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RELATIVITY/ PRIVITY OF CONTRACTS side. When the boiler had been gotten into this
position and was being hoisted still further, a river
G.R. No. L-11318 October 26, 1918 near the head of the boiler was caught under the
edge of the hatch. The weight on the crane was
THE MANILA RAILROAD CO., plaintiff- thus increased by a strain estimated at fifteen tons
appellant, with the result that the cable of the sling parted
vs. and the boiler fell to the bottom of the ship's hold.
LA COMPAÑIA TRANSATLANTICA, defendant- The sling was again adjusted to the boiler but
appellee. and instead of being placed near the middle it was now
THE ATLANTIC GULF & PACIFIC slung nearer one of the ends, as should have been
CO., defendant-appellant. done at first. The boiler was gain lifted; but as it
was being brought up, the bolt at the end of the
William A. Kincaid & Thomas L. Hartigan for derrick book broke, and again the boiler fell.
plaintiff-appellant.
Lawrence, Ross & Block for defendant-appellant The crane was repaired and the boiler discharged,
Atlantic, Gulf & Pacific Co. but it was found to be so badly damaged that it
Gilbert, Cohn & Fisher for defendant-appellee had to be reshipped to England where it was
Compañia Transatlantica. rebuilt, and afterwards was returned to Manila.
The Railroad Company's damage by reason of the
STREET, J.: cost of repairs, expenses and loss of the use of
the boiler proved to be P23,343.29; and as to the
In March 1914, the steamship Alicante, belonging amount of the damage so resulting there is
to the Compañia Transatlantica de Barcelona, practically no dispute. To recover these damages
arrived at Manila with two locomotive boilers the present action was instituted by the Railroad
aboard, the property of The Manila Railroad Company against the Steamship Company. the
Company. The equipment of the ship for latter caused the Atlantic Company to be brought
discharging heavy cargo was not sufficiently in as a codefendant, and insisted that whatever
strong to handle these boilers, and it was therefore liability existed should be fixed upon the Atlantic
necessary for the Steamship Company to procure Company as an independent contractor who had
assistance in the port of Manila. undertaken to discharge the boilers and had
become responsible for such damage as had
The Atlantic, Gulf and Pacific Company (hereafter been done.
called the Atlantic Company) was accordingly
employed by the Steamship Company, as having The judge of the Court of First Instance gave
probably the best equipment for this purpose of judgment in favor of the plaintiff against the
any contracting company in the city. The service Atlantic Company, but the absolved the
to be performed by the Atlantic Company Steamship Company from the complaint. The
consisted in bringing it s floating crane alongside plaintiff has appealed from the action of the court
the Alicante, lifting the boilers our of the ship's in failing to give judgment against the Steamship
hold, and transferring them to a barge which would company, while the Atlantic company has
be placed ready to receive them. appealed from the judgment against it.

Upon the arrival of the Alicante, the Atlantic The mishap was undoubtedly due, as the lower
company sent out its crane in charge of one court found, to the negligence of one Leyden, the
Leyden. In preparing to hoist the first boiler the foreman in charge; and we may add that the
sling was unfortunately adjusted near the middle evidence tends to show that his negligence was of
of the boiler, and it was thus raised nearly in an a type which may without exaggeration be
horizontal position. The boiler was too long to denominated gross. The sling was in the first place
clear the hatch in this position, and after one end improperly adjusted, and the attention of Leyden
of the boiler had emerged on one side of the was at once called to this by the man in charge of
hatch, the other still remained below on the other the stevedores. Nevertheless he proceeded and,
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instead of lowering the boiler when it was seen with respect to the carrying and delivery of the
that it could not readily pass through the hatch, he boilers are to be discovered by considering the
attempted to force it through; and the ship's tackle terms and legal effect of that contract. A
was brought into use to assist in this maneuver. contractual relation also existed between the
The second fall was, it appears, caused by the Steamship company and the atlantic company;
weakening of the bolt at the head of the derrick and the duties owing by the latter to the former
boom, due to the shock incident to the first with respect to the lifting and the transferring of the
accident. This defect was possibly such as not to boiler are likewise to be discovered by considering
be patent to external observation but we are of the the terms and legal effect of the contract between
opinion that a person of sufficient skill to be trusted these parties. On the other hand, no contractual
with the operation of machinery of this character relation existed directly between the Railroad
should be trusted with the operation of machinery Company and the Atlantic Company.
of this character should have known that the crane
had possibly been weakened by the jar received We are all agreed, that, under the contract for
in the first accident. The foreman was therefore transportation from England to Manila, the
guilty of negligence in attempting to hoist the boiler Steamship company is liable to the plaintiff for the
the second time under the conditions that had thus injury done to the boiler while it was being
developed. It should be noted that the operation discharged from the ship. The obligation to
was at all its states entirely under Leyden's transport the boiler necessarily involves the duty
control; and, although in the first lift he utilized the to convey and deliver it in a proper condition
ship's tackle to aid in hoisting the boiler, according to its nature, and conformably with good
everything was done under his immediate faith, custom, and the law (art. 1258, Civ. Code).
supervision. There is no evidence tending to show The contract to convey import the duty to convey
that the first fall of the boiler might have been due and deliver safely and securely with reference to
to any hidden defect in the lifting apparatus; and if the degree of care which, under the
it had not been for the additional strain caused by circumstances, are required by law and custom
one end of the boiler catching under the hatch, the applicable to the case. The duty to carry and to
operation would doubtless have been carry safely is all one.
accomplished without difficulty. The accident is
therefore to be attributed to the failure of Leyden Such being the contract of the Steamship
to exercise the degree of care which an ordinarily Company, said company is necessarily liable,
competent and prudent person would have under articles 1103 and 1104 of the Civil Code, for
exhibited under the circumstances which then the consequences of the omission of the care
confronted him. This conclusion of fact cannot be necessary to the proper performance of this
refuted; and, indeed, no attempt is here made by obligation. The contact to transport and deliver at
the appellant to reverse this finding of the trial the port of Manila a locomotive boiler, which was
court. received by it in proper condition, is not complied
with the delivery at the port of destination of a
Three questions are involved in the case, namely: mass of iron the utility of which had been
(1) Is the steamship company liable to the plaintiff destroyed.
by reason of having delivered the boiler in
question in a damaged condition? (2) Is the Nor does the Steamship Company escape liability
atlantic company liable to be made to respond to by reason of the fact that it employed a competent
the steamship company for the amount the latter independent contractor to discharge the boilers.
may be required to pay to the plaintiff for the The law applicable to this feature of the case will
damage done? Is the Atlantic company directly be more fully discussed further on in this opinion.
liable to the plaintiff, as the trial court held? At this point we merely observe that in the
performance of this service the Atlantic company,
It will be observed that the contractual relation and it has never yet been held that the failure to
existed between the railroad company and the comply with a contractual obligation can be
steamship company; and the duties of the latter excused by showing that such delinquency was
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due to the negligence of one to whom the latter should nevertheless be held bound thereby.
contracting party had committed the performance It thus becomes necessary to discover what the
of the contract. exact terms of this supposed reservation were.

Coming to the question of the liability of the We think that we must put aside at once the words
Atlantic Company to respond to the Steamship of studies precision with which the president of the
Company for the damages which the latter will be Atlantic company could exclude the possibility of
compelled to pay to the plaintiff, we observe that any liability attaching to his company, though we
the defense of the Atlantic company comprises may accept his statement as showing that the
two contentions, to-wit, first, that by the terms of excepted risk contemplated breakage of the lifting
the engagement in accordance with which the equipment. There is undoubtedly a larger element
Atlantic company agreed to render the service, all of truth in the more reasonable statement by the
risk incident to the discharge of the boilers was vice-president of the company. According to this
assumed by the steamship company, and witness the contract combined two features,
secondly, that the atlantic company should be namely, an undertaking on the part of the Atlantic
absolved under the last paragraph of article 1903 Company to use all due care, combined with a
of the civil code, inasmuch as it had used due care reservation concerning the company's liability for
in the selection of the employee whose negligent damage.
act caused the damage in question.
The Atlantic Company offered in evidence, a
At the hearing in first instance the Atlantic number of letters which had been written by it at
Company introduced four witnesses to prove that different times, extending over a period of years,
at the time said company agreed to lift the boilers in response to inquiries made by other firms and
out of the Alicante, as upon other later occasions, person in Manila concerning the terms upon which
the steamship company not be responsible for the Atlantic Company was not accustomed to
damage. The vice-president of the atlantic assume the risk incident to such work and
company testified that hew as present upon the required the parties for whom the service might be
occasion when the agent of the Steamship rendered either to carry the risk or insure against
company made arrangements for the discharge of it. One such letter, dated nearly four years prior to
the boilers and he heard the conversation the occurrence such letter, dated nearly four years
between the president and said agent. According prior to the occurrences which gave rise to this
to this witness the substance of the agreement lawsuit, was addressed to the Compañia
was that, while the Atlantic Company would use Transatlantica de Barcelona one of the
all due care in getting the boilers out, no defendants in this case. It was stated in this
responsibility was assumed for damage done communication that the company's derrick would
either to ship or cargo. The intermediary who be subject to inspection prior to making the lift but
acted as agent for the Steamship Company in that the Atlantic Company would not assume
arranging for the performance of this service responsibility for damage that might occur either
stoutly denied that any such terms were to ship or cargo from any whatsoever. The
announced by the officials or anybody else steamship company rejected the services of the
connected with the Atlantic Company at any time Atlantic company in that instance as being too
while the arrangements were pending. onerous.

In the conflict of the evidence, we recognize that, The letters directed to this parties, it may
by a preponderance of the evidence, some observed, would not, generally speaking, be
reservation or other was made as to the admissible as against the plaintiff for the purpose
responsibility of the Atlantic Company; was made of proving that a similar reservation was inserted
to the responsibility of the atlantic company and in the contract with it on this occasion; but if
though the agent who acted on behalf of the knowledge of such custom is brought home to the
steamship company possibly never steamship company, the fact that such reservation
communicated this reservation to his principal, the was commonly made is of some probative force.
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Reference to a number of these letters will show Atlantic Company from its duty to use due care in
that no particular formula was used by the Atlantic the work.
Company in defining its exemption, and the tenor
of these various communications differs It is not pretended that negligence on the part of
materially. We think, however, that some of the the Atlantic Company or its employees was
letters are of value as an aid in interpreting the expressly included in the excepted risk, and we
reservation which the Atlantic Company may have are of the opinion that the contract should not be
intended to make. We therefore quote from some understood as covering such an exemption. It is a
of these letters as follows: rudimentary principle that the contractor is
responsible for the work executed by persons
We will use our best endeavors to carry out whom he employees in its performance, and this
the work successfully and will ask you to expressed in the Civil Code in the form of a
inspect our plant but we wish it distinctly positive rule of law (art. 1596). It is also expressly
understood that we cannot assume declared by law that liability arising from
responsibility for damage which may occur negligence is demandable in the fulfillment of all
. . . while the lift is being made. (To Rear kinds of obligations (art. 1103, Civil Code). Every
Admiral, U.S.N., Oct. 4, 1909.) contract for the presentation of service therefore
has annexed to it, as an inseparable implicit
Our quotation is based on the obligation, the duty to exercise due care in the
understanding that we assume no accomplishment of the work; and no reservation
responsibility from any accident which may whereby the person rendering the services seeks
happen during our operations. We always to escape from the consequences of a violation of
insert this clause as precautionary this obligations can viewed with favor.
measure, but we have never had to avail
ourselves of it as yet and do not expect to Contracts against liability for negligence
now. (To "El Varadero de Manila," Nov. 1, are not favored by law. In some instances,
1913.) such as common carriers, they are
prohibited as against public policy. In all
As is customary in these cases, we will use cases such contracts should be construed
all precaution as necessary to handle the strictly, with every intendment against the
gun in a proper manner. Our equipment party seeking its protection. (Crew vs.
has been tested and will be again, before Bradstreet Company, 134 Pa. St., 161; 7 L.
making the lift, but we do not assume any R. A., 661; 19 Am. St. Rep., 681.)
responsibility for damage to the gun ship,
or cargo. (To Warner, Barnes & Co., June The strictness with which contracts conferring
7, 1909.) such an unusual exemption are construed is
illustrated in Bryan vs. Eastern & Australian S. S.
The idea expressed in these letters is, we think Co. (28 Phil. Rep., 310). The decision in that case
entirely consonant with the interpretation which is not precisely applicable to the case at bar, since
the vice-president of the company placed upon the court was there applying the law of a foreign
the contract which was made with the steamship jurisdiction, and the question at issue involved a
company upon this occasion, that is, the company doctrine peculiar to contracts of common carriers.
recognized its duty to exercise due supervisory Nevertheless the case is instructive as illustrating
care; and the exemption from liability, whatever the universal attitude of courts upon the right of a
may have been its precise words had reference to contracting party to stipulate against the
disasters which might result from some inherent consequences of his own negligence. It there
hidden defect in the lifting apparatus or other appeared that the plaintiff had purchased from the
unforeseen occurrence not directly attributable to defendant company a ticket for the transportation
negligence of the company in the lifting of himself and baggage from Hongkong to Manila
operations. Neither party could have supposed for By the terms of the contract printed in legible type
a moment that it was intended to absolve the upon the back of the ticket it was provided that the
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company could not hold itself responsible for any It is true that, in these days insurance can usually
loss or damage to luggage, under any be obtained in the principal ports of commerce by
circumstances whatsoever, unless it had been parties circumstanced as was the steamship
paid for as freight. It was held that this limitation company in the case now before us. But the best
upon the liability of the defendant company did not insurance against disasters of this kind is found in
relieve it from liability of the defendant company the exercise of due care; and the chief incentive to
for negligence of its servants by which the the exercise of care is a feeling of responsibility on
baggage of the passenger was lost. Said the the part of him who undertakes the work. Naturally
court: Ordinarily this language would seem to be the courts are little inclined to aid tin the efforts of
broad enough to cover every possible contractors to evade this responsibility.
contingency, including the negligent act of the
defendant's servants. To so hold, however, would There may have been in the minds of the officials
run counter to the established law of England and of the Atlantic Company an idea that the promise
the United States on that subject. The court then to use due care in the lifting operations was not
quoted the following proposition from the decision accompanied by a legal obligation, such promise
of the King's Bench Division in Price & Co. vs. being intended merely for its moral effect as an
Union Lighterage Co. ([1903], 1 K. B. D., 750, assurance to the steamship company that the
754): latter might rely upon competence and diligence
of the employees of the Atlantic Company to
"An exemption in general words not accomplish the work in a proper way. The contract
expressly relating to negligence, even can not be permitted to operate in this one-sided
though the words are wide enough to manner. The two features of the engagement,
include loss by negligence or default of namely, the promise to use due care and the
carriers' servants' must be construed as exemption from liability for damage should be so
limiting the liability of the carrier as assurer, construed as to give some legal effect to both. The
and not as relieving from the duty of the result is, as already indicated, that the Atlantic
exercising reasonable skill and care." Company was bound by its undertaking to use due
care and that he exemption was intended to cover
Even admitting that, generally speaking, a person accidents use to hidden defects in the apparatus
may stipulate against liability for the or other unforeseeable occurrences not having
consequences of negligence, at least in those their origin in the immediate personal negligence
cases where the negligence is not gross or willful, of the party in charge of the operations.
the contract conferring such exemption must be
so clear as to leave no room for the operation of We now proceed to consider the contention that
the ordinary rules of liability consecrated by the Atlantic Company under the last paragraph of
experience and sanctioned by the express article 1903 of the Civil Code, which declares that
provisions of law. the liability there referred to shall cease when the
persons mentioned therein prove that they
If the exemption should be understood in the employed all the diligence of a good father of a
scene that counsel for the Atlantic Company now family to avoid the damage. In this connection the
insists it should bear, that is, as an absolute conclusion of fact must be conceded in favor of the
exemption from all responsibility for negligence, it Atlantic Company that it had used proper care in
is evident that the agreement was a most the selection of Leyden and that , so far as the
inequitable and unfair one, and hence it is one that company was aware, he was a person to whom
the steamship company can not be lightly might properly be committed the task of
assumed to have made. Understood in that sense discharging the boilers. The answer to the
it is the equivalent of licensing the Atlantic contention, however is the obligation of the
Company to perform its tasks in any manner and Atlantic Company was created by contract, and
fashion that it might please, and to hold it harmless article 1903 is not applicable to negligence arising
from the consequences. in the course of the performance of a contractual
obligation. Article 1903 is exclusively concerned
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with cases where the negligence arises in the distinction is thus clearly set forth by
absence of agreement. Manresa in his commentary on article
1093:
In discussing the liability of the Steamship
Company to the plaintiff Railroad Company we "We see with reference to such
have already shown that a party is bound to the obligations, that culpa, or
full performance of his contractual engagements negligence, may be understood in
under articles 1101 et seq. of the Civil Code, and two different senses, either
other special provisions of the Code relative to as culpa, substantive and indepen
contractual obligations; and if he falls short of dent, which of itself constitutes the
complete performance by reason of his own source of an obligation between two
negligence or that of any person to whom he may person not formerly bound by any
commit the work, he is liable for the damages other obligation; or as an incident in
resulting therefrom. What was there said is also the performance of an obligation
applicable with reference to the liability of the which already existed, and which
Atlantic Company upon its contract with the increases the liability arising from
Steamship Company, and the same need not be the already existing obligation."
here repeated. It is desirable, however, in this
connection, to bring out somewhat more fully the Justice Tracey, the author of the opinion from
distinction between negligence in the performance which we have quoted, proceeds to observe that
of a contractual obligation (culpa contractual) and Manresa, in commenting on articles 1101 and
neligence considered as an independent source 1104, has described these two species of
of obligation between parties not previously bound negligence as contractual and extra-contractual,
(culpa aquiliana). the latter being the culpa aquiliana of the Roman
law. "This terminology is unreservedly accepted
This distinction is well established in legal by Sanchez Roman (Derecho Civil, fourth section,
jurisprudence and is fully recognized in the chapter XI, article II, No. 12), and the principle
provisions of the Civil Code. As illustrative of this, stated is supported by decisions of the supreme
we quote the following passage from the opinion court of Spain,. among them those of November
of this Court in the well-known case of Rakes vs. 29, 11896 (80 Jurisprudencia Civil, No. 151), and
Atlantic, Gulf & Pacific Co. (7 Phil. Rep., 359, 365), June 27, 1894 (75 Jurisprudencia Civil, No. 182.)"
and in this quotation we reproduce the first
paragraph of here presenting a more correct The principle that negligence in the performance
English version of said passage. of a contract is not governed by article of the Civil
Code but rather by article 1104 of the same Code
The acts to which these articles are was directly applied by this court in the case of
applicable are understood to be those not Baer Senior & Co.'s successors vs. Compañía
growing out of preexisting duties of the Maritima (6 Phil. Rep., 215); and the same idea
parties to one another. But where relations has been impliedly if not expressly recognized in
already formed give arise to duties, other cases (N. T. Hashim & Co. vs. Rocha & Co.,
whether springing form contract or quasi- 18 Phil. Rep., 315; Tan Chiong Sian vs. Inchausti
contract, then breaches of those duties are & Co., 22 Phil. Rep., 152).
subject to articles 1101, 1103, and 1104 of
the same code. A typical application of this What has been said suffices in our opinion to
distinction may be found in the demonstrate that the Atlantic Company is liable to
consequences of a railway accident due to the Steamship Company for the damages brought
defective machinery supplied by the upon the latter by the failure of the Atlantic
employer. His liability to his employee company to use due care in discharging the boiler,
would arise out of the contract for passage, regardless of the fact that the damage was caused
while that of the injured by-stander would by the negligence of an employee who was
originate in the negligent act itself. This
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qualified for the work and who had been chosen purpose of performing such service. (Compare
by the Atlantic Company with due care. art. 1889, Civil Code.)

This brings us to the last question here to be In the passage which we have already from the
answered, which is, Can the Atlantic Company be decision in the Rakes case this Court recognized
held directly liable to the Railroad Company? In the fact that the violation of a quasi-contractual
other words, can the judgement entered in the trial duty is subject to articles 1101, 1103, 1104 of the
court directly in favor of the plaintiff against the Civil Code, and not within the purview of article
Atlantic Company be sustained? To answer this it 1903. Manresa also, in the paragraph reproduced
is necessary to examine carefully the legal above is of the opinion that negligence,
relations existing between the Atlantic Company considered a substantive and independent source
and the Railroad Company with reference to this of liability, does not include cases where the
affair; and we shall for a moment ignore the parties are previously bound by any other
existence of the contract between the steamship obligation. Again, it is instructive in this connection
company and the atlantic company, to which the to refer to the contents of article 1103 of the Civil
railroad company was not a party. Code, where it is demandable in the fulfillment of
all kinds of obligations. These words evidently
Having regard then to the bare fact that the comprehend both forms of positive obligations,
Atlantic Company undertook to remove the boiler whether arising from express contract or from
from the ship's hold and for this purpose took the implied contract (quasi contract).
property into its power and control, there arose a
duty to the owner to use due care in the In this connection it is instructive to recall
performance of that service and to avoid celebrate case of Coggs vs. Bernard (2 Ld. Raym,
damaging was obviously in existence before the 909), decided in the court of the King's Bench of
negligent act may, if we still ignore the existence England in the year of 1803. The action was
of the express contract, be considered as an act brought by the owner of certain casks of brandy to
done in violation of this duty. recover damages from a person who had
undertaken to transport them from one place to
The duty thus to use due care is an implied another. It was alleged that in so doing the
obligation, of a quasi contractual nature, since it is defendant so negligently and improvidently put
created by implication of liability with which we are then down that one of the casks was staved and
here confronted is somewhat similar to that which the brandy lost. The complaint did not allege that
is revealed in the case of the depositary, or the defendant was a common carrier or that he
commodatary, whose legal duty with respect to was to be paid for his services. It was therefore
the property committed to their care is defined by considered that the compliant did not state facts
law even in the absence of express contract; and sufficient to support an action for breach of any
it can not be doubted that a person who takes express contract. This made it necessary for the
possession of the property of another for the court to go back to fundamental principles and to
purpose of moving or conveying it from one place place liability on the ground of a violation of the
to another, or for the purpose of performing any legal duty incident to the mere fact of carriage.
other service in connection therewith (locatio Said Powell, J.: "An action indeed will not lie for
operis faciendi), owes to the owner a positive duty not doing the thing, for want of a sufficient
to refrain from damaging it, to the same extent as consideration; but yet if the bailee will take the
if an agreement for the performance of such goods into his custody, he shall be answerable for
service had been expressly made with the owner. them; for the taking of the goods into his custody
The obligation as if an agreement made with the is his own act." S9 Gould, J.: ". . . any man that
owner. The obligation here is really a species of undertakes to carry goods in liable to an action, be
contract re, and it has its source and explanation he a common carrier or whatever he is, if through
in vital fact, that the active party has taken upon his neglect they are lost or come to any damage:
himself to do something with or to the property and . . . . " Behind these expressions was an unbroken
has taken it into his power and control for the line of ancient English precedents holding persons
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liable for damage inflicted by reason of a Now, it cannot be admitted that a person who
misfeasance in carrying out an undertaking. The contract to do a service like that rendered by the
principle determined by the court in the case cited Atlantic company in this case incurs a double
is expressed in the syllabus in these words: 'If a responsibility upon entering upon performance,
man undertakes to carry goods safely and namely, a responsibility to the party with whom he
securely, he is responsible for any damage they contracted, and another entirely different
may sustain in the carriage through his neglect, responsibility to the owner, based on an implied
though he was not a common carrier and was to contract. The two liabilities can not in our opinion
have nothing for the carriage." Though not stated coexist. It is a general rule that an implied conract
in so many words, this decision recognizes that never arises where an express contract has been
from the mere fact that a person takes the property made.
of another into his possession and control there
arises an obligation in the nature of an assumpsit If double responsibility existed in such case as
that he will use due care with respect thereto. This this, it would result that a person who had limited
must be considered a principle of universal his liability by express stipulation might find
jurisprudence, for it is consonant with justice and himself liable to the owner without regard to the
common sense and as we have already seen limitation which he had seen fit to impose by
harmonizes with the doctrine above deduced from contract. There appears to be no possibility of
the provisions of the Civil Code. reconciling the conflict that would be developed in
attempting to give effect to those inconsistent
The conclusion must therefore be that if there had liabilities. The contract which was in fact made, in
been no contract of any sort between the Atlantic our opinion, determine not only the character and
company and the Steamship Company, an action extent of the liability of the Atlantic company but
could have been maintained by the Railroad also the person or entity by whom the obligation is
Company, as owner, against the Atlantic eligible. It is of course quite clear that if the Atlantic
Company to recover the damages sustained by company had refused to carry out its agreement
the former. Such damages would have been to discharge the cargo, the plaintiff could have
demandable under article 1103 of the Civil Code enforced specific performance and could not have
and the action would not have been subject to the recovered damages for non-performance. (Art.
qualification expressed in the last paragraph of 1257, Civil Code; Donaldson, Sim & Co. vs. Smith,
article 1903. Bell & Co., 2 Phil. Rep., 766; Uy Tam and Uy Yet
vs. Leonard, 30 Phil. Rep., 471.) In view of the
The circumstance that a contract was made preceding discussion it is equally obvious that, for
between the Atlantic Company and the Steamship lack of privity with the contract, the Railroad
company introduces, however, an important, and Company can have no right of action to recover
in our opinion controlling factor into this branch of damages from the Atlantic Company for the
the case. It cannot be denied that the Steamship wrongful act which constituted the violation of said
company has possession of this boiler in the contract. The rights of the plaintiff can only be
capacity of carrier and that as such it was made effective through the Compañia
authorized to make a contract with Atlantic Trasatlantica de Barcelona with whom the
Company to discharge the same from the ship. contract of affreightment was made.
Indeed, it appears in evidence that even before
the contract of affreightment was made the The judgment entered in the Court of First
Railroad Company was informed that it would Instance must, therefore be reversed not only with
necessary for steamship company to procure the respect to the judgment entered in favor of the
services of some contractor in the port of Manila plaintiff directly against the Atlantic company but
to handle the discharge, as the ship's tackle was also with respect to the absolution of the
inadequate to handle heavy cargo. It is therefore steamship company and the further failure of the
to be assumed that the Railroad Company had in court to enter judgment in favor of the latter
fact assented to the employment of a contractor to against the Atlantic Company. The Compañía
perform this service. Transatlantic de Barcelona should be and is
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hereby adjudged to pay to the Manila Railroad


Company the sum of twenty nine thousand three
hundred forty three pesos and twenty nine
centavos (P23,343.29) with interest from May 11,
1914, until paid; and when this judgment is
satisfied, the Compañia Transatlantic de
Barcelona is declared to be entitled to recover the
same amount from the Atlantic & Pacific Gulf
Company, against whom judgment is to this end
hereby rendered in favor of the Compañia
Transatlantica de Barcelona. No express
adjudication of costs of either instance will be
made. So ordered.
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[G.R. No. 118248. April 5, 2000] P18,000.00 for the next six years, in case of
renewal.
DKC HOLDINGS CORPORATION, petitioner,
vs. COURT OF APPEALS, VICTOR U. Petitioner regularly paid the monthly P3,000.00
BARTOLOME and REGISTER OF DEEDS FOR provided for by the Contract to Encarnacion until
METRO MANILA, DISTRICT her death in January 1990. Thereafter, petitioner
III, respondents. francis coursed its payment to private respondent Victor
Bartolome, being the sole heir of Encarnacion.
DECISION Victor, however, refused to accept these
payments. iska
YNARES_SANTIAGO, J.:
Meanwhile, on January 10, 1990, Victor executed
This is a petition for review on certiorari seeking an Affidavit of Self-Adjudication over all the
the reversal of the December 5, 1994 Decision of properties of Encarnacion, including the subject
the Court of Appeals in CA-G.R. CV No. 40849 lot. Accordingly, respondent Register of Deeds
entitled "DKC Holdings Corporation vs. Victor U. cancelled Transfer Certificate of Title No. B-37615
Bartolome, et al.",[1] affirming in toto the January and issued Transfer Certificate of Title No. V-
4, 1993 Decision of the Regional Trial Court of 14249 in the name of Victor Bartolome.
Valenzuela, Branch 172,[2] which dismissed Civil
Case No. 3337-V-90 and ordered petitioner to pay On March 14, 1990, petitioner served upon Victor,
P30,000.00 as attorneys fees. via registered mail, notice that it was exercising its
option to lease the property, tendering the amount
The subject of the controversy is a 14,021 square of P15,000.00 as rent for the month of March.
meter parcel of land located in Malinta, Again, Victor refused to accept the tendered rental
Valenzuela, Metro Manila which was originally fee and to surrender possession of the property to
owned by private respondent Victor U. Bartolomes petitioner.
deceased mother, Encarnacion Bartolome, under
Transfer Certificate of Title No. B-37615 of the Petitioner thus opened Savings Account No. 1-04-
Register of Deeds of Metro Manila, District III. This 02558-I-1 with the China Banking Corporation,
lot was in front of one of the textile plants of Cubao Branch, in the name of Victor Bartolome
petitioner and, as such, was seen by the latter as and deposited therein the P15,000.00 rental fee
a potential warehouse site. for March as well as P6,000.00 reservation fees
for the months of February and March.
On March 16, 1988, petitioner entered into a
Contract of Lease with Option to Buy with Petitioner also tried to register and annotate the
Encarnacion Bartolome, whereby petitioner was Contract on the title of Victor to the property.
given the option to lease or lease with purchase Although respondent Register of Deeds accepted
the subject land, which option must be exercised the required fees, he nevertheless refused to
within a period of two years counted from the register or annotate the same or even enter it in
signing of the Contract. In turn, petitioner the day book or primary register.
undertook to pay P3,000.00 a month as
consideration for the reservation of its option. Thus, on April 23, 1990, petitioner filed a
Within the two-year period, petitioner shall serve complaint for specific performance and damages
formal written notice upon the lessor Encarnacion against Victor and the Register of
Bartolome of its desire to exercise its option. The Deeds,[3] docketed as Civil Case No. 3337-V-90
contract also provided that in case petitioner which was raffled off to Branch 171 of the
chose to lease the property, it may take actual Regional Trial Court of Valenzuela. Petitioner
possession of the premises. In such an event, the prayed for the surrender and delivery of
lease shall be for a period of six years, renewable possession of the subject land in accordance with
for another six years, and the monthly rental fee the Contract terms; the surrender of title for
shall be P15,000.00 for the first six years and registration and annotation thereon of the
CONTRACTS FINALS ACJUCO 11

Contract; and the payment of P500,000.00 as THE NOTICE TO EXERCISE OPTION WAS NOT
actual damages, P500,000.00 as moral damages, TRANSMISSIBLE.
P500,000.00 as exemplary damages and
P300,000.00 as attorneys fees. (B)

Meanwhile, on May 8, 1990, a Motion for SECOND ASSIGNMENT OF ERROR


Intervention with Motion to Dismiss[4] was filed by
one Andres Lanozo, who claimed that he was and THE HONORABLE COURT OF APPEALS
has been a tenant-tiller of the subject property, ERRED IN RULING THAT THE NOTICE OF
which was agricultural riceland, for forty-five OPTION MUST BE SERVED BY DKC UPON
years. He questioned the jurisdiction of the lower ENCARNACION BARTOLOME PERSONALLY.
court over the property and invoked the
Comprehensive Agrarian Reform Law to protect (C) nigel
his rights that would be affected by the dispute
between the original parties to the case. ella THIRD ASSIGNMENT OF ERROR

On May 18, 1990, the lower court issued an THE HONORABLE COURT OF APPEALS
Order[5] referring the case to the Department of ERRED IN RULING THAT THE CONTRACT
Agrarian Reform for preliminary determination and WAS ONE-SIDED AND ONEROUS IN FAVOR
certification as to whether it was proper for trial by OF DKC.
said court.
(D)
On July 4, 1990, the lower court issued another
Order[6] referring the case to Branch 172 of the FOURTH ASSIGNMENT OF ERROR
RTC of Valenzuela which was designated to hear
cases involving agrarian land, after the THE HONORABLE COURT OF APPEALS
Department of Agrarian Reform issued a letter- ERRED IN RULING THAT THE EXISTENCE OF
certification stating that referral to it for preliminary A REGISTERED TENANCY WAS FATAL TO
determination is no longer required. THE VALIDITY OF THE CONTRACT.
On July 16, 1990, the lower court issued an Order (E)
denying the Motion to Intervene,[7] holding that
Lanozos rights may well be ventilated in another FIFTH ASSIGNMENT OF ERROR
proceeding in due time.
THE HONORABLE COURT OF APPEALS
After trial on the merits, the RTC of Valenzuela, ERRED IN RULING THAT PLAINTIFF-
branch 172 rendered its Decision on January 4, APPELLANT WAS LIABLE TO DEFENDANT-
1993, dismissing the Complaint and ordering APPELLEE FOR ATTORNEYS FEES.[8]
petitioner to pay Victor P30,000.00 as attorneys
fees. On appeal to the CA, the Decision was
The issue to be resolved in this case is whether or
affirmed in toto.
not the Contract of Lease with Option to Buy
entered into by the late Encarnacion Bartolome
Hence, the instant Petition assigning the following with petitioner was terminated upon her death or
errors: whether it binds her sole heir, Victor, even after
her demise.
(A)
Both the lower court and the Court of Appeals held
FIRST ASSIGNMENT OF ERROR that the said contract was terminated upon the
death of Encarnacion Bartolome and did not bind
THE HONORABLE COURT OF APPEALS Victor because he was not a party thereto.
ERRED IN RULING THAT THE PROVISION ON
CONTRACTS FINALS ACJUCO 12

Article 1311 of the Civil Code provides, as follows- experience, judgment, discretion, integrity, or
other personal qualification of one or both parties,
"ART. 1311. Contracts take effect only between the agreement is of a personal nature, and
the parties, their assigns and heirs, except in case terminates on the death of the party who is
where the rights and obligations arising from the required to render such service."[10] marinella
contract are not transmissible by their nature, or
by stipulation or by provision of law. The heir is not It has also been held that a good measure for
liable beyond the value of the property he received determining whether a contract terminates upon
from the decedent. brnado the death of one of the parties is whether it is of
such a character that it may be performed by the
x x x x x x x x x." promissors personal representative. Contracts to
perform personal acts which cannot be as well
The general rule, therefore, is that heirs are bound performed by others are discharged by the death
by contracts entered into by their predecessors-in- of the promissor. Conversely, where the service or
interest except when the rights and obligations act is of such a character that it may as well be
arising therefrom are not transmissible by (1) their performed by another, or where the contract, by
nature, (2) stipulation or (3) provision of law. its terms, shows that performance by others was
contemplated, death does not terminate the
In the case at bar, there is neither contractual contract or excuse nonperformance.[11]
stipulation nor legal provision making the rights
and obligations under the contract intransmissible. In the case at bar, there is no personal act
More importantly, the nature of the rights and required from the late Encarnacion Bartolome.
obligations therein are, by their nature, Rather, the obligation of Encarnacion in the
transmissible. contract to deliver possession of the subject
property to petitioner upon the exercise by the
The nature of intransmissible rights as explained latter of its option to lease the same may very well
by Arturo Tolentino, an eminent civilist, is as be performed by her heir Victor.
follows:
As early as 1903, it was held that "(H)e who
"Among contracts which are intransmissible are contracts does so for himself and his heirs."[12] In
those which are purely personal, either by 1952, it was ruled that if the predecessor was
provision of law, such as in cases of partnerships duty-bound to reconvey land to another, and at his
and agency, or by the very nature of the death the reconveyance had not been made, the
obligations arising therefrom, such as those heirs can be compelled to execute the proper
requiring special personal qualifications of the deed for reconveyance. This was grounded upon
obligor. It may also be stated that contracts for the the principle that heirs cannot escape the legal
payment of money debts are not transmitted to the consequence of a transaction entered into by their
heirs of a party, but constitute a charge against his predecessor-in-interest because they have
estate. Thus, where the client in a contract for inherited the property subject to the liability
professional services of a lawyer died, leaving affecting their common ancestor.[13]
minor heirs, and the lawyer, instead of presenting
his claim for professional services under the It is futile for Victor to insist that he is not a party
contract to the probate court, substituted the to the contract because of the clear provision of
minors as parties for his client, it was held that the Article 1311 of the Civil Code. Indeed, being an
contract could not be enforced against the minors; heir of Encarnacion, there is privity of interest
the lawyer was limited to a recovery on the basis between him and his deceased mother. He only
of quantum meruit."[9] succeeds to what rights his mother had and what
is valid and binding against her is also valid and
In American jurisprudence, "(W)here acts binding as against him.[14] This is clear
stipulated in a contract require the exercise of from Paraaque Kings Enterprises vs. Court of
special knowledge, genius, skill, taste, ability,
CONTRACTS FINALS ACJUCO 13

Appeals,[15] where this Court rejected a similar the payment of such reservation fees, except
defense-alonzo those for February and March, 1990 were
admitted by Victor.[17] This is clear from the
With respect to the contention of respondent transcripts, to wit-
Raymundo that he is not privy to the lease
contract, not being the lessor nor the lessee "ATTY. MOJADO:
referred to therein, he could thus not have violated
its provisions, but he is nevertheless a proper One request, Your Honor. The last payment which
party. Clearly, he stepped into the shoes of the was allegedly made in January 1990 just indicate
owner-lessor of the land as, by virtue of his in that stipulation that it was issued November of
purchase, he assumed all the obligations of the 1989 and postdated Janaury 1990 and then we
lessor under the lease contract. Moreover, he will admit all. rodp;fo
received benefits in the form of rental payments.
Furthermore, the complaint, as well as the COURT:
petition, prayed for the annulment of the sale of
the properties to him. Both pleadings also alleged All reservation fee?
collusion between him and respondent Santos
which defeated the exercise by petitioner of its ATTY. MOJADO:
right of first refusal.
Yes, Your Honor.
In order then to accord complete relief to
petitioner, respondent Raymundo was a COURT:
necessary, if not indispensable, party to the case.
A favorable judgment for the petitioner will All as part of the lease?
necessarily affect the rights of respondent
Raymundo as the buyer of the property over which ATTY. MOJADO:
petitioner would like to assert its right of first option
to buy.
Reservation fee, Your Honor. There was no
payment with respect to payment of rentals."[18]
In the case at bar, the subject matter of the
contract is likewise a lease, which is a property
Petitioner also paid the P15,000.00 monthly rental
right. The death of a party does not excuse
fee on the subject property by depositing the same
nonperformance of a contract which involves a
in China Bank Savings Account No. 1-04-02558-
property right, and the rights and obligations
I-1, in the name of Victor as the sole heir of
thereunder pass to the personal representatives
Encarnacion Bartolome,[19] for the months of
of the deceased. Similarly, nonperformance is not
March to July 30, 1990, or a total of five (5)
excused by the death of the party when the other
months, despite the refusal of Victor to turn over
party has a property interest in the subject matter
the subject property.[20]
of the contract.[16]
Likewise, petitioner complied with its duty to
Under both Article 1311 of the Civil Code and
inform the other party of its intention to exercise its
jurisprudence, therefore, Victor is bound by the
option to lease through its letter dated Match 12,
subject Contract of Lease with Option to Buy.
1990,[21] well within the two-year period for it to
exercise its option. Considering that at that time
That being resolved, we now rule on the issue of Encarnacion Bartolome had already passed
whether petitioner had complied with its away, it was legitimate for petitioner to have
obligations under the contract and with the addressed its letter to her heir.
requisites to exercise its option. The payment by
petitioner of the reservation fees during the two-
It appears, therefore, that the exercise by
year period within which it had the option to lease
petitioner of its option to lease the subject property
or purchase the property is not disputed. In fact,
was made in accordance with the contractual
CONTRACTS FINALS ACJUCO 14

provisions. Concomitantly, private respondent


Victor Bartolome has the obligation to surrender
possession of and lease the premises to petitioner
for a period of six (6) years, pursuant to the
Contract of Lease with Option to Buy. micks

Coming now to the issue of tenancy, we find that


this is not for this Court to pass upon in the present
petition. We note that the Motion to Intervene and
to Dismiss of the alleged tenant, Andres Lanozo,
was denied by the lower court and that such denial
was never made the subject of an appeal. As the
lower court stated in its Order, the alleged right of
the tenant may well be ventilated in another
proceeding in due time.

