other joint account the
amount stated in the dishonored U.S. Treasury Warrant.7 On the same day, petitioner bank debited the amount of
P10,556.00 from private respondent's Savings Account No. 3185-0172-56.

On February 21, 1991, private respondent with his lawyer Humphrey Tumaneng visited the petitioner bank and the refund
documents were shown to them. Surprisingly, private respondent demanded from petitioner bank restitution of the debited
amount. He claimed that because of the debit, he failed to withdraw his money when he needed them. He then filed a suit
for Damages8 against petitioners before the Regional Trial Court of Quezon City, Branch 79.

Petitioners contested the complaint and counter claimed, for moral and exemplary damages. By way of Special and
Affirmative Defense, they averred that private respondent gave them his express verbal authorization to debit the
questioned amount. They claimed that private respondent later refused to execute a written authority. 9

In a Decision dated January 20, 1993, the trial court dismissed the complaint of private respondent for lack of cause of
action.10

Private respondent appealed to the respondent Court of Appeals. On August 16, 1994, the Sixteenth Division of respondent
court in AC-G.R. CV No. 41543 reversed the impugned decision, viz:

WHEREFORE, the judgement appealed from is set aside, and another one entered ordering defendant
(petitioner) to credit plaintiff's (private respondent's) S.A. No. 3185-0172-56 with P10,556.00 plus interest
at the applicable rates for express teller savings accounts from February 19, 1991, until compliance
herewith. The claim and counterclaim for damages are dismissed for lack of merit.

SO ORDERED.11

Petitioners now contend that respondent Court of Appeals erred:

RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT RESPONDENT

REYES GAVE EXPRESS AUTHORITY TO PETITIONER BANK TO DEBIT HIS JOINT ACCOUNT WITH
HIS WIFE FOR THE VALUE OF THE RETURNED U.S. TREASURY WARRANT.

II

RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT HOLDING THAT PETITIONER BANK
HAS LEGAL RIGHT TO APPLY THE DEPOSIT OF RESPONDENT REYES TO HIS OUTSTANDING
OBLIGATION TO PETITIONER BANK BROUGHT ABOUT BY THE RETURN OF THE U.S. TREASURY
WARRANT HE EARLIER DEPOSITED UNDER THE PRINCIPLE OF "LEGAL COMPENSATION."

III

RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT APPLYING CORRECTLY THE

PRINCIPLES ENUNCIATED BY THE SUPREME COURT IN THE CASE OF GULLAS V. PNB, 62 PHIL.
519.

IV.

RESPONDENT COURT OF APPEALS GRAVELY ERRED IN NOT APPRECIATING THE FACT THAT
THE MONEY DEBITED BY PETITIONER BANK WAS THE SAME MONEY TRANSFERRED BY
RESPONDENT REYES FROM HIS JOINT "AND/OR" ACCOUNT WITH HIS GRANDMOTHER TO HIS
JOINT "AND/OR" ACCOUNT WITH HIS WIFE.12
 68

We find merit in the petition.

The first issue for resolution is whether private respondent verbally authorized petitioner bank to debit his joint account with
his wife for the amount of the returned U.S. Treasury Warrant. We find that petitioners were able to prove this verbal authority
by preponderance of evidence. The testimonies of Bernardo and Romero deserve credence. Bernardo testified:

xxx xxx xxx

Q After that, what happened?

A . . . Dr. Reyes Called me up and I informed him about the return of the U.S. Treasury
Warrant and we are requested to reimburse for the amount.

Q What was his response if any?

A Don't you worry about it, there is no personal problem.

xxx xxx xxx

Q And so what was his response?

A He said that don' t you worry about.

xxx xxx xxx

Q You said that you asked him the advice and he did not answer, what advice are you
referring to?

A In our conversation, he promised me that he will give me written confirmation or

authorization.13

The conversation was promptly relayed to Romero who testified:

xxx xxx xxx

Q . . . Was there any opportunity where in said Mrs. Bernardo was able to convey to you
the contents of their conversation?

A This was immediately relayed to me as manager of the Bank of the Philippine Islands,
sir.

Q What, any was the content of her conversation, if you know?

A Mr. Reyes instructed Mrs. Bernardo to debit his account with the bank. His account was
maintained jointly with his wife then he promised to drop by to give us a written
confirmation, sir.

xxx xxx xxx

Q You said that you authorized the debiting of the account on February 19, 1991, is that
correct?

A I did not authorize, we merely followed the instruction of Mr. Reyes, sir.14
 69

We are not disposed to believe private respondent's allegation that he did not give any verbal authorization. His
testimony is uncorroborated. Nor does he inspire credence. His past and fraudulent conduct is an evidence against
him.15 He concealed from petitioner bank the death of Fernandez on December 28, 1989. 16As of that date, he knew
that Fernandez was no longer entitled to receive any pension. Nonetheless, he-still received the U.S. Treasury
Warrant of Fernandez, and on January 4, 1990 deposited the same in Savings Account No. 3185-0128-82. To pre-
empt a refund, private respondent closed his joint account with Fernandez (Savings Account No. 31-85-0128-82)
on March 8, 1990 and transferred its balance to his joint account with his wife (Savings Account No. 3185-0172-
56). Worse, private respondent declared under the penalties of perjury in the withdrawal slip 17 dated March 8, 1990
that his co-depositor, Fernandez, is still living. By his acts, private respondent has stripped himself of credibility.

More importantly, the respondent court erred when it failed to rule that legal compensation is proper. Compensation shall
take place when two persons, in their own right, are creditors and debtors of each other. 18 Article 1290 of the Civil Code
provides that "when all the requisites mentioned in Article 1279 are present, compensation takes effect by operation of
law, and extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of the
compensation." Legal compensation operates even against the will of the interested parties and even without the consent
of them. 19 Since this compensation takes place ipso jure, its effects arise on the very day on which all its requisites
concur. 20 When used as a defense, it retroacts to the date when its requisites are fulfilled. 21

Article 1279 states that in order that compensation may be proper, it is necessary:

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

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same
kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor.

The elements of legal compensation are all present in the case at bar. The obligors bound principally are at the
same time creditors of each other. Petitioner bank stands as a debtor of the private respondent, a depositor. At the
same time, said bank is the creditor of the private respondent with respect to the dishonored U.S. Treasury Warrant
which the latter illegally transferred to his joint account. The debts involved consist of a sum of money. They are
due, liquidated, and demandable. They are not claimed by a third person.

It is true that the joint account of private respondent and his wife was debited in the case at bar. We hold that the presence
of private respondent's wife does not negate the element of mutuality of parties, i.e., that they must be creditors and debtors
of each other in their own right. The wife of private respondent is not a party in the case at bar. She never asserted any right
to the debited U.S. Treasury Warrant. Indeed, the right of the petitioner bank to make the debit is clear and cannot be
doubted. To frustrate the application of legal compensation on the ground that the parties are not all mutually obligated
would result in unjust enrichment on the part of the private respondent and his wife who herself out of honesty has not
objected to the debit. The rule as to mutuality is strictly applied at law. But not in equity, where to allow the same would
defeat a clear right or permit irremediable injustice.22

In VIEW HEREOF, the Decision of respondent Court of Appeals in CA-G.R. CV No. 41543 dated August 16, 1994 is
ANNULLED and SET ASIDE and the Decision of the trial court in Civil Case No. Q-91-8451 dated January 20, 1993 is
REINSTATED. Costs against private respondent.

SO ORDERED.
 70

G.R. No. 151903 October 9, 2009

MANUEL GO CINCO and ARACELI S. GO CINCO, Petitioners,

vs.
COURT OF APPEALS, ESTER SERVACIO and MAASIN TRADERS LENDING CORPORATION Respondents.

DECISION

BRION, J.:

Before the Court is a petition for review on certiorari1 filed by petitioners, spouses Manuel and Araceli Go Cinco (collectively,
the spouses Go Cinco), assailing the decision2 dated June 22, 2001 of the Court of Appeals (CA) in CA-G.R. CV No. 47578,
as well as the resolution3 dated January 25, 2002 denying the spouses Go Cincos motion for reconsideration.

THE FACTUAL ANTECEDENTS

In December 1987, petitioner Manuel Cinco (Manuel) obtained a commercial loan in the amount of 700,000.00 from
respondent Maasin Traders Lending Corporation (MTLC). The loan was evidenced by a promissory note dated December
11, 1987,4 and secured by a real estate mortgage executed on December 15, 1987 over the spouses Go Cincos land and
4-storey building located in Maasin, Southern Leyte.

Under the terms of the promissory note, the 700,000.00 loan was subject to a monthly interest rate of 3% or 36% per
annum and was payable within a term of 180 days or 6 months, renewable for another 180 days. As of July 16, 1989,
Manuels outstanding obligation with MTLC amounted to 1,071,256.66, which amount included the principal, interest, and
penalties.5

To be able to pay the loan in favor of MTLC, the spouses Go Cinco applied for a loan with the Philippine National Bank,
Maasin Branch (PNB or the bank) and offered as collateral the same properties they previously mortgaged to MTLC. The
PNB approved the loan application for 1.3 Million6 through a letter dated July 8, 1989; the release of the amount, however,
was conditioned on the cancellation of the mortgage in favor of MTLC.