WHEREFORE, in view of the foregoing, the


instant Petition for Review is GRANTED. The
Decision of the Court of Appeals in CA-G.R. CV
No. 40849 and that of the Regional Trial Court of
Valenzuela in Civil Case No. 3337-V-90 are both
SET ASIDE and a new one rendered ordering
private respondent Victor Bartolome to:

(a) surrender and deliver possession of that parcel


of land covered by Transfer Certificate of Title No.
V-14249 by way of lease to petitioner and to
perform all obligations of his predecessor-in-
interest, Encarnacion Bartolome, under the
subject Contract of Lease with Option to Buy;

(b) surrender and deliver his copy of Transfer


Certificate of Title No. V-14249 to respondent
Register of Deeds for registration and annotation
thereon of the subject Contract of Lease with
Option to Buy;

(c) pay costs of suit. Sc

Respondent Register of Deeds is, accordingly,


ordered to register and annotate the subject
Contract of Lease with Option to Buy at the back
of Transfer Certificate of Title No. V-14249 upon
submission by petitioner of a copy thereof to his
office.

SO ORDERED.
CONTRACTS FINALS ACJUCO 15

G.R. No. 158649 February 18, 2013 presence of the PPI distribution officer/assistant
sales representative two documents9labelled
SPOUSES QUIRINO V. DELA CRUZ and "Trust Receipt/Special Credit Scheme," indicating
GLORIA DELA CRUZ, Petitioners, the invoice number, quantity, value, and names of
vs. the agricultural inputs (i.e., fertilizer or agricultural
PLANTERS PRODUCTS, INC., Respondents. chemicals) she received "upon the trust" of PPI.
Gloria thereby subscribed to specific
DECISION undertakings, as follows:

BERSAMIN, J.: For and in consideration thereof, I/We hereby


agree to hold said goods in trust for PPI, as its
If the terms of a contract are clear and leave no property, with liberty to deliver and sell the same
doubt upon the intention of the contracting parties, for PPI’s account, in favor of farmers accepted to
the literal meaning of its stipulations shall participate in PPI’s Special Credit Scheme within
control. 1 In determining their intention, their 60 days from receipt of inputs from PPI. In case of
contemporaneous and subsequent acts shall be such delivery and sale, I/We agree to require the
principally considered.2 execution of a Trust Agreement by the farmer-
participants in my/our favor, which Agreement will
Under review on certiorari are the Decision in turn be Assigned by me/us in favor of PPI with
promulgated on April II, 2003 in C.A.-G.R. No. CV Recourse. In the event, I/We cannot deliver/serve
No. 57446,3 whereby the Court of Appeals (CA) to the farmer-participants all the inputs as
affirmed the judgment rendered on October 29, enumerated above within 60 days, then I/We
1997 by the Regional Trial Court, Branch 66, (R agree that the undelivered inputs will be charged
TC) in Makati City (ordering the petitioners liable to my/our credit line, in which case, the
to pay the respondent the amount of ₱240,335.10 corresponding adjustment of price and interests
plus 16% interest per annum commencing from shall be made by PPI.10
July 9, 1985 until full payment, and the sum of
₱20,000.00 as attorney's fees and cost of Gloria expressly agreed to: (a) "supervise the
litigation);4 and the resolution promulgated on collection of the equivalent number of cavanes of
June 9, 2003, whereby the CA denied the motion palay and/or corn from the farmer-participant" and
for reconsideration of the petitioners. 5 to "turn over the proceeds of the sale of the
deposited palay and corn as soon as received, to
Antecedents PPI to be applied against the listed invoices"; (b)
"keep said fertilizer and pesticides insured at their
Spouses Quirino V. Dela Cruz and Gloria Dela full value against fire and other casualties prior to
Cruz, petitioners herein, operated the Barangay delivery to farmer-participants, the sum insured to
Agricultural Supply, an agricultural supply store in be payable in case of loss to PPI, with the
Aliaga, Nueva Ecija engaged in the distribution understanding that PPI is not to be chargeable
and sale of fertilizers and agricultural chemical with the storage, insurance premium, or any other
products, among others. At the time material to the expenses incurred on said goods"; (c) "keep the
case, Quirino, a lawyer, was the Municipal Mayor said fertilizer and pesticides, prior to delivery to the
of Aliaga, Nueva Ecija.6 farmer-participants, separate and capable of
identification as the property of PPI inside my/our
On March 23, 1978, Gloria applied for and was warehouse"; and (d) "require the farmer-
granted by respondent Planters Products, Inc. participants to deposit the palay or corn sufficient
(PPI) a regular credit line of ₱200,000.00 for a 60- to cover their respective accounts within 72 hours
day term, with trust receipts as after the harvest of the farmer-participants" and
collaterals.7 Quirino and Gloria submitted a list of should the farmer-participants refuse to make the
their assets in support of her credit application for required deposit, Gloria would notify PPI thereof
participation in the Special Credit Scheme (SCS) within 24 hours. For that purpose, negligence on
of PPI.8 On August 28, 1978, Gloria signed in the
CONTRACTS FINALS ACJUCO 16

her part would make her obligation under the Trust for and as attorney’s fees a sum equivalent to
Receipt "direct and primary."11 twenty per cent (20%) per annum of the total
amount involved, principal and interest, then
Gloria further expressly agreed that her obligation unpaid, but in no case less than FIVE HUNDRED
as stipulated in the contract would "continue in PESOS (₱500.00), exclusive of all costs or fees
force and be applicable to all transactions, allowed by law.
notwithstanding any change in the individuals
composing any firm, parties to or concerned x x x In consideration of PPI complying with the
whether such change shall arise from accession foregoing we jointly and severally agree and
of one or more new partners or from the death or undertake to pay on demand to PPI all sums of
cession of any partner or partners;" that her money which PPI may call upon us to pay arising
"liability for payment at maturity of the invoice(s) x out of or pertaining to and/or in any event
x x shall not be extinguished or modified" by the connected with the default of and/or non-
following, namely: (a) "any priority, act of war, or fulfillment in any respect of the undertaking of the
restriction on the use, transportation, aforesaid.13
hypothecation, or disposal thereof imposed by any
administrative, political or legislative enactments, Gloria executed three more documents on
regulations or orders whatsoever"; (b) September 14, 1978,14 and one document each
"government appropriation of the same, or of any on September 28, 1978,15 September 18,
seizure or destruction thereof or damage thereto, 1978,16 and September 20, 1978.17 On the
whether insured against or not"; and (c) "any acts corresponding dates, Gloria filled up customer
or regulation affecting this Trust Receipt or the order forms for fertilizer and agricultural chemical
inputs subject thereto."12 products.18 Written at the upper portion of each
order form was the following:
In addition, Gloria’s obligation included the
following terms and conditions, to wit: This invoice is subject to the terms and conditions
stipulated in our contract. Under no circumstance
All obligations of the undersigned under this Trust is this invoice to be used as a receipt for payment.
Receipt shall bear interest at the rate of twelve per Interest at 14% per annum plus service and
cent (12%) per annum plus two percent (2%) handling charges at the rate of 10% per annum
service charges, reckoned from the date Dealer shall be charged on all overdue accounts, and in
delivers to farmer-participants the fertilizer and the event of judicial proceedings to enforce
agchem products. Where I/We have not delivered collection, customer shall pay the Company an
within 60 days, interest and service charges shall amount equivalent to 25% of the amount due for
become effective on the 61st day. and as attorney’s fees which in no case shall be
less than ₱200 in addition to cost of suit.
If there are two or more signatories, our
obligations hereunder shall in all cases be joint The products were released to Gloria under the
and several. supervision of Cristina G. Llanera of PPI.

All expenses and charges incurred by PPI in re- The 60-day credit term lapsed without Gloria
possession of said fertilizer and agchem products, paying her obligation under the Trust
and in securing delivery of the same to a bodega Receipt/SCS. Hence, PPI wrote collection letters
or storage place in Manila or at some other place to her on April 24, 1979 and May 22, 1979.
selected by it shall be for my/our account and shall Receiving no response from her, Inocencio E.
be repaid to PPI by me/us. Ortega, PPI District Distribution Manager, sent her
on June 8, 1979 a demand letter on her "long
Should it become necessary for PPI to avail of the overdue account" of ₱191,205,25.19
services of an attorney-at-law to initiate legal
steps to enforce any or all of its rights under this On February 24, 1979, PPI sent Gloria a credit
contract, we jointly and severally, shall pay to PPI note for ₱127,930.60 with these particulars: "To
CONTRACTS FINALS ACJUCO 17

transfer to dealer’s regular line inputs withdrawn ₱50,000.00 to PPI despite the failure of the
VS. SCS line still undelivered to farmers after 60 farmers to pay.25
days."20 Another credit note, also dated February
24, 1979 and with the same particulars, indicated Decision of the RTC
the amount of ₱46,622.80.21
On October 29, 1997, the trial court, then already
The follow-up letter of October 11, 1979 the RTC, rendered its judgment ordering the
culminated in the final demand letter of May 30, petitioners "to pay the plaintiff the amount of
1980 from Atty. R. M. Rivera, PPI Collection ₱240,335.10 plus 16% interest per
Officer,22 stating that the total accountability of annum commencing from July 9, 1985 until fully
Gloria as of April 25, 1980 was ₱156,755.00 "plus paid and the sum of ₱20,000.00 as attorney’s fees
interest, service charges, and penalty charges," all and cost of litigation."26
of which she should pay by June 18, 1980. PPI
warned that should she fail to do so, PPI would file The RTC found that based on the terms and
the "necessary civil and criminal cases" against conditions of the SCS Program, a creditor-debtor
her "based on the Trust Receipts." relationship was created between Gloria and PPI;
that her liability was predicated on Section 4 of
On November 17, 1981, PPI brought against the Trust Receipts Law (Presidential Decree No.
Quirino and Gloria in the erstwhile Court of First 115) and on the ruling in Robles v. Court of
Instance in Pasig, Metro Manila a complaint for the Appeals27 to the effect that the failure of the
recovery of a sum of money with prayer for a writ entrustee (Gloria) to turn over to the entruster
of preliminary attachment.23 PPI alleged that (plaintiff) the proceeds of the sale of goods
Gloria had violated the "fiduciary undertaking in covered by the delivery trust receipts or to return
the Trust Receipt agreement covering product the goods constituted estafa punishable under
withdrawals under the Special Credit Scheme Article 315(1)(b) of the Revised Penal Code; and
which were subsequently charged to defendant that the petitioners could not use as a defense the
dealer’s regular credit line; therefore, she is guilty occurrence of typhoon Kading because there was
of fraudulently misapplying or converting to her no privity of contract between the participating
own use the items delivered to her as contained in farmers and PPI.
the invoices." It charged that Gloria did not return
the goods indicated in the invoices and did not Ruling of the CA
remit the proceeds of sales.
The petitioners appealed to the CA28 upon the
PPI prayed for judgment holding the petitioners following assignment of errors, to wit:
liable for the principal amount of ₱161,203.60 as
of October 25, 1981, "inclusive of interest and THE LOWER COURT ERRED IN HOLDING
service charges"; additional "daily interest of THAT DEFENDANT GLORIA DELA CRUZ WAS
₱80.60 from October 26, 1981 until fully paid"; and AN ACCREDITED DEALER UNDER THE
20% of the total amount due as attorney’s fees. As SPECIAL CREDIT SCHEME AND PURCHASED
of July 9, 1985, the statement of account showed ON CREDIT FERTILIZERS AND CHEMICALS
a grand total liability of ₱240,355.10.24 FROM PLAINTIFF.

In her answer, the petitioners alleged that Gloria THE TRIAL COURT ERRED IN HOLDING THAT
was only a marketing outlet of PPI under its SCS DEFENDANTS ARE PRIMARILY LIABLE FOR
Program, not a dealer primarily obligated to PPI THE FERTILIZERS AND CHEMICALS
for the products delivered to her; that she had not COVERED BY THE ORDER FORMS, DELIVERY
collected from the farmers participating in the SCS RECEIPTS AND TRUST RECEIPTS.
Program because of the October 27-28, 1979
typhoon Kading that had destroyed the THE TRIAL COURT ERRED IN HOLDING THAT
participating farmers’ crops; and that she had paid THE SPECIAL CREDIT SCHEME/LINE
GRANTED TO DEFENDANT GLORIA DELA
CONTRACTS FINALS ACJUCO 18

CRUZ WAS CONVERTED TO A REGULAR Defendants-appellants, which was eventually


LINE. done by Plaintiff-appellee, when it converted
and/or credited Defendants-appellants’ accounts
THE TRIAL COURT ERRED IN FINDING FOR payable under the special credit scheme to their
THE PLAINTIFF AND NOT FOR THE regular credit line as per "credit notes."
DEFENDANTS-APPELLANTS.
Pursuant to said credit line account and trust
On April 11, 2003, the CA affirmed the judgment receipts, plaintiff-appellee Planters Products, Inc.
of the RTC,29 viz: and defendants-appellants Spouses de la Cruz
are bound to fulfill what has been expressly
WHEREFORE, premises considered, the instant stipulated therein. It is well-settled in Barons
appeal is hereby DENIED, and the impugned Marketing Corporation v. Court of Appeals,30to wit:
Decision dated 29 October 1997 of Regional Trial
Court of Makati City, Branch 66 is "It may not be amiss to state that petitioner’s
hereby AFFIRMED in toto. Costs against contract with private respondent has the force
Defendants-appellants. of law between them. Petitioner is thus bound
to fulfill what has been expressly stipulated
SO ORDERED. therein. In the absence of any abuse of right,
private respondent cannot be allowed to perform
The CA held the petitioners liable to PPI "for the its obligation under such contract in parts.
value of the fertilizers and agricultural chemical Otherwise, private respondent’s right under Article
products covered by the trust receipts" because a 1248 will be negated, the sanctity of its contract
creditor-debtor relationship existed between the with petitioner defiled. The principle of autonomy
parties when, pursuant to the credit line of of contracts must be respected." (Emphasis
₱200,000.00 and the SCS Program, the supplied)
petitioners "withdrew several fertilizers and
agricultural chemical products on credit;" that the Moreover, Defendants-appellants cannot pass
petitioners then came under obligation to pay the their obligation to pay the equivalent value of the
equivalent value of the withdrawn goods, "or to undelivered and/or unused fertilizers and
return the undelivered and/or unused products agricultural chemical products under the trust
within the specified period." It elucidated thus: receipts to the farmers-participants considering
that the "contract" was between plaintiff-appellee
The trust receipts covering the said fertilizers and Planters Products Inc. and defendants-appellants
agricultural chemical products under the special Quirino and Gloria Dela Cruz, and the farmers-
credit scheme, and signed by defendant-appellant participants were never privy to the said
Gloria de la Cruz specifically provides for their transaction."31
direct and primary liability over the same, to wit:
In their motion for reconsideration,32 the
"x x x. In the event, I/We cannot deliver/serve to petitioners mainly contended that the farmers as
the farmer-participants all the inputs as participants in the SCS, not Gloria, were liable
enumerated above within 60 days, then I/We because the inputs had been delivered to them;
agree that the undelivered inputs will be charged that such was the tenor of the demand letters they
to my/our regular credit line, in which case, the had sent to the farmers; that PPI would not have
corresponding adjustment of price and interest made a second delivery if it had not been satisfied
shall be made by PPI." that they (petitioners) had delivered the products
to the farmers, who, however, had not paid their
and in case of failure on the part of Defendants- "loan" because of typhoon Kading destroying their
appellants to liquidate within the specified period crops; that in the aftermath of the typhoon, PPI
the undelivered or unused fertilizers and representatives led by one Noel David had
agricultural chemical products, its corresponding inspected the Municipality of Aliaga, and had
value will be charged to the regular credit line of forged an agreement with the petitioners whereby
CONTRACTS FINALS ACJUCO 19

they bound themselves to help PPI "in collecting It is apparent, however, that the petitioners are
from the farmers in the succeeding palay crop focusing on the evidentiary value of Exhibit V, the
their indebtedness;" and that PPI had statement of account showing that Gloria was
subsequently made them the "principal debtor" liable in the total amount of ₱240,355.10 as of July
notwithstanding that they had not incurred any 9, 1985, and are in the process avoiding the
account with PPI because all the transactions had pivotal issue concerning the nature of the contract
been "on a cash on delivery basis or cash between them and PPI. Nonetheless, the issue of
withdrawal basis." liability sprang from the terms of the contractual
documents Gloria had signed. For them to
On June 9, 2003, the CA denied the petitioners’ question the amount of their liabilities without
motion for reconsideration. explaining why they should not be held liable
veritably constituted their tacit admission of the
Issues existence of the loan but assailing only how much
they should repay to PPI.
Hence, the petitioners are now before the
Court via their petition for review on certiorari. The petitioners aver that "in a surprising turn of
events, when it appeared that no further collection
The petitioners ascribe to the CA grave reversible could be had, [PPI] unilaterally and arbitrarily
error in affirming the decision of the RTC converted and charged its receivables from the
notwithstanding that the award to PPI of the farmers-participants against petitioner’s regular
amount of ₱240,335.10 plus 16% interest per credit line," and PPI thereafter sent the demand
annum was based on hearsay evidence, leaving letters to Gloria.33 Considering that the documents
absolutely no other evidence to support the signed by Gloria governed the relationship
award. They assail the award of attorney’s fees for between her and PPI, the controversy can be
its lack of factual and legal bases; and insist that resolved only by an examination of the contractual
the CA did not consider "certain facts and documents.
circumstances on record which would otherwise
justify a different decision." As earlier mentioned, Gloria signed the
application for credit facilities on March 23, 1978,
Ruling indicating that a trust receipt would serve as
collateral for the credit line. On August 4, 1978,
The appeal has no merit. Gloria, as "dealer," signed together with Quirino
the list of their assets having a total value of
I. ₱260,000.00 (consisting of a residential house
Parties entered into a creditor-debtor and lot, 10-hectare agricultural lands in Aliaga and
relationship Talavera, and two residential lots) that they
tendered to PPI "to support our credit application
The petitioners did not deny that Gloria applied in connection with our participation to your Special
with PPI for a credit line of ₱200,000.00; and that Credit Scheme."34 Gloria further signed the Trust
Gloria signed up for the SCS Program of PPI. The Receipt/SCS documents defining her obligations
principal issue they now raise is whether the two under the agreement, and also the invoices
transaction documents signed by Gloria pursuant to the agreement with PPI, indicating her
expressed the intent of the parties to establish a having received PPI products on various dates.
creditor-debtor relationship between them. The
resolution of the issue is necessary to resolve the These established circumstances comprised by
corollary issue of whether the petitioners were the contemporaneous and subsequent acts of
liable to PPI for the value of the fertilizers and Gloria and Quirino that manifested their intention
agricultural chemical products delivered to Gloria, to enter into the creditor-debtor relationship with
and, if so, by how much. PPI show that the CA properly held the petitioners
fully liable to PPI. The law of contracts provides
that in determining the intention of the parties,
CONTRACTS FINALS ACJUCO 20

their contemporaneous and subsequent acts shall altering their condition." In other words, a dealer is
be principally considered.35 Consequently, the "one who buys to sell again."42
written terms of their contract with PPI, being clear
upon the intention of the contracting parties, The fourth circumstance had to do with the
should be literally applied.36 undertakings under the trust receipts. The position
of the petitioners was that the farmers-participants
The first circumstance was the credit line of alone were obligated to pay for the goods
₱200,000.00 that commenced the business delivered to them by Gloria. However, such
relationship between the parties. A credit line is position had no factual and legal legs to prop it up.
really a loan agreement between the parties. A close look at the Trust Receipt/SCS indicates
According to Rosario Textile Mills Corporation v. that the farmer-participants were mentioned
Home Bankers Savings and Trust Co.:37 therein only with respect to the duties and
responsibilities that Gloria personally assumed to
x x x [A] credit line is "that amount of money or undertake in holding goods "in trust for PPI."
merchandise which a banker, a merchant, or Under the notion of relativity of contracts
supplier agrees to supply to a person on credit and embodied in Article 1311 of the Civil Code,
generally agreed to in advance." It is a fixed limit contracts take effect only between the parties,
of credit granted by a bank, retailer, or credit card their assigns and heirs. Hence, the farmer-
issuer to a customer, to the full extent of which the participants, not being themselves parties to the
latter may avail himself of his dealings with the contractual documents signed by Gloria, were not
former but which he must not exceed and is to be thereby liable.
usually intended to cover a series of transactions
in which case, when the customer’s line of credit At this juncture, the Court clarifies that the
is nearly exhausted, he is expected to reduce his contract, its label notwithstanding, was not a trust
indebtedness by payments before making any receipt transaction in legal contemplation or within
further drawings.38 the purview of the Trust Receipts
Law (Presidential Decree No. 115) such that its
The second circumstance was the offer by Gloria breach would render Gloria criminally liable
of trust receipts as her collateral for securing the for estafa. Under Section 4 of the Trust Receipts
loans that PPI extended to her.39 A trust receipt is Law, the sale of goods by a person in the business
"a security transaction intended to aid in financing of selling goods for profit who, at the outset of the
importers and retail dealers who do not have transaction, has, as against the buyer, general
sufficient funds or resources to finance the property rights in such goods, or who sells the
importation or purchase of merchandise, and who goods to the buyer on credit, retaining title or other
may not be able to acquire credit except through interest as security for the payment of the
utilization, as collateral, of the merchandise purchase price, does not constitute a trust receipt
imported or purchased."40 It is a security transaction and is outside the purview and
agreement that "secures an indebtedness and coverage of the law, to wit:
there can be no such thing as security interest that
secures no obligation."41 Section. 4. What constitutes a trust receipt
transaction. – A trust receipt transaction, within
The third circumstance was the offer of Gloria and the meaning of this Decree, is any transaction by
Quirino to have their conjugal real properties beef and between a person referred to in this Decree
up the collaterals for the credit line. Gloria signed as the entruster, and another person referred to in
the list of the properties involved as "dealer," this Decree as the entrustee, whereby the
thereby ineluctably manifesting that Gloria entruster, who owns or holds absolute title or
considered herself a dealer of the products security interests over certain specified goods,
delivered by PPI under the credit line. In this documents or instruments, releases the same to
connection, a dealer is "a person who makes a the possession of the entrustee upon the latter’s
business of buying and selling goods, especially execution and delivery to the entruster of a signed
as distinguished from a manufacturer, without document called a "trust receipt" wherein the
CONTRACTS FINALS ACJUCO 21

entrustee binds himself to hold the designated referring to merchandise received under the
goods, documents or instruments in trust for the obligation to return it (devolverla) to the owner.
entruster and to sell or otherwise dispose of the Thus, under the Trust Receipts Law, intent to
goods, documents or instruments with the defraud is presumed when (1) the entrustee fails
obligation to turn over to the entruster the to turn over the proceeds of the sale of goods
proceeds thereof to the extent of the amount covered by the trust receipt to the entruster; or (2)
owing to the entruster or as appears in the trust when the entrustee fails to return the goods under
receipt or the goods, documents or instruments trust, if they are not disposed of in accordance with
themselves if they are unsold or not otherwise the terms of the trust receipts.
disposed of, in accordance with the terms and
conditions specified in the trust receipt, or for other In all trust receipt transactions, both obligations on
purposes substantially equivalent to any of the the part of the trustee exist in the alternative – the
following: return of the proceeds of the sale or the return or
recovery of the goods, whether raw or
1. In the case of goods or documents, (a) to sell processed. When both parties enter into an
the goods or procure their sale; or (b) to agreement knowing that the return of the
manufacture or process the goods with the goods subject of the trust receipt is not
purpose of ultimate sale: Provided, That, in the possible even without any fault on the part of
case of goods delivered under trust receipt for the the trustee, it is not a trust receipt transaction
purpose of manufacturing or processing before its penalized under Section 13 of P.D. 115; the
ultimate sale, the entruster shall retain its title over only obligation actually agreed upon by the
the goods whether in its original or processed form parties would be the return of the proceeds of
until the entrustee has complied fully with his the sale transaction. This transaction
obligation under the trust receipt; or (c) to load, becomes a mere loan, where the borrower is
unload, ship or tranship or otherwise deal with obligated to pay the bank the amount spent for
them in a manner preliminary or necessary to their the purchase of the goods. (Bold emphasis
sale; or supplied)

2. In case of instruments x x x. It is not amiss to point out that the RTC even erred
in citing Section 4 of the Trust Receipts Law as its
The sale of goods, documents or instruments basis for ordering Gloria to pay the total amount of
by a person in the business of selling goods, ₱240,355.10. Section 13 of the Trust Receipts
documents or instruments for profit who, at Law considers the "failure of an entrustee to turn
the outset of the transaction, has, as against over the proceeds of the sale of the goods,
the buyer, general property rights in such documents or instruments covered by a trust
goods, documents or instruments, or who receipt to the extent of the amount owing to the
sells the same to the buyer on credit, retaining entruster or as appears in the trust receipt or to
title or other interest as security for the return said goods, documents or instruments if
payment of the purchase price, does not they were not sold or disposed of in accordance
constitute a trust receipt transaction and is with the terms of the trust receipt" as constituting
outside the purview and coverage of this the crime of estafa under Article 315 (b) of
Decree. (Bold emphasis supplied.) the Revised Penal Code. However, had PPI
intended to charge Gloria with estafa, it could
In Land Bank v. Perez,43 the Court has elucidated have then done so. Instead, it brought this
on the coverage of Section 4, supra, to wit: collection suit, a clear indication that the trust
receipts were only collaterals for the credit line as
There are two obligations in a trust receipt agreed upon by the parties.
transaction. The first is covered by the provision
that refers to money under the obligation to deliver To be clear, the obligation assumed by Gloria
it (entregarla) to the owner of the merchandise under the Trust Receipt/SCS involved "the
sold. The second is covered by the provision execution of a Trust Agreement by the farmer-
CONTRACTS FINALS ACJUCO 22

participants" in her favor, which, in turn, she would In this regard, whether or not the Trust
assign "in favor of PPI with recourse" in case of Receipt/SCS was a contract of adhesion
delivery and sale to the farmer-participants. The apparently prepared by PPI would neither dilute
term recourse as thus used means "resort to a nor erase her liabilities. A contract of adhesion
person who is secondarily liable after the default prepared by one party, usually a corporation, is
of the person who is primarily liable."44 An generally not a one-sided document as long as the
indorsement "with recourse" of a note, for signatory is not prevented from studying it before
instance, makes the indorser a general indorser, signing. Gloria did not show that she was deprived
because the indorsement is without qualification. of that opportunity to study the contract. At any
Accordingly, the term with recourse confirms the rate, the social stature of the parties, the nature of
obligation of a general indorser, who has the same the transaction, and the amount involved were
liability as the original obligor.45 As the assignor also factors to be considered in determining
"with recourse" of the Trust Agreement executed whether the aggrieved party "exercised adequate
by the farmer participating in the SCS, therefore, care and diligence in studying the contract prior to
Gloria made herself directly liable to PPI for the its execution."48 Thus, "[u]nless a contracting
value of the inputs delivered to the farmer- party cannot read or does not understand the
participants. Obviously, the signature of the language in which the agreement is written, he is
representative of PPI found in the demand letters presumed to know the import of his contract and
Gloria sent to the farmer-participants only is bound thereby."49 Here, Gloria was married to a
indicated that the Trust Agreement was part of the lawyer who was also then the Municipal Mayor of
SCS of PPI. Aliaga. Both of them signed the list of conjugal
assets that they used to support the application for
The petitioners could not validly justify the non- the credit line.
compliance by Gloria with her obligations under
the Trust Receipt/SCS by citing the loss of the The last circumstance was that the petitioners
farm outputs due to typhoon Kading. There is no now focus on the amount of liabilities adjudged
question that she had expressly agreed that her against them by the lower courts. They thereby
liability would not be extinguished by the bolster the finding that they fully knew and
destruction or damage of the crops. The use of the accepted the legal import of the documents Gloria
term with recourse was, in fact, consonant with had signed of rendering them personally liable
the provision of the Trust Receipt/SCS stating that towards PPI for the value of the inputs granted to
if Gloria could not deliver or serve "all the inputs" the farmer-participants through them. The finding
to the farmer-participants within 60 days, she is further confirmed by her admission of paying to
agreed that "the undelivered inputs will be PPI the amount of ₱50,000.00, which payment,
charged" to her "regular credit line." Under her albeit allegedly made grudgingly, solidified the
arrangement with PPI, the trust receipts were existence of a creditor-debtor relationship
mere securities for the credit line granted by between them. Indeed, Gloria would not have paid
PPI,46 having in fact indicated in her application for that amount except in acknowledgement of an
the credit line that the trust receipts were indebtedness towards PPI.
"collaterals" or separate obligations "attached to
any other contract to guaranty its performance."47 II.
Statement of account was not hearsay
It is worthwhile to note that the application for
credit facilities was a form contract that Gloria The petitioners insist that they could not be held
filled out only with respect to her name, address, liable for the balance stated in Exhibit V due to
credit limit, term, and collateral. Her act of signing such document being hearsay as a "mere
the application signified her agreement to be statement of account."50 They argue that Cristina
bound by the terms of the application, specifically Llanera, the witness of PPI on the matter, was only
her acquiescence to use trust receipts as a warehouse assistant who was not shown to be
collaterals, as well as by the terms and conditions either an accountant, or bookkeeper, or auditor or
of the Trust Receipt/SCS. a person knowledgeable in accounting. They posit
CONTRACTS FINALS ACJUCO 23

that Llanera’s testimony on Exhibit V was limited testify, which was not the situation here.
to stating that she had prepared the statement of Regardless, we have to point out that entries
account contained therein; that she did not affirm made in the course of business enjoy the
the correctness or veracity of the contents of the presumption of regularity.53 If properly
document;51 and that, consequently, Exhibit V had authenticated, the entries serve as evidence of the
no evidentiary value as proof of their total liability status of the account of the petitioners. In Land
for ₱240,355.10, the amount stated therein. Bank v. Monet’s Export and Manufacturing
Corporation,54 the Court has explained that such
We do not agree with the petitioners. entries are accorded unusual reliability because
their regularity and continuity are calculated to
With Exhibit V being a private document, discipline record keepers in the habit of precision;
authentication pursuant to the rules on evidence and that if the entries are financial, the records are
was a condition for its admissibility.52 Llanera, routinely balanced and audited; hence, in actual
admittedly the person who had prepared the experience, the whole of the business world
document, was competent to testify on the due function in reliance of such kind of records.
execution and authenticity of Exhibit V. Such
authentication was done in accordance with Rule Nor have the petitioners proved that the entries
132 of the Rules of Court, whose Section 20 contained in Exhibit V were incorrect and
states: untruthful. They cannot be permitted to do so now
at this stage of final appeal, especially after the
Section 20. Proof of private document. – Before lower courts found and accepted the statement of
any private document offered as authentic is account contained therein to be properly
received in evidence, its due execution and authenticated and trustworthy. Indeed, the Court
authenticity must be proved either: is in no position to review and overturn the lower
courts’ unanimous finding and acceptance without
(a)By anyone who saw the document executed or strong and valid reasons because they involved
written; or an issue of fact.55

(b)By evidence of the genuineness of the III.


signature or handwriting of the maker. Interest of 16% per annum, being usurious,
must be reversed
Any other private document need only be
identified as that which it is claimed to be. The statement of account discloses that the
interest rate was 14% per annum for the "SCS
Further, the petitioners dispute the contents of Account – from the invoice date to 7/09/85"; and
Exhibit V by invoking Section 43, Rule 130 of that the interest rate was 16% per annum for the
the Rules of Court, to wit: "Reg. Account – from 8/16/80 to 7/09/85." The
petitioners assail the interest charged on the
Section 43. Entries in the course of business. principal obligation as usurious.
– Entries made at, or near the time of the
transactions to which they refer, by a person The matter of interest, being a question of law,
deceased, or unable to testify, who was in a must have to dealt with and resolved.
position to know the facts therein stated, may be
received as prima facie evidence, if such person In 1978, when Gloria and PPI entered into the
made the entries in his professional capacity or in credit line agreement, the Usury Law (Act No.
the performance of duty and in the ordinary or 2655) was still in effect. Section 2 of the Usury
regular course of business. Law prescribed an interest rate of 12% per
annum on secured loans, while Section 1
The invocation of the rule is misplaced, however, provided that "[t]he rate of interest for the loan or
because the rule speaks of a situation where the forbearance of any money, goods, or credits and
person who made the entries is dead or unable to the rate allowed in judgments, in the absence of
CONTRACTS FINALS ACJUCO 24

express contract as to such rate of interest, shall Lines, Inc. v. Court of Appeals,58whereby the
be six per centum per annum or such rate as may Court has defined the following formula for the
be prescribed by the Monetary Board of the computation of legal interest for the guidance of
Central Bank." the Bench and the Bar, viz:

It is noted, of course, that the Usury Law allowed TOTAL AMOUNT DUE = [principal – partial
the parties in a loan agreement to exercise payments made] + [interest + interest on interest],
discretion on the interest rate to be charged. Once where
a judicial demand for payment has been made,
however, Article 2212 of the Civil Code should Interest = remaining balance x 12% per annum x
apply, that is: "Interest due shall earn legal interest no. of years from due date until date of sale to a
from the time it is judicially demanded, although third party (payment).
the obligation may be silent upon this point."
Interest on interest = interest computed as of the
The Central Bank circulars on interest rates filing of the complaint x no. of years until date of
granted to the parties leeway on the rate of sale to a third party (payment).59
interest agreed upon. In this regard, the Court has
said: Relevantly, the likelihood of the aggregate interest
charged exceeding the principal indebtedness is
The Usury Law had been rendered legally not remote. In Apo Fruits Corporation v. Land
ineffective by Resolution No. 224 dated 3 Bank of the Philippines,60 a case involving just
December 1982 of the Monetary Board of the compensation for landholdings with legal interest,
Central Bank, and later by Central Bank Circular however, the Court has appropriately observed
No. 905 which took effect on 1 January 1983. that the realization of such likelihood was not
These circulars removed the ceiling on interest necessarily inequitable or unconscionable due to
rates for secured and unsecured loans regardless its resulting directly from the application of law and
of maturity. The effect of these circulars is to allow jurisprudence, to wit:
the parties to agree on any interest that may be
charged on a loan. The virtual repeal of the Usury That the legal interest due is now almost
Law is within the range of judicial notice which equivalent to the principal to be paid is not per
courts are bound to take into account. Although se an inequitable or unconscionable situation,
interest rates are no longer subject to a ceiling, the considering the length of time the interest has
lender does not have an unbridled license to remained unpaid – almost twelve long years.
impose increased interest rates. The lender and From the perspective of interest income, twelve
the borrower should agree on the imposed rate, years would have been sufficient for the
and such imposed rate should be in writing.56 petitioners to double the principal, even if invested
conservatively, had they been promptly paid the
Accordingly, the interest rate agreed upon should principal of the just compensation due them.
not be "excessive, iniquitous, unconscionable and Moreover, the interest, however enormous it may
exorbitant;" otherwise, the Court may declare the be, cannot be inequitable and unconscionable
rate illegal.57 because it resulted directly from the application of
law and jurisprudence – standards that have taken
Considering that the credit line agreement was into account fairness and equity in setting the
entered into in 1978, the rate of interest was still interest rates due for the use or forbearance of
governed by the Usury Law. The 16% per money.
annum interest imposed by the RTC was
erroneous, therefore, because the loan was That is true herein. Although this case was
secured by the Trust Receipt/SCS. In view of this, commenced in 1981, the decision of the trial court
12% per annum is the legal rate of interest that was rendered only in 1997, or more than 15 years
should apply, to be reckoned from the filing of the ago. By appealing to the CA and then to this Court,
action. This rate accords with Eastern Shipping the petitioners chose to prolong the final resolution
CONTRACTS FINALS ACJUCO 25

of the case; hence, they cannot complain, but Even so, whenever attorney’s fees are proper in a
must bear the consequences to them of the case, the decision rendered therein should still
application of the pertinent law and jurisprudence, expressly state the factual basis
no matter how unfavorable to them. and legal justification for granting them. Granting
them in the dispositive portion of the judgment is
IV. not enough; a discussion of the factual basis
Attorney’s fees to be deleted and legal justification for them must be laid out in
the body of the decision. Considering that the
In granting attorney’s fees, the RTC merely relied award of attorney’s fees in favor of the
on and adverted to PPI’s allegation that the failure respondents fell short of this requirement, the
of the petitioners to comply with their obligations Court disallows the award for want of the factual
under the contracts had "compelled [them] to hire and legal premises in the body of the decision.
the services of a counsel for which it had agreed The requirement for express findings of fact and
to an attorney’s fee equivalent to 25% of the total law has been set in order to bring the case within
amount recovered exclusive of appearance fee of the exception and justify the award of the
₱1,500.00" as its sole basis for holding the attorney’s fees. Otherwise, the award is a
petitioners liable to pay ₱20,000.00 "as attorneys’ conclusion without a premise, its basis being
fee and cost of litigation." In affirming the RTC improperly left to speculation and conjecture.
thereon, the CA did not even mention or deal with
the matter of attorney’s fees in its own decision. The lack of any assignment of error upon the
matter of attorney’s fees is of no moment, for the
The award of attorney’s fees is deleted because award, being devoid of any legal and factual basis,
of the absence of any factual and legal justification can be corrected and removed as a matter of law.
being expressly stated by the CA as well as by the
RTC. To start with, the Court has nothing to review Finally, the petitioners charge that the CA "failed
if the CA did not tender in its decision any to consider certain facts and circumstances on
justification of why it was awarding attorney’s fees. record which would otherwise justify a different
The award of attorney’s fees must rest on a factual decision." The "facts and circumstances"
basis and legal justification stated in the body of pertained to details relevant to the nature of the
the decision under review. Absent the statement agreement of the petitioners, and to the amount of
of factual basis and legal justification, attorney’s their liabilities. However, an examination reveals
fees are to be disallowed.61 In Abobon v. that the "facts and circumstances" do not warrant
Abobon,62 the Court has expounded on the a conclusion that they were not debtors of PPI
requirement for factual basis and legal justification under the credit line agreement.
in order to warrant the grant of attorney’s fees to
the winning party, viz: WHEREFORE, the Court AFFIRMS the Decision
promulgated on April 11, 2003 by the Court of
As to attorney’s fees, the general rule is that such Appeals, subject to the MODIFICATIONS that: (a)
fees cannot be recovered by a successful litigant the rate of interest is 12% per annum reckoned
as part of the damages to be assessed against the from the filing of the complaint until full payment;
losing party because of the policy that no premium and (b) the award of attorney’s fees is deleted.
should be placed on the right to litigate. Indeed,
prior to the effectivity of the present Civil Code, The petitioners shall pay the costs of suit.
such fees could be recovered only when there was
a stipulation to that effect. It was only under the SO ORDERED.
present Civil Code that the right to collect
attorney’s fees in the cases mentioned in Article
2208 of the Civil Code came to be recognized.
Such fees are now included in the concept of
actual damages.1âwphi1
CONTRACTS FINALS ACJUCO 26

STIPULATIONS IN FAVOR OF THIRD and by inheritance from their predecessors in


PERSONS interest, lately from their aunt, Doña Encarnacion
Florentino who died in Vigan, Ilocos Sur in 1941,
G.R. No. L-27696 September 30, 1977 and for which the said land was adjudicated to
them by virtue of the deed of extrajudicial partition
MIGUEL FLORENTINO, ROSARIO dated August 24, 1947; that applicants Salvador
ENCARNACION de FLORENTINO, MANUEL Encarnacion, Jr. and Angel Encarnacion acquired
ARCE, JOSE FLORENTINO, VICTORINO their respective shares of the land thru purchase
FLORENTINO, ANTONIO FLORENTINO, from the original heirs, Jesus, Caridad, Lourdes
REMEDION ENCARNACION and SEVERINA and Dolores surnamed Singson one hand and
ENCARNACION, petitioners-appellants, from Asuncion Florentino on the other.
vs.
SALVADOR ENCARNACION, SR., SALVADOR After due notice and publication, the Court set the
ENCARNACION, JR., and ANGEL application for hearing. No Opposition whatsoever
ENCARNACION, oppositors to encumbrance- was filed except that of the Director of Lands
petitioners-appelles. which was later withdrawn, thereby leaving the
option unopposed. Thereupon, an order of
Jose F. Singson and Miguel Florentino for general default was withdrawn against the whole
appellants. world. Upon application of the asets the Clerk Of
court was commission will and to have the
Pedro Singson for appellees. evidence of the agents and or to submit the for the
Court's for resolution.
GUERRERO, J.:
The crucial point in controversy in this registration
case is centered in the stipulation marked Exhibit
Appeal from the decision of the Court of First
O-1 embodied in the deed of extrajudicial partition
Instance of Ilocos Sur, acting as a land registration
(Exhibit O) dated August 24, 1947 which states:
court, in Land Registration case No. N-310.
Los productos de esta parcela de terreno situada
On May 22, 1964, the petitioners-appellants
en el Barrio Lubong Dacquel Cabugao Ilocos Sur,
Miguel Florentino, Remedios Encarnacion de
se destination para costear los tos de procesio de
Florentino, Manuel Arce, Jose Florentino,
la Tercera Caida celebration y sermon de Siete
Victorino Florentino, Antonio Florentino,
Palbras Seis Estaciones de Cuaresma, procesion
Remedior, Encarnacion and Severina
del Nino Jesus, tilaracion y conservacion de los
Encamacion, and the Petitiners-appellees
mismos, construction le union camarin en conde
Salvador Encamacion, Sr., Salvador Encamacion,
se depositan los carros mesas y otras cosas que
Jr. and Angel Encarnacion filed with the Court of
seven para lot leiracion de Siete Palabras y otras
First Instance of ilocos Sur an application for the
cosas mas Lo que sobra de lihos productos
registration under Act 496 of a parcel of
despues de descontados todos los gastos se
agricultural land located at Barrio Lubong Dacquel
repartira nosotros los herederos.
Cabugao Ilocos Sur.
In his testimony during the trial, applicant Miguel
The application alleged among other things that
Florentino asked the court to include the said
the applicants are the common and pro-indiviso
stipulation (Exhibit O-1) as an encumbrance on
owners in fee simple of the said land with the
the land sought to be registered, and cause the
improvements existing thereon; that to the best of
entry of the same on the face of the title that will
their knowledge and belief, there is no mortgage,
finally be issued. Opposing its entry on the title as
lien or encumbrance of any kind whatever
an encumbrance, petitionersappellee Salvador
affecting said land, nor any other person having
Encamacion, Sr., Salvador Encarnaciori, Jr. and
any estate or interest thereon, legal or equitable,
Angel Encarriacion filed on October 3, 1966 a
remainder, reservation or in expectancy; that said
manifestation seeking to withdraw their
applicants had acquired the aforesaid land thru
CONTRACTS FINALS ACJUCO 27

application on their respective shares of the land Salvador Encarnacion, Jr., of legal age, Filipino,
sought to be registered. The withdrawal was married to Angelita Nagar and resident of Vigan,
opposed by the petitioners-appellants. Ilocos Sur, consisting of an undivided 66/297;
Jose Florentino, of legal age, Filipino, married to
The Court after hearing the motion for withdrawal Salvacion Florendo and resident of 16 South Ninth
and the opposition thereto issued on November Diliman, Quezon City, consisting of an undivided
17, 1966 an order and for the purpose of 33/297 portion;
ascertaining and implifying the issues therein
stated that all the applicants admit the truth of the Angel Encarnacion, of legal age, Filipino, single
following; and resident of 1514 Milagros St., Sta. Cruz,
Manila, consisting of an undivided 33/297 portion;
(1) That just after the death of Encarnacion
FIorentino in 1941 up to last year and as had Victorino Florentino, of legal age, Filipino, married
always been the case since time immomorial the to Mercedes L. Encarnacion and resident of
products of the land made subiect matter of this Vigan, Ilocos Sur, consisting of an undivided
land has been used in answering for the payment 17.5/297 portion;
for the religious functions specified in the Deed
Extrajudicial Partition belated August 24, 1947: Antonio Florentino, of legal age, Filipino, single
and resident of Vigan, Ilocos Sur, consisting of an
(2) That this arrangement about the products undivided 17.5/297;
answering for the comment of experisence for
religions functions as mentioned above was not Salvador Encarnacion, Sr., of legal age, Filipino,
registered in the office of the Register of Deeds married to Dolores Singson, consisting of an
under Act No 3344, Act 496 or and, other system undivided 8.25/297;
of registration;
Remedios Encarnacion, of legal age, Filipino,
(3) That all the herein applicants know of the single and resident of Vigan, Ilocos Sur, consisting
existence of his arrangement as specified in the of an undivided 8.25/297 portion; and
Deed of Extra judicial Partition of A adjust 24,
1947; Severina Encarnacion, of legal age, Filipino,
single and resident of Vigan, Ilocos Sur, consisting
(4) That the Deed of Extrajudicial Partition of of 8.25/297 undivided portion.
August 24, 194-, not signed by Angel Encarnacion
or Salvador Encarnacion, Jr,. The court, after ruling "that the contention of the
proponents of encumbrance is without merit
The court denied the petitioners-appellee motion bemuse, taking the self-imposed arrangement in
to withdraw for lack of merit, and rendered a favor of the Church as a pure and simple donation,
decision under date of November 29, 1966 the same is void for the that the donee here has
confirming the title of the property in favor of the f riot accepted the donation (Art. 745, Civil Code)
appoints with their respective shares as follows: and for the further that, in the case of Salvador
Encarnacion, Jr. and Angel Encarnacion, they had
Spouses Miguel Florentino and Rosario made no oral or written grant at all (Art. 748) as in
Encarnacion de Florentino, both of legal age, fact they are even opposed to it," 1 held in the
Filipinos, and residents of Vigan, Ilocos Sur, Positive portion, as follows:
consisting of an undivided 31/297 and 8.25/297
portions, respectively; In view of all these, therefore, and insofar as the
question of encumbrance is concerned, let the
Manuel Arce, of legal age, Filipino, married to religious expenses as herein specified be made
Remedios Pichay and resident of Vigan, Ilocos and entered on the undivided shares, interests
Sur, consisting of an undivided 66/297 portion; and participations of all the applicants in this case,
except that of Salvador Encarnacion, Sr.,
CONTRACTS FINALS ACJUCO 28

Salvador Encarnacion, Jr. and Angel acceptance of the grant before its revocation by
Encarnacion. the oppositor Salvador Encarnacion, Sr. (or of the
two other oppositors, Salvador Encarnacion, Jr.
On January 3, 1967, petitioners-appellants filed and Angel Encarnacion, who didn't even make
their Reply to the Opposition reiterating their any giant, in the first place), and so not even the
previous arguments, and also attacking the movants who have officiously taken into
junction of the registration court to pass upon the themselves the right to enforce the grant cannot
validity or invalidity of the agreement Exhibit O-1, now maintain any action to compel compliance
alleging that such is specified only in an ordinary with it. (Bank of the P.I. v. Concepcion y Hijos,
action and not proper in a land registration Inc., 53 Phil. 806). Second, the Church in whose
proceeding. favor the stipulation or grant had apparently been
made ought to be the proper party to compel the
The Motion for Reconsideration and of New Trial herein three oppositors to abide with the
was denied on January 14, 1967 for lack of merit, stipulation. But it has not made any appearance
but the court modified its earlier decision of nor registered its opposition to the application
November 29, 1966, to wit: even before Oct. 18, 1965 when an order of
general default was issued. Third, the movants
This Court believes, and so holds, that the are not, in the contemplation of Section 2, Rule 3
contention of the movants (proponents of the of the Rules of Court, the real party in interest to
encumbrance) is without merit because the raise the present issue; and Fourth, the movants
arrangement, stipulation or grant as embodied in having once alleged in their application for
Exhibit O (Escritura de Particion Extrajudicial), by registration that the land is without encumbrance
whatever name it may be (called, whether (par. 3 thereof), cannot now be alloted by the rules
donation, usufruct or ellemosynary gift, can be of pleading to contradict said allegation of theirs.
revoked as in fact the oppositors Salvador (McDaniel v. Apacible, 44 Phil. 248)
Encarnacion, Sr., who is the only one of the three
oppositors who is a party to said Exhibit O (the two SO ORDERED. 2
others, Salvador Encarnacion, Jr. and Angel
Encarnacion no parties to it) did revoke it as After Motions for Reconsideration were denied by
shown by acts accompanying his refusal to have the court, the petitioners- appellants appealed
the same appear as an encumbrance on the title directly to this Court pursuant to Rule 4 1, Rules
to be issued. In fact, legally, the same can also be of Court, raising the following assign of error:
ignored or discararded by will the three
oppositors. The reasons are: First, if the said I. The lower court erred in concluding that the
stipulation is pour bodies in Exhibit O-1 is to be stipulation embodied in Exhibit O on religious
viewed as a stipulation pour autrui the same expenses is just an arrangement stipulation, or
cannot now be enforced because the Church in grant revocable at the unilateral option of the
whose favor it was made has not communicated coowners.
its acceptance to the oppositors before the latter
revoked it. Says the 2nd par. of Art. 1311 of the II. The lower court erred in finding and concluding
New Civil Code: that the encumbrance or religious expenses
embodied in Exhibit O, the extrajudicial partition
"If a contract should contain some stipulation in between the co-heirs, is binding only on the
favor of a third person he may demand its appoints Miguel Florentino, Rosario Encarnacion
fulfillment provided he communicated his de Florentino, Manuel Arce, Jose Florentino,
acceptance to the obligor before its revocation. A Antonio Florentino, Victorino Florentino,
mere incidental benefit or interest of a person is Remedios Encarnacion and Severina
not sufficient. The contracting parties must have Encarnacion.
clearly and deliberately conferred a favor upon a
third person." No evide nee has ever been III. The lower court as a registration court erred in
submitted by the Church to show its clear passing upon the merits of the encumbrance
CONTRACTS FINALS ACJUCO 29

(Exhibit O-1) as the sanie was never put to issue of the third person, and such third person and
and as the question involved is an adjudication of demand its fulfillment provoked that he
rights of the parties. communicates his to the obligor before it is
revoked. 3 The requisites are: (1) that the
We find the first and second assignments of error stipulation in favor of a third person should be a
impressed with merit and, therefore, tenable. The part, not the whole, of the contract; (2) that the
stipulation embodied in Exhibit O-1 on religious favorable stipulation should not be conditioned or
expenses is not revocable at the unilateral option compensated by any kind of obligation whatever;
of the co-owners and neither is it binding only on and (3) neither of the contracting bears the legal
the petitioners-appellants Miguel Florentino, represented or authorization of third person.
Rosario Encarnacion de Florentino Manuel Arce,
Jose Florentino, Victorino Florentino Antonio To constitute a valid stipulation pour autrui it must
Florentino, Remedios Encarnacion and Severina be the purpose and intent of the stipulating parties
E It is also binding on the oppositors-appellees to benefit the third and it is not sufficient that the
Angel Encarnacion, third person may be incidentally benefited by the
stipulation. The fairest test to determine whether
The stipulation (Exhibit 411) in pan of an the interest of third person in a contract is a
extrajudicial partition (Exh. O) duly agreed and stipulation pour autrui or merely an incidental
signed by the parties, hence the sanie must bind interest, is to rely upon the intention of the parties
the contracting parties thereto and its validity or as disclosed by their contract. In applying this test,
compliance cannot be left to the with of one of it meters not whether the stipulation is in the
them (Art. 1308, N.C.C.). Under Art 1311 of the nature of a gift or whether there is an obligation
New Civil Code, this stipulation takes effect owing from the promisee to the third person. That
between the parties, their assign and heirs. The no such obsorption exists may in some degree
article provides: assist in determining whether the parties intended
to benefit a third person.4
Art. 1311. — Contracts take effect only between
the parties, their assigns and heirs, except in In the case at bar, the determining point is whether
cases where the rights and obligations arising the co-owners intended to benefit the Church
from the contract are not transmissible by their when in their extrajudicial partition of several
nature, or by stipulation or by provision of law. The parcels of land inherited by them from Doña
heir is not liable beyond the value of the property Encarnacion Florendo they agreed that with
he received from the decedent. respect to the land situated in Barrio Lubong
Dacquel Cabugao Ilocos Sur, the fruits thereof
If a contract should contain a stipulation in favor of shall serve to defray the religious expenses
a third person, he may demand its fulfillment specified in Exhibit O-1. The evidence on record
provided he communicated his acceptance to the shows that the true intent of the parties is to confer
obligor before its revocation. A mere incidental a direct and material benefit upon the Church. The
benefit or interest of a person is not sufficient. The fruits of the aforesaid land were used thenceforth
contracting parties must have clearly and to defray the expenses of the Church in the
deliberately conferred a favor upon a third person. preparation and celebration of the Holy Week, an
annual Church function. Suffice it to say that were
The second paragraph of Article 1311 above- it not for Exhibit O-1, the Church would have
quoted states the law on stipulations pour necessarily expended for this religious occasion,
autrui. Consent the nature and purpose of the the annual relisgious procession during the Holy
motion (Exh. O-1), We hold that said stipulation is Wock and also for the repair and preservation of
a station pour autrui. A stipulation pour autrui is a all the statutes, for the celebration of the Seven
stipulation in favor of a third person conferring a Last Word.
clear and deliberate favor upon him, and which
stipulation is merely a part of a contract entered We find that the trial court erred in holding that the
into by the parties, neither of whom acted as agent stipulation, arrangement or grant (Exhibit O-1) is
CONTRACTS FINALS ACJUCO 30

revocable at the option of the co-owners. While a parties, based on the principles (1) that obligation
stipulation in favor of a third person has no binding arising from contracts have the force of law
effect in itself before its acceptance by the party between the contracting parties; and (2) that there
favored, the law does not provide when the third must be mutuality between the parties based on
person must make his acceptance. As a rule, their principle equality, to which is repugnant to
there is no time at such third person has after the have one party bound by the contract leaving the
time until the stipulation is revoked. Here, We find other free therefrom."
that the Church accepted the stipulation in its favor
before it is sought to be revoked by some of the Consequently, Salvador Encarnacion, Sr. must
co-owners, namely the petitioners-appellants bear with Exhibit O-1, being a signatory to the
herein. It is not disputed that from the time of the Deed of Extrajudicial Partition embodying such
with of Doña Encarnacion Florentino in 1941, as beneficial stipualtion. Likewise, with regards to
had always been the case since time immemorial Salvador, Jr. and Angel Encarnacion, they too are
up to a year before the firing of their application in bound to the agreement. Being subsequent
May 1964, the Church had been enjoying the purchasers, they are privies or successors in
benefits of the stipulation. The enjoyment of interest; it is axiomatic that contracts are
benefits flowing therefrom for almost seventeen enforceable against the parties and their
years without question from any quarters can only privies. 10 Furthermore, they are shown to have
be construed as an implied acceptance by the given their conformity to such agreement when
Church of the stipulation pour autrui before its they kept their peace in 1962 and 1963, having
revocation. already bought their respective shares of the
subject land but did not question the enforcement
The acceptance does not have to be in any of the agreement as against them. They are also
particular form, even when the stipulation is for the shown to have knowledge of Exhibit O-1 as they
third person an act of liberality or generosity on the had admitted in a Deed of Real Mortgage
part of the promisor or promise. 5 executed by them on March 8, 1962 involving their
shares of the subject land that, "This parcel of land
It need not be made expressly and formally. is encumbered as evidenced by the document No.
Notification of acceptance, other than such as is 420, page 94, Book 1, series 1947, executed by
involved in the making of demand, is the heirs of the late Encarnacion Florentino, on
unnecessary. 6 August 26, 1947, before M. Francisco Ante, Notwy
Public of Vigan, Ilocos Sur, in its page 10 of the
A trust constituted between two contracting said document of partition, and also by other
parties for the benefit of a third person is not documents."
subject to the rules governing donation of real
property. The beneficiary of a trust may demand The annotation of Exhibit O-1 on the face of the
performance of the obligation without having title to be issued in this case is merely a guarantee
formally accepted the benefit of the this in a public of the continued enforcement and fulfillment of the
document, upon mere acquiescence in the beneficial stipulation. It is error for the lower court
formation of the trust and acceptance under the to rule that the petitioners-appellants are not the
second paragraph of Art. 1257 of the Civil Code. 7 real parties in interest, but the Church. That one of
the parties to a contract pour autrui is entitled to
Hence, the stipulation (Exhibit O-1) cannot now be bring an action for its enforcement or to prevent its
revoked by any of the stipulators at their own breach is too clear to need any extensive
option. This must be so because of Article 1257, discussion. Upon the other hand, that the contract
Civil Code and the cardinal rule of contracts that it involved contained a stipulation pour autrui
has the force of law between the parties. 8 Thus, amplifies this settled rule only in the sense that the
this Court ruled in Garcia v. Rita Legarda, third person for whose benefit the contract was
Inc., 9 "Article 1309 is a virtual reproduction of entered into may also demand its fulfillment
Article 1256 of the Civil Code, so phrased to provoked he had communicated his acceptance
emphasize that the contract must bind both
CONTRACTS FINALS ACJUCO 31

thereof to the obligor before the stipulation in his avowed policy of speedy justice. It would not be
favor is revoked. 11 amiss to note that if this case be remanded to the
lower court, and should appeal again be made, the
Petitioners-appellants' third assignment of error is name issues will once more be raised before us
not well-taken. Firstly, the otherwise rigid rule that hence, Our decision to resolve at once the issues
the jurisdiction of the Land Registration Court, in the instant petition.
being special and limited in character and
proceedings thereon summary in nature, does not IN VIEW OF THE FOREGOING, the decision of
extend to cases involving issues properly litigable the Court of First Instance of Ilocos Sur in Land
in other independent suits or ordinary civil actions, Registration Case No. N-310 is affirmed but
has time and again been relaxed in special and modified to allow the annotation of Exhibit O-1 as
exceptional circumstances. (See Government of an encumbrance on the face of the title to be
the Phil. Islands v. Serafica, 61 Phil. 93 (1934); finally issued in favor of all the applications (herein
Caoibes v. Sison, 102 Phil. 19 (1957); Luna v. appellants and herein appellees) in the
Santos, 102 Phil. 588 (1957); Cruz v. Tan, 93 Phil. registration proceedings below.
348 (1953); Gurbax Singh Pabla & Co. v. Reyes,
92 Phil. 177 (1952). From these cases, it may be No pronouncement as to cost.
gleaned and gathered that the peculiarity of the
exceptions is based not only on the fact that Land SO ORDERED.
Registration Courts are likewise the same Courts
of First Instance, but also the following premises
(1) Mutual consent of the parties or their acquired
in submitting the at aforesaid determination by the
court in the registration; (2) Full opportunity given
to the parties in the presentation of their respective
skies of the issues and of the evidence in support
thereto; (3) Consideration by the court that the
evidence already of record is sufficient and
adequate for rendering a decision upon these
issues. 12 In the case at bar, the records clearly
show that the second and third premism
enumerated abow are fully mt. With regards to first
premise, the petioners-appellants cannot claim
that the issues anent Exhibit O-1 were not put in
issue because this is contrary to their stand before
the lower court where they took the initial step in
praying for the court's determination of the merits
of Exhibit O-1 as an encumbrance to be annotated
on the title to be issued by such court. On the other
hand, the petitioners-appellees who had the right
to invoke the limited jurisdiction of the registration
court failed to do so but met the issues head-on.

Secondly, for this very special reason, We win


uphold the actuation of the lower court in
determining the conflicting interests of the parties
in the registration proceedings before it. This case
has been languishing in our courts for thirteen
tong years. To require that it be remanded to the
lower court for another proceeding under its
general jurisdiction is not in consonance with our
CONTRACTS FINALS ACJUCO 32

G.R. No. 79518 January 13, 1989 Paragraph 3 of said agreement provides that
plaintiff (Antonio S. Young) and Rebecca Young
REBECCA C. YOUNG assisted by her husband
and all persons claiming rights under them bind
ANTONIO GO, petitioner,
themselves to voluntarily and peacefully vacate
vs.
the premises which they were occupying as
COURT OF APPEALS, PH CREDIT CORP.,
lessees (Units 1352 and 1354, respectively) which
PHIL. HOLDING, INC. FRANCISCO
are the subject of the condemnation and
VILLAROMAN, FONG YOOK LU, ELLEN YEE
demolition order and to surrender possession
FONG and THE REGISTER OF DEEDS OF
thereof to the defendant Philippine Holding, Inc.
MANILA, respondents.
within sixty (60) days from written notice, subject
Diego O. Untalan for petitioner. to the proviso that should defendant decided to
sell the subject property or portion thereof,
Esteban B. Bautista for respondents Fong Yook "plaintiff and Rebecca C. Young have the right of
Lu and Ellen Yee Fong. first refusal thereof." (Rollo, p. 49).
Janette Borres for respondents. On September 17, 1981, Philippine Holding, Inc.
PARAS, J.: had previously sold the above said property
described in the compromise agreement by way
This is a petition for review on certiorari seeking to of dacion in payment to PH Credit Corporation
set aside the decision of the Court of Appeals 1 in (Rollo, p. 49).
CA-G.R. No. 1002, entitled Spouses Chui Wan
and Felisa Tan Yu and Rebecca Young vs. PH On November 9, 1982, the property was
Credit Corporation et al., which affirmed the subdivided into two parcels, one 244.09 sq.m. in
decision of the Regional Trial Court of Manila, area covering Units 1350, 1352 and 1354 (TCT
Branch XXXII, earlier dismissing the complaint of No. 152439) and the other 241.71 sq.m. in area
petitioners for Annulment of Sale, Specific covering Units 1356, 1358 and 1360 (TCT No.
Performance and Damages, against respondents. 152440) and both titles were placed in the name
of PH Credit Corporation.
The facts of the case are as follows:
On December 8, 1982, PH Credit Corporation sold
Defendant Philippine Holding, Inc. is the former the property covered by TCT 152439 to the
owner of a piece of land located at Soler St., Sta. Blessed Land Development Corporation
Cruz, Manila, and a two storey building erected represented by its President Antonio T. S. Young;
thereon, consisting of six units; Unit 1350 which is and on September 16, 1983, PH Credit
vacant, Unit 1352 occupied by Antonio Young, Corporation sold the property covered by TCT
Unit 1354 by Rebecca C. Young, Unit 1356 by 152440 embracing Units 1356, 1358 and 1360 to
Chui Wan and Felisa Tan Yu, Unit 1358 by Fong spouses Fong Yook Lu and Ellen Yee Fong (Rollo,
Yook Lu and Ellen Yee Fong and Unit 1360 by the p. 15).
Guan Heng Hardware (Rollo, pp. 14-15).
Thereafter, petitioner Rebecca C. Young and her
The owner Philippine Holding, Inc. secured an co-plaintiffs, the spouses Chui Wan and Felisa
order from the City Engineer of Manila to demolish Tan Yu filed in the Regional Trial Court of Manila,
the building. Antonio Young, then a tenant of said Civil Case No. 84-22676 for the annulment of the
Unit 1352, filed an action to annul the City sale in favor of herein respondent spouses, Fong
Engineer's demolition Order (Civil Case No. Yook Lu and Ellen Yee Fong and for specific
123883) entitled Antonio S. Young vs. Philippine performance and damages against the PH Credit
Holding, Inc. before the then Court of First Corporation and Philippine Holding, Incorporated.
Instance of Manila, Branch XXX. As an incident in
said case, the parties submitted a Compromise Plaintiff spouses Chui Wan and Felisa Tan Yu
Agreement to the Court on September 24, 1981. alleged that defendant corporation and Francisco
CONTRACTS FINALS ACJUCO 33

Villaroman, sold the property without affording motion (Rollo, p. 37), which comment was filed on
them (the plaintiffs-spouses) the right of first December 17, 1987 (Rollo, p. 38). Thereafter, in
refusal to purchase that portion of the property the resolution of January 20, 1988, respondents
which they are renting. were required to file a reply thereto (Rollo, p. 42)
which was filed on January 11, 1988 (Rollo, p. 43).
Plaintiff Rebecca C. Young, now petitioner, also
On March 24, 1988, petitioner filed a rejoinder to
claimed the right of first refusal purportedly
reply (Rollo, p. 46) in compliance with the
granted to her under the aforestated proviso of the
resolution of February 29, 1988 (Rollo, p.45).
abovesaid compromise agreement and prayed
that the sale be annulled and that they be allowed In the resolution of May 11, 1988, the petition was
to exercise her right of first refusal to purchase given due course and the parties were required to
subject property (Rollo, p. 50). submit simultaneously their respective
memoranda (Rollo, p. 47). Respondents filed their
The lower court decided in favor of the defendants
memorandum on June 29, 1988 (Rollo, p. 48),
and against the plaintiffs, thus dismissing the
while petitioner's memorandum was filed on July
complaint together with defendants' counterclaims
14, 1988 (Rollo, p. 64).
(Rollo, p. 15)
Petitioner raised the following assignments of
On the other hand, the claim of Rebecca C. Young
error:
was similarly rejected by the trial court on the
following grounds: (1) that she was not a party in 1. The lower court erred in holding that Rebecca
the Civil Case No. 123883, wherein subject C. Young cannot enforce the stipulation in her
compromise agreement was submitted and favor in the compromise agreement as she is not
approved by the trial court apart from the fact that party therein.
she did not even affix her signature to the said
2. The lower court erred in holding that even if par.
compromise agreement; (2) that Rebecca Young
3 of the compromise agreement is construed as a
had failed to present any evidence to show that
stipulation pour autrui Rebecca Young cannot
she had demanded from the defendants-owners,
enforce it because she did not communicate her
observance of her right of first refusal before the
acceptance thereof to the obligor. (Rollo, p. 7)
said owners sold units 1356, 1358 and 1360; (3)
that even assuming that her supposed right of first The petition is devoid of merit.
refusal is a stipulation for the benefit of a third
person, she did not inform the obligor of her The main issue in this case is whether or not
acceptance as required by the second paragraph petitioner can enforce a compromise agreement
of Article 1311 of the Civil Code. to which she was not a party. This issue has
already been squarely settled by this Court in the
Chui Wan and Felisa Tan Yu and Rebecca C. negative in J.M. Tuason & Co., Inc. v.
Young, assisted by her husband, appealed to the Cadampog (7 SCRA 808 [1963])where it was
Court of Appeals which dismissed the same on ruled that appellant is not entitled to enforce a
August 7, 1987, for lack of merit. compromise agreement to which he was not a
party and that as to its effect and scope, it has
Hence this petition, which was brought to this
been determined in the sense that its effectivity if
Court only by Rebecca Young, assisted by her
at all, is limited to the parties thereto and those
husband Antonio Go.
mentioned in the exhibits (J.M. Tuason & Co., Inc.
On October 2, 1987, respondents Fong Yook Lu, v. Aguirre, 7 SCRA 112 [1963]). It was reiterated
moved to strike out or dismiss outright the instant later that a compromise agreement cannot bind
petition (Rollo, p. 35). In the resolution of persons who are not parties thereto (Guerrero v.
November 4, 1987, the Second Division of this C.A., 29 SCRA 791 [1969]).
Court required the petitioner to comment on said
CONTRACTS FINALS ACJUCO 34

The pertinent portion of the Compromise (2) the stipulation must be a part, not the whole of
Agreement reads: the contract.
Plaintiff Antonio T.S. Young and the Defendant (3) the contracting parties must have clearly and
HOLDING hereby agree to implead in this action deliberately conferred a favor upon a third person,
as necessary party- plaintiff, plaintiff's daughter not a mere incidental benefit or interest.
Rebecca C. Young who is the recognized lawful
(4) the third person must have communicated his
lessee of the premises known and identified as
acceptance to the obligor before its revocation.
1354 Soller St., Sta. Cruz, Manila and whose
written conformity appears hereunder. (Rollo, p. (5) neither of the contracting parties bears the
18) legal representation or authorization of the third
party. (Florentino v. Encarnacion, Sr., 79 SCRA
From the terms of this agreement, the conditions
193 [1977]).
are very clear, such as: (1) that Rebecca C. Young
shall be impleaded in the action and (2) that she Assuming that petitioner is correct in claiming that
shall signify her written conformity thereto. this is a stipulation pour autrui it is unrebutted that
she did not communicate her acceptance whether
For unknown reasons, the above conditions were
expressly or impliedly. She insists however, that
not complied with. The parties did not make any
the stipulation has not yet been revoked, so that
move to implead Rebecca as necessary party in
her present claim or demand is still timely.
the case. Neither did her written conformity
appear in said agreement. While there is the As correctly observed by the Court of Appeals, the
printed name of Rebecca C. Young appearing at above argument is pointless, considering that the
the end of the joint motion for approval of the sale of subject property to some other person or
Compromise Agreement, she did not affix her entity constitutes in effect a revocation of the grant
signature above her printed name, nor on the left of the right of first refusal to Rebecca C. Young.
margin of each and every page thereof.
PREMISES CONSIDERED, the petition is
In fact, on cross-examination, she admitted that DENIED for lack of merit, and the decision of the
she was not a party to the case and that she did Court of Appeals is AFFIRMED.
not sign the aforesaid joint motion because it was
not presented to her (Rollo, p. 18). SO ORDERED.