On July 16, 1989, Manuel went to the house of respondent Ester Servacio (Ester), MTLCs President, to inform her that
there was money with the PNB for the payment of his loan with MTLC. Ester then proceeded to the PNB to verify the
information, but she claimed that the banks officers informed her that Manuel had no pending loan application with them.
When she told Manuel of the banks response, Manuel assured her there was money with the PNB and promised to execute
a document that would allow her to collect the proceeds of the PNB loan.

On July 20, 1989, Manuel executed a Special Power of Attorney7 (SPA) authorizing Ester to collect the proceeds of his PNB
loan. Ester again went to the bank to inquire about the proceeds of the loan. This time, the banks officers confirmed the
existence of the 1.3 Million loan, but they required Ester to first sign a deed of release/cancellation of mortgage before
they could release the proceeds of the loan to her. Outraged that the spouses Go Cinco used the same properties mortgaged
to MTLC as collateral for the PNB loan, Ester refused to sign the deed and did not collect the 1.3 Million loan proceeds.
 71

As the MTLC loan was already due, Ester instituted foreclosure proceedings against the spouses Go Cinco on July 24,
1989.

To prevent the foreclosure of their properties, the spouses Go Cinco filed an action for specific performance, damages, and
preliminary injunction8 before the Regional Trial Court (RTC), Branch 25, Maasin, Southern Leyte. The spouses Go Cinco
alleged that foreclosure of the mortgage was no longer proper as there had already been settlement of Manuels obligation
in favor of MTLC. They claimed that the assignment of the proceeds of the PNB loan amounted to the payment of the MTLC
loan. Esters refusal to sign the deed of release/cancellation of mortgage and to collect the proceeds of the PNB loan were,
to the spouses Go Cinco, completely unjustified and entitled them to the payment of damages.

Ester countered these allegations by claiming that she had not been previously informed of the spouses Go Cincos plan to
obtain a loan from the PNB and to use the loan proceeds to settle Manuels loan with MTLC. She claimed that she had no
explicit agreement with Manuel authorizing her to apply the proceeds of the PNB loan to Manuels loan with MTLC; the SPA
merely authorized her to collect the proceeds of the loan. She thus averred that it was unfair for the spouses Go Cinco to
require the release of the mortgage to MTLC when no actual payment of the loan had been made.

In a decision dated August 16, 1994,9 the RTC ruled in favor of the spouses Go Cinco. The trial court found that the evidence
sufficiently established the existence of the PNB loan whose proceeds were available to satisfy Manuels obligation with
MTLC, and that Ester unjustifiably refused to collect the amount. Creditors, it ruled, cannot unreasonably prevent payment
or performance of obligation to the damage and prejudice of debtors who may stand liable for payment of higher interest
rates.10 After finding MTLC and Ester liable for abuse of rights, the RTC ordered the award of the following amounts to the
spouses Go Cinco:

(a) P1,044,475.15 plus 535.63 per day hereafter, representing loss of savings on interest, by way of actual or
compensatory damages, if defendant corporation insists on the original 3% monthly interest rate;

(b) P100,000.00 as unrealized profit;

(c) P1,000,000.00 as moral damages;

(d) P20,000.00 as exemplary damages;

(e) P22,000.00 as litigation expenses; and

(f) 10% of the total amount as attorneys fees plus costs.11

Through an appeal with the CA, MTLC and Ester successfully secured a reversal of the RTCs decision. Unlike the trial
court, the appellate court found it significant that there was no explicit agreement between Ester and the spouses Go Cinco
for the cancellation of the MTLC mortgage in favor of PNB to facilitate the release and collection by Ester of the proceeds
of the PNB loan. The CA read the SPA as merely authorizing Ester to withdraw the proceeds of the loan. As Manuels loan
obligation with MTLC remained unpaid, the CA ruled that no valid objection could be made to the institution of the foreclosure
proceedings. Accordingly, it dismissed the spouses Go Cinco complaint. From this dismissal, the spouses Go Cinco filed
the present appeal by certiorari.

THE PETITION

The spouses Go Cinco impute error on the part of the CA for its failure to consider their acts as equivalent to payment that
extinguished the MTLC loan; their act of applying for a loan with the PNB was indicative of their good faith and honest
intention to settle the loan with MTLC. They contend that the creditors have the correlative duty to accept the payment.

The spouses Go Cinco charge MTLC and Ester with bad faith and ill-motive for unjustly refusing to collect the proceeds of
the loan and to execute the deed of release of mortgage. They assert that Esters justifications for refusing the payment
were flimsy excuses so she could proceed with the foreclosure of the mortgaged properties that were worth more than the
amount due to MTLC. Thus, they conclude that the acts of MTLC and of Ester amount to abuse of rights that warrants the
award of damages in their (spouses Go Cincos) favor.
 72

In refuting the claims of the spouses Go Cinco, MTLC and Ester raise the same arguments they raised before the RTC and
the CA. They claim that they were not aware of the loan and the mortgage to PNB, and that there was no agreement that
the proceeds of the PNB loan were to be used to settle Manuels obligation with MTLC. Since the MTLC loan remained
unpaid, they insist that the institution of the foreclosure proceedings was proper. Additionally, MTLC and Ester contend that
the present petition raised questions of fact that cannot be addressed in a Rule 45 petition.

THE COURTS RULING

The Court finds the petition meritorious.

Preliminary Considerations

Our review of the records shows that there are no factual questions involved in this case; the ultimate facts necessary for
the resolution of the case already appear in the records. The RTC and the CA decisions differed not so much on the findings
of fact, but on the conclusions derived from these factual findings. The correctness of the conclusions derived from factual
findings raises legal questions when the conclusions are so linked to, or are inextricably intertwined with, the appreciation
of the applicable law that the case requires, as in the present case. 12The petition raises the issue of whether the loan due
the MTLC had been extinguished; this is a question of law that this Court can fully address and settle in an appeal by
certiorari.

Payment as Mode of Extinguishing Obligations

Obligations are extinguished, among others, by payment or performance,13 the mode most relevant to the factual situation
in the present case. Under Article 1232 of the Civil Code, payment means not only the delivery of money but also the
performance, in any other manner, of an obligation. Article 1233 of the Civil Code states that "a debt shall not be understood
to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered,
as the case may be." In contracts of loan, the debtor is expected to deliver the sum of money due the creditor. These
provisions must be read in relation with the other rules on payment under the Civil Code, 14 which rules impliedly require
acceptance by the creditor of the payment in order to extinguish an obligation.

In the present case, Manuel sought to pay Ester by authorizing her, through an SPA, to collect the proceeds of the PNB
loan an act that would have led to payment if Ester had collected the loan proceeds as authorized. Admittedly, the delivery
of the SPA was not, strictly speaking, a delivery of the sum of money due to MTLC, and Ester could not be compelled to
accept it as payment based on Article 1233. Nonetheless, the SPA stood as an authority to collect the proceeds of the
already-approved PNB loan that, upon receipt by Ester, would have constituted as payment of the MTLC loan. 15 Had Ester
presented the SPA to the bank and signed the deed of release/cancellation of mortgage, the delivery of the sum of money
would have been effected and the obligation extinguished.16 As the records show, Ester refused to collect and allow the
cancellation of the mortgage.

Under these facts, Manuel posits two things: first, that Esters refusal was based on completely unjustifiable grounds; and
second, that the refusal was equivalent to payment that led to the extinguishment of the obligation.

a. Unjust Refusal to Accept Payment

After considering Esters arguments, we agree with Manuel that Esters refusal of the payment was without basis.

Ester refused to accept the payment because the bank required her to first sign a deed of release/cancellation of the
mortgage before the proceeds of the PNB loan could be released. As a prior mortgagee, she claimed that the spouses Go
Cinco should have obtained her consent before offering the properties already mortgaged to her as security for the PNB
loan. Moreover, Ester alleged that the SPA merely authorized her to collect the proceeds of the loan; there was no explicit
agreement that the MTLC loan would be paid out of the proceeds of the PNB loan.

There is nothing legally objectionable in a mortgagors act of taking a second or subsequent mortgage on a property already
mortgaged; a subsequent mortgage is recognized as valid by law and by commercial practice, subject to the prior rights of
previous mortgages. Section 4, Rule 68 of the 1997 Rules of Civil Procedure on the disposition of the proceeds of sale after
foreclosure actually requires the payment of the proceeds to, among others, the junior encumbrancers in the order of their
priority.17 Under Article 2130 of the Civil Code, a stipulation forbidding the owner from alienating the immovable mortgaged
 73

is considered void. If the mortgagor-owner is allowed to convey the entirety of his interests in the mortgaged property,
reason dictates that the lesser right to encumber his property with other liens must also be recognized. Ester, therefore,
could not validly require the spouses Go Cinco to first obtain her consent to the PNB loan and mortgage. Besides, with the
payment of the MTLC loan using the proceeds of the PNB loan, the mortgage in favor of the MTLC would have naturally
been cancelled.

We find it improbable for Ester to claim that there was no agreement to apply the proceeds of the PNB loan to the MTLC
loan. Beginning July 16, 1989, Manuel had already expressed intent to pay his loan with MTLC and thus requested for an
updated statement of account. Given Manuels express intent of fully settling the MTLC loan and of paying through the PNB
loan he would secure (and in fact secured), we also cannot give credit to the claim that the SPA only allowed Ester to collect
the proceeds of the PNB loan, without giving her the accompanying authority, although verbal, to apply these proceeds to
the MTLC loan. Even Esters actions belie her claim as she in fact even went to the PNB to collect the proceeds. In sum,
the surrounding circumstances of the case simply do not support Esters position.

b. Unjust Refusal Cannot be Equated to Payment

While Esters refusal was unjustified and unreasonable, we cannot agree with Manuels position that this refusal had the
effect of payment that extinguished his obligation to MTLC. Article 1256 is clear and unequivocal on this point when it
provides that

ARTICLE 1256. If the creditor to whom tender of payment has been made refuses without just cause to accept it, the debtor
shall be released from responsibility by the consignation of the thing or sum due. [Emphasis supplied.]

In short, a refusal without just cause is not equivalent to payment; to have the effect of payment and the consequent
extinguishment of the obligation to pay, the law requires the companion acts of tender of payment and consignation.

Tender of payment, as defined in Far East Bank and Trust Company v. Diaz Realty, Inc., 18 is the definitive act of offering
the creditor what is due him or her, together with the demand that the creditor accept the same. When a creditor refuses
the debtors tender of payment, the law allows the consignation of the thing or the sum due. Tender and consignation have
the effect of payment, as by consignation, the thing due is deposited and placed at the disposal of the judicial authorities for
the creditor to collect.19

A sad twist in this case for Manuel was that he could not avail of consignation to extinguish his obligation to MTLC, as PNB
would not release the proceeds of the loan unless and until Ester had signed the deed of release/cancellation of mortgage,
which she unjustly refused to do. Hence, to compel Ester to accept the loan proceeds and to prevent their mortgaged
properties from being foreclosed, the spouses Go Cinco found it necessary to institute the present case for specific
performance and damages.

c. Effects of Unjust Refusal

Under these circumstances, we hold that while no completed tender of payment and consignation took place sufficient to
constitute payment, the spouses Go Cinco duly established that they have legitimately secured a means of paying off their
loan with MTLC; they were only prevented from doing so by the unjust refusal of Ester to accept the proceeds of the PNB
loan through her refusal to execute the release of the mortgage on the properties mortgaged to MTLC. In other words,
MTLC and Ester in fact prevented the spouses Go Cinco from the exercise of their right to secure payment of their loan. No
reason exists under this legal situation why we cannot compel MTLC and Ester: (1) to release the mortgage to MTLC as a
condition to the release of the proceeds of the PNB loan, upon PNBs acknowledgment that the proceeds of the loan are
ready and shall forthwith be released; and (2) to accept the proceeds, sufficient to cover the total amount of the loan to
MTLC, as payment for Manuels loan with MTLC.

We also find that under the circumstances, the spouses Go Cinco have undertaken, at the very least, the equivalent of a
tender of payment that cannot but have legal effect. Since payment was available and was unjustifiably refused, justice and
equity demand that the spouses Go Cinco be freed from the obligation to pay interest on the outstanding amount from the
time the unjust refusal took place;20 they would not have been liable for any interest from the time tender of payment was
made if the payment had only been accepted. Under Article 19 of the Civil Code, they should likewise be entitled to damages,
as the unjust refusal was effectively an abusive act contrary to the duty to act with honesty and good faith in the exercise of
rights and the fulfillment of duty.
 74

For these reasons, we delete the amounts awarded by the RTC to the spouses Go Cinco (1,044,475.15, plus 563.63 per
month) representing loss of savings on interests for lack of legal basis. These amounts were computed based on the
difference in the interest rates charged by the MTLC (36% per annum) and the PNB (17% to 18% per annum), from the
date of tender of payment up to the time of the promulgation of the RTC decision. The trial court failed to consider the effects
of a tender of payment and erroneously declared that MTLC can charge interest at the rate of only 18% per annum the
same rate that PNB charged, not the 36% interest rate that MTLC charged; the RTC awarded the difference in the interest
rates as actual damages.

As part of the actual and compensatory damages, the RTC also awarded 100,000.00 to the spouses Go Cinco
representing unrealized profits. Apparently, if the proceeds of the PNB loan (1,203,685.17) had been applied to the MTLC
loan (1,071,256.55), there would have been a balance of 132,428.62 left, which amount the spouses Go Cinco could
have invested in their businesses that would have earned them a profit of at least 100,000.00.1avvphi1

We find no factual basis for this award. The spouses Go Cinco were unable to substantiate the amount they claimed as
unrealized profits; there was only their bare claim that the excess could have been invested in their other businesses.
Without more, this claim of expected profits is at best speculative and cannot be the basis for a claim for damages. In Lucas
v. Spouses Royo,21 we declared that:

In determining actual damages, the Court cannot rely on speculation, conjecture or guesswork as to the amount. Actual and
compensatory damages are those recoverable because of pecuniary loss in business, trade, property, profession, job or
occupation and the same must be sufficiently proved, otherwise, if the proof is flimsy and unsubstantiated, no
damages will be given. [Emphasis supplied.]

We agree, however, that there was basis for the award of moral and exemplary damages and attorneys fees.

Esters act of refusing payment was motivated by bad faith as evidenced by the utter lack of substantial reasons to support
it. Her unjust refusal, in her behalf and for the MTLC which she represents, amounted to an abuse of rights; they acted in
an oppressive manner and, thus, are liable for moral and exemplary damages. 22 We nevertheless reduce the 1,000,000.00
to 100,000.00 as the originally awarded amount for moral damages is plainly excessive.

We affirm the grant of exemplary damages by way of example or correction for the public good in light of the same reasons
that justified the grant of moral damages.

As the spouses Go Cinco were compelled to litigate to protect their interests, they are entitled to payment of 10% of the
total amount of awarded damages as attorneys fees and expenses of litigation.

WHEREFORE, we GRANT the petitioners petition for review on certiorari, and REVERSE the decision of June 22, 2001 of
the Court of Appeals in CA-G.R. CV No. 47578, as well as the resolution of January 25, 2002 that followed. We REINSTATE
the decision dated August 16, 1994 of the Regional Trial Court, Branch 25, Maasin, Southern Leyte, with the following
MODIFICATIONS:

(1) The respondents are hereby directed to accept the proceeds of the spouses Go Cincos PNB loan, if still
available, and to consent to the release of the mortgage on the property given as security for the loan upon PNBs
acknowledgment that the proceeds of the loan, sufficient to cover the total indebtedness to respondent Maasin
Traders Lending Corporation computed as of June 20, 1989, shall forthwith be released;

(2) The award for loss of savings and unrealized profit is deleted;

(3) The award for moral damages is reduced to 100,000.00; and

(4) The awards for exemplary damages, attorneys fees, and expenses of litigation are retained.

The awards under (3) and (4) above shall be deducted from the amount of the outstanding loan due the respondents as of
June 20, 1989. Costs against the respondents. SO ORDERED.

G.R. No. 172577 January 19, 2011

 75

SOLEDAD DALTON,
vs.
Petitioner, FGR REALTY AND DEVELOPMENT CORPORATION, FELIX NG, NENITA NG, and FLORA R. DAYRIT or
FLORA REGNER, Respondents.

RESOLUTION

CARPIO, J.:

The Case

This is a petition1 for review on certiorari under Rule 45 of the Rules of Court. The petition challenges the 9 November 2005
Decision2 and 10 April 2006 Resolution3 of the Court of Appeals in CA-G.R. CV No. 76536. The Court of Appeals affirmed
the 26 February 2002 Decision4 of the Regional Trial Court (RTC), Judicial Region 7, Branch 13, Cebu City, in Civil Case
No. CEB 4218.

The Facts

Flora R. Dayrit (Dayrit) owned a 1,811-square meter parcel of land located at the corner of Rama Avenue and Velez Street
in Cebu City. Petitioner Soledad Dalton (Dalton), Clemente Sasam, Romulo Villalonga, Miguela Villarente, Aniceta Fuentes,
Perla Pormento, Bonifacio Cabajar, Carmencita Yuson, Angel Ponce, Pedro Regudo, Pedro Quebedo, Mary Cabanlit,
Marciana Encabo and Dolores Lim (Sasam, et al.) leased portions of the property.

In June 1985, Dayrit sold the property to respondent FGR Realty and Development Corporation (FGR). In August 1985,
Dayrit and FGR stopped accepting rental payments because they wanted to terminate the lease agreements with Dalton
and Sasam, et al.