More than that, by the aforesaid actuations of the


parties and petitioner's apparent lack of interest,
the intention is evident, not to include the latter
either in the onerous, or in the beneficient
provisions of said agreement.
Petitioner further argued that the stipulation giving
her the right of first refusal is a stipulation pour
autrui or a stipulation in favor of a third person
under Article 1311 of the Civil Code.
The requisites of a stipulation pour autrui or a
stipulation in favor of a third person are the
following:
(1) there must be a stipulation in favor of a third
person.
CONTRACTS FINALS ACJUCO 35

G.R. No. 79734 December 8, 1988 Jungco, Notary Public and entered as Doc. No.
166; Page No. 135; Book No. XV; Series of 1975.
MARMONT RESORT HOTEL
ENTERPRISES, petitioner, That the First Party has erected, built and drilled
vs. for the water source of Marmont Resort on the
FEDERICO GUIANG, AURORA GUIANG, and land owned by the Second Party [Aurora Guiang]
COURT OF APPEALS, respondents. at the corner of J. Montelibano Street and
Maquinaya Drive (Provincial Road) with the
Isagani M. Jungco for petitioner.
latter's permission.
That for and in consideration of the sum of
FELICIANO, J.: P1,500.00 the Second Party hereby Sell, Transfer
and Cede all possessory rights, interest and
The present Petition for Review seeks to set aside claims over that portion of the lot wherein the
the Decision dated 9 December 1986 of the Court water source of Marmont Resort is located unto
of Appeals in CA-G.R. CV 03299. The appellate and in favor of Maris Trading.
court affirmed a Decision dated 31 May 1983 of
Branch 83 of the Regional Trial Court of Olongapo After some time, the water supply of the Marmont
City dismissing the complaint in Civil Case No. Resort Hotel became inadequate to meet the
2896-C filed by petitioner company against private hotel's water requirements. Petitioner Marmont
respondent spouses. secured the services of another contractor (the
name of which was not disclosed), which
On 2 May 1975, a Memorandum of Agreement suggested that in addition to the existing water
was executed between Maris Trading and pump, a submersible pump be installed to
petitioner Marmont Resort Hotel Enterprises, Inc. increase the pressure and improve the flow of
("Marmont"), a corporation engaged in the hotel water to the hotel. Accordingly, Juan Montelibano,
and resort business with office and establishment Jr., manager of the Marmont Resort Hotel, sought
at Olongapo City. Under the agreement, Maris permission from the Guiang spouses to inspect
Trading undertook to drill for water and to provide the water pump which had been installed on the
all equipment necessary to install and complete a portion of the land previously occupied by the
water supply facility to service the Marmont Resort spouses and to make the necessary additional
Hotel in Olongapo, for a stipulated fee of installations thereon. No such permission,
P40,000.00. In fulfillment of its contract, Maris however, was granted.
Trading drilled a well and installed a water pump
on a portion of a parcel of land situated in On 13 May 1980, petitioner Marmont filed a
Olongapo City, then occupied by respondent Complaint 2 against the Guiang spouses for
spouses Federico and Aurora Guiang. damages resulting from their refusal to allow
representatives of petitioner and the second
Five (5) months later, a second Memorandum of contractor firm entry into the water facility site. The
Agreement was executed between Maris Trading claimed damages were broken down as follows:
and Aurora Guiang, with Federico Guiang signing (a) P10,000.00 representing the amount
as witness. This second agreement in essential advanced in payment to the second contractor; (b)
part read: 1 P40,000.00 representing the total project cost of
That the First Party [Maris Trading] has dug, the installation made by Maris Trading: (c)
drilled and tapped water source for Marmont P50,000.00 representing additional expenses
Resort, located at Bo. Barretto, Olongapo City in incurred and incidental losses resulting from
accordance with their agreement executed on failure of the original pump to cope with the water
May 2, 1975 and notarized before Isagani M. requirements of the Marmont Resort Hotel; and (d)
P10,000.00 for Attorney's fees.
CONTRACTS FINALS ACJUCO 36

In their Answer, 3 the Guiang spouses The issues left to be ventilated during the trial are
(defendants below) denied having had any the following:
previous knowledge of the first Memorandum of
1. Whether defendants has actually prohibited the
Agreement and asserted that the second
plaintiff [from) making repairs, [on] the pump
Memorandum of Agreement was invalid for not
constructed by Maris Trading for the plaintiff under
having been executed in accordance with law.
the agreement Exhibit 'A,' if so;
The spouses added a counterclaim for damages
in the amount of P200,000.00. 2. Whether defendants [have] the right to prohibit
the Maris Trading from performing the repairs and
On 2 October 1980, at the pre-trial conference, the
if not
parties agreed on the following stipulation of facts
and issues embodied in a Pre-Trial Order:4 3. Whether defendants are liable for damages
under the human relations provision of the Civil
III
Code.
In addition to the admission made elsewhere in
On I January 1980, the Guiang spouses moved to
their respective pleadings, the parties entered into
dismiss the Complaint.5 The spouses there
the following stipulation of facts:
assailed the validity of the second Memorandum
1. Plaintiff is a corporation duly organized and of Agreement, alleging that the subject matter
existing under the laws of the Philippines with thereof involved conjugal property alienated by
office at Montelibano Street, Barrio Barretto, Aurora Guiang without the marital consent of her
Olongapo City; husband, Federico Guiang. Further, it was alleged
that the land upon which the hotel's water supply
2. The contract referred to in paragraph 2 of the
facility was installed-and which the Guiang
complaint between the plaintiff and Maris Trading
spouses occupied-formed part of the public
is contained in a document captioned
domain and was then still the subject of a
Memorandum Agreement executed on May 2,
Miscellaneous Sales Application submitted by
1975, a xerox copy of which is Annex 'A' of
Federico Guiang. The Motion to Dismiss,
plaintiffs complaint;
however, was denied by the trial court.
3. On October 7, 1975, the Maris Trading
No evidence having been adduced by the Guiang
represented by Ceferino Cabral and defendant
spouses on their behalf, the case was submitted
Aurora Guiang entered into a memorandum
for derision. On 31 May 1983, the trial court
agreement;
rendered a decision, 6 dismissing the complaint.
4. The portion sold under Annex 'A' is still a part of The trial court found that Aurora Guiang had
the public domain. validly alienated her rights over the disputed
portion of land to Maris Trading, but held that the
IV evidence failed to show that Maris Trading, in turn,
The plaintiff marked the following exhibits in had transferred such rights to petitioner Marmont.
evidence: Petitioner Marmont appealed to the Court of
Exhibit 'A'-Memorandum Agreement dated May 2, Appeals which affirmed the decision of the trial
1975 court and dismissed the appeal for lack of
merit. 7 The appellate court, citing Section 55,
Exhibit 'B-Memorandum Agreement dated Rule 132 of the Revised Rules of Court, held that
October 7, 1975 the first and second Memoranda of Agreement
V could not legally be considered by the court as
included in the body of evidence of the case, as
neither document had been formally offered in
CONTRACTS FINALS ACJUCO 37

evidence by either party. It also held that, in any stipulation of facts is incontrovertible, 9 and may
event, neither document showed that Marmont be relied upon by the courts. 10 Respondent
had in fact acquired from Maris Trading whatever spouses are estopped from raising as an issue in
rights the latter had over the land in dispute. this case the existence and admissibility in
evidence of both the first and second Memoranda
In the instant Petition for Review, petitioner
of Agreement which, having been marked as
assigns the following errors:8
exhibits during pre-trial, properly form part of the
1. The Court of Appeals erred in not considering record of this case, even though not formally
the Memorandum of Agreement of May 2, 1975 offered in evidence after trial. 11
and 7 October 1975 as the same were already
We consider briefly respondent spouses'
admitted in the pre-trial order; and
argument that the second Memorandum of
2. The Court of Appeals erred in deciding that Agreement was invalid for having been executed
ownership belongs to Maris Trading hence, by Aurora Guiang without the marital consent of
private respondent Guiang can prohibit Marmont Federico, contrary to Articles 165 and 172 of the
Resort from entering the land. Civil Code.

We find for the petitioner. Article 165 and 172 state the general principle
under our civil law, that the wife may not validly
Both the trial and appellate courts held that the bind the conjugal partnership without the consent
first and second Memoranda of Agreement are not of the husband, who is legally the administrator of
properly considered as forming part of the record the conjugal partnership. In this particular case,
of this case, because neither had been formally however, as noted earlier, the second
presented and offered in evidence at the trial of Memorandum of Agreement, although ostensibly
Civil Case No. 2896-C. The record shows, contracted solely by Aurora Guiang with Maris
however, as noted earlier, that at the pre-trial Trading, was also signed by her husband
conference held on 2 October 1980, both Federico, as one of the witnesses thereto. This
petitioner Marmont and respondent spouses had circumstance indicates not only that Federico was
agreed upon a stipulation of facts and issues present during the execution of the agreement but
recognizing the existence of those same two (2) also that he had, in fact, given his consent to the
agreements. Such stipulation of facts constitutes execution thereof by his wife Aurora. Otherwise,
a judicial admission, the veracity of which requires he should not have appended his signature to the
no further proof and which may be controverted document as witness. Respondent spouses
only upon a clear showing that such stipulation cannot now disown the second Memorandum of
had been entered into through "palpable mistake." Agreement as their effective consent thereto is
On this point, Section 2, Rule 129 of the Revised sufficiently manifested in the document itself.
Rules of Court provides:
That the land in dispute was, at the time of
Section 2. Judicial Admissions.--Admission made execution of the second Memorandum of
by the parties in the pleadings, or in the course of Agreement, public land, is of no consequence
the trial or other proceedings do not require proof here. Pending approval of Federico's
and cannot be contradicted unless previously Miscellaneous Sales Application over said land,
shown to have been made through palpable respondent spouses enjoyed possessory and
mistake. (emphasis supplied) other rights over the same which could validly be
There has been no showing and respondent assigned or transferred in favor of third persons.
spouses do not claim that "palpable mistake" had In this case, respondent spouses chose to transfer
intervened here, in respect of the formulation of such rights (over the portion upon which the water
the facts stipulated by the parties at the pre-trial pump was installed) to Maris Trading, as
conference. Absent any such showing, that evidenced by the fourth paragraph of the second
CONTRACTS FINALS ACJUCO 38

Memorandum of Agreement, quoted earlier. It is clear from the foregoing stipulations that
Furthermore, assuming (though only for the sake petitioner Marmont was to benefit from the second
of argument) that the alienation to Maris Trading Memorandum of Agreement. In fact, said
was legally objectionable, respondent spouses stipulations appear to have been designed
are not the proper parties to raise the issue of precisely to benefit petitioner and, thus, partake of
invalidity, they and Maris Trading being in pari the nature of stipulations pour
delicto. Only the government may raise that issue. autrui, contemplated in Article 1311 of the Civil
Code.
Finally, respondent spouses allege that dismissal
of the complaint by the trial court was not improper A stipulation pour autrui is a stipulation in favor of
as petitioner Marmont was not privy to the second a third person conferring a clear and deliberate
Memorandum of Agreement, and that accordingly, favor upon him, which stipulation is found in a
petitioner had no valid cause of action against contract entered into by parties neither of whom
respondents. acted as agent of the beneficiary. 12We believe
and so hold that the purpose and intent of the
A closer scrutiny of the second and third
stipulating parties (Maris Trading and respondent
paragraphs of the second Memorandum of
spouses) to benefit the third person (petitioner
Agreement discloses that the first Memorandum
Marmont) is sufficiently clear in the second
of Agreement, including the obligations imposed
Memorandum of Agreement. Marmont was not of
thereunder upon Maris Trading, had been
course a party to that second Agreement but, as
acknowledged therein:
correctly pointed out by the trial court and the
That the First Party (i.e., Maris Trading) has dug, appellate court, the respondent spouses could not
drilled and tapped water source for Marmont have prevented Maris Trading from entering the
Resort, located at Bo. Barretto, Olongapo City in property possessory rights over which had thus
accordance with their agreement executed on been acquired by Maris Trading. That respondent
May 2, 1975and notarized before Isagani M. t spouses remained in physical possession of that
Jungco, Notary Public and entered as Doc. No. particular bit of land, is of no moment; they did so
166; Page No. 135; Book No. XV; Series of 1975. simply upon the sufferance of Maris Trading. Had
Maris Trading, and not the respondent spouses,
That the First Party has erected, built and drilled been in physical possession, we believe that
for the water source of Marmont Resort on the Marmont would have been similarly entitled to
land owned by the Second Party [respondent compel Maris Trading to give it (Marmont) access
spouses] at the corner of J. Montelibano Street to the site involved. The two (2) courts below failed
and Maquinaya Drive (Provincial Road) with the to take adequate account of the fact that the sole
latter's permission;... (Emphasis supplied) purpose of Maris Trading in acquiring possessory
The above paragraphs establish, among other rights over that specific portion of the land where
things, that construction work had been performed well and pump and piping had been installed, was
by Maris Trading on the land occupied by to supply the water requirements of petitioner's
respondent spouses; that such construction work hotel. That said purpose was known by
had been performed in accordance with terms and respondent spouses, is made explicit by the
conditions stipulated in the first Memorandum of second Memorandum of Agreement. Maris
Agreement and that the purpose of the work was Trading itself had no need for a water supply
to build a water supply facility for petitioner facility; neither did the respondent spouses. The
Marmont. The same excerpts also show that the water facility was intended solely for Marmont
work so performed was with the knowledge and Resort Hotel. The interest of Marmont cannot
consent of the Guiang spouses, who were then therefore be regarded as merely "incidental
occupying the land. ." 13 Finally, even if it be assumed (for purposes of
argument merely) that the second Memorandum
CONTRACTS FINALS ACJUCO 39

of Agreement did not constitute a stipulation pour


autrui, still respondent spouses, in the
circumstances of this case, must be regarded as
having acted contrary to the principles of honesty,
good faith and fair dealing embodied in Articles 19
and 21 of the Civil Code when they refused
petitioner Marmont access to the water facility to
inspect and repair the same and to increase its
capacity and thereby to benefit from it. In so doing,
respondent spouses forced petitioner Marmont to
locate an alternative source of water for its hotel
which of course involved expenditure of money
and perhaps loss of hotel revenues. We believe
they should respond in damages.
The evidence on record, however, appears
insufficient for determination of the amount of
damages for which respondent spouses should be
liable. For this reason, the Court is compelled to
remand this case to the trial court for
determination of such damages in appropriate
further proceedings.
WHEREFORE, the Petition for Review on
certiorari is hereby GRANTED. The Decision
dated 9 December 1986 of the Court of Appeals in
C.A. — G.R. CV No. 03299, as well as the
Decision dated 31 May 1983 of the Regional Trial
Court of Olongapo City in Civil Case No. 2896-C,
are REVERSED. This case is REMANDED to the
trial court for determination, in further proceedings
consistent with this decision, of the amount of
petitioner is entitled to receive from respondent
spouses.
No pronouncement as to costs.
SO ORDERED.
CONTRACTS FINALS ACJUCO 40

NO ONE MAY CONTRACT IN THE NAME of a contract of lease executed by the plaintiff to
OF ANOTHER (ART 1317) Duran, which contract was in force up to February
14, 1911; that the said instrument of sale of the
G.R. No. L-9188 December 4, 1914 property, executed by Jose Duran, was publicly
GUTIERREZ HERMANOS, plaintiff-appellee, and freely confirmed and ratified by the defendant
vs. Orense; that, in order to perfect the title to the said
ENGRACIO ORENSE, defendant-appellant. property, but that the defendant Orense refused to
do so, without any justifiable cause or reason,
William A. Kincaid, Thos. L. Hartigan, and wherefore he should be compelled to execute the
Ceferino M. Villareal for appellant. said deed by an express order of the court, for
Rafael de la Sierra for appellee. Jose Duran is notoriously insolvent and cannot
reimburse the plaintiff company for the price of the
TORRES, J.:
sale which he received, nor pay any sum whatever
Appeal through bill of exceptions filed by counsel for the losses and damages occasioned by the
for the appellant from the judgment on April 14, said sale, aside from the fact that the plaintiff had
1913, by the Honorable P. M. Moir, judge, wherein suffered damage by losing the present value of the
he sentenced the defendant to make immediate property, which was worth P3,000; that, unless
delivery of the property in question, through a such deed of final conveyance were executed in
public instrument, by transferring and conveying behalf of the plaintiff company, it would be injured
to the plaintiff all his rights in the property by the fraud perpetrated by the vendor, Duran, in
described in the complaint and to pay it the sum of connivance with the defendant; that the latter had
P780, as damages, and the costs of the suit. been occupying the said property since February
14, 1911, and refused to pay the rental thereof,
On March 5, 1913, counsel for Gutierrez notwithstanding the demand made upon him for
Hermanos filed a complaint, afterwards amended, its payment at the rate of P30 per month, the just
in the Court of First Instance of Albay against and reasonable value for the occupancy of the
Engacio Orense, in which he set forth that on and said property, the possession of which the
before February 14, 1907, the defendant Orense defendant likewise refused to deliver to the
had been the owner of a parcel of land, with the plaintiff company, in spite of the continuous
buildings and improvements thereon, situated in demands made upon him, the defendant, with bad
the pueblo of Guinobatan, Albay, the location, faith and to the prejudice of the firm of Gutierrez
area and boundaries of which were specified in Hermanos, claiming to have rights of ownership
the complaint; that the said property has up to date and possession in the said property. Therefore it
been recorded in the new property registry in the was prayed that judgment be rendered by holding
name of the said Orense, according to certificate that the land and improvements in question
No. 5, with the boundaries therein given; that, on belong legitimately and exclusively to the plaintiff,
February 14, 1907, Jose Duran, a nephew of the and ordering the defendant to execute in the
defendant, with the latter's knowledge and plaintiff's behalf the said instrument of transfer and
consent, executed before a notary a public conveyance of the property and of all the right,
instrument whereby he sold and conveyed to the interest, title and share which the defendant has
plaintiff company, for P1,500, the aforementioned therein; that the defendant be sentenced to pay
property, the vendor Duran reserving to himself P30 per month for damages and rental of the
the right to repurchase it for the same price within property from February 14, 1911, and that, in case
a period of four years from the date of the said these remedies were not granted to the plaintiff,
instrument; that the plaintiff company had not the defendant be sentenced to pay to it the sum of
entered into possession of the purchased P3,000 as damages, together with interest
property, owing to its continued occupancy by the thereon since the date of the institution of this suit,
defendant and his nephew, Jose Duran, by virtue and to pay the costs and other legal expenses.
CONTRACTS FINALS ACJUCO 41

The demurrer filed to the amended complaint was which counsel for the defendant excepted and
overruled, with exception on the part of the moved for a new trial. This motion was denied, an
defendant, whose counsel made a general denial exception was taken by the defendant and, upon
of the allegations contained in the complaint, presentation of the proper bill of exceptions, the
excepting those that were admitted, and same was approved, certified and forwarded to
specifically denied paragraph 4 thereof to the the clerk of his court.
effect that on February 14, 1907, Jose Duran
This suit involves the validity and efficacy of the
executed the deed of sale of the property in favor
sale under right of redemption of a parcel of land
of the plaintiff with the defendant's knowledge and
and a masonry house with the nipa roof erected
consent.1awphil.net
thereon, effected by Jose Duran, a nephew of the
As the first special defense, counsel for the owner of the property, Engracio Orense, for the
defendant alleged that the facts set forth in the sum of P1,500 by means of a notarial instrument
complaint with respect to the execution of the executed and ratified on February 14, 1907.
deed did not constitute a cause of action, nor did
After the lapse of the four years stipulated for the
those alleged in the other form of action for the
redemption, the defendant refused to deliver the
collection of P3,000, the value of the realty.
property to the purchaser, the firm of Gutierrez
As the second special defense, he alleged that the Hermanos, and to pay the rental thereof at the rate
defendant was the lawful owner of the property of P30 per month for its use and occupation since
claimed in the complaint, as his ownership was February 14, 1911, when the period for its
recorded in the property registry, and that, since repurchase terminated. His refusal was based on
his title had been registered under the the allegations that he had been and was then the
proceedings in rem prescribed by Act No. 496, it owner of the said property, which was registered
was conclusive against the plaintiff and the in his name in the property registry; that he had
pretended rights alleged to have been acquired by not executed any written power of attorney to Jose
Jose Duran prior to such registration could not Duran, nor had he given the latter any verbal
now prevail; that the defendant had not executed authorization to sell the said property to the
any written power of attorney nor given any verbal plaintiff firm in his name; and that, prior to the
authority to Jose Duran in order that the latter execution of the deed of sale, the defendant
might, in his name and representation, sell the performed no act such as might have induced the
said property to the plaintiff company; that the plaintiff to believe that Jose Duran was
defendant's knowledge of the said sale was empowered and authorized by the defendant to
acquired long after the execution of the contract of effect the said sale.
sale between Duran and Gutierrez Hermanos,
The plaintiff firm, therefore, charged Jose Duran,
and that prior thereto the defendant did not
in the Court of First Instance of the said province,
intentionally and deliberately perform any act such
with estafa, for having represented himself in the
as might have induced the plaintiff to believe that
said deed of sale to be the absolute owner of the
Duran was empowered and authorized by the
aforesaid land and improvements, whereas in
defendant and which would warrant him in acting
reality they did not belong to him, but to the
to his own detriment, under the influence of that
defendant Orense. However, at the trial of the
belief. Counsel therefore prayed that the
case Engracio Orense, called as a witness, being
defendant be absolved from the complaint and
interrogated by the fiscal as to whether he and
that the plaintiff be sentenced to pay the costs and
consented to Duran's selling the said property
to hold his peace forever.
under right of redemption to the firm of Gutierrez
After the hearing of the case and an examination Hermanos, replied that he had. In view of this
of the evidence introduced by both parties, the statement by the defendant, the court acquitted
court rendered the judgment aforementioned, to Jose Duran of the charge of estafa.
CONTRACTS FINALS ACJUCO 42

As a result of the acquittal of Jose Duran, based ratified by the person in whose name it was
on the explicit testimony of his uncle, Engacio executed before being revoked by the other
Orense, the owner of the property, to the effect contracting party.
that he had consented to his nephew Duran's
The sworn statement made by the defendant,
selling the property under right of repurchase to
Orense, while testifying as a witness at the trial of
Gutierrez Hermanos, counsel for this firm filed a
Duran for estafa, virtually confirms and ratifies the
complainant praying, among other remedies, that
sale of his property effected by his nephew,
the defendant Orense be compelled to execute a
Duran, and, pursuant to article 1313 of the Civil
deed for the transfer and conveyance to the
Code, remedies all defects which the contract may
plaintiff company of all the right, title and interest
have contained from the moment of its execution.
with Orense had in the property sold, and to pay
to the same the rental of the property due from The sale of the said property made by Duran to
February 14, 1911.itc-alf Gutierrez Hermanos was indeed null and void in
the beginning, but afterwards became perfectly
Notwithstanding the allegations of the defendant,
valid and cured of the defect of nullity it bore at its
the record in this case shows that he did give his
execution by the confirmation solemnly made by
consent in order that his nephew, Jose Duran,
the said owner upon his stating under oath to the
might sell the property in question to Gutierrez
judge that he himself consented to his nephew
Hermanos, and that he did thereafter confirm and
Jose Duran's making the said sale. Moreover,
ratify the sale by means of a public instrument
pursuant to article 1309 of the Code, the right of
executed before a notary.
action for nullification that could have been
It having been proven at the trial that he gave his brought became legally extinguished from the
consent to the said sale, it follows that the moment the contract was validly confirmed and
defendant conferred verbal, or at least implied, ratified, and, in the present case, it is
power of agency upon his nephew Duran, who unquestionable that the defendant did confirm the
accepted it in the same way by selling the said said contract of sale and consent to its execution.
property. The principal must therefore fulfill all the
On the testimony given by Engacio Orense at the
obligations contracted by the agent, who acted
trial of Duran for estafa, the latter was acquitted,
within the scope of his authority. (Civil Code, arts.
and it would not be just that the said testimony,
1709, 1710 and 1727.)
expressive of his consent to the sale of his
Even should it be held that the said consent was property, which determined the acquittal of his
granted subsequently to the sale, it is nephew, Jose Duran, who then acted as his
unquestionable that the defendant, the owner of business manager, and which testimony wiped
the property, approved the action of his nephew, out the deception that in the beginning appeared
who in this case acted as the manager of his to have been practiced by the said Duran, should
uncle's business, and Orense'r ratification not now serve in passing upon the conduct of
produced the effect of an express authorization to Engracio Orense in relation to the firm of Gutierrez
make the said sale. (Civil Code, arts. 1888 and Hermanos in order to prove his consent to the sale
1892.) of his property, for, had it not been for the consent
admitted by the defendant Orense, the plaintiff
Article 1259 of the Civil Code prescribes: "No one
would have been the victim of estafa.
can contract in the name of another without being
authorized by him or without his legal If the defendant Orense acknowledged and
representation according to law. admitted under oath that he had consented to
Jose Duran's selling the property in litigation to
A contract executed in the name of another by one
Gutierrez Hermanos, it is not just nor is it
who has neither his authorization nor legal
permissible for him afterward to deny that
representation shall be void, unless it should be
CONTRACTS FINALS ACJUCO 43

admission, to the prejudice of the purchaser, who


gave P1,500 for the said property.
The contract of sale of the said property contained
in the notarial instrument of February 14, 1907, is
alleged to be invalid, null and void under the
provisions of paragraph 5 of section 335 of the
Code of Civil Procedure, because the authority
which Orense may have given to Duran to make
the said contract of sale is not shown to have been
in writing and signed by Orense, but the record
discloses satisfactory and conclusive proof that
the defendant Orense gave his consent to the
contract of sale executed in a public instrument by
his nephew Jose Duran. Such consent was
proven in a criminal action by the sworn testimony
of the principal and presented in this civil suit by
other sworn testimony of the same principal and
by other evidence to which the defendant made no
objection. Therefore the principal is bound to
abide by the consequences of his agency as
though it had actually been given in writing
(Conlu vs. Araneta and Guanko, 15 Phil. Rep.,
387; Gallemit vs. Tabiliran, 20 Phil. Rep., 241;
Kuenzle & Streiff vs. Jiongco, 22 Phil. Rep., 110.)
The repeated and successive statements made
by the defendant Orense in two actions, wherein
he affirmed that he had given his consent to the
sale of his property, meet the requirements of the
law and legally excuse the lack of written authority,
and, as they are a full ratification of the acts
executed by his nephew Jose Duran, they
produce the effects of an express power of
agency.
The judgment appealed from in harmony with the
law and the merits of the case, and the errors
assigned thereto have been duly refuted by the
foregoing considerations, so it should be affirmed.
The judgment appealed from is hereby affirmed,
with the costs against the appellant.
CONTRACTS FINALS ACJUCO 44

ESSENTIAL REQUISITES OF purpose, undoubtedly, of making an


CONTRACTS advantageous sale. But as the yacht needed
some repairs to make it seaworthy for this voyage,
A. CONSENT: REQUISITES *ART 1319 and as, on the other hand, the defendant said that
G.R. No. 20732 September 26, 1924 he had no funds to make said repairs, the plaintiff
paid almost all their amount. It has been stipulated
C. W. ROSENSTOCK, as administrator of the that the plaintiff was not to pay anything for the use
estate of H. W. ELSER, plaintiff-appellant, of the yacht. The cost of those repairs was
P6,972.21, which was already paid by the plaintiff,
vs.
plus P1,730.84 due to the Cooper Company which
EDWIN BURKE, defendant-appellant. still remains unpaid, plus P832.93, due to the
plaintiff, which also remains unpaid. Once the
THE COOPER COMPANY, intervenor-appellee. yacht was repaired, the plaintiff gave receptions
AVANCEÑA, J.: on board, and on March 6, 1922, made his
pleasure voyage to the south, coming back on the
The defendant Edwin Burke owned a motor yacht, 23d of the same month. The plaintiff never
known as Bronzewing, which he acquired in accepted the offer of the defendant for the
Australia in the year 1920 for the purpose of purchase of the yacht contained in the letter of
selling it here. This yacht was purely for recreation option of February 12, 1922. The plaintiff believed,
and as no purchaser presented himself, it had in view of the result of that voyage, that it was
been moored for several months until the plaintiff convenient to replace the engine of the yacht with
H. W. Elser, at the beginning of the year 1922, a new one which would cost P20,000. In this
began negotiations with the defendant for the connection the plaintiff had negotiated with Mr.
purchase thereof. At the time this yacht was Avery for another loan of P20,000 with which to
mortgaged to the Asia Banking Corporation to purchase this new engine. On the 31st of that
secure the payment of a debt of P100,000 which month of March the plaintiff wrote the defendant a
was due and unpaid since one year prior thereto, letter informing him, among other things, that after
contracted by the defendant in favor of said bank he had tried to obtain from Mr. Avery said new
of which Mr. Avery was then the manager. The loan of P20,000 for the purchase of the engine,
plan of the plaintiff was to organize a yacht club and that he was not disposed to purchase the
and sell it afterwards the yacht for P120,000, of vessel for more than P70,000, Mr. Avery had told
which P20,000 was to be retained by him as him that he was not in position to give one cent
commission and the remaining P100,000 to be more. In this letter the plaintiff suggested to the
paid to the defendant. To this end, on February defendant that he should speak with Mr. Avery
12, 1922, the defendant obtained from the plaintiff about the matter. The defendant, after an
an option in writing in the following terms: interview with Mr. Avery held on the same day,
For the purpose expressed by you of organizing a answered the plaintiff that he had arrived at an
yacht club, I take pleasure in confirming my verbal agreement with Mr. Avery about the sale of the
offer to you of the motor yacht Bronzewing, at a yacht to the plaintiff for P80,000 payable as
price of one hundred and twenty thousand pesos follows: P5,000 each month during the first six
(P120,000). This offer is open for thirty days from months and P10,000 thereafter until full payment
date. of the price, the yacht to be mortgaged to secure
payment thereof. On the first of April next, the
plaintiff informed the defendant that he was not
inclined to accept this proposition. On the morning
To carry out his plan, the plaintiff proposed to the
of the 3d of the same month, the defendant called
defendant to make a voyage on board the yacht to
at the office of the plaintiff to speak with him about
the south, with prominent business men for the
the matter and as a result of the interview held
CONTRACTS FINALS ACJUCO 45

between them, the plaintiff in the presence of the installation of a new engine in the yacht, it was
defendant wrote a letter addressed to the latter impossible for him to take charge of the boat and
which is literally as follows: he made delivery thereof to the defendant. On the
8th of the same month of April the defendant
MY DEAR MR. BURKE:
answered the plaintiff that as he had accepted,
In connection with the yacht Bronzewing, I am in with the consent of the Asia Banking Corporation,
position and am willing to entertain the purchase through Mr. Avery, the offer for the purchase of the
of it under the following terms: yacht made by the plaintiff in his letter of the 3d of
April (Exhibit 1), he made demand on him for the
(a) The purchase price to be P80,000, performance thereof.
Philippine currency.
The plaintiff brings this action against the
(b) Initial payment of P10,000 to be made defendant to recover the sum of P6,139.28, the
within sixty (60) days. value of the repairs made on the yacht which he
(c) Payment of the balance to be made in had paid for.
installments of P5,000 per month, with interest on The defendant alleges as a defense against this
deferred payments at 9 per cent payable action that the agreement he had with the plaintiff
semiannually. about these repairs was that the letter was to pay
(d) As security for the above, I am to deposit for them for his own account in exchange of the
with you P80,000, in stock of the J. K. Pickering gratuitous use of the yacht, and prays that he be
Co., commercial value P400,000, book value absolved from the complaint. As a counterclaim
P600,000. Statement covering this will be he prays that the plaintiff be compelled to pay him
furnished you on request. the sum of P832.93, one-half of the price of the
canvas used in the repair of the yacht, which has
Yours very truly, not as yet been paid by the plaintiff. Furthermore,
(Sgd.) H. W. ELSER alleging that the plaintiff purchased the vessel in
accordance with his letter of April 3, 1922, he
Proposition Accepted. prays as a cross-complaint that the plaintiff be
compelled to comply with the terms of this contract
(Sgd.) E. BURKE
and to pay damages in the sum of P10,000.
MANILA, April 3, 1922.
The Cooper Company was admitted to intervene
ASIA BKG. CORP. in this action and claims in turn its credit of
P1,730.84 for the repairs made on the yacht, the
Agreed to as above. amount of which has not as yet been paid.
(Sgd.) W. G. AVERY The trial court rendered judgment sentencing the
Mgr. defendant to pay the plaintiff the sum of P6,139.28
with legal interest thereon at the rate of 6 per cent
Asia Bkg. Corp. from April 18, 1922, and to pay the intervenor, the
The defendant took this letter and went to the Asia Cooper Company, the sum of P1,730.84 with legal
Banking Corporation and after holding an interest at 6 per cent from May 19, 1922. The
interview with Mr. Avery, both of them signed at plaintiff was sentenced to comply in all its parts
the bottom of the letter of Mr. Elser, as appear with the contract for the purchase of the yacht,
there. On the 5th of the same month of April the according to the terms of his letter of April 3d
plaintiff sent the defendant another letter, telling (Exhibit 1). Both the plaintiff and the defendant
him that in view of the attitude of Mr. Avery as to appealed from this judgment.
the loan of P20,000 in connection with the
CONTRACTS FINALS ACJUCO 46

The plaintiff appeals from the judgment in so far being made to him, which might be accepted by
as it compels him to purchase the yacht upon the him or not.
conditions stated in the letter of April 3, 1922
Furthermore there are other circumstances which
(Exhibit 1). This appeal raises the question
show that in writing this letter it was really not the
whether or not this letter was a definite offer to
intention of the plaintiff to make a definite offer.
purchase, and the same having been accepted by
The plaintiff never thought of acquiring the yacht
the defendant with the consent of Mr. Avery on
for his personal use, but for the purpose of selling
behalf of the Asia Banking Corporation, whether
it to another or to acquire it for another, thereby
or not it is a contract of sale valid and binding
obtaining some gain from the transaction, and it
against the plaintiff. The trial court solved this
can be said that the only thing the plaintiff wanted
question in the affirmative. We are of the opinion
in connection with this yacht was that the
that this is an error.
defendant should procure its sale, naturally with
As was seen, this letter begins as follows: "In some profit for himself. For this reason the original
connection with the yacht Bronzewing, I am in idea of the plaintiff was to organize a yacht club
position and am willing to entertain the purchase that would afterwards acquire the yacht through
of it under the following terms . . . ." The whole him, realizing some gain from the sale. This is
question is reduced to determining what the clearly stated in the letter containing the option
intention of the plaintiff was in using that language. that the defendant gave him on February 12,
1922. This accounts for the fact that the plaintiff
To convey the idea of a resolution to purchase, a
was not in a position to make a definite offer to
man of ordinary intelligence and common culture
purchase, he being sure to be able to resell the
would use these clear and simple words, I offer to
yacht to another, and this explains why he did not
purchase, I want to purchase, I am in position to
say in his letter of the 3d of April that he was in
purchase. And the stronger is the reason why the
position to purchase the yacht, but only to
plaintiff should have expressed his intention in the
entertain this purchase.
same way, because, according to the defendant,
he was a prosperous and progressive merchant. On the other hand, the plaintiff thought it
It must be presumed that a man in his transactions necessary to replace the engine of the yacht with
in good faith uses the best means of expressing a new one which was to cost P20,000 and has
his mind that his intelligence and culture permit so been negotiating with Mr. Avery a loan of P20,000
as to convey and exteriorize his will faithfully and to make the replacing. When the plaintiff wrote his
unequivocally. But the plaintiff instead of using in letter of the 3rd of April, he knew that Mr. Avery
his letter the expression, I want to purchase, I offer was not in position to grant this loan. According to
to purchase, I am in position to purchase, or other this, the resolution of the plaintiff to acquire the
similar language of easy and unequivocal yacht depended upon him being able to replace
meaning, used this other, I am in position and am the engine, and this, in turn, depended upon the
willing to entertain the purchase of the yacht. The plaintiff being successful in obtaining the P20,000
word "entertain" applied to an act does not mean that the new engine was to cost. This accounts
the resolution to perform said act, but simply a also for the fact that the plaintiff was not in position
position to deliberate for deciding to perform or not to make a definite offer.
to perform said act. Taking into account only the
But above all, there is in the record positive proof
literal and technical meaning of the word
that in writing this letter of the 3d of April the
"entertain," it seems to us clear that the letter of
plaintiff had no intention to make thereby a definite
the plaintiff cannot be interpreted as a definite
offer. This letter was written by his stenographer
offer to purchase the yacht, but simply a position
Mr. Parkins in his office and in the presence of the
to deliberate whether or not he would purchase
defendant who has been there precisely for the
the yacht. It was but a mere invitation to a proposal
purpose of speaking about this purchase.
CONTRACTS FINALS ACJUCO 47

According to the plaintiff when he was dictating defendant was at last the one to pay therefor. The
that part wherein he said that he was in position to defendant, in turn, claims that the agreement was
entertain the purchase of the yacht, the defendant that the plaintiff was to pay for these repairs in
interrupted him and suggested the elimination of exchange for the use of the yacht. Upon this
the word entertain and the substitution therefor of contention there is, on the one hand, but the
a definite offer, but after a discussion between testimony of the plaintiff and, on the other, the
them, during which the plaintiff clearly said that he testimony of the defendant. But it having been the
was not in position to make a definite offer, the plaintiff who ordered and made these repairs, and
word entertain now appearing in the letter was in view of the fact that he was not obliged to pay
preserved. The stenographer Mr. Parkins and anything for the use of the yacht, his mere
another employee of the plaintiff Mr. Guzman, testimony contradicted by that of the defendant,
who were present, corroborate this statement of cannot be considered as a sufficient evidence to
the plaintiff. establish the latter's obligation. Furthermore
according to the defendant, nothing was agreed
The lower court seems to have been impressed
upon about the kind of the repairs to be made on
by the consideration that it was anomalous for the
the yacht and there was no limit to said repairs. It
plaintiff to write that letter if his purpose was only
seems strange that the defendant should accept
to indicate to the defendant that he wanted the
liability for the amount of these repairs, leaving
latter to make a proposal which he (plaintiff) might
their extent entirely to the discretion of the plaintiff.
reject or accept. We see nothing anomalous in
And this discretion, according to the contention of
this. A proposition may be acceptable in itself, but
the plaintiff, includes even that of determining
its acceptance may depend on other
what repairs must be paid by the defendant, as
circumstances; thus one may say that a
evidenced by the fact that the plaintiff has not
determinate proposition is acceptable, and yet he
claimed the amount of any, such as the wireless
may not be in a position to accept the same at the
telegraph that was installed in the yacht, and yet
moment.
he claims as a part thereof the salaries of the
The letter of the plaintiff not containing a definite officers and the crew which do not represent any
offer but a mere invitation to an offer being made improvement on the vessel.
to him, the acceptance of the defendant placed at
Our conclusion is that the letter of the plaintiff of
the bottom of this letter has not other meaning
April 3, 1922, was not a definite offer and that the
than that of accepting the proposition to make this
plaintiff is bound to pay the amount of the repairs
offer, as must have been understood by the
of the yacht in exchange for the use thereof.
plaintiff.
For all of the foregoing the judgment appealed
The appeal of the defendant raises the question
from is reversed, the defendant is absolved from
as to who must pay the repairs made on the yacht.
the complaint, the plaintiff is sentenced to pay to
The lower court decided that it is the defendant.
the Cooper Company the sum of P1,730.84 with
We are of the opinion that this is also an error. The
interest and to the defendant the sum of P832.93,
plaintiff was the one who directly and personally
and the plaintiff is declared to be under no
ordered these repairs. It was agreed between the
obligation to purchase the yacht upon the terms
plaintiff and the defendant that the former was not
of his letter of April 3, 1922, without special
to pay anything for the use of the yacht. This, at
pronouncement as to cost. So ordered.
the first glance, would make us believe that it was
the plaintiff who was to pay for the repairs in
exchange for the use of the yacht in order that the
profit should be reciprocal. But the plaintiff claims
that his agreement was that he had to advance
only the amount of the repairs, and that the
CONTRACTS FINALS ACJUCO 48

[G.R. No. 142310. September 20, 2004] she stopped paying the installments due on the
purchase price of the property.
ARRA REALTY CORPORATION and SPOUSES
CARLOS ARGUELLES and REMEDIOS DELA Pealoza wrote the China Banking Corporation on
RAMA August 1, 1984 informing the bank that the ARC
ARGUELLES, petitioners, vs. GUARANTEE had conveyed a portion of the second floor of the
DEVELOPMENT CORPORATION AND building to her, and that she had
INSURANCE AGENCY and ENGR. ERLINDA paid P1,175,124.59 out of the total price
PEALOZA, respondents. of P3,105,838. She offered to open an account
with the bank in her name in the amount
DECISION
of P300,000, and to make monthly deposits
CALLEJO, SR., J.: of P50,000 each, to serve as payments of the
equivalent loan of the ARC upon the execution of
Arra Realty Corporation (ARC) was the owner of the appropriate documents. She also proposed for
a parcel of land, located in Alvarado Street, the bank to assist her in requesting the ARC to
Legaspi Village, Makati City, covered by Transfer execute a deed of absolute sale over the portion
Certificate of Title (TCT) No. 112269 issued by the of the second floor she had purchased and the
Register of Deeds.[1] Through its president, issuance of the title in her name upon the payment
Architect Carlos D. Arguelles, the ARC decided to of the purchase price.[7] However, the bank
construct a five-story building on its property and rejected her proposal.[8] She then wrote the ARC
engaged the services of Engineer Erlinda Pealoza on August 31, 1984 informing it of China Banking
as project and structural engineer. In the process, Corporations rejection of her offer to assume its
Pealoza and the ARC, through Carlos Arguelles, equivalent loan from the bank and reminded it that
agreed on November 18, 1982 that Pealoza would it had conformed to her proposal to assume the
share the purchase price of one floor of the payment of its loan from the bank up to the
building, consisting of 552 square meters for the equivalent amount of the balance of the purchase
price of P3,105,838: P901,738, payable within price of the second floor of the building as agreed
sixty (60) days from November 20, 1982, and the upon, and the consequent execution by the ARC
balance payable in twenty (20) equal quarterly of a deed of absolute sale over the property in her
installments of P110,205. The parties further favor.[9] Pealoza then sent a copy of a deed of
agreed that the payments of Pealoza would be absolute sale with assumption of mortgage for the
credited to her account in partial payment of her ARCs consideration, and informed the latter that,
stock subscription in the ARCs capital in the meantime, she was withholding installment
stock.[2] Sometime in May 1983, Pealoza took payments.[10] On October 3, 1984, Pealoza
possession of the one-half portion of the second transferred the school to another building she had
floor, with an area of 552 square meters[3] where purchased, but retained her office therein. She
she put up her office and operated the St. Michael later discovered that her office had been
International Institute of Technology. Unknown to padlocked.[11] She had the office reopened and
her, ARC had executed a real estate mortgage continued holding office thereat. To protect her
over the lot and the entire building in favor of the rights as purchaser, she executed on November
China Banking Corporation as security for a loan 26, 1984 an affidavit of adverse claim over the
on May 12, 1983.[4] The deed was annotated at property which was annotated at the dorsal
the dorsal portion of TCT No. 112269 on June 3, portion of TCT No. 112269 on November 27,
1983.[5] From February 23, 1983 to May 31, 1984, 1984.[12] However, the adverse claim was
Pealoza paid P1,175,124.59 for the portion of the cancelled on February 11, 1985.[13]
second floor of the building she had purchased
from the ARC.[6] She learned that the property had When the ARC failed to pay its loan to China
been mortgaged to the China Banking Banking Corporation, the subject property was
Corporation sometime in July 1984. Thereafter, foreclosed extrajudicially, and, thereafter, sold at
CONTRACTS FINALS ACJUCO 49

public auction to China Banking Corporation on (a) Ordering defendants ARRA and Arguelles to
August 13, 1986 for P13,953,171.07.[14] On April execute a deed of sale in favor of plaintiff over the
29, 1987, the ARC and the Guarantee second floor of that 5-storey edifice built on 119
Development Corporation and Insurance Agency Alvarado Street, Legaspi Village, Makati, Metro
(GDCIA) executed a deed of conditional sale Manila, simultaneously with the tender of the
covering the building and the lot for P22,000,000, remaining balance on the purchase price thereon;
part of which was to be used to redeem the
(b) Ordering defendants ARRA and Arguelles,
property from China Banking Corporation.[15] With
jointly and severally, to pay the plaintiff such moral
the money advanced by the GDCIA, the property
damages as may be proved during the trial;
was redeemed on May 4, 1987.[16] On May 14,
1987, the petitioner executed a deed of absolute (c) Ordering defendants ARRA and Arguelles,
sale over the lot and building in favor of the GDCIA jointly and severally, to pay the plaintiff exemplary
for P22,000,000.[17] The ARC obliged itself under damages in such amount as may be
the deed to deliver possession of the property deem (sic) just, sufficient and equitable as
without any occupants therein. The Register of exempary (sic) damages;
Deeds, thereafter, issued TCT No. 147846 in
favor of the GDCIA over the property without any (d) Ordering defendants ARRA and Arguelles,
liens or encumbrances on May 15, 1987.[18] Of the jointly and severally, to pay the plaintiff an amount
purchase price of P22,000,000, the GDCIA equivalent to 20% of whatever she may recover
retained P1,000,000 to answer for any damages herein as and for attorneys fees; P500.00 per
arising from any suits of the occupants of the appearance of counsel in Court; and
building. miscellaneous litigation expenses and cost of suit;

On May 28, 1987, Pealoza filed a complaint 4.- On the Alternative Cause of Action, in the event
against the ARC, the GDCIA, and the Spouses that specific performance cannot be effected for
Arguelles, with the Regional Trial Court of Makati, any reason, to render judgment in favor of the
Branch 61, for specific performance or damages plaintiff and against the defendants
with a prayer for a writ of preliminary injunction. (a) Ordering the defendants, jointly and reveraaly
Pealoza prayed for the following reliefs: (sic), to restitute to the plaintiff the sum
of P1,444,124.59 with interest thereon at bank
WHEREFORE, it is most respectfully prayed of borrowing rate from August 1984 until the same is
this Honorable Court that finally wholly returned;
1.- Before hearing, a temporary restraining order (b) Ordering the defendants, jointly and severally,
immediately issue; to pay the plaintiff the difference between the
selling price on the second floor of the 5-storey
2.- After notice and hearing, and the filing of an
edifice after deducting P1,444,124.59 therefrom;
injunction bond, a preliminary injunction be issued
forthwith enjoining and restraining the defendant (c) Directing defendant Guarantee Development
Register of Deeds for Makati, Metro Manila, from Corporation & Insurance Agency to deposit with
receiving and registering any document the Honorable Court any amount still in its
transferring, conveying, encumbering or, possession on the purchase price of the land and
otherwise, alienating the land and edifice covered the 5-storey edifice in question;
by Transfer Certificate of Title No. 112269 of said
Registry of Deeds and from issuing a new title (d) Ordering the defendants, jointly and severally,
therefor; to pay the plaintiff moral and exemplary damages
as may be proved during the trial and/or as this
3.- After hearing and trial Honorable Court may deem just, adequate and
equitable in the premises;
CONTRACTS FINALS ACJUCO 50

(e) Ordering the defendants, jointly and severally, 5.- That sometime in August 1984, the plaintiff
to pay the plaintiff an amount equivalent to 20% of learned that the defendants ARRA and Arguelles,
whatever she may recover from the defendants in conspiring with one another in a clear and
this suit as and for attorneys fees, litigation unmistakeably (sic) scheme to defraud the plaintiff
expenses and costs. of her investment on the second floor of the 5-
storey edifice, mortgaged the land and the
PLAINTIFF further prays for such other reliefs and
building covered by Transfer Certificate of Title
remedies as may be just and equitable in the
No. 112269 of the Registry of Deeds for Makati,
premises.[19]
Metro Manila, with the China Banking Corporation
On her first cause of action, Pealoza alleged, inter in order to secure the payment of their loan in the
alia: total sum of P6,500,000.00 without the knowledge
and/or consent of the plaintiff;
2.- That on or about November 18, 1982, the
plaintiff and defendant ARRA represented by its 6.- That after verifying the fact of mortgage with
President and General Manager, defendant the China Banking Corporation and realizing the
Arguelles, entered into an agreement whereby for risk of loss of her investment of P1,377,124.59
and in consideration of the amount she had so far paid on the purchase price of the
of P3,105,828.00 on a deferred payment plan second floor of the 5-storey edifice, the plaintiff
payable in five (5) years, defendants ARRA and wrote the defendants ARRA and Arguelles on
Arguelles agreed to sell to the plaintiff one (1) August 31, 1984 proposing to defendants ARRA
whole floor of a prospective 5-storey building and Arguelles the execution of a deed of sale with
which said defendants planned to build on a 992 assumption of mortgage in her favor of the portion
square meter lot located at 119 Alvarado Street, of the loan corresponding to the second floor of
Legaspi Village, Makati, Metro Manila, covered by the said edifice and informing them of her resolve
Transfer Certificate of Title No. 112269 of the to hold further payments on the purchase price of
Registry of Deeds for Makati, Metro Manila, copy the second floor until her rights and interest over
of which agreement is hereto attached as Annex the same shall have been adequately and
A and made integral part hereof ; properly secured, copy of said letter is hereto
attached as Annex D hereof;
3.- That consonant with the aforementioned
agreement between the plaintiff and defendants 7.- That in order to facilitate the transaction and
ARRA and Arguelles, the former paid to said expeditious execution of the sale over the second
defendants the total amount of P1,377,124.59 as floor in her favor, the plaintiff had a Deed of Sale
evidenced by receipts and cash vouchers copies with Assumption of Mortgage prepared and
of which are hereto attached as Annexes B, B-1 to forwarded the same to defendants ARRA and
B-10 and made integral parts hereof; Arguelles for their consideration and signature
with an accompanying letter therefor dated
4.- That upon completion of the 5-storey edifice on September 25, 1984, copy of said draft of a deed
May 31, 1984, the plaintiff made her choice of the of sale with assumption of mortgage and the
second floor thereof as the subject matter or accompanying letter therefor are hereto attached
object of the sale in her favor, and with the express as Annexes E andE-1, respectively;
knowledge and consent of defendants ARRA and
Arguelles, she immediately took possession and 8.- That by reason of the unjustified, unwarranted
occupied the same as contained in a certification and malicious inaction and/or refusal and failure of
to said effect of the defendants, and where they the defendants ARRA and Arguelles to comply
further certified that the certificate of condominium with plaintiffs perfectly valid and legal demand for
corresponding to the second floor is presently the execution of a document of sale over the
under process, copy of said certification is hereto second floor of the 5-storey edifice, and in order to
attached as Annex C hereof; protect her rights and interest in said transaction,
CONTRACTS FINALS ACJUCO 51

the plaintiff caused to be prepared and executed 30. Consequently, Guarantee could rely, as it did,
an affidavit of Adverse Claim and effected the on the absence of any annotation of encumbrance
annotation thereof on Transfer Certificate of Title on the title to the Property. By clear provision of
No. 112269 of the Registry of Deeds for Makati, law, the present action, which is a collateral attack
M.M., copy of said Adverse Claim is hereto on the title to the Property in question, cannot be
attached as Annex F hereof.[20] allowed by the Court.
On her second cause of action, Pealoza alleged, 31. The complaint (para. 6) admits that plaintiff
as follows: was unable to pay the purchase price for the
portion of the building which she allegedly bought
9.- That after her occupation and taking
under the letter agreement with Arra dated
possession of the second floor of the said 5-storey
November 18, 1982 (Annex A, Complaint).
edifice, the plaintiff caused the installation of a
Assuming plaintiffs agreement with Arra to be
water tank and water pumps thereto;
valid and enforceable, her failure to discharge her
10.- That the water tank installed on the second part of the agreement bars her from now
floor of the 5-storey edifice involved an outlay attempting to compel performance from Arra and
of P15,000.00 as evidenced by Cash Vouchers, Arguelles.
copies of which are hereto attached as Annexes
32. Plaintiffs remedy, should her claim, indeed, be
G and G-1, while the water pumps involved the
meritorious, is a personal action for damages
disbursement of P52,000.00 from the funds of the
against Arra and Arguelles.[22]
plaintiff as evidenced by Cash Vouchers, copies
of which are hereto attached as Annexes H, H-1 The GDCIA prayed that, after due proceedings,
hereof; judgment be rendered in its favor, thus:
11.- That when the defendants ARRA and WHEREFORE, it is respectfully prayed that, after
Arguelles mortgaged with (sic) land and the 5- due hearing, judgment be rendered:
storey edifice to the China Banking Corporation,
(i) Dismissing the complaint for lack of merit;
the mortgage included the water tank and water
pumps servicing the second floor thereof installed (ii) Ordering plaintiff to pay attorneys fees in such
by the plaintiff;[21] amount as may be proven in the course of trial;
Pealoza caused the annotation of the notice of lis (iii) Ordering plaintiff to pay to Guarantee the
pendens at the dorsal portion of TCT No. 112269. amount of P500,000.00 as moral damages;
The GDCIA interposed the following affirmative or, in the alternative, should plaintiffs claim be
and special defenses in its answer to the adjudged meritorious,
complaint:
(iv) Ordering defendants Arra and Arguelles,
26. Guarantee acquired clean title to the Property, solidarily, to return the purchase price of the
as evidenced by the transfer certificate of title Property with interest as stated in the Deed of
attached as Annex 4 hereof. Conditional Sale;
27. Guarantee was an innocent purchaser for (v) Ordering defendants Arra and Arguelles,
value and in good faith of the Property who: (i) solidarily, to pay to Guarantee the amount
verified that the title to the Property in the Registry of P1,000,000.00 as punitive and exemplary
of Deeds of Makati was absolutely free and clear damages;
of any encumbrances, liens or claims other than
the mortgage to China Banking Corporation; and, (vi) Ordering defendants Arra and Arguelles to pay
(ii) even obtained explicit confirmation of that fact attorneys fees in such amount as may be proven
from Arra and Arguelles. in the course of trial;
CONTRACTS FINALS ACJUCO 52

(vii) Ordering defendants Arra and Arguelles to squatter thereof without paying the rentals to
pay to Guarantee the amount of P500,000.00 as answering defendants;
moral damages.
15. Due to plaintiffs persistent requests for the
Other just and equitable reliefs are prayed for.[23] issuance in her favor of a certification of her
occupancy of the second floor to enable her to
The ARC and the Spouses Arguelles interposed
secure a loan in the amount of P3,105,838.00 to
the following special and affirmative defenses:
complete payment of her obligation, defendant
10. Plaintiff has no cause of action against Carlos Arguelles, always a kind and
answering defendants; her complaint is definitely understanding person, issued Annex C with the
a nuisance suit; expectation that plaintiff could, indeed, comply
with her agreement within a period of three (3)
11. When answering defendants decided to erect months as she promised;
a 5-storey building on their lot in 1982, plaintiff and
answering defendants agree that plaintiff will 16. Having failed to fulfill her promise and to
share in the construction of any one (1) floor comply with her obligation as mentioned in the
thereof; hence, the agreement between them immediately preceding paragraph hereof, plaintiff
(Annex A); voluntarily vacated the second floor of the said
building on (sic) May 1986;
12. Plaintiff not only refused and failed to comply
with her Agreement despite repeated demands 17. As a consequence of plaintiffs violation of her
but also grossly violated said agreement as she written agreement, answering defendants
paid only an initial amount of P200,000.00 on naturally defaulted in their mortgage obligation
February 7, 1982 in contrary to the specific, with China Banking Corporation and answering
express decisive stipulation in Annex A which was defendants lot and building were, therefore,
synchronized with the agreement of Answering foreclosed by said bank and having no means of
Defendants with the contractor of the building, redeeming the mortgaged properties within the
Pyramid Construction & Engineering Corp., who redemption period, answering defendants were
was committed to finish the building in a period of compelled to negotiate for the sale of the
five (5) months; foreclosed properties which sale was monitored to
the plaintiff together with her statement of
13. Having committed to construct the 5-storey account;
edifice on their lot, answering defendants
has (sic) to raise the required initial amount to 18. That the negotiation for the sale of the building
start the construction and for this reason, they took almost a year and during such period, plaintiff
were constrained to borrow the rest of the amount was cooperative in showing the second floor
necessary for the completion of the building and which she was then occupying to prospective
they used their own land and the building itself as buyers;
collateral to enable defendant Arguelles to finish
19. Whatever right plaintiff may have acquired
the building plus his own funding in the amount
over the second floor of the subject 5-storey
of P7,000,000.00;
building has been extinguished upon her failure to
14. Despite her non-compliance with her comply with her obligation, which was the
agreement, plaintiff, on her own and without the payment of the total amount of P3,105,838.00
consent of answering defendants, occupied the within the specific period expressly provided as
second floor of the building and converted the the essence of the agreement.[24]
same into a school the St. Michael International
The ARC and the Spouses Arguelles also
School and other business establishments
interposed counterclaims against the GDCIA,
whereby she earned no less than P3,000,000.00
while the latter secured a writ of preliminary
in a period of four (4) years of her occupancy as a
CONTRACTS FINALS ACJUCO 53

attachment against its co-defendants and II IN NOT ORDERING THE DEFENDANT


garnished their funds. On April 17, 1995, the trial GUARANTEE DEVELOPMENT AND
court rendered judgment in favor of Pealoza and INSURANCE AGENCY TO PAY DEFENDANTS-
the GDCIA, and against the ARC and the Spouses APPELLANTS FOR THE MALICIOUS AND
Arguelles, thus: UNFOUNDED FILING OF WRIT OF
ATTACHMENT AND GARNISHMENT; AND
WHEREFORE, premises above considered,
judgment is hereby rendered as prayed for by III IN NOT DIRECTING PACES TO PAY ARRA
plaintiff PEALOZA in the case for SUM OF REALTY AND SPOUSES ARGUELLES
MONEY as against defendants ARRA and ARREARS IN RENTALS PLUS INTERESTS AND
SPOUSES CARLOS D. ARGUELLES and DISMISSING THE ORIGINAL AND AMENDED
REMEDIOS DELA RAMA-ARGUELLES, who are COMPLAINTS.[26]
hereby ORDERED as follows:
The CA rendered judgment, on September 30,
1. TO PAY plaintiff the amount of P1,444,124.59 1998, affirming with modification the appealed
with interest of 12 per centum per annum from decision. The fallo reads:
August 1984 until fully paid;
WHEREFORE, the appeals of both ARRA Realty
2. TO PAY the amount of P150,000.00 for and as Corporation and plaintiff Engineer Erlinda Pealoza
attorneys fees; and are hereby DISMISSED, and the Decision of the
lower court is hereby AFFIRMED but the award
3. TO PAY the Costs of the proceedings.
of P150,000.00 as attorneys fees in favor of said
The case for SPECIFIC PERFORMANCE and plaintiff is deleted. The Register of Deeds of
prayer for PRELIMINARY INJUNCTION are Makati City is hereby ordered to cancel the Notice
considered as DISMISSED on grounds that this of Lis Pendens annotated on Transfer Certificate
case for this alternative relief was filed after the of Title No. 147845 registered in the name of
Transfer Certificate of Title of the property was Guarantee Development Corporation and
already issued by defendant Register of Deeds in Insurance Agency.[27]
the name of GUARANTEE.
The ARC and the Spouses Arguelles filed a
The case as against DEFENDANT Guarantee motion for reconsideration of the decision of the
Development Corporation & Insurance Agency CA on the following grounds:
(GUARANTEE) is hereby DISMISSED for
1.) THIS HONORABLE COURT OF APPEALS
insufficiency of evidence.
ERRED IN NOT RULING THAT PEALOZAS
The counterclaims of DEFENDANTS are hereby ACTION WAS TANTAMOUNT TO FORFEITURE
DISMISSED for insufficiency of evidence. OR WAIVER OF HER RIGHTS.

SO ORDERED.[25] 2.) THIS HONORABLE COURT OF APPEALS


ERRED IN NOT APPRECIATING THE
Pealoza, as well as the ARC and the Spouses EVIDENCE OF CO-DEFENDANTS
Arguelles, appealed the decision to the Court of ARRA/ARGUELLES ESPECIALLY THE
Appeals (CA). The ARC and the Spouses ARREARS IN RENTALS/OUT OF POCKET
Arguelles alleged that the Regional Trial Court ADVANCES WITH THE RESULTANT UNJUST
(RTC) erred as follows: ENRICHMENT ON THE PART OF PEALOZA.[28]
I IN NOT ANNULLING OR RESCINDING THE However, the appellate court denied the said
CONDITIONAL DEED OF SALE OF REALTY motion. Pealoza filed a petition for review on
DATED APRIL 29, 1987 AND DEED OF certiorari with this Court docketed as G.R. No.
ABSOLUTE SALE DATED MAY 14, 1999; 136876, wherein she made the following
assignment of errors:
CONTRACTS FINALS ACJUCO 54

I 4. Ordering respondents, jointly and severally, to


pay petitioner attorneys fees of ten (10%) percent
The Court of Appeals gravely erred in finding
of the amount involved.
respondent Guarantee an innocent purchaser for
value and in good faith contrary to settled On the alternative cause of action, in the event
jurisprudence that a buyer of a parcel of land who that specific performance cannot be affected, to
did not pay the purchase price in full and who render judgment:
could not have failed to know or discover that the
1. Ordering respondents, jointly and severally, to
land sold to him was in the adverse possession of
pay petitioner the sum of P1,944,124.59 with
another is a buyer in bad faith.
interest of twelve (12%) percent from August 1984
II until fully paid.
The Court of Appeals gravely erred in finding that 2. Ordering respondents, jointly and severally, to
petitioner, who had established her legal right for pay moral and exemplary damages of One Million
sum of money against respondents Arra and the Pesos (P1,000,000.00).
Arguelles spouses, may be effectively barred from
3. Ordering respondents, jointly and severally, to
pursuing her alternative remedy for recovery of
pay attorneys fees of ten (10%) percent of the
title against respondent Guarantee contrary to
amount involved.
Section 2, Rule 8 of the Rules of Court.
Such other reliefs just and proper are, likewise,
III
prayed for.[30]
The Court of Appeals gravely erred in not
On March 15, 1999, the Court resolved to deny
awarding damages and attorneys fees despite
due course to the petition for failure of the
violation of the rights of the petitioner on the
petitioner therein to show any reversible error
wrongful or fraudulent action on the part of the
committed by the CA in its decision. Entry of
respondents.[29]
judgment was made of record on April 14, 1999.[31]
WHEREFORE, premises considered, it is
For their part, the ARC and the Spouses
respectfully prayed that the Decision of the Court
Arguelles, now the petitioner, filed their petition for
of Appeals in CA-G.R. CV No. 52911 dated
review with this Court, contending that:
September 30, 1998 as well as its Resolution
dated December 23, 1998 be reversed and set I
aside and that a Decision be rendered:
THE HONORABLE COURT OF APPEALS
1. Declaring as null and void the title of Guarantee COMMITTED A SERIOUS ERROR OF LAW IN
(TCT No. 147845) over the subject property NOT HOLDING THAT NO PERFECTED
located at No. 119 Alvarado St., Legaspi Village, CONTRACT EXISTS BETWEEN ARRA REALTY
Makati, Metro Manila. CORPORATION AND ENGINEER ERLINDA
PEALOZA.
2. Ordering respondents to execute a Deed of
Sale in favor of the petitioner covering the subject II
second floor of the subject property
simultaneously with the tender of the remaining THE HONORABLE COURT OF APPEALS
balance on the purchase price. COMMITTED A SERIOUS ERROR OF LAW IN
NOT HOLDING THAT GUARANTEE
3. Ordering respondents, jointly and severally, to DEVELOPMENT CORPORATION IS NOT AN
pay petitioner moral and exemplary damages of INNOCENT PURCHASER FOR VALUE AND
One Million Pesos (P1,000,000.00). THAT AUTOMATIC RESCISSION IS PRESENT.
III
CONTRACTS FINALS ACJUCO 55

THE HONORABLE COURT OF APPEALS petitioner ARC the net amount of P930,815.56,
COMMITTED A SERIOUS ERROR OF LAW IN excluding interests. They aver that respondent
NOT HOLDING THAT ENGINEER ERLINDA Pealoza should be ordered to pay damages under
PEALOZA IS GUILTY OF FRAUD AND IS IN BAD Article 19 of the New Civil Code because she
FAITH. HENCE, LIABLE FOR DAMAGES. [32] acted in bad faith, and pray that the payments she
made to the petitioner ARC for the purchase of the
At the outset, it must be pointed out that the issues
said portion of the building be forfeited in its favor.
raised by the parties in their respective pleadings
in this Court have already been resolved in G.R. The petitioners further contend that respondent
No. 136876, where we denied due course to GDCIA was a purchaser of the property in bad
Pealozas petition for review. Nonetheless, faith because it purchased the lot and building
considering that the sole petitioner in the said case despite its presumed knowledge of the claims of
was Pealoza, whereas the petitioners in the respondent Pealoza and the fact that the building
petition at bar are the ARC and the Spouses was occupied by private individuals and/or
Arguelles, we shall resolve the petition on its corporations. The petitioners aver that they even
merits. Furthermore, since the issues raised by offered to return the P21,000,000 paid by the
the petitioners in their assignment of errors are respondent GDCIA for the property, less the
interrelated, the Court shall delve into and resolve retained P1,000,000, but that the latter rejected
the same simultaneously. the offer. Hence, the deed of absolute sale
executed by the petitioner ARC and the
The petitioners posit that no contract of sale over
respondent GDCIA over the property was
the subject property was perfected between the
automatically rescinded.
petitioner ARC, on the one hand, and respondent
Pealoza, on the other, because the latter failed to In her comment on the petition, respondent
pay the balance of the total purchase price of a Pealoza averred that her November 18, 1982
portion of the second floor of the building as agreement with the petitioner ARC is a perfected
provided in their November 18, 1982 agreement. contract of sale. She asserts that the CA erred in
They aver that respondent Pealoza bound and holding that she was barred from recovering the
obliged herself to pay the downpayment property from the respondent GDCIA and in not
of P901,738 on or before January 1983, and the finding that the latter is not an innocent purchaser
balance in twenty (20) equal quarterly payments in good faith because, by its own admission, it
of P110,205. However, the petitioners aver, purchased the building although it was still
respondent Pealoza was able to complete the occupied. In fact, she notes, the respondent
downpayment only on March 4, 1983 and GDCIA retained P1,000,000 of the purchase price
managed to pay only three quarterly installments, of the property to answer for any claims for
and part of the fourth quarterly installment. They damages of the said occupants. She prayed, thus:
assert that, in violation of the November 18, 1982
WHEREFORE, premises considered, it is
agreement, respondent Pealoza used the
respectfully prayed that the petition be denied and
property as a school instead of an office, and later
that the Decision of the Court of Appeals in CA-
abandoned the same without prior notice to the
G.R. CV No. 52911 dated September 30, 1998 as
petitioner ARC. The petitioners assert that
well as its Resolution dated February 21, 2000 be
respondent Pealoza failed to pay for the advances
modified in that:
extended to her, amounting to P302,753.06
inclusive of interests, as well as rentals for her 1. Declaring as null and void the title of Guarantee
occupancy of the property in the total amount (TCT No. 147845) over the subject property
of P2,177,935. The petitioners contend that, even located at No. 119 Alvarado St., Legaspi Village,
if the payments of respondent Pealoza amounting Makati, Metro Manila.
to P1,735,500 would be deducted from the agreed
purchase price, she would still end up owing the
CONTRACTS FINALS ACJUCO 56

2. Ordering petitioners and respondent Guarantee Salcedo St., Legaspi Village


to execute a Deed of Sale in favor of the petitioner
Makati, Metro Manila
covering the subject second floor of the subject
property simultaneously with the tender of the Dear Linda:
remaining balance on the purchase price.
I would like to review the arrangement arrived at
3. Ordering petitioners and respondent our meeting yesterday afternoon. You shall share
Guarantee, jointly and severally, to pay Pealoza one (1) floor of the proposed 5-storey office
moral and exemplary damages of One Million building to be constructed on a 992 sq. mt. lot
Pesos (P1,000,000.00). owned by ARRA Realty Corporation located at
Alvarado St., Legaspi Village, Makati, Metro Mla.
4. Ordering petitioners and respondent
The consideration for which you shall own one (1)
Guarantee, jointly and severally, to pay Pealoza
floor is THREE MILLION ONE HUNDRED FIVE
attorneys fees of ten (10%) percent of the amount
THOUSAND EIGHT HUNDRED THIRTY-EIGHT
involved.
PESOS (P3,105,838.00) on a deferred payment
In the alternative, in the event that specific plan. The initial payment of NINE HUNDRED ONE
performance cannot be affected, to render THOUSAND SEVEN HUNDRED THIRTY-EIGHT
judgment: PESOS (P901,738.00) shall be paid within sixty
(60) days from November 20, 1982 and the
1. Ordering petitioners and respondent
balance payable in 20 equal quarterly payments
Guarantee, jointly and severally, to pay petitioner
of ONE HUNDRED TEN THOUSAND TWO
the sum of P1,944,124.59 with interest of twelve
HUNDRED FIVE PESOS (P110,205.00). Every
(12%) percent from August 1984 until fully paid.
payment that you make, ARRA shall credit your
2. Ordering petitioners and respondent account by way of partial payment to your stock
Guarantee, jointly and severally, to pay moral and subscriptions of ARRAs capital stock. As soon as
exemplary damages of One Million Pesos our contractor, Pyramid Construction and
(P1,000,000.00). Engineering Corporation, complete its
commitment with us, which is not more than five
3. Ordering petitioners and respondent (5) months, you shall immediately take
Guarantee, jointly and severally, to pay attorneys possession of the floor of your choice. Further, as
fees of ten (10%) percent of the amount involved. soon as practicable, the Title corresponding to the
Such other reliefs just and proper are, likewise, floor that you own shall be transferred to your
prayed for.[33] name.