In a complaint5 dated 11 September 1985, Dalton and Sasam, et al. consigned the rental payments with the RTC. They
failed to notify Dayrit and FGR about the consignation. In motions dated 27 March 1987, 6 10 November 1987,78 July
1988,8 and 28 November 1994,9 Dayrit and FGR withdrew the rental payments. In their motions, Dayrit and FGR reserved
the right to question the validity of the consignation.

Dayrit, FGR and Sasam, et al. entered into compromise agreements dated 25 March 199710 and 20 June 1997.11 In the
compromise agreements, they agreed to abandon all claims against each other. Dalton did not enter into a compromise
agreement with Dayrit and FGR.

The RTCs Ruling

In its 26 February 2002 Decision, the RTC dismissed the 11 September 1985 complaint and ordered Dalton to vacate the
property. The RTC held that:

Soledad Dalton built a house which she initially used as a dwelling and store space. She vacated the premises when her
children got married. She transferred her residence near F. Ramos Public Market, Cebu City.

She constructed the 20 feet by 20 feet floor area house sometime in 1973. The last monthly rental was 69.00. When
defendants refused to accept rental and demanded vacation of the premises, she consignated [sic] her monthly rentals in
court.

xxxx

It is very clear from the facts that there was no valid consignation made.

The requisites of consignation are as follows:

1. The existence of a valid debt.

 76

2. Valid prior tender, unless tender is excuse [sic];

3. Prior notice of consignation (before deposit)

4. Actual consignation (deposit);

5. Subsequent notice of consignation;

Requisite Nos. 3 and 5 are absent or were not complied with. It is very clear that there were no prior notices of consignation
(before deposit) and subsequent notices of consignation (after deposit)

Besides, the last deposit was made on December 21, 1988. At the time Dalton testified on December 22, 1999, she did not
present evidence of payment in 1999. She had not, therefore, religiously paid her monthly obligation.

By clear preponderance of evidence, defendants have established that plaintiff was no longer residing at Eskina Banawa at
the time she testified in court. She vacated her house and converted it into a store or business establishment. This is
buttressed by the testimony of Rogelio Capacio, the courts appointed commissioner, who submitted a report, the full text
of which reads as follows:

REPORT AND/OR OBSERVATION

"The store and/or dwelling subject to ocular inspection is stuated [sic] on the left portion of the road which is about fifty-five
(55) meters from the corner of Banawa-Guadalupe Streets, when turning right heading towards the direction of Guadalupe
Church, if travelling from the Capitol Building.

I observed that when we arrived at the ocular inspection site, Mrs. Soledad Dalton with the use of a key opened the lock of
a closed door. She claimed that it was a part of the dwelling which she occupies and was utilized as a store. There were
few saleable items inside said space."

Soledad Dalton did not take exception to the said report.

Two witnesses who were former sub-lessees testified and clearly established that Mrs. Dalton use the house for business
purposes and not for dwelling.12

Dalton appealed to the Court of Appeals.

The Court of Appeals Ruling

In its 9 November 2005 Decision, the Court of Appeals affirmed the RTCs 26 February 2002 Decision. The Court of Appeals
held that:

After a careful review of the facts and evidence in this case, we find no basis for overturning the decision of the lower court
dismissing plaintiffs-appellants complaint, as we find that no valid consignation was made by the plaintiff-appellant.

Consignation is the act of depositing the thing due with the court or judicial authorities whenever the creditor cannot accept
or refuses to accept payment and generally requires a prior tender of payment. In order that consignation may be effective,
the debtor must show that: (1) there was a debt due; (2) the consignation of the obligation had been made because the
creditor to whom tender of payment was made refused to accept it, or because he was absent or incapacitated, or because
several persons claimed to be entitled to receive the amount due or because the title to the obligation has been lost; (3)
previous notice of the consignation had been given to the person interested in the performance of the obligation; (4) the
amount due was placed at the disposal of the court; and (5) after the consignation had been made the person interested
was notified thereof. Failure in any of these requirements is enough ground to render a consignation ineffective.

Consignation is made by depositing the proper amount to the judicial authority, before whom the tender of payment and the
announcement of the consignation shall be proved. All interested parties are to be notified of the consignation. It had been
consistently held that compliance with these requisites is mandatory.
 77

No error, therefore, can be attributed to the lower court when it held that the consignation made by the plaintiff-appellant
was invalid for failure to meet requisites 3 and 5 of a valid consignation (i.e., previous notice of the consignation given to
the person interested in the performance of the obligation and, after the consignation had been made, the person interested
was notified thereof).

Plaintiff-appellant failed to notify defendants-appellees of her intention to consign the amount due to them as rentals. She,
however, justifies such failure by claiming that there had been substantial compliance with the said requirement of notice
upon the service of the complaint on the defendants-appellees together with the summons.

We do not agree with such contention.

The prevailing rule is that substantial compliance with the requisites of a valid consignation is not enough. In Licuanan vs.
Diaz, reiterating the ruling in Soco vs. Militante, the Supreme Court had the occasion to rule thus:

"In addition, it must be stated that in the case of Soco v. Militante (123 SCRA 160, 166-167 [1983]), this Court ruled that the
codal provisions of the Civil Code dealing with consignation (Articles 1252-1261) should be accorded mandatory
construction

We do not agree with the questioned decision. We hold that the essential requisites of a valid consignation must be complied
with fully and strictly in accordance with the law. Articles 1256-1261, New Civil Code. That these Articles must be accorded
a mandatory construction is clearly evident and plain from the very language of the codal provisions themselves which
require absolute compliance with the essential requisites therein provided. Substantial compliance is not enough for that
would render only directory construction of the law. The use of the words "shall" and "must [sic] which are imperative,
operating to impose a duty which may be enforced, positively indicated that all the essential requisites of a valid consignation
must be complied with. The Civil Code Articles expressly and explicitly direct what must be essentially done in order that
consignation shall be valid and effectual..."

Clearly then, no valid consignation was made by the plaintiff-appellant for she did not give notice to the defendants-appellees
of her intention to so consign her rental payments. Without any announcement of the intention to resort to consignation first
having been made to persons interested in the fulfillment of the obligation, the consignation as a means of payment is void.

As to the other issues raised by the plaintiff-appellant in her second and third assigned errors, we hold that the ruling of the
lower court on such issues is supported by the evidence adduced in this case.

That plaintiff-appellant is not residing at the leased premises in Eskina Banawa and that she is using the same for business
purposes, not as dwelling place, is amply supported by the testimony of two of plaintiff-appellants sub-lessees. The
Commissioners Report submitted by Rogelio Capacio, who was commissioned by the lower court to conduct an ocular
inspection of the leased premises, further lends support to the lower courts findings. On the other hand, plaintiff-appellant
only has her self-serving claims that she is residing at the leased premises in Eskina Banawa to prove her continued use of
the leased premises as dwelling place.

There is thus no merit to plaintiff-appellants fourth assigned error. The lower court acted within its authority in ordering the
plaintiff-appellant to vacate the leased premises. The evidence shows that plaintiff-appellant had failed to continuously pay
the rentals due to the defendants-appellees. It was therefore within the powers of the lower court to grant such other relief
and remedies equitable under the circumstances.

In sum, there having been no valid consignation and with the plaintiff-appellant having failed to pay the rentals due to the
defendants-appellees, no error can be attributed to the lower court in rendering its assailed decision. 13

Hence, the present petition. Dalton raises as issues that the Court of Appeals erred in ruling that (1) the consignation was
void, and (2) Dalton failed to pay rent.

The Courts Ruling

The petition is unmeritorious.

 78

Dalton claims that, "the issue as to whether the consignation made by the petitioner is valid or not for lack of notice has
already been rendered moot and academic with the withdrawal by the private respondents of the amounts consigned and
deposited by the petitioner as rental of the subject premises."14

The Court is not impressed. First, in withdrawing the amounts consigned, Dayrit and FGR expressly reserved the right to
question the validity of the consignation. In Riesenbeck v. Court of Appeals,15 the Court held that:

A sensu contrario, when the creditors acceptance of the money consigned is conditional and with reservations, he
is not deemed to have waived the claims he reserved against his debtor. Thus, when the amount consigned does not
cover the entire obligation, the creditor may accept it, reserving his right to the balance (Tolentino, Civil Code of the Phil.,
Vol. IV, 1973 Ed., p. 317, citing 3 Llerena 263). The same factual milieu obtains here because the respondent creditor
accepted with reservation the amount consigned in court by the petitioner-debtor. Therefore, the creditor is not
barred from raising his other claims, as he did in his answer with special defenses and counterclaim against petitioner-
debtor.

As respondent-creditors acceptance of the amount consigned was with reservations, it did not completely extinguish the
entire indebtedness of the petitioner-debtor. It is apposite to note here that consignation is completed at the time the
creditor accepts the same without objections, or, if he objects, at the time the court declares that it has been validly
made in accordance with law.16 (Emphasis supplied)

Second, compliance with the requisites of a valid consignation is mandatory. Failure to comply strictly with any of the
requisites will render the consignation void. Substantial compliance is not enough.