In its comment on the petition, the respondent However, should you pay in full at the end of the
GDCIA avers that the issues raised by the fourth quarter or at any time prior to the 5-year
petitioners and respondent Pealoza in her arrangement, the price shall be adjusted
Comment had already been resolved by this Court accordingly.
in G.R. No. 136876, when the petition therein was I believe that this accurately summarizes our
denied due course. understanding. If you have any questions or if I
We rule against the petitioners. have not properly stated our agreement, please let
me know, otherwise, you may signify your
Central to the issue is the November 18, 1982 conformity by signing the duplicate copy of this
letter-agreement of the parties, which reads: letter.
Ms. Erlinda Pealoza Very truly yours,
5th Flr. ODC Intl. Plaza Bldg. (Sgd.)
CONTRACTS FINALS ACJUCO 57

CARLOS D. ARGUELLES CONFORME: owner of the property, conformably to Article 1477


of the New Civil Code which reads:
President & General Manager
Art. 1477. The ownership of the thing sold shall be
(Sgd.)
transferred to the vendee upon the actual or
ERLINDA PEALOZA constructive delivery thereof.

PL:FP:ccr Date: __________[34] In a contract of sale, until and unless the contract
is resolved or rescinded in accordance with law,
As gleaned from the agreement, the petitioner the vendor cannot recover the thing sold even if
ARC, as vendor, and respondent Pealoza, as the vendee failed to pay in full the initial payment
vendee, entered into a contract of sale over a for the property. The failure of the buyer to pay the
portion of the second floor of the building yet to be purchase price within the stipulated period does
constructed for the price of P3,105,838 payable in not by itself bar the transfer of ownership or
installments, the first installment of P901,738 to possession of the property sold, nor ipso
be paid within sixty (60) days from November 20, facto rescind the contract.[37] Such failure will
1982 or on or before January 20, 1983, and the merely give the vendor the option to rescind the
balance payable in twenty (20) equal quarterly contract of sale judicially or by notarial demand as
payments of P110,205. As soon as the second provided for by Article 1592 of the New Civil Code:
floor was constructed within five (5) months,
respondent Pealoza would take possession of the Art. 1592. In the sale of immovable property, even
property, and title thereto would be transferred to though it may have been stipulated that upon
her name. The parties had agreed on the three failure to pay the price at the time agreed upon the
elements of subject matter, price, and terms of rescission of the contract shall of right take place,
payment. Hence, the contract of sale was the vendee may pay, even after the expiration of
perfected, it being consensual in nature, perfected the period, as long as no demand for rescission of
by mere consent, which, in turn, was manifested the contract has been made upon him either
the moment there was a meeting of the minds as judicially or by a notarial act. After the demand, the
to the offer and the acceptance thereof.[35] The court may not grant him a new term.
perfection of the sale is not negated by the fact
Admittedly, respondent Pealoza failed to pay the
that the property subject of the sale was not yet in
downpayment on time. But then, the petitioner
existence. This is so because the ownership by
ARC accepted, without any objections, the
the seller of the thing sold at the time of the
delayed payments of the respondent; hence, as
perfection of the contract of sale is not an element
provided in Article 1235 of the New Civil Code, the
of its perfection. A perfected contract of sale
obligation of the respondent is deemed complied
cannot be challenged on the ground of non-
with:
ownership on the part of the seller at the time of
its perfection. What the law requires is that the Art. 1235. When the obligee accepts the
seller has the right to transfer ownership at the performance, knowing its incompleteness or
time the thing is delivered. Perfection per se does irregularity, and without expressing any protest or
not transfer ownership which occurs upon the objection, the obligation is deemed fully complied
actual or constructive delivery of the thing sold.[36] with.
In May 1983, respondent Pealoza took The respondent cannot be blamed for suspending
possession of a portion of the second floor of the further remittances of payment to the petitioner
building sold to her with an area of 552 square ARC because when she pushed for the issuance
meters. She put up her office and operated the St. of her title to the property after taking possession
Michael International Institute of Technology. thereof, the ARC failed to comply. She was aghast
Thenceforth, respondent Pealoza became the when she discovered that in July 1984, even
CONTRACTS FINALS ACJUCO 58

before she took possession of the property, the Q: What was the reply of Arguelles?
petitioner ARC had already mortgaged the lot and
A: He told me that he had to work out yet the titling
the building to the China Banking Corporation;
of the 2nd floor as a condominium unit.
when she offered to pay the balance of the
purchase price of the property to enable her to Q: Was Arguelles able to have the 2nd floor titled
secure her title thereon, the petitioner ARC as a condominium unit?
ignored her offer. Under Article 1590 of the New
Civil Code, a vendee may suspend the payment A: No, Sir.
of the price of the property sold: Q: Why not?
Art. 1590. Should the vendee be disturbed in the A: Because he did not take any steps about it.
possession or ownership of the thing acquired, or
should he have reasonable grounds to fear such Q: When Arguelles did not take steps about it,
disturbance, by a vindicatory action or a what did you do?
foreclosure of mortgage, he may suspend the A: I inquired why Arguelles was not doing anything
payment of the price until the vendor has caused about the titling of the 2nd floor and the sale
the disturbance or danger to cease, unless the thereof to me. That was how I discovered that
latter gives security for the return of the price in a Arguelles mortgaged the same to the China
proper case, or it has been stipulated that, Banking Corp.[38]
notwithstanding any such contingency, the
vendee shall be bound to make the payment. A Q: With those letters, what did you do?
mere act of trespass shall not authorize the
A: On August 31, 1984, I wrote a letter to ARRA
suspension of the payment of the price.
requesting them to execute a deed of sale with the
Respondent Pealoza was impelled to cause the assumption of mortgage in my favor. I attached a
annotation of an adverse claim at the dorsal copy of the deed of sale and assumption of
portion of TCT No. 112269. Her testimony is mortgage to the said letter, may I request this
quoted, thus: letter be marked as Exh. U and the deed of sale
attached to it with the assumption of mortgage as
Q: And did you finally acquire the certificate of title Exh. U-1.
to the 2nd floor of the said building?
Q: Did ARRA reply to your letter?
A: No, Sir.
A: ARRA and Arguelles ignored the said letter.
Q: Why not?
Q: What did you do then?
A: Because the said building was mortgaged by
ARRA Realty and Architect Arguelles with China A: On September 25, 1984, I wrote a letter to
Banking Corporation and subsequently sold to ARRA which I request to be marked as Exh. V
Guaranty (sic) Development Corporation. reiterating the signing of the deed of sale and at
the same time telling him that I was suspending
Q: When, for the first time, did you learn about the my payments on the 2nd floor unless and until he
mortgage of the building to China Banking Corp.? signs that Deed of Sale. I offered to pay the full
A: It was sometime in July of 1984. amount so I can get the certificate of title, because
I had more than sufficient money to pay him at the
Q: How did you learn about it? time. Here are copies of my bank deposits from
A: Since I took possession of the 2nd floor and 1982 to 1986 which show my liquidity. I request
made payments thereon, I asked Architect that they be marked as Exh. W and W-1 to W-59
Arguelles every now and then about the execution inclusive.
of a Deed of Sale to the 2nd floor. Q: What did ARRA do with that letter?
CONTRACTS FINALS ACJUCO 59

A: ARRA and Arguelles ignored the said letter. A: No, Sir.


Q: What steps did you take? Q: Why not?
A: Upon [the] advise of my lawyer, I filed a Notice A: One Monday, I went to our office at the 2nd floor
of Adverse Claim dated November 26, 1984, at 119 Alvarado for work.
which I request to be marked as Exh. X which was
Q: Were you able to enter the office?
inscribed the next day, November 7, 1984, at the
back of the Certificate of Title No. 112269, which I A: No, Sir.
request to be marked as Exh. Y and the inscription
of the Notice of Adverse Claim to be bracketed Q: Why not?
and marked as Exh. Y-1.[39] A: Because the padlock that I placed there had
Contrary to the claim of the petitioners, been changed.
respondent Pealoza did not waive her right to Q: How did you discover that?
enforce the letter-agreement or abandon the
property she had purchased from the petitioner A: Because when I was using my key to my
ARC. While she transferred the school to another padlock, it would not fit.
location, the respondent maintained her office in Q: What did you do?
the subject property, only to discover that the
petitioner had had her office padlocked. A: I went to the office of Engr. Arguelles at ARRA
Nevertheless, she had her office reopened and Realty Corp. at the upper floor and asked them
continued holding office thereat for a year or so, why they changed the padlock. Nobody wanted to
thereafter: explain to me why the padlock was changed but
they gave me the key and I had it duplicated for
Q: In the meantime, did you continue holding my use, so I continued holding office there. I held
office and holding classes for St. Michael on the office in the said premises continuously for about
2nd floor? a year. Later on, it was padlocked.[40]
A: Sometime in April of 1986 when classes ended Respondent Pealoza turned over the possession
I transferred the St. Michael School to a building of the property to the petitioner ARC on October
which I purchased at Yakal St. also in Makati. 7, 1986 and, shortly thereafter, filed her complaint
Q: Why did you transfer the St. Michael School at against the petitioner ARC. The bare fact that the
that building in Yakal St.? respondent filed her complaint shortly after
vacating the property is evidence of her
A: Because after three years of operation the St. determination to pursue her claims against the
Michael School has grown too big for the 2nd floor petitioners.
of that building at 119 Alvarado.
In view of the failure of the petitioner ARC to
Q: How about your Engineering Office? transfer the title of the property to her name
A: My Engineering Office has also grown bigger, because of the mortgage thereof to China Banking
just right for that space at the 2nd floor, so it Corporation and the subsequent sale thereof to
remained there. the GDCIA, respondent Pealoza is entitled to the
refund of the amount she paid to the petitioner
Q: So the office of Pealoza Engineering retained ARC, conformably to Article 1398 of the New Civil
the Alvarado office? Code, which reads:
A: Yes, Sir. Art. 1398. An obligation having been annulled, the
contracting parties shall restore to each other the
Q: After St. Michael left it, were you able to hold
things which have been the subject matter of the
office there peacefully?
CONTRACTS FINALS ACJUCO 60

contract, with their fruits, and the price with its purpose, although the means adopted may cause
interest, except in cases provided by law. injury to another.[42] When a person is doing a
lawful thing in a lawful way, his conduct is not
In obligations to render service, the value thereof
actionable though it may result in damages to
shall be the basis for damages.
another; for, though the damage caused is
We reject the petitioners claim that respondent undoubted, no legal right of another is invaded;
Pealoza is liable for P2,177,935 by way of hence, it is said to be damnum absque injuria.[43]
advances and unpaid rentals. We note that in their
The elements of abuse of rights are the following:
answer to the amended complaint of respondent
(a) the existence of a legal right or duty, (b) which
Pealoza, the petitioners did not interpose any
is exercised in bad faith; and (c) for the sole intent
counterclaims for actual damages in the form of
of prejudicing or injuring another. Malice or bad
unpaid rentals. Neither did the petitioners assign
faith is at the core of said provision.[44] Good faith
as error in their brief in the CA the failure of the
is presumed and he who alleges bad faith has the
trial court to award P302,753.06 to them for
duty to prove the same.[45] Good faith refers to the
advances. It was only when they moved for the
state of the mind which is manifested by the acts
reconsideration of the decision of the CA did they
of the individual concerned. It consists of the
claim, for the first time on appeal, their entitlement
intention to abstain from taking an unconscionable
to P302,753.06 as refund for advances. The
and unscrupulous advantage of another.[46] Bad
petitioner ARC is, thus, barred from raising the
faith, on the other hand, does not simply connote
said issue in this Court.[41]
bad judgment to simple negligence. It imports a
Likewise barren of factual and legal basis is the dishonest purpose or some moral obliquity and
petitioners claim for damages against the conscious doing of a wrong, a breach of known
respondent based on Article 19 of the New Civil duty due to some motive or interest or ill-will that
Code, which reads: partakes of the nature of fraud.[47] Malice connotes
ill-will or spite and speaks not in response to duty.
Art. 19. Every person must, in the exercise of his It implies an intention to do ulterior and
rights and in the performance of his duties, act unjustifiable harm. The petitioners failed to
with justice, give everyone his due, and observe adduce evidence of bad faith or malice on the part
honesty and good faith. of respondent Pealoza. This cannot be said of the
In this case, respondent Pealoza suspended the petitioner ARC. It mortgaged the property to China
payment of the balance of the purchase price of Banking Corporation even after having sold the
the property because she had the right to do so. same to respondent Pealoza, and, thereafter, sold
While she failed to pay the purchase price on time, the same anew to GDCIA; respondent Pealoza
the petitioner ARC nevertheless accepted such was, thus, left holding the proverbial bag.
delayed payments. The respondent even On the last issue, the petitioners contend that the
proposed to assume the loan account of the deed of conditional sale and deed of absolute sale
petitioner ARC with the China Banking executed by them and the respondent GDCIA
Corporation in an amount equivalent to the were automatically nullified because the latter had
balance of the purchase price of the subject actual or personal knowledge that the property
property, which the petitioner ARC rejected. In sold had tenants. Furthermore, the respondent
fine, respondent Pealoza acted in accord with law GDCIA retained P1,000,000 on account of the
and in utmost good faith. Hence, she is not liable claims of respondent Pealoza, Paces Industrial
for damages to the petitioners under Article 19 of Development Corporation, and Emeterio Samson
the New Civil Code. over the portions of the property.
The law is that men, singly or in combination, may The contention of the petitioners has no merit.
use any lawful means to accomplish a lawful
CONTRACTS FINALS ACJUCO 61

First. The petitioners did not file a counterclaim error was committed by the said court, which
against the respondent GDCIA for the rescission resolution has become final and executory.
of the aforesaid decision.[48] Moreover, the
IN LIGHT OF ALL THE FOREGOING, the petition
petitioners did not adduce evidence to prove bad
is DENIED. The assailed decision and resolution
faith on the part of the respondent GDCIA.
of the Court of Appeals are AFFIRMED. Costs
Additionally, the petitioners warranted in the
against the petitioners.
aforesaid deeds in favor of the said respondent,
that: SO ORDERED.
d) It is hereby agreed, convenanted and stipulated
by and between the parties hereto that the
VENDOR will execute and deliver to the VENDEE
a definite or absolute Deed of Sale upon the full
payment by the VENDEE of the unpaid balance of
the purchase price hereinabove stipulated.
1. The VENDOR undertakes and commits to
deliver the Property, including all floors of the
building, as entirely vacant to the VENDEE not
later than May 15, 1987. Physical possession,
however, of the first and second floors of the
Building can be turned over to the VENDEE at any
time convenient to them.[49]
The VENDOR undertakes to perform, fulfill and
comply with the representations, warranties and
undertaking stated in the Deed of Conditional
Sale. Should the VENDOR fail to do so, this
agreement shall become null and void and the
VENDEE shall be entitled to enforce its right under
Section 8 of the Deed of Conditional Sale.[50]
Second. The respondent GDCIA relied on the
representations of the petitioners. However, the
respondent received claims for ownership of
portions of the property from tenants of the
building, including respondent Pealoza, which
impelled it to retain P1,000,000 of the purchase
price to answer for said claims. There is, thus, no
factual and legal basis for the plea of the
petitioners that the trial court and the CA erred in
not rendering judgment in their favor declaring the
said deeds rescinded.
On the claim of respondent Pealoza against the
petitioners and her co-respondent GDCIA, we
agree with the latter that the same is barred by the
resolution of this Court in G.R. No. 136876,
denying due course to her petition for review of the
decision of the CA on the ground that no reversible
CONTRACTS FINALS ACJUCO 62

[G.R. No. 125761. April 30, 2003] On March 14, 1990, the respondent, through
Senen Valero, signed a letter-offer addressed to
SALVADOR P. MALBAROSA, petitioner, vs.
the petitioner[3] stating therein that petitioners
HON. COURT OF APPEALS and S.E.A.
resignation from all the positions in the SEADC
DEVELOPMENT CORP. respondents.
group of companies had been accepted by the
DECISION respondent, and that he was entitled to
an incentive compensation in the amount
CALLEJO, SR., J.: of P251,057.67, and proposing that the amount be
Philtectic Corporation and Commonwealth satisfied, thus:
Insurance Co., Inc. were only two of the group of - The 1982 Mitsubishi Super saloon car assigned
companies wholly-owned and controlled by to you by the company shall be transferred to you
respondent S.E.A. Development Corporation at a value of P220,000.00. (Although you have
(SEADC). The petitioner Salvador P. Malbarosa indicated a value of P180,000.00, our survey in
was the president and general manager of the market indicates that P220,000.00 is a
Philtectic Corporation, and an officer of other reasonable reflection of the value of the car.)
corporations belonging to the SEADC group of
companies. The respondent assigned to the - The membership share of our subsidiary,
petitioner one of its vehicles covered by Certificate Tradestar International, Inc. in the Architectural
of Registration No. 04275865[1] described as a Center, Inc. will be transferred to you. (Although
1982 model Mitsubishi Gallant Super Saloon, with we do not as yet have full information as to the
plate number PCA 180 for his use. He was also value of these shares, we have been informed that
issued membership certificates in the the shares have traded recently in the vicinity
Architectural Center, Inc. Louis Da Costa was the of P60,000.00.)[4]
president of the respondent and Commonwealth
The respondent required that if the petitioner
Insurance Co., Inc., while Senen Valero was the
agreed to the offer, he had to affix his conformity
Vice-Chairman of the Board of Directors of the
on the space provided therefor and the date
respondent and Vice-Chairman of the Board of
thereof on the right bottom portion of the letter,
Directors of Philtectic Corporation.
thus:
Sometime in the first week of January 1990, the
Agreed:
petitioner intimated to Senen Valero his desire to
retire from the SEADC group of companies and SALVADOR P. MALBAROSA
requested that his 1989 incentive compensation
Date: _____________________[5]
as president of Philtectic Corporation be paid to
him. On January 8, 1990, the petitioner sent a On March 16, 1990, Da Costa met with the
letter to Senen Valero tendering his resignation, petitioner and handed to him the original copy of
effective February 28, 1990 from all his positions the March 14, 1990 Letter-offer for his
in the SEADC group of companies, and reiterating consideration and conformity. The petitioner was
therein his request for the payment of his incentive dismayed when he read the letter and learned that
compensation for 1989.[2] he was being offered an incentive compensation
of only P251,057.67. He told Da Costa that he
Louis Da Costa met with the petitioner on two
was entitled to no less than P395,000 as incentive
occasions, one of which was on February 5, 1990
compensation. The petitioner refused to sign the
to discuss the amount of the 1989 incentive
letter-offer on the space provided therefor. He
compensation petitioner was entitled to, and the
received the original of the letter and wrote on the
mode of payment thereof. Da Costa ventured that
duplicate copy of the letter-offer retained by Da
the petitioner would be entitled to an incentive
Costa, the words: Recd original for review
compensation in the amount of around P395,000.
purposes.[6] Despite the lapse of more than two
CONTRACTS FINALS ACJUCO 63

weeks, the respondent had not received the 2. After trial of the issues, judgment be rendered
original of the March 14, 1990 Letter-offer of the adjudging that plaintiff has the right to the
respondent with the conformity of the petitioner on possession of the said motor vehicle, and, in the
the space provided therefor. The respondent alternative, that defendant must deliver such
decided to withdraw its March 14, 1990 Offer. On motor vehicle to plaintiff or pay to plaintiff the value
April 3, 1996, the Board of Directors of the thereof in case delivery cannot be made;
respondent approved a resolution authorizing the
3. After trial, hold the defendant liable to plaintiff
Philtectic Corporation and/or Senen Valero to
for the use of the motor vehicle in the amount
demand from the petitioner for the return of the car
of P1,000.00 per day from date of demand until
and to take such action against the petitioner
the motor vehicle is returned to plaintiff.
including the institution of an action in court
against the petitioner for the recovery of the motor 4. After trial, hold the defendant liable to plaintiff
vehicle.[7] for attorneys fees and costs of litigation in the
amount of P100,000.00.
On April 4, 1990, Philtectic Corporation, through
its counsel, wrote the petitioner withdrawing the Plaintiffs likewise prays for such other reliefs as
March 14, 1990 Letter-offer of the respondent and are just and equitable under the circumstances.[11]
demanding that the petitioner return the car and
his membership certificate in the Architectural On April 30, 1990, the trial court issued an order
Center, Inc. within 24 hours from his receipt for the issuance of a writ of
[12]
replevin. Correspondingly, the writ of replevin
thereof.[8] The petitioner received the original copy
of the letter on the same day. was issued on May 8, 1990.[13]

On April 7, 1990, the petitioner wrote the counsel On May 11, 1990, the Sheriff served the writ on
of Philtectic Corporation informing the latter that the petitioner and was able to take possession of
he cannot comply with said demand as he already the vehicle in question. On May 15, 1990, the
accepted the March 14, 1990 Letter-offer of the petitioner was able to recover the possession of
respondent when he affixed on March 28, 1990 his the vehicle upon his filing of the counter-bond.[14]
signature on the original copy of the letter- In his Answer to the complaint, the petitioner, as
offer.[9] The petitioner enclosed a xerox copy of defendant therein, alleged that he had already
the original copy of the March 14, 1990 Letter-offer agreed on March 28, 1990 to the March 14, 1990
of the respondent, bearing his signature on the Letter-offer of the respondent, the plaintiff therein,
space provided therefore dated March 28, and had notified the said plaintiff of his
1990.[10] acceptance; hence, he had the right to the
With the refusal of the petitioner to return the possession of the car. Philtectic Corporation had
vehicle, the respondent, as plaintiff, filed a no right to withdraw the offer of the respondent
complaint against the petitioner, as defendant, for SEADC. The petitioner testified that after
recovery of personal property with replevin with conferring with his counsel, he had decided to
damages and attorneys fees, thus: accept the offer of the respondent, and had affixed
his signature on the space below the word Agree
WHEREFORE, PREMISES CONSIDERED, it is in the March 14, 1990 Letter-offer, thus:
respectfully prayed before this Honorable Court
that: Agreed:

1. Before hearing and upon approval of plaintiffs (Sgd.)


bond, a writ be issued immediately for the seizure SALVADOR P. MALBAROSA
of the vehicle described in paragraph 3 hereof,
wherever it may be found, and for its delivery to Date: 3 28 - 90[15]
plaintiff;
CONTRACTS FINALS ACJUCO 64

The petitioner adduced evidence that on March 9, petitioner should be ordered to pay to the
1990, he had written Senen Valero that he was respondent reasonable rentals for the car. On
agreeable to an incentive compensation October 10, 1992, the court a quo issued an
of P218,000 to be settled by the respondent by order, granting plaintiffs motion and amending the
transferring the car to the petitioner valued dispositive portion of its July 28, 1992 Decision:
at P180,000 and P38,000 worth of shares of the
1. Ordering defendant to pay to plaintiff lease
Architectural Center, Inc. on the claim of Da Costa
rentals for the use of the motor vehicle at the rate
that respondent was almost bankrupt.However,
of P1,000.00 per Day from May 8, 1990 up to the
the petitioner learned that the respondent was
date of actual delivery to the plaintiff of the motor
financially sound; hence, he had decided to
vehicle; and
receive his incentive compensation of P395,000 in
cash.[16] On March 29, 1990, the petitioner called 2. Ordering First Integrated Bonding & Insurance
up the office of Louis Da Costa to inform the latter Co. to make good on its obligations to plaintiff
of his acceptance of the letter-offer of the under the Counterbond issued pursuant to this
respondent. However, the petitioner was told by case.
Liwayway Dinglasan, the telephone receptionist of
Commonwealth Insurance Co, that Da Costa was SO ORDERED.[19]
out of the office. The petitioner asked Liwayway to The petitioner appealed from the decision and the
inform Da Costa that he had called him up and order of the court a quo to the Court of Appeals.
that he hadalready accepted the letter-
offer. Liwayway promised to relay the message to On February 8, 1996, the Court of Appeals
Da Costa. Liwayway testified that she had relayed rendered its Decision,[20] affirming the decision of
the petitioners message to Da Costa and that the the trial court. The dispositive portion of the
latter merely nodded his head. decision reads:

After trial, the court a quo rendered its WHEREFORE, the Decision dated July 28, 1992
Decision[17] on July 28, 1992, the dispositive and the Order dated October 10, 1992 of the
portion of which reads as follows: Regional Trial Court of Pasig (Branch 158) are
hereby AFFIRMED with the MODIFICATION that
WHEREFORE, in view of all the foregoing, the period of payment of rentals at the rate of
judgment is rendered ordering the defendant: P1,000.00 per day shall be from the time this
1. To deliver the motor vehicle prescribed [sic] in decision becomes final until actual delivery of the
the complaint to plaintiff SEADC, or pay its value motor vehicle to plaintiff-appellee is made.
of P220,000 in case delivery cannot be made; Costs against the defendant-appellant.
2. pay plaintiff SEADC P50,000 as and for SO ORDERED.[21]
attorneys fees; and
The Court of Appeals stated that the petitioner had
3. Cost of litigation. not accepted the respondents March 14, 1990
SO ORDERED.[18] Letter-offer before the respondent withdrew said
offer on April 4, 1990.
The trial court stated that there existed no
perfected contract between the petitioner and the The petitioner filed a petition for review on
respondent on the latters March 14, 1990 Letter- certiorari of the decision of the Court of Appeals.
offer for failure of the petitioner to effectively notify The petitioner raises two issues, namely: (a)
the respondent of his acceptance of said letter- whether or not there was a valid acceptance on
offer before the respondent withdrew the same. his part of the March 14, 1990 Letter-offer of the
The respondent filed a motion for the amendment respondent;[22] and (b) whether or not there was
of the decision of the trial court, praying that the
CONTRACTS FINALS ACJUCO 65

an effective withdrawal by the respondent of said (2) Object certain which is the subject matter of
letter-offer. the contract;
The petition is dismissed. (3) Cause of the obligation which is established.
Anent the first issue, the petitioner posits that the Under Article 1319 of the New Civil Code, the
respondent had given him a reasonable time from consent by a party is manifested by the meeting of
March 14, 1990 within which to accept or reject its the offer and the acceptance upon the thing and
March 14, 1990 Letter-offer. He had already the cause which are to constitute the contract. An
accepted the offer of the respondent when he offer may be reached at any time until it is
affixed his conformity thereto on the space accepted. An offer that is not accepted does not
provided therefor on March 28, 1990[23] and had give rise to a consent. The contract does not come
sent to the respondent corporation on April 7, into existence.[24] To produce a contract, there
1990 a copy of said March 14, 1990 Letter-offer must be acceptance of the offer which may be
bearing his conformity to the offer of the express or implied[25] but must not qualify the
respondent; hence, the respondent can no longer terms of the offer. The acceptance must be
demand the return of the vehicle in question. He absolute, unconditional and without variance of
further avers that he had already impliedly any sort from the offer.[26]
accepted the offer when after said respondents
The acceptance of an offer must be made known
offer, he retained possession of the car.
to the offeror.[27] Unless the offeror knows of the
For its part, the respondent contends that the acceptance, there is no meeting of the minds of
issues raised by the petitioner are factual. The the parties, no real concurrence of offer and
jurisdiction of the Court under Rule 45 of the Rules acceptance.[28] The offeror may withdraw its offer
of Court, as amended, is limited to revising and and revoke the same before acceptance thereof
correcting errors of law of the CA. As concluded by the offeree. The contract is perfected only from
by the Court of Appeals, there had been no the time an acceptance of an offer is made known
acceptance by the petitioner of its March 14, 1990 to the offeror. If an offeror prescribes the exclusive
Letter-offer. The receipt by the petitioner of the manner in which acceptance of his offer shall be
original of the March 14, 1990 Letter-offer for indicated by the offeree, an acceptance of the
review purposes amounted merely to a counter- offer in the manner prescribed will bind the
offer of the petitioner. The findings of the Court of offeror. On the other hand, an attempt on the part
Appeals are binding on the petitioner. The of the offeree to accept the offer in a different
petitioner adduced no proof that the respondent manner does not bind the offeror as the absence
had granted him a period within which to accept of the meeting of the minds on the altered type of
its offer. The latter deemed its offer as not acceptance.[29] An offer made inter
accepted by the petitioner in light of petitioners praesentes must be accepted immediately. If the
ambivalence and indecision on March 16, 1990 parties intended that there should be an express
when he received the letter-offer of respondent. acceptance, the contract will be perfected only
upon knowledge by the offeror of the express
We do not agree with the petitioner.
acceptance by the offeree of the offer. An
Under Article 1318 of the Civil Code, the essential acceptance which is not made in the manner
requisites of a contract are as follows: prescribed by the offeror is not effective but
constitutes a counter-offer which the offeror may
Art. 1318. There is no contract unless the accept or reject.[30] The contract is not perfected if
following requisites concur: the offeror revokes or withdraws its offer and the
(1) Consent of the contracting parties; revocation or withdrawal of the offeror is the first
to reach the offeree.[31] The acceptance by the
offeree of the offer after knowledge of the
CONTRACTS FINALS ACJUCO 66

revocation or withdrawal of the offer is be made immediately.[35] In this case, the


inefficacious. The termination of the contract respondent made its offer to the petitioner when
when the negotiations of the parties terminate and Da Costa handed over on March 16, 1990 to the
the offer and acceptance concur, is largely a petitioner its March 14, 1990 Letter-offer but that
question of fact to be determined by the trial the petitioner did not accept the offer. The
court.[32] respondent, thus, had the option to withdraw or
revoke the offer, which the respondent did on April
In this case, the respondent made its offer through
4, 1990.
its Vice-Chairman of the Board of Directors,
Senen Valero. On March 16, 1990, Da Costa Even if it is assumed that the petitioner was given
handed over the original of the March 14, 1990 a reasonable period to accept or reject the offer of
Letter-offer of the respondent to the the respondent, the evidence on record shows
petitioner. The respondent required the petitioner that from March 16, 1990 to April 3, 1990, the
to accept the offer by affixing his signature on the petitioner had more than two weeks which was
space provided in said letter-offer and writing the more than sufficient for the petitioner to accept the
date of said acceptance, thus foreclosing an offer of the respondent. Although the petitioner
implied acceptance or any other mode of avers that he had accepted the offer of the
acceptance by the petitioner. However, when the respondent on March 28, 1990, however, he failed
letter-offer of the respondent was delivered to the to transmit to the respondent the copy of the
petitioner on March 16, 1990, he did not accept or March 14, 1990 Letter-offer bearing his conformity
reject the same for the reason that he needed time thereto. Unless and until the respondent received
to decide whether to reject or accept the said copy of the letter-offer, it cannot be argued
same.[33] There was no contract perfected that a contract had already been perfected
between the petitioner and the respondent between the petitioner and the respondent.
corporation.[34] Although the petitioner claims that
On the second issue, the petitioner avers that
he had affixed his conformity to the letter-offer on
Philtectic Corporation, although a wholly-owned
March 28, 1990, the petitioner failed to transmit
and controlled subsidiary of the respondent, had
the said copy to the respondent. It was only on
no authority to withdraw the offer of the
April 7, 1990 when the petitioner appended to his
respondent. The resolution of the respondent
letter to the respondent a copy of the said March
authorizing Philtectic Corporation to take such
14, 1990 Letter-offer bearing his conformity that
action against the petitioner including the
he notified the respondent of his acceptance to
institution of an action against him for the recovery
said offer. But then, the respondent, through
of the subject car does not authorize Philtectic
Philtectic Corporation, had already withdrawn its
Corporation to withdraw the March 14, 1990
offer and had already notified the petitioner of said
Letter-offer of the respondent. The withdrawal by
withdrawal via respondents letter dated April 4,
Philtectic Corporation on April 4, 1990 of the offer
1990 which was delivered to the petitioner on the
of the respondent was ineffective insofar as the
same day. Indubitably, there was no contract
petitioner was concerned. The respondent, for its
perfected by the parties on the March 14, 1990
part, asserts that the petitioner had failed to put in
Letter-offer of the respondent.
issue the matter of lack of authority of Philtectic
The petitioners plaint that he was not accorded by Corporation to withdraw for and in behalf of the
the respondent reasonable time to accept or reject respondent its March 14, 1990 Letter-offer. It
its offer does not persuade. It must be contends that the authority of Philtectic
underscored that there was no time frame fixed by Corporation to take such action including the
the respondent for the petitioner to accept or reject institution of an action against the petitioner for the
its offer. When the offeror has not fixed a period recovery of the car necessarily included the
for the offeree to accept the offer, and the offer is authority to withdraw the respondents offer. Even
made to a person present, the acceptance must then, there was no need for the respondent to
CONTRACTS FINALS ACJUCO 67

withdraw its offer because the petitioner had letter have with the demand letter that you are
already rejected the respondents offer on March talking about?
16, 1990 when the petitioner received the original
A Its the same one I am referring to.
of the March 14, 1990 Letter-offer of the
respondent without the petitioner affixing his C/Pltf. Your honor, we manifest that the letter has
signature on the space therefor. been previously marked as our exh. D.
We do not agree with the petitioner. Implicit in the Q Mr. Valero, on the first paragraph of this
authority given to Philtectic Corporation to demand letter, you stated that the letter is written
demand for and recover from the petitioner the in behalf of Philtectic Corporation. Do you have
subject car and to institute the appropriate action any knowledge why it was written this way?
against him to recover possession of the car is the
authority to withdraw the respondents March 14, A Yes. Because Philtectic, being the agent used
1990 Letter-offer. It cannot be argued that here by S.E.A. Development Corporation for the
respondent authorized Philtectic Corporation to one using the car, it was only deemed proper that
demand and sue for the recovery of the car and Philtectic will be the one to send the demand
yet did not authorize it to withdraw its March 14, letter.
1990 Letter-offer to the petitioner. Besides, when Q In the second paragraph of that letter, Mr.
he testified, Senen Valero stated that the April 4, Valero, you stated that there was an allusion made
1990 letter of Philtectic Corporation to the to the offer made on March 14, 1990. That the
petitioner was upon his instruction and 1982 Mitsubishi Galant Super Saloon car with
conformably with the aforesaid resolution of the plate# M-PCA-189 assigned to you by the
Board of Directors of the respondent: company, and the membership share in the
Q Mr. Valero, after the Board passed this Architectural Center Inc., be transferred to you in
resolution. (sic) What action did you take, if any? settlement. You previously stated about this
March 14 letter. What relation, if any, does this
A After that resolution was passed. (sic) I second paragraph with the letter-offer that you
instructed our lawyers to proceed with the demand previously stated.
letter for the recovery of the vehicle.
C/Def. - Objection, your honor. This witness is
Q Do you know if that demand letter was every incompetent
(sic) made by your lawyer?
C/Pltf. - But he was the one who instructed, your
A Yes. I know that because I was the one who honor.
gave the instruction and before it was finally
served on Malbarosa, I was shown about the Court - LET the witness answer.
demand letter. Witness- (Stenographer reads back the previous
C/Pltf. - Your honor, or rather question asked by counsel for him to answer,
and.)
Mr. Valero, if I show you a copy of that letter, will
you be able to identify the same? A It is the same.[36]

A Yes, sir. IN LIGHT OF ALL THE FOREGOING, the petition


is dismissed. The Decision of the Court of Appeals
Q I am now showing to you a copy of the letter is AFFIRMED.
dated April 4, 1990, addressed to Mr. Salvador P.
Malbarosa and signed by Romulo, Mabanta, SO ORDERED.
Buenaventura, Sayoc and Delos Angeles by
_____. What relation, if any, does that demand
CONTRACTS FINALS ACJUCO 68

on the pleadings. Accordingly, on February 28,


1964, the lower court rendered judgment for
OFFER Sanchez, ordering Mrs. Rigos to accept the sum
G.R. No. L-25494 June 14, 1972 judicially consigned by him and to execute, in his
favor, the requisite deed of conveyance. Mrs.
NICOLAS SANCHEZ, plaintiff-appellee, Rigos was, likewise, sentenced to pay P200.00,
vs. as attorney's fees, and other costs. Hence, this
SEVERINA RIGOS, defendant-appellant. appeal by Mrs. Rigos.
Santiago F. Bautista for plaintiff-appellee. This case admittedly hinges on the proper
Jesus G. Villamar for defendant-appellant. application of Article 1479 of our Civil Code, which
provides:
CONCEPCION, C.J.:p
ART. 1479. A promise to buy and sell a
Appeal from a decision of the Court of First determinate thing for a price certain is reciprocally
Instance of Nueva Ecija to the Court of Appeals, demandable.
which certified the case to Us, upon the ground
that it involves a question purely of law. An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding
The record shows that, on April 3, 1961, plaintiff upon the promissor if the promise is supported by
Nicolas Sanchez and defendant Severina Rigos a consideration distinct from the price.
executed an instrument entitled "Option to
Purchase," whereby Mrs. Rigos "agreed, In his complaint, plaintiff alleges that, by virtue of
promised and committed ... to sell" to Sanchez the the option under consideration, "defendant agreed
sum of P1,510.00, a parcel of land situated in the and committed to sell" and "the plaintiff agreed
barrios of Abar and Sibot, municipality of San and committed to buy" the land described in the
Jose, province of Nueva Ecija, and more option, copy of which was annexed to said
particularly described in Transfer Certificate of pleading as Annex A thereof and is quoted on the
Title No. NT-12528 of said province, within two (2) margin.1 Hence, plaintiff maintains that the
years from said date with the understanding that promise contained in the contract is "reciprocally
said option shall be deemed "terminated and demandable," pursuant to the first paragraph of
elapsed," if "Sanchez shall fail to exercise his right said Article 1479. Although defendant had really
to buy the property" within the stipulated period. "agreed, promised and committed" herself to sell
Inasmuch as several tenders of payment of the the land to the plaintiff, it is not true that the latter
sum of Pl,510.00, made by Sanchez within said had, in turn, "agreed and committed himself " to
period, were rejected by Mrs. Rigos, on March 12, buy said property. Said Annex A does not bear out
1963, the former deposited said amount with the plaintiff's allegation to this effect. What is more,
Court of First Instance of Nueva Ecija and since Annex A has been made "an integral part"
commenced against the latter the present action, of his complaint, the provisions of said instrument
for specific performance and damages. form part "and parcel"2 of said pleading.

After the filing of defendant's answer — admitting The option did not impose upon plaintiff
some allegations of the complaint, denying other the obligation to purchase defendant's property.
allegations thereof, and alleging, as special Annex A is not a "contract to buy and sell." It
defense, that the contract between the parties "is merely granted plaintiff an "option" to buy. And
a unilateral promise to sell, and the same being both parties so understood it, as indicated by the
unsupported by any valuable consideration, by caption, "Option to Purchase," given by them to
force of the New Civil Code, is null and void" — on said instrument. Under the provisions thereof, the
February 11, 1964, both parties, assisted by their defendant "agreed, promised and committed"
respective counsel, jointly moved for a judgment herself to sell the land therein described to the
CONTRACTS FINALS ACJUCO 69

plaintiff for P1,510.00, but there is nothing in the Company vs. Sevilla, 9 Phil. 210). (Emphasis
contract to indicate that her aforementioned supplied.)
agreement, promise and undertaking is supported
This view was reiterated in Evangelista v. De la
by a consideration "distinct from the price"
Rosa4 and Mercy's Incorporated v. Herminia
stipulated for the sale of the land.
Verde.5
Relying upon Article 1354 of our Civil Code, the
Squarely in point is Southwestern Sugar &
lower court presumed the existence of said
Molasses Co. v. Atlantic Gulf & Pacific Co.,6 from
consideration, and this would seem to be the main
which We quote:
factor that influenced its decision in plaintiff's
favor. It should be noted, however, that: The main contention of appellant is that the option
granted to appellee to sell to it barge No. 10 for
(1) Article 1354 applies to contracts in general,
the sum of P30,000 under the terms stated above
whereas the second paragraph of Article 1479
has no legal effect because it is not supported by
refers to "sales" in particular, and, more
any consideration and in support thereof it invokes
specifically, to "an accepted unilateral promise to
article 1479 of the new Civil Code. The article
buy or to sell." In other words, Article 1479 is
provides:
controlling in the case at bar.
"ART. 1479. A promise to buy and sell a
(2) In order that said unilateral promise may be
determinate thing for a price certain is reciprocally
"binding upon the promisor, Article 1479 requires
demandable.
the concurrence of a condition, namely, that the
promise be "supported by a consideration distinct An accepted unilateral promise to buy or sell a
from the price." Accordingly, the promisee can not determinate thing for a price certain is binding
compel the promisor to comply with the promise, upon the promisor if the promise is supported by
unless the former establishes the existence of a consideration distinct from the price."
said distinct consideration. In other words,
the promisee has the burden of proving such On the other hand, Appellee contends that, even
consideration. Plaintiff herein has not even granting that the "offer of option" is not supported
alleged the existence thereof in his complaint. by any consideration, that option became binding
on appellant when the appellee gave notice to it of
(3) Upon the other hand, defendant explicitly its acceptance, and that having accepted it within
averred in her answer, and pleaded as a special the period of option, the offer can no longer be
defense, the absence of said consideration for her withdrawn and in any event such withdrawal is
promise to sell and, by joining in the petition for a ineffective. In support this contention, appellee
judgment on the pleadings, plaintiff has impliedly invokes article 1324 of the Civil Code which
admitted the truth of said averment in defendant's provides:
answer. Indeed as early as March 14, 1908, it had
been held, in Bauermann v. Casas,3 that: "ART. 1324. When the offerer has allowed the
offeree a certain period to accept, the offer may be
One who prays for judgment on the pleadings withdrawn any time before acceptance by
without offering proof as to the truth of his own communicating such withdrawal, except when the
allegations, and without giving the opposing party option is founded upon consideration as
an opportunity to introduce evidence, must be something paid or promised."
understood to admit the truth of all the material
and relevant allegations of the opposing party, There is no question that under article 1479 of the
and to rest his motion for judgment on those new Civil Code "an option to sell," or "a promise to
allegations taken together with such of his own as buy or to sell," as used in said article, to be valid
are admitted in the pleadings. (La Yebana must be "supported by a consideration distinct
from the price." This is clearly inferred from the
CONTRACTS FINALS ACJUCO 70

context of said article that a unilateral promise to between Articles 1324 and 1479 of the Civil Code
buy or to sell, even if accepted, is only binding if and applied the former where a unilateral promise
supported by consideration. In other words, "an to sell similar to the one sued upon here was
accepted unilateral promise can only have a involved, treating such promise as an option
binding effect if supported by a consideration which, although not binding as a contract in itself
which means that the option can still be for lack of a separate consideration, nevertheless
withdrawn, even if accepted, if the same is not generated a bilateral contract of purchase and
supported by any consideration. It is not disputed sale upon acceptance. Speaking through
that the option is without consideration. It can Associate Justice, later Chief Justice, Cesar
therefore be withdrawn notwithstanding the Bengzon, this Court said:
acceptance of it by appellee.
Furthermore, an option is unilateral: a promise to
It is true that under article 1324 of the new Civil sell at the price fixed whenever the offeree should
Code, the general rule regarding offer and decide to exercise his option within the specified
acceptance is that, when the offerer gives to the time. After accepting the promise and before he
offeree a certain period to accept, "the offer may exercises his option, the holder of the option is not
be withdrawn at any time before acceptance" bound to buy. He is free either to buy or not to buy
except when the option is founded upon later. In this case, however, upon accepting herein
consideration, but this general rule must be petitioner's offer a bilateral promise to sell and to
interpreted as modified by the provision of article buy ensued, and the respondent ipso
1479 above referred to, which applies to "a facto assumed the obligation of a purchaser. He
promise to buy and sell" specifically. As already did not just get the right subsequently to buy or not
stated, this rule requires that a promise to sell to to buy. It was not a mere option then; it was a
be valid must be supported by a consideration bilateral contract of sale.
distinct from the price.
Lastly, even supposing that Exh. A granted an
We are not oblivious of the existence of American option which is not binding for lack of
authorities which hold that an offer, once consideration, the authorities hold that:
accepted, cannot be withdrawn, regardless of
"If the option is given without a consideration, it is
whether it is supported or not by a consideration
a mere offer of a contract of sale, which is not
(12 Am. Jur. 528). These authorities, we note,
binding until accepted. If, however, acceptance is
uphold the general rule applicable to offer and
made before a withdrawal, it constitutes a binding
acceptance as contained in our new Civil Code.
contract of sale, even though the option was not
But we are prevented from applying them in view
supported by a sufficient consideration. ... . (77
of the specific provision embodied in article 1479.
Corpus Juris Secundum, p. 652. See also 27
While under the "offer of option" in question
Ruling Case Law 339 and cases cited.)
appellant has assumed a clear obligation to sell its
barge to appellee and the option has been "It can be taken for granted, as contended by the
exercised in accordance with its terms, and there defendant, that the option contract was not valid
appears to be no valid or justifiable reason for for lack of consideration. But it was, at least, an
appellant to withdraw its offer, this Court cannot offer to sell, which was accepted by letter, and of
adopt a different attitude because the law on the the acceptance the offerer had knowledge before
matter is clear. Our imperative duty is to apply it said offer was withdrawn. The concurrence of both
unless modified by Congress. acts — the offer and the acceptance — could at
all events have generated a contract, if none there
However, this Court itself, in the case of Atkins,
was before (arts. 1254 and 1262 of the Civil
Kroll and Co., Inc. v. Cua Hian Tek,8 decided later
Code)." (Zayco vs. Serra, 44 Phil. 331.)
that Southwestern Sugar & Molasses Co. v.
Atlantic Gulf & Pacific Co.,9 saw no distinction
CONTRACTS FINALS ACJUCO 71

In other words, since there may be no valid


contract without a cause or consideration, the
promisor is not bound by his promise and may,
accordingly, withdraw it. Pending notice of its
withdrawal, his accepted promise partakes,
however, of the nature of an offer to sell which, if
accepted, results in a perfected contract of sale.
This view has the advantage of avoiding a conflict
between Articles 1324 — on the general principles
on contracts — and 1479 — on sales — of the
Civil Code, in line with the cardinal rule of statutory
construction that, in construing different provisions
of one and the same law or code, such
interpretation should be favored as will reconcile
or harmonize said provisions and avoid a conflict
between the same. Indeed, the presumption is
that, in the process of drafting the Code, its author
has maintained a consistent philosophy or
position. Moreover, the decision in Southwestern
Sugar & Molasses Co. v. Atlantic Gulf & Pacific
Co., 10 holding that Art. 1324 is modified by Art.
1479 of the Civil Code, in effect, considers the
latter as an exception to the former, and
exceptions are not favored, unless the intention to
the contrary is clear, and it is not so, insofar as
said two (2) articles are concerned. What is more,
the reference, in both the second paragraph of Art.
1479 and Art. 1324, to an option or promise
supported by or founded upon a consideration,
strongly suggests that the two (2) provisions
intended to enforce or implement the same
principle.
Upon mature deliberation, the Court is of the
considered opinion that it should, as it hereby
reiterates the doctrine laid down in the Atkins,
Kroll & Co. case, and that, insofar as inconsistent
therewith, the view adhered to in
the Southwestern Sugar & Molasses Co. case
should be deemed abandoned or modified.
WHEREFORE, the decision appealed from is
hereby affirmed, with costs against defendant-
appellant Severina Rigos. It is so ordered.
CONTRACTS FINALS ACJUCO 72

pleasure to survey the land and I know more or


less its area. 1awph!l.net
Here we are not to deceive each other. If you like
that parcel and if you want to buy it I will give you
VICES OF CONSENT good propositions. I don't know where and how
they learned that I was selling the hacienda and
G.R. No. L-20435 October 23, 1923 they made me a good offer, but as we do not want
LUIS ASIAIN, plaintiff-appellant, to part but with that parcel, hence my propositions
vs. are the following, in view of the time that has
BENJAMIN JALANDONI, defendant-appellee. elapsed and the progress of the cane.

Arroyo and Gurrea for appellant. I assure (aseguro) that there are 2,000 piculs and
Francisco Soriano for appellee. sell on that basis, provided that the cane is milled
in due time. In case the sugar does not amount to
MALCOLM, J.: 2,000 piculs, I will pay in sugar all such amount as
will be necessary to complete the 2,000, but if after
Luis Asiain, the plaintiff-appellant in this case, is
milling the cane, as I say, there is an excess over
the owner of the hacienda known as "Maria"
2,000 piculs, all the excess shall be mine. So that
situated in the municipality of La Carlota, Province
if you like, I make the sale for the same price that
of Occidental Negros, containing about 106
we talked about and the same conditions, not a
hectares. Benjamin Jalandoni, the defendant-
dime more or less.
appellee, is the owner of
another hacienda adjoining of Asiain. Since you left it did rain, so the "alociman"
(Philippine herb) of Guimib must die on the field,
Asiain and Jalandoni happening to meet no one of
whether of the hacienda or of the "lagatio." You
the days of May, 1920, Asiain said to Jalandoni
have a contract for a lump sum. Now they have
that he was willing to sell a portion of
begun to plow the old plantations within the
his hacienda for the sum of P55,000. With a wave
boundary some days ago and you may rest and
of his hand, Asiain indicated the tract of land in
throw one (unintelligible), answer yes or no, so
question, affirming that it contained between 25
that I may decide.
and 30 hectares, and that the crop of sugar cane
then planted would produce not less than 2,000 Your friend LUIS ASIAIN
piculs of sugar. But Jalandoni, remaining doubtful
as to the extent of the land and as to the amount Sometime later, in July of the same year, Asiain
of crop on it, Asiain wrote Jalandoni the letter and Jalandoni having met at Iloilo, they prepared
which follows: and signed the memorandum-agreement which
follows:
HDA. MARIA May, 26, 1920.
Purchase of land of Mr. Luis Asiain and his wife
MR. BENJAMIN JALANDONI. Maria Cadenas, by B. Jalandoni, containing 25
hectares more or less of land bounded by property
DEAR BENJAMIN: I am in receipt of your letter
of the purchaser, with its corresponding crop,
and with regard to your statement that parcel does
estimated at 2,000 piculs, the total value of which
not contain 21 hectares I do not believe. I bet
is 55 thousand. The price is to be paid by paying
anything that part only which is planted with cane
30 thousand at the signing of the document, and
contains more than 20 hectares, I bet 2 against 1.
25 thousand within one year, with interest at the
If you agree, I would be that you pay only one-half. rate of 10 per cent.
I am not a surveyor, but these days I had the
Mr. Asiain is under obligation to take care of all the
plantation until the planting is finished and in case
CONTRACTS FINALS ACJUCO 73

the crop exceeds 2,000 piculs, all the excess will which is in the hands of Attorneys Padilla &
belong to Mr. Asiain. Treñas.
The adjacent landowner on the north and the west (3) That upon the signing of this agreement, the
is the vendor himself, on the east, B. Jalandoni, vendor shall have the right to collect from the
and on the south, B. Jalandoni and the widow of purchaser part of the price giving receipts thereof
Abdon Ferrer. signed by said vendor.
The purchaser is under obligation to answer for all (4) That in case the vendor should withdraw from
the rights and obligations of the land with the the contract and desist from signing the document
central of Inchausti. of final sale, the purchaser shall have the right to
collect from said vendor all such amount as may
After the planting of the cane is completely
have been advanced on account of this sale, with
finished, Mr. Asiain shall vacate the parcel sold to
an indemnity of P15,000 as penalty.
the purchaser.
(5) In case it is the purchaser who should withdraw
The expenses for taking care of said plantation
from the contract of sale, then he will lose all such
until the planting is completely finished will be for
amount as may have been paid in advance on
the account of the vendor Mr. Asiain.
account of this transaction.
(Sgd.) "LUIS ASIAIN
In witness whereof, we have hereunto affixed our
"BENJAMIN JALANDONI"
signatures, at Iloilo, Iloilo, this 12th day of July,
During all of the period of negotiations, Jalandoni 1920.
remained a doubting Thomas and was continually
(Sgd) "LUIS ASIAIN
suggesting that, in his opinion, the amount of the
"BENJAMIN JALANDONI
land and of the crop was overestimated. Asiain on
his part always gave assurances in conformity Signed in the presence of:
with the letter which he had written intended to
(Sgd.) "ENGRACIO PADILLA
convince Jalandoni that the latter was in error in
"P.T. TREÑAS"
his opinion. As a result, the parties executed the
agreement which follows: Once in possession of the land, Jalandoni did two
things. He had the sugar cane ground in La
This document, executed in the city of Iloilo,
Carlota Sugar Central with the result that it gave
Province of Iloilo, Philippine Islands, by and
and output of P800 piculs and 23 cates of
between Messrs. Luis Asiain and Benjamin
centrifugal sugar. When opportunity offered, he
Jalandoni, of age and residents of the municipality
secured the certificate of title of Asiain and
of La Carlota, Province of Occidental Negros,
produced a surveyor to survey the land. According
Philippine Islands.
to his survey, the parcel in question contained an
Witnesseth: area of 118 hectares, 54 ares, and 22 centiares.
(1) That Luis Asiain does hereby promise and bind Of the purchase price of P55,000, Jalandoni had
himself to sell to Benjamin Jalandoni a parcel of paid P30,000, leaving a balance unpaid of
land the hacienda "Maria" of the aforesaid Luis P25,000. To recover the sum of P25,000 from
Asiain, situated in the municipality of La Carlota, Jalandoni or to obtain the certificate of title and the
Province of Occidental Negros, P.I. rent from him, action was begun by Asiain in the
Court of First Instance of Occidental Negros. To
(2) That Benjamin Jalandoni does hereby promise
the complaint, an answer and a counter-complaint
and bind himself to purchase the aforesaid parcel
were interposed by the defendant, by which it was
of land in the sum P55,000 upon certain conditions
asked that he be absolved from the complaint, that
specified in a memorandum signed by the parties
the contract be annulled, both parties to return
CONTRACTS FINALS ACJUCO 74

whatever they had received, and that he recover be no increase or decrease of the price even if the
from the plaintiff the sum of P3,600 annually as area be found to be more or less than that stated
damages. In a well-reasoned decision, the in the contract. The next paragraph provides that
Honorable Eduardo Gutierrez David, Judge of the same rule is applicable when two or more
First Instance, declared null the document of estates are sold for a single price. Then comes the
purchase and its related memorandum; absolved following: ". . . but, if in addition to a statement of
the defendant from the payment of P25,000; the boundaries, which is indispensable in every
ordered the plaintiff to return to the defendant the conveyance of real estate, the area estate should
sum of P30,000 with legal interest from July 12, be designated in the contract, the vendor shall be
1920; ordered the defendant to turn over to the obliged to deliver all that is included within such
plaintiff the tract of land and the certificate of title boundaries, even should it exceed the area
No. 468, and absolved the plaintiff from the specified in the contract; and, should he not be
counter-complaint, — all without special finding as able to do so, he shall suffer a reduction of the
to the costs. It is from said judgment that the price in proportion to what is lacking of the
plaintiff has appealed. area, unless the contract be annulled by reason of
the vendee's refusal to accept anything other than
The true facts need not give us pause. They are
that which was stipulated."
as found by the trial judge and as pratically agreed
to by the parties. It is only necessary to keep in A study of the Spanish commentators discloses
mind that apparently there was always a that the meaning of article 1471 is not clear as it
difference of opinion between Asiain and might be, and that they are not unanimous in their
Jalandoni as to the area of the tract and as to the views. Manresa gives emphasis to the intention of
crop of sugar cane; that the agreement between the parties and the option on the part of the
them mentions land containing 25 hectares more purchaser to rescind the contract. To quote from
or less, giving the boundaries, and a crop Manresa:
estimated and in one sense warranted at 2,000
The rule in the latter case is found in the second
piculs, and that in reality the land contained only a
paragraph of article 1471, with the exception of the
little more than 18 hectares and produced a crop
first clause which refers to the former hypothesis.
of only about 800 piculs. The legal consequences
This rule may be formulated as follows: Whether
arising from these facts are more difficult of
the case is one of sale of realty for a lump sum or
determination.
of two or more for a single price which is also a
Our Civil Code contains provisions which must be lump sum and, consequently, not at the rate of
taken into consideration. Codal articles 1265, specified price for each unit of measure or
1266, and 1269 relate to consent given by reason number, the vendor shall be bound to deliver all
of error and deceit. They provide the rules which that is within the boundaries stated although it may
shall avoid contracts for these and other reasons. exceed the area or number expressed in the
But the provisions of the Civil Code most directly contract; in case he cannot deliver it, the
pertinent are found in articles 1469, 1470, and purchaser shall have the right to reduce the price
1471. proportionately to what is lacking of the area or
number, or rescind the contract at his option.
The first two mentioned articles, 1469 and 1470,
are not applicable because of the proviso relating xxx xxx xxx
to the sale being made at a certain price for each
The manner in which the matter covered by this
unit of measure or number — which is not our
article was distributed in its two paragraphs
case. The facts seem to fall within article 1471. It
contributes to making it difficult to understand. The
first paragraph provides that in case of the sale of
rule might have been clearly stated had the first
real estate for a lump sum and not at the rate of
clause of the second paragraph been included in
specified price of each unit or measure, there shall
the first paragraph, the latter to end with the
CONTRACTS FINALS ACJUCO 75

words, "The same rule shall apply when two or There is no such thing. So long as the vendor can
more estates are sold for a single price." And if by deliver, and for that reason, delivers all the land
constituting an independent paragraph, with the included within the boundaries assigned to the
rest of the second paragraph, it were made to property, there can be no claim whatsoever either
appear more expressly that the rule of the second on his part, although the area may be found to be
paragraph thus drawn referred to all the cases of much greater than what was expressed, nor on
paragraph one, as we have expounded, namely, the part of the purchaser although what area may
to the case of a sale of one single estate and that be in reality much smaller. But as he sold
of two or more for one single price, the precept everything within the boundaries and this is all the
would have been clearer. purchaser has paid, or must pay, for whether
much or little, if afterwards, it is found that he
In our opinion, this would have better answered
cannot deliver all, because, for instance, a part, a
what we deem to be indubitable intention of the
building, a valley, various pieces of land, a glen
legislator.
etc., are not his, there is no sale of a specified
Some eminent commentators construe the last thing, there is longer a sale of the object agreed
part of article 1471 in a different way. To them the upon, and the solution given by the article is then
phrase "and should he not be able to do so" as just and logical: Either the contract is annulled or
applied to the vendor, does not mean as the price is reduced proportionately."
apparently it does "should he not be able to deliver (10 Comentarious al Codigo Civil, p. 157.)
all that is included within the boundaries stated,"
The principle is deduced from the Code, that if
but this other thing, namely, that if by reason of the
land shall be sold within boundaries with an
fact that a less area is included within the
expression of the area and if the area is grossly
boundaries than that expressed in the contract, it
deficient, the vendee has an option, either to have
is not possible for the vendor to comply therewith
the price reduced proportionately or to ask for the
according to its literal sense, he must suffer either
rescission of the contract. The rule of the civil law
the effects of the nullity of the contract or a
is more favorable to the purchaser than is the
reduction of the price proportionately to what may
common law. It gives the excess to the purchaser
be lacking of the area or number. It is added as a
without compensation to the vendor, where the
ground for this solution that if the vendor fulfills the
property is sold by a specific description followed
obligation, as stated in the article, by delivering
by the mention of the quantity or measure, but
what is not included within the boundaries, there
allows the purchaser either to secure a deduction
can never by any case of proportionate reduction
from the price in case a deficiency or to annul the
of the price on account of shortage of an area,
contract.
because he does not give less who delivers all that
he bound himself to. The decision of this court which gave most direct
consideration to article 1471 of the Civil Code,
According to this opinion, which we believe
now chiefly relied upon by the appellant, is found
erroneous, if within the boundaries of the property
in Irureta Goyena vs. Tambunting ([1902], 1 Phil.,
sold, there is included more than area than that
490). The rule announced in the syllabus is this:
expressed in the title deeds, nothing can be
"An agreement to purchase a certain specified lot
claimed by the vendor who losses the value of that
of land at a certain price is obligatory and
excess, but if there is less area, then he loses
enforceable regardless of the fact that its area is
also, because either the price is reduced or the
less than that mentioned in the contract." Taken
contract is annulled. This theory would be
literally, this rule would lead to the result desired
anomalous in case of sale of properties in bulk,
by the appellant. But the syllabus naturally must
but, above all, would do gross injustice which the
be understood in relation what is found in the
legislator never intended.
decision itself; and the fact was that the tract of
land was mentioned as being located at No. 20
CONTRACTS FINALS ACJUCO 76

Calle San Jose, Ermita, Manila. The private the contemplation of the seller to part with or the
contract expressed a specific thing as the object purchaser to receive, the injured party would be
of the contract and specified a certain price. There entitled to relief in like manner as he would be for
was no statement in the document of the an injury produced by a similar cause in a contract
superficial area and no hint in the record that of any other species. And when it is evident that
either or both parties were misled. The facts, there has been a gross mistake s to quantity, and
therefore, are different than those before us and the complaining party has not been guilty of any
the doctrine in the Irureta Goyena vs. Tambunting fraud or culpable negligence, nor has he
case, can well be followed and distinguished. otherwise impaired the equity resulting from the
mistake, he may be entitled to relief from the
A comparative study of the American Authorities
technical or legal effect of his contract, whether it
throws considerable light on the situation. In
be executed or only executory. It has also been
volume 39 Cyc., page 1250, under the subject
held that where there is a very great diference
"Vendor and Purchaser," is found the following:
between the actual and the estimated quantity of
If, in a contract of sale the quantity of the realty to acres of land sold in gross, relief may be granted
be conveyed is indicated by a unit of area, as by on the ground of gross mistake. Relief, however,
the acre, a marked excess or deficiency in the will not be granted as general rule where it
quantity stipulated for is a ground for avoiding the appears that the parties intended a contract of
contract. Since it is very difficult, if not impossible, hazard, as where the sale is a sale in gross and
to ascertain the quality of a tract with perfect not by acreage or quantity as a basis for the price;
accuracy, a slight excess or deficiency does not and it has been held that a mistake on the part of
affect the validity of the contract. the vendor of a town lot sold by description as to
number on the plat, as to its area or dimensions,
Where, however, the contract is not for the sale of inducing a sale thereof at smaller price than he
a specific quantity of land, but for the sale of would have asked had he been cognizant of its
particular tract, or designated lot or parcel, by size, not in any way occasioned or concealed by
name or description, for a sum in gross, and the conduct of the purchaser, constitutes no ground
transaction is bona fide, a mutual mistake as to for the rescission of the contract. The apparent
quantity, but not as to boundaries, will not conflict and discrepancies in the adjudicated
generally entitle the purchaser to compensation, cases involving mistakes as to quantity arise not
and is not ground for rescission. But it is well from a denial of or a failure to recognize the
settled that a purchaser of land, when it is sold in general principle, but from the difficulty of its
gross, or with the description, "more or less" or practical application in particular cases in
"about," does not thereby ipso facto take all risk of determining the questions whether the contract
quantity in the tract. If the difference between the was done of hazard as to quantity or not and
real and the represented quantity is very great, whether the variance is unreasonable. The
both parties act obviously under a mistake which relative extent of the surplus or deficit cannot
it is the duty of a court of equity to correct. And furnish, per se, an infallible criterion in each case
relief will be granted when the mistake is so for its determination, but each case must be
material if the truth had been known to the parties considered with reference not only to that but its
the sale would not have been made. other peculiar circumstances. The conduct of the
Volume 27 of the Ruling Case Law, pages 354, parties, the value, extent, and locality of the land,
434, 436, states what follows: the date of the contract, the price, and other
nameless circumstances, are always important,
A mutual mistake as to the quantity of the land and generally decisive. In other words, each case
sold may afford ground for equitable relief. As has must depend on its own peculiar circumstances
been said, if, through gross and palpable mistake, and surroundings.
more or less land should be conveyed than was in
CONTRACTS FINALS ACJUCO 77

The rule denying relief in case of a deficit or an first mentioned classes, whether executed or
excess is frequently applied in equity as well as at executory, should not be modified by the
law, but a court of equity will not interfere on chancellor when there has been no fraud. But in
account of either a surplus or a deficiency where sales of either the third of fourth kind, an
it is clear that the parties intend a contract of unreasonable surplus or deficit may entitle the
hazard, and it is said that although this general injured party to equitable relief, unless he has, by
rule may not carry into effect the real intention of his conduct, waived or forfeited his equity. . . .
the parties it is calculated to prevent litigation.
The memorandum-agreement between Asiain
From an early date, courts of equity under their
and Jalandoni contains the phrase or "more or
general jurisdiction to grant relief on the ground of
less." It is the general view that this phrase or
mistake have in case of mistake in the estimation
others of like import, added to a statement of
of the acreage in tract sold and conveyed
quantity, can only be considered as covering
interposed their aid to grant relief to the vendor
inconsiderable or small differences one way or the
where there was a large surplus over the
other, and do not in themselves determine the
estimated acreage, and to the purchaser where
character of the sale as one in gross or by the
there was large deficit. For the purpose of
acre. The use of this phrase in designating
determining whether relief shall be granted the
quantity covers only a reasonable excess or
courts have divided the cases into two general
deficiency. Such words may indeed relieve from
classes: (1) Where the sale is of a specific quantity
exactness but not from gross deficiency.
which is usually denominated a sale by the acre;
(2) where the sale is usually called a sale in gross. The apparent conflict and discrepancies in the
... adjudicated cases arise not from a denial of or a
failure to recognize the general principles. These
Sales in gross for the purpose of equitable relief
principles, as commonly agreed to, may be
may be divided into various subordinate
summarized as follows: A vendee of land when it
classifications: (1) Sales strictly and essentially by
is sold in gross or with the description "more or
the tract, without reference in the negotiation or in
less" does not thereby ipso facto take all risk of
the consideration to any designated or estimated
quantity in the land. The use of "more or less" or
quantity of acres; (2) sales of the like kind, in
similar words in designating quantity covers only
which, though a supposed quantity by estimation
a reasonable excess or deficiency. Mutual
is mentioned or referred to in the contract, the
mistake of the contracting parties to sale in regard
reference was made only for the purpose of
to the subject-matter of the sale which is so
description, and under such circumstances or in
material as to go to the essence of the contract, is
such a manner as to show that the parties
a ground for relief and rescission. It has even been
intended to risk the contingency of quantity,
held that when the parties saw the premises and
whatever it might be, or how much so ever it might
knew the boundaries it cannot prevent relief when
exceed or fall short of that which was mentioned
there was mutual gross mistake as to quantity.
in the contract; (3) sales in which it is evident, from
Innocent and mutual mistake alone are sufficient
extraneous circumstances of locality, value, price,
grounds for rescission. (Bigham vs.Madison
time, and the conduct and conversations of the
[1899], 47 L. R. A., 267) The difficulty comes from
parties, that they did not contemplate or intend to
the application of the principles in particular cases.
risk more than the usual rates of excess or deficit
in similar cases, or than such as might reasonably A practical demonstration of what has just been
be calculated on as within the range of ordinary said is disclosed by the notes in volume 27 of
contingency; (4) sales which, though technically Ruling Case Law, page 439. In the following
deemed and denominated sales in gross, are in cases, relief was denied: Lawson vs. Floyd, 124
fact sales by the acre, and so understood by the U. S., 108; 8 S. Ct., 409; 31 U. S. (L. ed.), 347
parties. Contracts belonging to either of the two (estimated acreage about 1,000 acres; shortage
CONTRACTS FINALS ACJUCO 78