In Insular Life Assurance Company, Ltd. v. Toyota Bel-Air, Inc.,17 the Court enumerated the requisites of a valid
consignation: (1) a debt due; (2) the creditor to whom tender of payment was made refused without just cause to accept the
payment, or the creditor was absent, unknown or incapacitated, or several persons claimed the same right to collect, or the
title of the obligation was lost; (3) the person interested in the performance of the obligation was given notice before
consignation was made; (4) the amount was placed at the disposal of the court; and (5) the person interested in the
performance of the obligation was given notice after the consignation was made.

Articles 1257 and 1258 of the Civil Code state, respectively:

Art. 1257. In order that the consignation of the thing due may release the obligor, it must first be announced to the
persons interested in the fulfillment of the obligation.

The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which regulate
payment.

Art. 1258. Consignation shall be made by depositing the things due at the disposal of judicial authority, before whom the
tender of payment shall be proved, in a proper case, and the announcement of the consignation in other cases.

The consignation having been made, the interested parties shall also be notified thereof. (Emphasis supplied)

The giving of notice to the persons interested in the performance of the obligation is mandatory. Failure to notify the persons
interested in the performance of the obligation will render the consignation void. In Ramos v. Sarao,18 the Court held that,
"All interested parties are to be notified of the consignation. Compliance with [this requisite] is
mandatory."19 In Valdellon v. Tengco,20 the Court held that:

Under Art. 1257 of our Civil Code, in order that consignation of the thing due may release the obligor, it must first be
announced to the persons interested in the fulfillment of the obligation. The consignation shall be ineffectual if it
is not made strictly in consonance with the provisions which regulate payment. In said Article 1258, it is further
stated that the consignation having been made, the interested party shall also be notified thereof.21 (Emphasis
supplied)

In Soco v. Militante, et al.,22 the Court held that:

 79

We hold that the essential requisites of a valid consignation must be complied with fully and strictly in accordance
with the law, Articles 1256 to 1261, New Civil Code. That these Articles must be accorded a mandatory construction is
clearly evident and plain from the very language of the codal provisions themselves which require absolute compliance with
the essential requisites therein provided. Substantial compliance is not enough for that would render only a directory
construction to the law. The use of the words "shall" and "must" which are imperative, operating to impose a duty which
may be enforced, positively indicate that all the essential requisites of a valid consignation must be complied with. The Civil
Code Articles expressly and explicitly direct what must be essentially done in order that consignation shall be valid
and effectual.23 (Emphasis supplied)

Dalton claims that the Court of Appeals erred in ruling that she failed to pay rent. The Court is not impressed. Section 1,
Rule 45 of the Rules of Court states that petitions for review on certiorari "shall raise only questions of law which must be
distinctly set forth." In Pagsibigan v. People,24 the Court held that:

A petition for review under Rule 45 of the Rules of Court should cover only questions of law. Questions of fact are not
reviewable. A question of law exists when the doubt centers on what the law is on a certain set of facts. A question of fact
exists when the doubt centers on the truth or falsity of the alleged facts.1avvphi1

There is a question of law if the issue raised is capable of being resolved without need of reviewing the probative value of
the evidence. The issue to be resolved must be limited to determining what the law is on a certain set of facts. Once the
issue invites a review of the evidence, the question posed is one of fact. 25

Whether Dalton failed to pay rent is a question of fact. It is not reviewable.

The factual findings of the lower courts are binding on the Court. The exceptions to this rule are (1) when there is grave
abuse of discretion; (2) when the findings are grounded on speculation; (3) when the inference made is manifestly mistaken;
(4) when the judgment of the Court of Appeals is based on a misapprehension of facts; (5) when the factual findings are
conflicting; (6) when the Court of Appeals went beyond the issues of the case and its findings are contrary to the admissions
of the parties; (7) when the Court of Appeals overlooked undisputed facts which, if properly considered, would justify a
different conclusion; (8) when the facts set forth by the petitioner are not disputed by the respondent; and (9) when the
findings of the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on
record.26 Dalton did not show that any of these circumstances is present.

WHEREFORE, the Court DENIES the petition. The Court AFFIRMS the 9 November 2005 Decision and 10 April 2006
Resolution of the Court of Appeals in CA-G.R. CV No. 76536.

SO ORDERED.
 80

G.R. No. 190755 November 24, 2010

LAND BANK OF THE PHILIPPINES, Petitioner,

vs.
ALFREDO ONG, Respondent.

DECISION

VELASCO, JR., J.:

This is an appeal from the October 20, 2009 Decision of the Court of Appeals (CA) in CA-G.R. CR-CV No. 84445 entitled
Alfredo Ong v. Land Bank of the Philippines, which affirmed the Decision of the Regional Trial Court (RTC), Branch 17 in
Tabaco City.

The Facts

On March 18, 1996, spouses Johnson and Evangeline Sy secured a loan from Land Bank Legazpi City in the amount of
PhP 16 million. The loan was secured by three (3) residential lots, five (5) cargo trucks, and a warehouse. Under the loan
agreement, PhP 6 million of the loan would be short-term and would mature on February 28, 1997, while the balance of
PhP 10 million would be payable in seven (7) years. The Notice of Loan Approval dated February 22, 1996 contained an
acceleration clause wherein any default in payment of amortizations or other charges would accelerate the maturity of the
loan.1

Subsequently, however, the Spouses Sy found they could no longer pay their loan. On December 9, 1996, they sold three
(3) of their mortgaged parcels of land for PhP 150,000 to Angelina Gloria Ong, Evangelines mother, under a Deed of Sale
with Assumption of Mortgage. The relevant portion of the document 2 is quoted as follows:

WHEREAS, we are no longer in a position to settle our obligation with the bank;

NOW THEREFORE, for and in consideration of the sum of ONE HUNDRED FIFTY THOUSAND PESOS (P150,000.00)
Philippine Currency, we hereby these presents SELL, CEDE, TRANSFER and CONVEY, by way of sale unto ANGELINA
GLORIA ONG, also of legal age, Filipino citizen, married to Alfredo Ong, and also a resident of Tabaco, Albay, Philippines,
their heirs and assigns, the above-mentioned debt with the said LAND BANK OF THE PHILIPPINES, and by reason hereof
they can make the necessary representation with the bank for the proper restructuring of the loan with the said bank in their
favor;

That as soon as our obligation has been duly settled, the bank is authorized to release the mortgage in favor of the vendees
and for this purpose VENDEES can register this instrument with the Register of Deeds for the issuance of the titles already
in their names.

IN WITNESS WHEREOF, we have hereunto affixed our signatures this 9th day of December 1996 at Tabaco, Albay,
Philippines.

(signed) (signed)
EVANGELINE O. SY JOHNSON B. SY
Vendor Vendor

Evangelines father, petitioner Alfredo Ong, later went to Land Bank to inform it about the sale and assumption of
mortgage.3 Atty. Edna Hingco, the Legazpi City Land Bank Branch Head, told Alfredo and his counsel Atty. Ireneo de Lumen
that there was nothing wrong with the agreement with the Spouses Sy but provided them with requirements for the
assumption of mortgage. They were also told that Alfredo should pay part of the principal which was computed at PhP
750,000 and to update due or accrued interests on the promissory notes so that Atty. Hingco could easily approve the
 81

assumption of mortgage. Two weeks later, Alfredo issued a check for PhP 750,000 and personally gave it to Atty. Hingco.
A receipt was issued for his payment. He also submitted the other documents required by Land Bank, such as financial
statements for 1994 and 1995. Atty. Hingco then informed Alfredo that the certificate of title of the Spouses Sy would be
transferred in his name but this never materialized. No notice of transfer was sent to him. 4

Alfredo later found out that his application for assumption of mortgage was not approved by Land Bank. The bank learned
from its credit investigation report that the Ongs had a real estate mortgage in the amount of PhP 18,300,000 with another
bank that was past due. Alfredo claimed that this was fully paid later on. Nonetheless, Land Bank foreclosed the mortgage
of the Spouses Sy after several months. Alfredo only learned of the foreclosure when he saw the subject mortgage
properties included in a Notice of Foreclosure of Mortgage and Auction Sale at the RTC in Tabaco, Albay. Alfredos other
counsel, Atty. Madrilejos, subsequently talked to Land Banks lawyer and was told that the PhP 750,000 he paid would be
returned to him.5

On December 12, 1997, Alfredo initiated an action for recovery of sum of money with damages against Land Bank in Civil
Case No. T-1941, as Alfredos payment was not returned by Land Bank. Alfredo maintained that Land Banks foreclosure
without informing him of the denial of his assumption of the mortgage was done in bad faith. He argued that he was lured
into believing that his payment of PhP 750,000 would cause Land Bank to approve his assumption of the loan of the Spouses
Sy and the transfer of the mortgaged properties in his and his wifes name. 6 He also claimed incurring expenses for
attorneys fees of PhP 150,000, filing fee of PhP 15,000, and PhP 250,000 in moral damages.7

Testifying for Land Bank, Atty. Hingco claimed during trial that as branch manager she had no authority to approve loans
and could not assure anybody that their assumption of mortgage would be approved. She testified that the breakdown of
Alfredos payment was as follows:

PhP 101,409.59 applied to principal

216,246.56 accrued interests receivable

396,571.77 interests

18,766.10 penalties

16,805.98 accounts receivable

----------------
Total: 750,000.00

According to Atty. Hingco, the bank processes an assumption of mortgage as a new loan, since the new borrower is
considered a new client. They used character, capacity, capital, collateral, and conditions in determining who can qualify to
assume a loan. Alfredos proposal to assume the loan, she explained, was referred to a separate office, the Lending
Center. 8

During cross-examination, Atty. Hingco testified that several months after Alfredo made the tender of payment, she received
word that the Lending Center rejected Alfredos loan application. She stated that it was the Lending Center and not her that
should have informed Alfredo about the denial of his and his wifes assumption of mortgage. She added that although she
told Alfredo that the agreement between the spouses Sy and Alfredo was valid between them and that the bank would
accept payments from him, Alfredo did not pay any further amount so the foreclosure of the loan collaterals ensued. She
admitted that Alfredo demanded the return of the PhP 750,000 but said that there was no written demand before the case
against the bank was filed in court. She said that Alfredo had made the payment of PhP 750,000 even before he applied for
the assumption of mortgage and that the bank received the said amount because the subject account was past due and
demandable; and the Deed of Assumption of Mortgage was not used as the basis for the payment. 9

The Ruling of the Trial Court

The RTC held that the contract approving the assumption of mortgage was not perfected as a result of the credit
investigation conducted on Alfredo. It noted that Alfredo was not even informed of the disapproval of the assumption of
mortgage but was just told that the accounts of the spouses Sy had matured and gone unpaid. It ruled that under the
principle of equity and justice, the bank should return the amount Alfredo had paid with interest at 12% per annum computed
 82

from the filing of the complaint. The RTC further held that Alfredo was entitled to attorneys fees and litigation expenses for
being compelled to litigate.10

The dispositive portion of the RTC Decision reads:

WHEREFORE, premises considered, a decision is rendered, ordering defendant bank to pay plaintiff, Alfredo Ong the
amount of P750,000.00 with interest at 12% per annum computed from Dec. 12, 1997 and attorneys fees and litigation
expenses of P50,000.00.

Costs against defendant bank.

SO ORDERED.11

The Ruling of the Appellate Court

On appeal, Land Bank faulted the trial court for (1) holding that the payment of PhP 750,000 made by Ong was one of the
requirements for the approval of his proposal to assume the mortgage of the Sy spouses; (2) erroneously ordering Land
Bank to return the amount of PhP 750,000 to Ong on the ground of its failure to effect novation; and (3) erroneously affirming
the award of PhP 50,000 to Ong as attorneys fees and litigation expenses.

The CA affirmed the RTC Decision.12 It held that Alfredos recourse is not against the Sy spouses. According to the appellate
court, the payment of PhP 750,000 was for the approval of his assumption of mortgage and not for payment of arrears
incurred by the Sy spouses. As such, it ruled that it would be incorrect to consider Alfredo a third person with no interest in
the fulfillment of the obligation under Article 1236 of the Civil Code. Although Land Bank was not bound by the Deed between
Alfredo and the Spouses Sy, the appellate court found that Alfredo and Land Banks active preparations for Alfredos
assumption of mortgage essentially novated the agreement.

On January 5, 2010, the CA denied Land Banks motion for reconsideration for lack of merit. Hence, Land Bank appealed
to us.

The Issues

Whether the Court of Appeals erred in holding that Art. 1236 of the Civil Code does not apply and in finding that
there is no novation.

II

Whether the Court of Appeals misconstrued the evidence and the law when it affirmed the trial court decisions
ordering Land Bank to pay Ong the amount of Php750,000.00 with interest at 12% annum.

III

Whether the Court of Appeals committed reversible error when it affirmed the award of Php50,000.00 to Ong as
attorneys fees and expenses of litigation.

The Ruling of this Court

We affirm with modification the appealed decision.

Recourse is against Land Bank

Land Bank contends that Art. 1236 of the Civil Code backs their claim that Alfredo should have sought recourse against the
Spouses Sy instead of Land Bank. Art. 1236 provides:
 83

The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the
obligation, unless there is a stipulation to the contrary.

Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or
against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor.1avvphi1

We agree with Land Bank on this point as to the first part of paragraph 1 of Art. 1236. Land Bank was not bound to accept
Alfredos payment, since as far as the former was concerned, he did not have an interest in the payment of the loan of the
Spouses Sy. However, in the context of the second part of said paragraph, Alfredo was not making payment to fulfill the
obligation of the Spouses Sy. Alfredo made a conditional payment so that the properties subject of the Deed of Sale with
Assumption of Mortgage would be titled in his name. It is clear from the records that Land Bank required Alfredo to make
payment before his assumption of mortgage would be approved. He was informed that the certificate of title would be
transferred accordingly. He, thus, made payment not as a debtor but as a prospective mortgagor. But the trial court stated:

[T]he contract was not perfected or consummated because of the adverse finding in the credit investigation which led to the
disapproval of the proposed assumption. There was no evidence presented that plaintiff was informed of the disapproval.
What he received was a letter dated May 22, 1997 informing him that the account of spouses Sy had matured but there
[were] no payments. This was sent even before the conduct of the credit investigation on June 20, 1997 which led to the
disapproval of the proposed assumption of the loans of spouses Sy. 13

Alfredo, as a third person, did not, therefore, have an interest in the fulfillment of the obligation of the Spouses Sy, since his
interest hinged on Land Banks approval of his application, which was denied. The circumstances of the instant case show
that the second paragraph of Art. 1236 does not apply. As Alfredo made the payment for his own interest and not on behalf
of the Spouses Sy, recourse is not against the latter. And as Alfredo was not paying for another, he cannot demand from
the debtors, the Spouses Sy, what he has paid.

Novation of the loan agreement

Land Bank also faults the CA for finding that novation applies to the instant case. It reasons that a substitution of debtors
was made without its consent; thus, it was not bound to recognize the substitution under the rules on novation.

On the matter of novation, Spouses Benjamin and Agrifina Lim v. M.B. Finance Corporation 14 provides the following
discussion:

Novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when an old obligation is terminated
by the creation of a new obligation that takes the place of the former; it is merely modificatory when the old obligation
subsists to the extent it remains compatible with the amendatory agreement. An extinctive novation results either by
changing the object or principal conditions (objective or real), or by substituting the person of the debtor or subrogating a
third person in the rights of the creditor (subjective or personal). Under this mode, novation would have dual functions
one to extinguish an existing obligation, the other to substitute a new one in its place requiring a conflux of four essential
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. x x x

In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared
in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other. The test of
incompatibility is whether or not the two obligations can stand together, each one having its independent existence. x x x
(Emphasis supplied.)

Furthermore, Art. 1293 of the Civil Code states:

Novation which consists in substituting a new debtor in the place of the original one, may be made even without the
knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives him
rights mentioned in articles 1236 and 1237.

We do not agree, then, with the CA in holding that there was a novation in the contract between the parties. Not all the
elements of novation were present. Novation must be expressly consented to. Moreover, the conflicting intention and acts
of the parties underscore the absence of any express disclosure or circumstances with which to deduce a clear and
 84

unequivocal intent by the parties to novate the old agreement.15 Land Bank is thus correct when it argues that there was no
novation in the following:

[W]hether or not Alfredo Ong has an interest in the obligation and payment was made with the knowledge or consent of
Spouses Sy, he may still pay the obligation for the reason that even before he paid the amount of P750,000.00 on January
31, 1997, the substitution of debtors was already perfected by and between Spouses Sy and Spouses Ong as evidenced
by a Deed of Sale with Assumption of Mortgage executed by them on December 9, 1996. And since the substitution of
debtors was made without the consent of Land Bank a requirement which is indispensable in order to effect a novation of
the obligation, it is therefore not bound to recognize the substitution of debtors. Land Bank did not intervene in the contract
between Spouses Sy and Spouses Ong and did not expressly give its consent to this substitution. 16

Unjust enrichment

Land Bank maintains that the trial court erroneously applied the principle of equity and justice in ordering it to return the
PhP 750,000 paid by Alfredo. Alfredo was allegedly in bad faith and in estoppel. Land Bank contends that it enjoyed the
presumption of regularity and was in good faith when it accepted Alfredos tender of PhP 750,000. It reasons that it did not
unduly enrich itself at Alfredos expense during the foreclosure of the mortgaged properties, since it tendered its bid by
subtracting PhP 750,000 from the Spouses Sys outstanding loan obligation. Alfredos recourse then, according to Land
Bank, is to have his payment reimbursed by the Spouses Sy.

We rule that Land Bank is still liable for the return of the PhP 750,000 based on the principle of unjust enrichment. Land
Bank is correct in arguing that it has no obligation as creditor to recognize Alfredo as a person with interest in the fulfillment
of the obligation. But while Land Bank is not bound to accept the substitution of debtors in the subject real estate mortgage,
it is estopped by its action of accepting Alfredos payment from arguing that it does not have to recognize Alfredo as the
new debtor. The elements of estoppel are:

First, the actor who usually must have knowledge, notice or suspicion of the true facts, communicates something to another
in a misleading way, either by words, conduct or silence; second, the other in fact relies, and relies reasonably or justifiably,
upon that communication; third, the other would be harmed materially if the actor is later permitted to assert any claim
inconsistent with his earlier conduct; and fourth, the actor knows, expects or foresees that the other would act upon the
information given or that a reasonable person in the actors position would expect or foresee such action.17

By accepting Alfredos payment and keeping silent on the status of Alfredos application, Land Bank misled Alfredo to
believe that he had for all intents and purposes stepped into the shoes of the Spouses Sy.

The defense of Land Bank Legazpi City Branch Manager Atty. Hingco that it was the banks Lending Center that should
have notified Alfredo of his assumption of mortgage disapproval is unavailing. The Lending Centers lack of notice of
disapproval, the Tabaco Branchs silence on the disapproval, and the banks subsequent actions show a failure of the bank
as a whole, first, to notify Alfredo that he is not a recognized debtor in the eyes of the bank; and second, to apprise him of
how and when he could collect on the payment that the bank no longer had a right to keep.

We turn then on the principle upon which Land Bank must return Alfredos payment. Unjust enrichment exists "when a
person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the
fundamental principles of justice, equity and good conscience."18 There is unjust enrichment under Art. 22 of the Civil Code
when (1) a person is unjustly benefited, and (2) such benefit is derived at the expense of or with damages to another. 19

Additionally, unjust enrichment has been applied to actions called accion in rem verso. In order that the accion in rem verso
may prosper, the following conditions must concur: (1) that the defendant has been enriched; (2) that the plaintiff has
suffered a loss; (3) that the enrichment of the defendant is without just or legal ground; and (4) that the plaintiff has no other
action based on contract, quasi-contract, crime, or quasi-delict.20 The principle of unjust enrichment essentially
contemplates payment when there is no duty to pay, and the person who receives the payment has no right to receive it. 21

The principle applies to the parties in the instant case, as, Alfredo, having been deemed disqualified from assuming the
loan, had no duty to pay petitioner bank and the latter had no right to receive it.

Moreover, the Civil Code likewise requires under Art. 19 that "[e]very person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe honesty and good faith." Land Bank,
 85

however, did not even bother to inform Alfredo that it was no longer approving his assumption of the Spouses Sys mortgage.
Yet it acknowledged his interest in the loan when the branch head of the bank wrote to tell him that his daughters loan had
not been paid.22 Land Bank made Alfredo believe that with the payment of PhP 750,000, he would be able to assume the
mortgage of the Spouses Sy. The act of receiving payment without returning it when demanded is contrary to the adage of
giving someone what is due to him. The outcome of the application would have been different had Land Bank first conducted
the credit investigation before accepting Alfredos payment. He would have been notified that his assumption of mortgage
had been disapproved; and he would not have taken the futile action of paying PhP 750,000. The procedure Land Bank
took in acting on Alfredos application cannot be said to have been fair and proper.

As to the claim that the trial court erred in applying equity to Alfredos case, we hold that Alfredo had no other remedy to
recover from Land Bank and the lower court properly exercised its equity jurisdiction in resolving the collection suit. As we
have held in one case:

Equity, as the complement of legal jurisdiction, seeks to reach and complete justice where courts of law, through the
inflexibility of their rules and want of power to adapt their judgments to the special circumstances of cases, are incompetent
to do so. Equity regards the spirit and not the letter, the intent and not the form, the substance rather than the circumstance,
as it is variously expressed by different courts.23

Another claim made by Land Bank is the presumption of regularity it enjoys and that it was in good faith when it accepted
Alfredos tender of PhP 750,000.

The defense of good faith fails to convince given Land Banks actions. Alfredo was not treated as a mere prospective
borrower. After he had paid PhP 750,000, he was made to sign bank documents including a promissory note and real estate
mortgage. He was assured by Atty. Hingco that the titles to the properties covered by the Spouses Sys real estate mortgage
would be transferred in his name, and upon payment of the PhP 750,000, the account would be considered current and
renewed in his name.24

Land Bank posits as a defense that it did not unduly enrich itself at Alfredos expense during the foreclosure of the mortgaged
properties, since it tendered its bid by subtracting PhP 750,000 from the Spouses Sys outstanding loan obligation. It is
observed that this is the first time Land Bank is revealing this defense. However, issues, arguments, theories, and causes
not raised below may no longer be posed on appeal. 25 Land Banks contention, thus, cannot be entertained at this
point.1avvphi1

Land Bank further questions the lower courts decision on the basis of the inconsistencies made by Alfredo on the witness
stand. It argues that Alfredo was not a credible witness and his testimony failed to overcome the presumption of regularity
in the performance of regular duties on the part of Land Bank.

This claim, however, touches on factual findings by the trial court, and we defer to these findings of the trial court as
sustained by the appellate court. These are generally binding on us. While there are exceptions to this rule, Land Bank has
not satisfactorily shown that any of them is applicable to this issue. 26 Hence, the rule that the trial court is in a unique position
to observe the demeanor of witnesses should be applied and respected 27 in the instant case.

In sum, we hold that Land Bank may not keep the PhP 750,000 paid by Alfredo as it had already foreclosed on the mortgaged
lands.

Interest and attorneys fees

As to the applicable interest rate, we reiterate the guidelines found in Eastern Shipping Lines, Inc. v. Court of Appeals: 28

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest,
as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest
shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject
to the provisions of Article 1169 of the Civil Code.
 86

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of
damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages except when or until the demand can be established with
reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only
from the date the judgment of the court is made (at which time the quantification of damages may be deemed to
have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on
the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.

No evidence was presented by Alfredo that he had sent a written demand to Land Bank before he filed the collection suit.
Only the verbal agreement between the lawyers of the parties on the return of the payment was mentioned.29Consequently,
the obligation of Land Bank to return the payment made by Alfredo upon the formers denial of the latters application for
assumption of mortgage must be reckoned from the date of judicial demand on December 12, 1997, as correctly determined
by the trial court and affirmed by the appellate court.

The next question is the propriety of the imposition of interest and the proper imposable rate of applicable interest. The RTC
granted the rate of 12% per annum which was affirmed by the CA. From the above-quoted guidelines, however, the proper
imposable interest rate is 6% per annum pursuant to Art. 2209 of the Civil Code. Sunga-Chan v. Court of Appeals is
illuminating in this regard:

In Reformina v. Tomol, Jr., the Court held that the legal interest at 12% per annum under Central Bank (CB) Circular No.
416 shall be adjudged only in cases involving the loan or forbearance of money. And for transactions involving payment
of indemnities in the concept of damages arising from default in the performance of obligations in general and/or
for money judgment not involving a loan or forbearance of money, goods, or credit, the governing provision is Art. 2209 of
the Civil Code prescribing a yearly 6% interest. Art. 2209 pertinently provides:

Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity
for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the
absence of stipulation, the legal interest, which is six per cent per annum.

The term "forbearance," within the context of usury law, has been described as a contractual obligation of a lender or creditor
to refrain, during a given period of time, from requiring the borrower or debtor to repay the loan or debt then due and payable.

Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper, and the applicable rate, as follows:
The 12% per annum rate under CB Circular No. 416 shall apply only to loans or forbearance of money, goods, or credits,
as well as to judgments involving such loan or forbearance of money, goods, or credit, while the 6% per annum under Art.
2209 of the Civil Code applies "when the transaction involves the payment of indemnities in the concept of damage
arising from the breach or a delay in the performance of obligations in general," with the application of both rates
reckoned "from the time the complaint was filed until the [adjudged] amount is fully paid." In either instance, the reckoning
period for the commencement of the running of the legal interest shall be subject to the condition "that the courts are vested
with discretion, depending on the equities of each case, on the award of interest." 30 (Emphasis supplied.)

Based on our ruling above, forbearance of money refers to the contractual obligation of the lender or creditor to desist for a
fixed period from requiring the borrower or debtor to repay the loan or debt then due and for which 12% per annum is
imposed as interest in the absence of a stipulated rate. In the instant case, Alfredos conditional payment to Land Bank
does not constitute forbearance of money, since there was no agreement or obligation for Alfredo to pay Land Bank the
amount of PhP 750,000, and the obligation of Land Bank to return what Alfredo has conditionally paid is still in dispute and
has not yet been determined. Thus, it cannot be said that Land Banks alleged obligation has become a forbearance of
money.

On the award of attorneys fees, attorneys fees and expenses of litigation were awarded because Alfredo was compelled
to litigate due to the unjust refusal of Land Bank to refund the amount he paid. There are instances when it is just and
equitable to award attorneys fees and expenses of litigation.31 Art. 2208 of the Civil Code pertinently states:
 87

In the absence of stipulation, attorneys fees and expenses of litigation, other than judicial costs, cannot be recovered,
except:

xxxx

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

Given that Alfredo was indeed compelled to litigate against Land Bank and incur expenses to protect his interest, we find
that the award falls under the exception above and is, thus, proper given the circumstances.

On a final note. The instant case would not have been litigated had Land Bank been more circumspect in dealing with
Alfredo. The bank chose to accept payment from Alfredo even before a credit investigation was underway, a procedure
worsened by the failure to even inform him of his credit standings impact on his assumption of mortgage. It was, therefore,
negligent to a certain degree in handling the transaction with Alfredo. It should be remembered that the business of a bank
is affected with public interest and it should observe a higher standard of diligence when dealing with the public. 32

WHEREFORE, the appeal is DENIED. The CA Decision in CA-G.R. CR-CV No. 84445 is AFFIRMED with MODIFICATION
in that the amount of PhP 750,000 will earn interest at 6% per annum reckoned from December 12, 1997, and the total
aggregate monetary awards will in turn earn 12% per annum from the finality of this Decision until fully paid.

SO ORDERED.

G.R. Nos. 149840-41 March 31, 2006

SPS. FRANCISCO AND RUBY REYES, Petitioners,

vs.
BPI FAMILY SAVINGS BANK, INC., and MAGDALENA L. LOMETILLO, in her capacity as ex-officio Provincial
Sheriff for Iloilo, Respondents.

DECISION

CORONA,J.:

Via this petition for review under Rule 45 of the Rules of Court, petitioners assail the decision 1 of the Court of Appeals (CA)
in CA-G.R. SP Nos. 45629 and 45877 and its resolution denying their motion for reconsideration.

The facts are simple.

On March 24, 1995, the Reyes spouses executed a real estate mortgage on their property in Iloilo City in favor of respondent
BPI Family Savings Bank, Inc. (BPI-FSB) to secure a P15,000,000 loan of Transbuilders Resources and Development
Corporation (Transbuilders). The mortgage contract between petitioners and BPI-FSB provided, among others:

That for and in consideration of the above-mentioned sum received by way of a loan, and other credit accommodations of
whatever nature obtained by the Borrower/Mortgagor, the Borrower/Mortgagor by this Agreement, hereby constitutes a first
mortgage, special and voluntary over the property/ies specifically described in Annex "A", together with all existing
improvements as well as those that may hereafter be made to exist or constructed thereon, inclusive of all fruits and rents,
in favor of the Bank, its successors and assigns. 2

When Transbuilders failed to pay its P15M loan within the stipulated period of one year, the bank restructured the loan
through a promissory note executed by Transbuilders in its favor. The pertinent provisions of the promissory note 3 stated
that:

1. The proceeds of the Note shall be applied to loan account no. 21108336 4; and
 88

2. The new obligation of Transbuilders to respondent Bank for fifteen million (P15,000,000.00) shall be paid in
twenty (20) quarterly installments commencing on September 28, 1996 and at an interest rate of eighteen (18%)
per annum.

Petitioners aver that they were not informed about the restructuring of Transbuilders loan. In fact, when they learned of the
new loan agreement sometime in December 1996, they wrote BPI-FSB requesting the cancellation of their mortgage and
the return of their certificate of title to the mortgaged property. They claimed that the new loan novated the loan agreement
of March 24, 1995. Because the novation was without their knowledge and consent, they were allegedly released from their
obligation under the mortgage.

When BPI-FSB refused to cancel the mortgage, petitioners filed separate petitions for mandamus and prohibition with the
Regional Trial Court (RTC) of Manila to compel the bank to return their certificate of title and cancel the mortgage. BPI-FSB,
on the other hand, instituted extrajudicial foreclosure proceedings against petitioners in Iloilo City after Transbuilders
defaulted in its payments. Consequently, a sheriffs notice of sale of petitioners property at public auction was issued.

The Manila RTC dismissed petitioners actions for mandamus and prohibition. Their appeal to the Court of Appeals was
likewise dismissed:

The mortgage contract between the petitioners and the respondent BPI does not limit the obligation or loan for which it may
stand to the loan agreement between Transbuilders and BPI, dated March 24, 1995, considering that under the terms of
that contract, the intent of all the parties, including the petitioners, to secure future indebtedness is apparent. On the
whole, the contract of loan/mortgage dated March 24, 1995, appears to include even the new loan agreement
between Transbuilders and BPI, entered into on June 28, 1996.

xxx xxx xxx

There is likewise no merit to the petitioners submission that there was a novation of the March 24, 1995 contract. There is
no clear intent of the parties to make the new contract completely supersede and abolish the old loan/mortgage contract.
The established rule is that novation is never presumed. Novation will not be allowed unless it is clearly shown by express
agreement, or by acts of equal import. Thus, to effect an objective novation it is imperative that the new obligation expressly
declares that the old obligation is thereby extinguished or that the new obligation be on every point incompatible with the
new one. (Ajax Marketing & Development Corporation v. Court of Appeals, 248 SCRA 222 [1995]) Without such clear intent
to abolish the old contract, there is no merit to affirm the existence of a novation.

There is no basis therefore, to the charge that respondent BPI had gravely erred in not surrendering the petitioners
certificate of title, as the mortgage undertaking of the petitioners has not been cancelled. For the same reason, the
respondent BPI acted within its prerogative when it initiated extra-judicial foreclosure proceedings over the petitioners
property.

WHEREFORE, premises considered, the instant appeals from the Decision of the Regional Trial Court of Iloilo City in CA-
G.R. SP No. 45887 and the Order of dismissal of the Regional Trial Court of Manila in CA-G.R. SP No. 45629 are hereby
DISMISSED.

SO ORDERED.5 (emphasis ours)

Petitioners moved for a reconsideration of the decision but were unsuccessful. Hence, this appeal.

The only issue for our consideration is whether there was a novation of the mortgage loan contract between petitioners and
BPI-FSB that would result in the extinguishment of petitioners liability to the bank.

We agree with the CA that there was none.

Novation is defined as the extinguishment of an obligation by the substitution or change of the obligation by a subsequent
one which terminates the first, either by changing the object or principal conditions, or by substituting the person of the
debtor, or subrogating a third person in the rights of the creditor. 6

Article 1292 of the Civil Code on novation further provides:

 89

Article 1292. In order that an obligation may be extinguished by another which substitute the same, it is imperative that it be
so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other.

The cancellation of the old obligation by the new one is a necessary element of novation which may be effected either
expressly or impliedly. While there is really no hard and fast rule to determine what might constitute sufficient change
resulting in novation, the touchstone, however, is irreconcilable incompatibility between the old and the new obligations. 7

In Garcia, Jr. v. Court of Appeals,8 we held that:

In every novation there are four essential requisites:(1) a previous valid obligation; (2) the agreement of all the parties to
the new contract; (3) the extinguishment of the old contract; and (4) validity of the new one. There must be consent of all
the parties to the substitution, resulting in the extinction of the old obligation and the creation of a valid new one. The
acceptance of the promissory note by the plaintiff is not novation of the contract. The legal doctrine is that an obligation to
pay a sum of money is not novated in a new instrument by changing the term of payment and adding other obligations not
incompatible with the old one. It is not proper to consider an obligation novated as in the case at bar by the mere granting
of extension of payment which did not even alter its essence. To sustain novation necessitates that the same be declared
in unequivocal terms or that there is complete and substantial incompatibility between the two obligations. An obligation to
pay a sum of money is not novated in a new instrument wherein the old is ratified by changing only the terms of payment
and adding other obligations not incompatible with the old one or wherein the old contract is merely supplementing the old
one.

Thus, the well-settled rule is that, with respect to obligations to pay a sum of money, the obligation is not novated by an
instrument that expressly recognizes the old, changes only the terms of payment, adds other obligations not incompatible
with the old ones, or the new contract merely supplements the old one. 9

BPI-FSB and Transbuilders only extended the repayment term of the loan from one year to twenty quarterly installments at
18% interest per annum. There was absolutely no intention by the parties to supersede or abrogate the old loan contract
secured by the real estate mortgage executed by petitioners in favor of BPI-FSB. In fact, the intention of the new agreement
was precisely to revive the old obligation after the original period expired and the loan remained unpaid. The novation of a
contract cannot be presumed. In the absence of an express agreement, novation takes place only when the old and the
new obligations are incompatible on every point. 10

Moreover, under the real estate mortgage executed by them in favor of BPI-FSB, petitioners undertook to secure the P15M
loan of Transbuilders to BPI-FSB "and other credit accommodations of whatever nature obtained by the
Borrower/Mortgagor." While this stipulation proved to be onerous to petitioners, neither the law nor the courts will extricate
a party from an unwise or undesirable contract entered into with all the required formalities and with full awareness of its
consequences. 11 Petitioners voluntarily executed the real estate mortgage on their property in favor of BPI-FSB to secure
the P15M loan of Transbuilders. They cannot now be allowed to repudiate their obligation to the bank after Transbuilders
default. While petitioners liability was written in fine print and in a contract prepared by BPI-FSB, it has been the consistent
holding of this Court that contracts of adhesion are not invalid per se. On numerous occasions, we have upheld the binding
effects of such contracts. 12

WHEREFORE, the petition is hereby DENIED for lack of merit.

SO ORDERED.