368 acres); Frederick vs. Youngblood, 19 Ala., Epes vs. Saunders, 109 Va., 99; 63 S. E., 428;
680; 54 Am. Dec., 209 (estimated acreage 500 132 A. S. R., 904 (stated acreage 75 acres more
acres more or less; shortage 39 acres); or less; deficit 22 acres); McComb vs. Gilkeson,
Jones vs. Plater, 2 Gill (Md.), 125; 41 Am. Dec., 110 Va., 406; 66 S. E., 77; 135 A. S. R., 944
408 (stated acreage 998 acres; shortage 55 (stated acreage 245 acres more or less; deficit 10
acres); Frenche vs. State, 51 N. J. Eq., 624; 27 acres).
Atl., 140; 40 A. S. R., 548 (stated acreage 195-
A case often cited and which on examination is
98/100 be the same more or less; shortage 1-
found to contain a most exhaustive review of the
37/100); Faure vs. Martin, 7 N. Y., 210; 57 Am.
decisions, is that of Belknap vs. Sealey ([1856],
Dec., 515 (stated acreage 96 acres more or less;
14 N.Y. 143; 67 Am. Dec.,, 120) The facts were:
deficit 10 acres); Smith vs. Evans, 6 Bin. (Pa.),
"Upon the merits of the controversy the case is
102; 6 Am. Dec., 436 (shortage of 88 acres in tract
quite simple in its facts. The land in question is
conveyed as containing 991 1/4 acres more or
situated in the city of Brooklyn; and being valuable
less); Jollife vs.Hite, 1 Call (Va.), 301; 1 Am. Dec.,
only for division and sale as city lots, its valuable
519 (stated acreage 578 acres more or less;
only for division and sale as city lots, its value is
shortage 66 acres); Pendleton vs.Stewart, 5 Call
precisely in proportion to the quantity. In
(Va.), 1;2 Am. Dec., 583 (stated acreage 1,100
consideration of the gross sum of fourteen
acres more or less; shortage 160 acres);
thousand dollars, of which one thousand dollars
Nelson vs.Matthews, 2 Hen. & M. (Va.), 164; 3
was paid down, the defendant agreed to convey
Am. Dec., 620 (stated acreage 852 acres more or
the land to the plaintiff, describing it as "the
less; shortage of 8 acres). In the following cases
premises conveyed to him by Samuel T. Roberts,"
relief was granted: Harrel vs. Hill, 19 Ark., 102; 68
by deed dated about nine months previous. The
Am. Dec., 202 (stated acreage 180 acres more or
deed of Roberts contained a definite description
less; deficit 84 acres); Solinger vs. Jewett, 25 Ind.,
by meters and bounds, and stated the quantity to
479; 87 Am. Dec., 372 (stated acreage 121 acres
be "about nine acres, more or less," excepting a
more or less; deficit 36 acres); Hays vs. Hays, 126
certain parcel of one acre and six perches. The
Ind., 92; 25 N.E., 600; 11 L. R. A., 376 (stated
quantity in fact is only about half as much as the
acreage 28.4 acres more or less; deficit 5 acres);
deed asserted. The plaintiff, in agreeing to
Baltimore, etc., Land Soc. vs. Smith, 54 Md., 187;
purchase the tract at the sum named, acted under
39 Am. Rep., 374 (stated acreage about 65 acres;
a mistake which affected the price nearly one half,
deficit 30 to 35 acres); Newton vs. Tolles, 66 N.
and the judge has found that the seller was
H., 136; 19 Atl., 1092; 49 A. S. R., 593; 9 L. R. A.,
mistaken also. . . . The Judge has found that the
50 (stated acreage about 200 acres; deficit 65
actual quantity was substantially and essentially
acres); Couse vs. Boyles, 4 N. J. Eq., 212; 38 Am.
less than the plaintiff supposed he was
Dec., 212 (stated acreage 135 acres more or less;
purchasing; and although the finding does not so
deficit 30 acres) Belknap vs. Sealey, 14 N. Y.,
state in terms, there can be no difficulty, I think, in
143; 67 Am. Dec., 120 (stated acreage 8 acres
affirming that if the true quantity had been known,
more or less; deficit 4 acres); Paine vs. Upton, 87
the contract would not have been made. The
N.Y., 327; 41 Am. Rep., 371 (stated acreage
agreement has never been consummated by a
"about 222 acres be the same more or less;"
conveyance. These are the only essential facts in
shortage 18 acres); Bigham vs. Madison, 103
the case." The learned Judge remarked: "The
Tenn., 358; 52 S. W., 1074; 47 L. R. A., 267
counsel for the defendant is obliged to contend,
(stated acreage 25 acres more or less; deficit 12
and he does not contend, that mere mistake as to
acres); Smith vs. Fly, 24 Tex., 345; 76 Am. Dec.,
the quantity of land affords no ground of relief
109 (stated acreage 500 acres more or less;
against a contract in the terms of the present one,
deficit 115 acres); Triplett vs. Allen, 26 Grat. (Va.),
however serious such mistake may be, and
721; 21 Am. Dec., 320 (stated acreage 166 acres
although we can readily see the contract would
more or less; deficit 10 acres);
CONTRACTS FINALS ACJUCO 79

never have been made if the quantity had been became involved in the negotiations and before
made known. The convenience of such a rule has accomplishment of the agreement. This was the
been insisted on, and in the denial of justice it decision of the trial judge and we think that
certainly has the merit of simplicity. If the doctrine decision conforms to the facts, the law, and the
is true as broadly as stated, then there is one class principles of equity.
of contracts to which the settled maxim that equity
Judgment is affirmed, without prejudice to the right
will relieve against mistake can have no
of the plaintiff to establish in this action in the lower
application. Upon a careful examination of the
court the amount of the rent of the land pursuant
cases cited, as well as upon principle, my
to the terms of the complaint during the time the
conclusion is, that agreements of this description
land was in the possession of the defendant, and
are not necessarily proof against the maxims
to obtain judgment against the defendant for that
which apply to all others." Then follows a review of
amount, with costs against the appellant. So
the cases not alone of the state of New York and
ordered.
other states in the America Union but of England
as well. The rule was announced that equity will
rescind a contract for the sale of land for mutual
mistake as to the quantity of land which the
boundaries given in the contract contained, where
the deficiency is material. "More or less," used in
the contract in connection with the statement of
the quantity, will not prevent the granting of such
relief.
Coordinating more closely the law and the facts in
the instant case, we reach the following
conclusions: This was not a contract of hazard. It
was a sale in gross in which there was a mutual
mistake as to the quantity of land sold and as to
the amount of the standing crop. The mistake of
fact as disclosed not alone by the terms of the
contract but by the attendant circumstances,
which it is proper to consider in order to throw light
upon the intention of the parties, is, as it is
sometimes expressed, the efficient cause of the
concoction. The mistake with reference to the
subject-matter of the contract is such that, at the
option of the purchaser, it is rescindable. Without
such mistake the agreement would not have been
made and since this is true, the agreement is
inoperative and void. It is not exactly a case of
over reaching on the plaintiff's part, or of
misrepresentation and deception, or of fraud, but
is more nearly akin to a bilateral mistake for which
relief should be granted. Specific performance of
the contract can therefore not be allowed at the
instance of the vendor.
The ultimate result is to put the parties back in
exactly their respective positions before they
CONTRACTS FINALS ACJUCO 80

On October 26, 1987, unaware of the mistake by


which private respondent appeared to be the
owner of parcel no. 4 as indicated in the erroneous
survey, and based on the erroneous information
given by the surveyor that parcel no. 4 is covered
[G.R. No. 126013. February 12, 1997] by TCT No. 15516 and 15684, private respondent,
SPOUSES HEINZRICH THEIS AND BETTY through its authorized representative, one Atty.
THEIS, petitioners, vs. HONORABLE COURT Tarcisio S. Calilung, sold said parcel no. 4 to
OF APPEALS, HONORABLE ELEUTERIO petitioners.
GUERRERO, ACTING PRESIDING JUDGE, Upon execution of the Deed of Sale, private
BRANCH XVIII, REGIONAL TRIAL COURT, respondent delivered TCT Nos. 15516 and 15684
TAGAYTAY CITY, CALSONS DEVELOPMENT to petitioners who, on October 28, 1987,
CORPORATION, respondents. immediately registered the same with the Registry
DECISION of Deeds of Tagaytay City. Thus, TCT Nos. 17041
and 17042 in the names of the petitioners were
HERMOSISIMA, JR., J.: issued.
In the instant petition, we shall have the occasion Indicated on the Deed of Sale as purchase price
to apply the concept of mistake in the annulment was the amount of P130,000.00. The actual price
of contracts. agreed upon and paid, however, was
Private respondent Calsons Development P486,000.00. This amount was not immediately
Corporation is the owner of three (3) adjacent paid to private respondent; rather, it was
parcels of land covered by Transfer Certificate of deposited in escrow in an interest-bearing account
Title (TCT) Nos. 15515 (parcel no. 1 in the location in its favor with the United Coconut Planters Bank
map), 15516 (parcel no. 2) and 15684 (parcel no. in Makati City. The P486,000.00 in escrow was
3), with the area of 1,000 square meters, 226 released to, and received by, private respondent
square meters and 1,000 square meters, on December 4, 1987.
respectively. All three parcels of land are situated Thereafter, petitioners did not immediately occupy
along Ligaya Drive, Barangay Francisco, and take possession of the two (2) idle parcels of
Tagaytay City. Adjacent to parcel no. 3, which is land purchased from private respondent. Instead,
the lot covered by TCT No. 15684, is a vacant lot petitioners went to Germany.
denominated as parcel no. 4.
In the early part of 1990, petitioners returned to
In 1985, private respondent constructed a two- the Philippines. When they went to Tagaytay to
storey house on parcel no. 3. The lots covered by look over the vacant lots and to plan the
TCT No. 15515 and TCT No. 15516, which are construction of their house thereon, they
parcel no. 1 and parcel no. 2, respectively, discovered that parcel no. 4 was owned by
remained idle. another person. They also discovered that the lots
However, in a survey conducted in 1985, parcel actually sold to them were parcel nos. 2 and 3
no. 3, where the two-storey house stands, was covered by TCT Nos. 15516 and 15684,
erroneously indicated to be covered not by TCT respectively. Parcel no. 3, however, could not
No. 15684 but by TCT No. 15515, while the two have been sold to the petitioners by the private
idle lands (parcel nos. 1 and 2) were mistakenly respondents as a two-storey house, the
surveyed to be located on parcel no. 4 instead construction cost of which far exceeded the price
(which was not owned by private respondent) and paid by the petitioners, had already been built
covered by TCT Nos. 15516 and 15684. thereon even prior to the execution of the contract
between the disputing parties.
CONTRACTS FINALS ACJUCO 81

Petitioners insisted that they wanted parcel no. 4, averred that they relied on the technical
which is the idle lot adjacent to parcel no. 3, and descriptions of TCT Nos. 15516 and 15684
persisted in claiming that it was parcel no. 4 that appearing in the deed of sale x x x
private respondent sold to them. However, private
A resolution of the conflicting claims of the parties
respondent could not have possibly sold the same
to the instant controversy calls for an inquiry on
to them for it did not own parcel no. 4 in the first
their real intent relative to the identity of the
place.
parcels which plaintiff intended to sell to
The mistake in the identity of the lots is traceable defendants and which the latter in turn, intended
to the erroneous survey conducted in 1985. to buy from the former. For, the Court cannot
ignore the dictates of logic and common sense
To remedy the mistake, private respondent
which, ordinarily, could not push a person to sell
offered parcel nos. 1 and 2 covered by TCT Nos.
to another, a property which the former does not
15515 and 15516, respectively, as these two were
own in the first place, for fear of adverse
precisely the two vacant lots which private
consequences. The vendee, following the same
respondent owned and intended to sell when it
reasoning, would not buy a thing unless he is
entered into the transaction with petitioners.
totally certain that the seller is the real owner of
Petitioners adamantly rejected the good faith
the thing offered for sale. It is equally true that
offer. They refused to yield to reason and insisted
when one sells or buys a real property, he either
on taking parcel no. 3, covered by TCT No.
sells or buys the property as he sees it, in its actual
155864 and upon which a two-storey house
setting and by its physical metes and bounds, and
stands, in addition to parcel no. 2, covered by TCT
not be the mere lot number assigned to the same
No. 15516, on the ground that these TCTs have
property in the certificate of title or in any
already been cancelled and new ones issued in
document. And, when a buyer of real property
their name.
decides to purchase from his seller, he is ordinarily
Such refusal of petitioners prompted private bound by prudence to ascertain the true nature,
respondent to make another offer, this time, the identity or character of the property that he intends
return of an amount double the price paid by to buy and ascertain the title of his vendor before
petitioners. Petitioners still refused and stubbornly he parts with his money. It is quite obvious that the
insisted in their stand. foregoing precepts and precautions were
observed by the parties in the case at bar as there
Private respondent was then compelled to file an is no question at all that the sale in question was
action for annulment of deed of sale and consummated through the initiative of Mrs. Gloria
reconveyance of the properties subject Contreras and then Vice-Mayor Benjamin Erni x x
thereof[1] in the Regional Trial Court.[2] x both brokers of the sale who, after a chance
The trial court rendered judgment in favor of meeting with defendants at the Taal Vista Lodge
private respondent. Identifying the core issue in Hotel prior to the sale of plaintiff's parcels, brought
the instant controversy to be the voidability of the defendants to the vicinity where plaintiff's three (3)
contract of sale between petitioners and private adjacent parcels of land are located and pointed
respondent on the ground of mistake, the trial to defendants the two (2) vacant parcels right
court annulled said contract of sale after finding beside plaintiff's house. It is also undisputed that
that there was indeed a mistake in the when defendants intimated to the brokers their
identification of the parcels of land intended to be desire to buy the vacant lots pointed to them when
the subject matter of said sale. The trial court they visited the same place, they were brought to
ratiocinated: plaintiff's representative, Tarcisio S. Calilung, at
the latter's office in Makati where the parties
"Meeting head-on the issue of alleged mistake in discussed the terms of the sale.
the object of the same, defendants in their answer
CONTRACTS FINALS ACJUCO 82

The Court notes further from the records that circumstances established in this case would
defendants' desire to buy vacant lots from plaintiff clearly show, and this Court is convinced, that the
is not only confirmed by the testimony of Gloria inclusion of the parcel where plaintiff's house is
Contreras and the ocular inspection conducted by constructed is solely attributable to a mistake in
the court but by defendant Betty Theis herself the object of the sale between the parties. This
when the latter testified as follows: mistake, obviously, was made, on the part of
plaintiff's representative when the latter mistook
'COURT:
the vacant lot situated on the right side of plaintiff's
Q. Why, what was the lot that you intended to house as its vacant parcels of land when its vacant
buy? lots are actually situated on the left side of the
same house. Indeed, such mistake on plaintiff's
A. The right side of the house, Your Honor.' (TSN part appears to be tragic as it turned out later that
of November 8, 1991, page 19) the vacant lot on the right side of plaintiff's house
Similarly, in answer to a question propounded to did not belong to plaintiff. Worse, is the fact that
the same defendant by their counsel, she stated what was conveyed to defendants under the deed
that of sale was the parcel where plaintiff's house
already stood at the time of the sale. This,
'ATTY. ROSALES: definitely, is not what the parties intended.
Q. In other words, the titles delivered to you were x x x Going by the facts established by defendants'
not the titles covering the right side of the house? evidence, it is clear that defendants did not intend
A. No, sir.' (Ibid., page 20) to buy the parcel of land where plaintiff's house
stood as defendant Betty Theis declared in her
It is relevant to mention that when the defendants testimony that they wanted to buy the parcel at the
attempted to take possession of the parcels of right side of plaintiff's house where she and her
land they bought from the plaintiff on which they husband would construct their house (TSN of
intended to construct their house after their return June 4, 1991, p. 56). Neither can this Court accept
from a foreign sojourn, they admittedly wanted to the hypothesis that plaintiff intended to sell that
take that vacant area, which as herein shown, parcel where its house was already constructed
turns out to be a property not owned by plaintiff. for if this was its true intention, it would not sell its
From this act of the defendants, a clear meaning two (2) lots at the price of P486,000.00 which is
is shown. Defendants themselves, knew right from way below the costs of its construction
the beginning that what they intended to buy was of P1,500,000.00.
that vacant lot, not the lot where plaintiff's house
stands, covered by TCT No. 15684 which was The law itself explicitly recognizes that consent of
wrongly mentioned as one of the objects of the the parties is one of the essential elements to the
sale. x x x validity of the contract and where consent is given
through mistake, the validity of the contractual
The fact that the Deed of Sale subsequently relations between the parties is legally impaired.
executed by plaintiff and the defendants on
October 27, 1987 covers the parcel of land where As earlier stated, the facts obtaining in the case at
plaintiff's two-storey house was constructed will bar undoubtedly show that when defendants
clearly reflect a situation that is totally different bought the properties of plaintiff, they intended to
from what defendants had intended to buy from buy the vacant lots owned by the latter. As the sale
the plaintiff viz-a-viz [sic] the latter's intention to that was finally consummated by the parties had
sell its two (2) vacant lots to defendants. covered the parcel where plaintiff's house was
Notwithstanding defendants' claim that it was not constructed even before the sale took place, this
possible for plaintiff's representative not to be Court can safely assume that the deed of sale
familiar with its properties, the acts and executed by the parties did not truly express their
CONTRACTS FINALS ACJUCO 83

true intention. In other words, the mistake or error buy Parcel No. 4 as testified to by defendant-
on the subject of the sale in question appears to appellant Betty Theis, herself (p. 19, TSN, Nov. 8,
be substantial as the object of the same 1991), which lot turned out to be outside of the
transaction is different from that intended by the Transfer Certificates of Title of plaintiff-appellee.
parties. This fiasco could have been cured and Defendants-appellants cannot now insist on
the pain and travails of this litigation avoided, had Parcel No. 3 as the same was not the object of the
parties agreed to reformation of the deed of sale. sale between the parties.
But, as shown by the sequence of events
Clearly, therefore, there was honest mistake on
occurring after the sale was consummated, and
the part of plaintiff-appellee in the sale of Parcel
the mistake was discovered, the defendants
No. 4 to defendants-appellants which plaintiff-
refused, insisting that they wanted the vacant lots
appellee tried to remedy by offering defendants-
on the right side of plaintiff's house, which was
appellants instead his Parcels Nos. 1 or 2, or
impossible for plaintiff to do, as said vacant lots
reimbursement of the purchase price in double
were not of its own dominion."[3] [Emphasis
amount."[7] [Emphasis ours]
supplied]
We find that respondent court correctly affirmed
Aggrieved by the decision of the trial court,
the findings and conclusions of the trial court in
petitioners sought its reversal[4] from respondent
annulling the deed of sale as the former are
Court of Appeals.[5] Respondent court, however,
supported by evidence and the latter are in
did not find the appeal meritorious and accordingly
accordance with existing law and jurisprudence.
affirmed[6] the trial court decision. Ruled the
respondent appellate court: Art. 1390 of the New Civil Code provides:
"There is no doubt that when defendants- "Art. 1390. The following contracts are voidable or
appellants attempted to take physical possession annullable, even though there may have been no
of Parcel No. 4 in May, 1990, they were prevented damage to the contracting parties:
by the true owner thereof from taking possession
of said land. To clear the matter, plaintiff-appellee (1) x x x
hired a new surveyor who revealed in his survey (2) Those where the consent is vitiated by
that Parcel No. 4 is not included in plaintiff- mistake, violence, intimidation, undue influence,
appellee's Transfer Certificates of Title from which or fraud.
said plaintiff-appellee mistakenly offered
defendants-appellants said Parcel No. 4. x x x"
Realizing its mistake, plaintiff-appellee offered In the case at bar, the private respondent
defendants-appellants Parcels Nos. 1 and 2 under obviously committed an honest mistake in selling
the same Transfer Certificates of Title or the parcel no. 4. As correctly noted by the Court of
reimbursement of the purchase price in double Appeals, it is quite impossible for said private
amount. But defendants-appellants insisted this respondent to sell the lot in question as the same
time to acquire Parcel No. 3 wherein plaintiff- is not owned by it. The good faith of the private
appellee had already a house, and was not the respondent is evident in the fact that when the
object of the sale. mistake was discovered, it immediately offered
Said Parcel No. 3 cannot be the object of the sale two other vacant lots to the petitioners or to
between the parties as plaintiff-appellee's house reimburse them with twice the amount paid. That
already stands in the said area even before petitioners refused either option left the private
defendants-appellants had chosen Parcel No. 4 respondent with no other choice but to file an
which was described to be on the right side of said action for the annulment of the deed of sale on the
plaintiff-appellee's house in Parcel No. 3. There is ground of mistake. As enunciated in the case
no dispute that defendants-appellants wanted to of Mariano vs. Court of Appeals:[8]
CONTRACTS FINALS ACJUCO 84

"A contract may be annulled where the consent of A. There was no house. There were pineapple
one of the contracting parties was procured by crops existing on the property.
mistake, fraud, intimidation, violence, or undue
COURT: So, you are telling the Court that the
influence."
intended lot is vacant lot or Parcel 4?
Art. 1331 of the New Civil Code provides for the
A. Yes, your Honor.
situations whereby mistake may invalidate
consent. It states: Thus, to allow the petitioners to take parcel no. 3
would be to countenance unjust enrichment.
"Art. 1331. In order that mistake may invalidate
Considering that petitioners intended at the outset
consent, it should refer to the substance of the
to purchase a vacant lot, their refusal to accept the
thing which is the object of the contract, or to those
offer of the private respondent to give them two (2)
conditions which have principally moved one or
other vacant lots in exchange, as well as their
both parties to enter into the contract."
insistence on parcel no. 3, which is a house and
Tolentino[9] explains that the concept of error in lot, is manifestly unreasonable. As held by this
this article must include both ignorance, which is Court in the case of Security Bank and Trust
the absence of knowledge with respect to a thing, Company v. Court of Appeals[11]:
and mistake properly speaking, which is a wrong
"Hence, to allow petitioner bank to acquire the
conception about said thing, or a belief in the
constructed building at a price far below its actual
existence of some circumstance, fact, or event,
construction cost would undoubtedly constitute
which in reality does not exist. In both cases, there
unjust enrichment for the bank to the prejudice of
is a lack of full and correct knowledge about the
the private respondent. Such unjust enrichment,
thing. The mistake committed by the private
as previously discussed, is not allowed by law."
respondent in selling parcel no. 4 to the petitioners
falls within the second type. Verily, such mistake WHEREFORE, the petition is hereby DISMISSED
invalidated its consent and as such, annulment of and the decision of the Court Appeals in CA-G.R.
the deed of sale is proper. 47000 dated May 31, 1996 AFFIRMED. Costs
against the petitioner.
The petitioners cannot be justified in their
insistence that parcel no. 3, upon which private SO ORDERED
respondent constructed a two-storey house, be
given to them in lieu of parcel no. 4. The cost of
construction in 1985 for the said house
(P1,500,000.00) far exceeds the amount paid by
the petitioners to the private respondent
(P486,000.00). Moreover, the trial court, in
questioning private respondent's witness, Atty.
Tarciso Calilung (who is also its authorized
representative) clarified that parcel no. 4, the lot
mistakenly sold, was a vacant lot:[10]
"COURT: What property did you point to them?
A. I pointed to parcel No. 4, as appearing in the
sketch.
COURT: Parcel No. 4 is a vacant lot?
A. Yes, your Honor.
COURT: So, there was no house on that lot?
CONTRACTS FINALS ACJUCO 85

Balguma, then still alive, started collecting rentals


from the lessees of the apartments.
On March 10, 1987, respondent filed with the RTC
of Manila, Branch 21,6 a complaint for annulment
MISTAKE WHEN ONE PARTY IS UNABLE TO of the Deed of Absolute Sale, docketed as Civil
READ Case No. 87-39891.7 He averred that his brother
Miguel, Atty. Balguma and Inocencio Valdez
G.R. No. 132415 January 30, 2002 (defendants therein, now petitioners) convinced
MIGUEL KATIPUNAN, INOCENCIO VALDEZ, him to work abroad. They even brought him to the
EDGARDO BALGUMA and LEOPOLDO NBI and other government offices for the purpose
BALGUMA, JR., petitioners, of securing clearances and other documents
vs. which later turned out to be falsified. Through
BRAULIO KATIPUNAN, JR., respondent. insidious words and machinations, they made him
sign a document purportedly a contract of
SANDOVAL-GUTIERREZ, J.: employment, which document turned out to be a
Before us is a petition for review on Deed of Absolute Sale. By virtue of the said sale,
certiorari1 assailing the Decision2 of the Court of brothers Edgardo and Leopoldo, Jr. (co-
Appeals dated July 31, 1997 in CA-GR CV No. defendants), were able to register the title to the
45928, "Braulio Katipunan, Jr. vs. Miguel property in their names. Respondent further
Katipunan, Inocencio Valdez, Atty. Leopoldo alleged that he did not receive the consideration
Balguma, Sr., Edgardo Balguma and Leopoldo stated in the contract. He was shocked when his
Balguma, Jr." which set aside the Decision of the sister Agueda Katipunan-Savellano told him that
Regional Trial Court (RTC) of Manila, Branch 28, the Balguma brothers sent a letter to the lessees
in Civil Case No. 87-39891 for annulment of a of the apartment informing them that they are the
Deed of Absolute Sale. new owners. Finally, he claimed that the
defendants, now petitioners, with evident bad
The antecedents are: faith, conspired with one another in taking
advantage of his ignorance, he being only a third
Respondent Braulio Katipunan, Jr. is the owner of
grader.
a 203 square meter lot and a five-door apartment
constructed thereon located at 385-F Matienza In their answer, petitioners denied the allegations
St., San Miguel, Manila. The lot is registered in his in the complaint, alleging that respondent was
name under TCT No. 1091933of the Registry of aware of the contents of the Deed of Absolute
Deeds of Manila. The apartment units are Sale and that he received the consideration
occupied by lessees. involved; that he also knew that the Balguma
brothers have been collecting the rentals since
On December 29, 1985, respondent, assisted by
December, 1985 but that he has not objected or
his brother, petitioner Miguel Katipunan, entered
confronted them; and that he filed the complaint
into a Deed of Absolute Sale4 with brothers
because his sister, Agueda Savellano, urged him
Edgardo Balguma and Leopoldo Balguma, Jr. (co-
to do so.8
petitioners), represented by their father Atty.
Leopoldo Balguma, Sr., involving the subject Twice respondent moved to dismiss his complaint
property for a consideration of ₱187,000.00. (which were granted) on the grounds that he was
Consequently, respondent’s title to the property actually instigated by his sister to file the same;
was cancelled and in lieu thereof, TCT No. and that the parties have reached an amicable
1683945 was registered and issued in the names settlement after Atty. Balguma, Sr. paid him
of the Balguma brothers. In January, 1986, Atty. P2,500.00 as full satisfaction of his claim. In
granting his motions for reconsideration, the trial
CONTRACTS FINALS ACJUCO 86

court was convinced that respondent did not sign court was faulted for its wrong assessment of
the motions to dismiss voluntarily because of his appellant’s mental condition. It arbitrarily
poor comprehension, as shown by the medical disregarded the testimony of a skilled witness and
report of Dr. Annette Revilla, a Resident made an unsupported finding contrary to her
Psychiatrist at the Philippine General Hospital. expert opinion.
Besides, the trial court noted that respondent was
Admittedly, expert witnesses when presented to
not assisted by counsel in signing the said
the court must be construed to have been
motions, thus it is possible that he did not
presented not to sway the court in favor of any of
understand the consequences of his action.9
the parties, but to assist the court in the
Eventually the trial court set the case for pre-trial. determination of the issue before it (Espiritu vs.
The court likewise granted respondent’s motion to Court of Appeals, 242 SCRA 362). Expert
appoint Agueda Savellano as his guardian ad opinions are not ordinarily conclusive. They are
litem.10 generally regarded as purely advisory in
character; the court may place whatever weight
After hearing, the trial court dismissed the
they choose upon such testimony and may reject
complaint, holding that respondent failed to prove
it if they find it inconsistent with the facts in the
his causes of action since he admitted that: (1) he
case or otherwise unreasonable (Basic Evidence
obtained loans from the Balgumas; (2) he signed
by Ricardo J. Francisco, pp. 202).
the Deed of Absolute Sale; and (3) he
acknowledged selling the property and that he The trial court whose decision is now under review
stopped collecting the rentals. refused to admit the expert’s testimony and prefer
to base its decision on its findings that contrary to
Upon appeal by respondent, the Court of Appeals,
the allegation of the appellant, he is nonetheless
on July 31, 1997, rendered the assailed Decision,
capable of responding to the questions
the dispositive portion of which reads:
expounded to him while on the stand. In short, the
"WHEREFORE, the judgment appealed from is court was swayed by its own observation of
hereby REVERSED and SET ASIDE, and a new appellant’s demeanor on the stand. Of course, the
one entered annulling the Deed of Sale. rule is to accord much weight to the impressions
Consequently, TCT No. 168394 is hereby of the trial judge, who had the opportunity to
declared null and void and of no force and effect. observe the witnesses directly and to test their
The Register of Deeds of Manila is directed to credibility by their demeanor on the stand (People
cancel the same and restore TCT No. 109193 in vs. Errojo, 229 SCRA 49). Such impression
the name of Braulio Katipunan. however, is not per se the basis of a conclusion,
for it needs conformity with the findings of facts
"SO ORDERED." relevant to the case.
In reversing the RTC Decision, the Court of We find it indispensable to give credit to the
Appeals ruled: findings of Dr. Ana Marie Revilla, whose testimony
"Upon close scrutiny of all the evidence on record, remains unshaken and unimpeached. The tests
plaintiff-appellant’s contention finds support in the she made are revealing and unrebutted and has a
certification dated August 4, 1987 issued by Dr. bearing on facts of the case.
Ana Marie Revilla, a psychiatrist at the UP-PGH, It is a proven fact that Braulio reached only Grade
who was presented as an expert witness. Her III due to his very low IQ; that he is illiterate; and
findings explained the reason why plaintiff- that he can not read and is slow in
appellant showed a lot of inconsistencies when he comprehension. His mental age is only that of a
was put on the stand. It supports the fact that six-year old child. On the other hand, the
plaintiff-appellant is slow in comprehension and documents presented by the appellees in their
has a very low IQ. Based on such findings, the trial favor, i.e., the deeds of mortgage and of sale, are
CONTRACTS FINALS ACJUCO 87

all in English. There is no showing that the Miguel who wanted to go abroad and needed the
contracts were read and/or explained to Braulio money for it.
nor translated in a language he understood.
In view of the foregoing, it is apparent that the
Article 1332 of the Civil Code provides: contract entered into by Braulio and Atty. Balguma
is voidable, pursuant to the provisions of Article
‘Art. 1332. When one of the parties is unable to
1390 of the Civil Code, to wit:
read, or if the contract is in a language not
understood by him, and mistake or fraud is ‘Art. 1390. The following contracts are voidable or
alleged, the person enforcing the contract must annullable, even though there may have been no
show that the terms thereof have been fully damage to the contracting parties:
explained to the former.’
(1) Those where one of the parties is incapable of
Furthermore, if Braulio has a mental state of a six giving consent to a contract;
year old child, he can not be considered as fully
(2) Those where the consent is vitiated by
capacitated. He falls under the category of
mistake, violence, intimidation, undue influence or
‘incompetent’ as defined in Section 2, Rule 92 of
fraud.
the Rules of Court, which reads:
‘These contracts are binding, unless they are
‘Sec. 2. Meaning of Word ‘Incompetent’ - Under
annulled by a proper action in court, they are
this rule, the word ‘incompetent’ includes persons
susceptible of ratification.’"11
suffering the penalty of civil interdiction or who are
hospitalized lepers, prodigals, deaf and dumb who Petitioners filed a motion for reconsideration but
are unable to read and write, those who are of was denied. Hence, this petition.
unsound mind, even though they have lucid
intervals, and persons not being of unsound mind, Petitioners, in seeking the reversal of the Court of
but by reason of age, disease, weak mind, and Appeals’ Decision, rely heavily on the rule that
other similar causes, can not, without outside aid, findings of fact by the trial courts are entitled to full
take care of themselves and manage their faith and credence by the Appellate Court.
property, becoming thereby an easy prey for Petitioners contend that the Court of Appeals
deceit and exploitation.’ erred when it overturned the factual findings of the
trial court which are amply supported by the
We also note the admission of defendant-appellee evidence on record.
Miguel Katipunan, that he and Braulio received
the considerations of the sale, although he did not The petition is devoid of merit.
explain what portion went to each other of them. While it may be true that findings of a trial court,
Anyway, there is no reason why Miguel should given its peculiar vantage point to assess the
receive part of the consideration, since he is not a credibility of witnesses, are entitled to full faith and
co-owner of the property. Everything should have credit and may not be disturbed on appeal, this
gone to Braulio. Yet, Miguel did not refute that he rule is not infallible, for it admits of certain
was giving him only small amounts (coins). exceptions. One of these exceptions is when there
As to the allegation of the scheme utilized in is a showing that the trial court had overlooked,
defrauding Braulio, neither Miguel nor Atty. misunderstood or misapplied some fact or
Balguma refuted the statement of Braulio that he circumstance of weight and substance, which, if
was being enticed to go abroad - which was the considered, could materially affect the result of the
alleged reason for the purported sale. Nothing case.12 Also, when the factual findings of the trial
was explained about the alleged trip to NBI, the court contradict those of the appellate court, this
fake passport, etc., nor of Miguel’s own plans to Court is constrained to make a factual review of
go abroad. It is then most probable that it was the records and make its own assessment of the
CONTRACTS FINALS ACJUCO 88

case.13 The instant case falls within the said Q Where is this house of Sencio?
exception.
A It is just behind our house at San Miguel.
A contract of sale is born from the moment there
Q Nobody informed you what document you
is a meeting of minds upon the thing which is the
were signing?
object of the contract and upon the price.14 This
meeting of the minds speaks of the intent of the A Nobody informed me what document I was
parties in entering into the contract respecting the signing.
subject matter and the consideration
15
thereof. Thus, the elements of a contract of sale Q Who asked you to sign that document?
are consent, object, and price in money or its A My brother Miguel and Sencio asked me to
equivalent.16 Under Article 1330 of the Civil Code, sign that document.
consent may be vitiated by any of the following:
(a) mistake, (2) violence, (3) intimidation, (4) Q You never bothered to ask your brother
undue influence, and (5) fraud.17 The presence of Miguel why you were signing that document?
any of these vices renders the contract voidable. A According to them, if I will not sign,
Here, as borne by the facts on hand, respondent something will happen.
signed the deed without the remotest idea of what Q Who particularly told you that if you will not
it was, thus: sign that document something will happen?
"ATTY. SARMIENTO: A Atty. Balguma. (witness pointing to Atty.
Q After Miguel received that money which Balguma)
amount you do not remember how much, do you Q You want to tell the court that Atty. Balguma
remember having signed a document purported to at that time you signed that document was
be sale of property that which you owned? present?
A Yes, I signed something because they forced A Yes, sir, he was there.
me to sign.
Q What if any did Atty. Balguma do when you
COURT (To the witness) were asked to sign that document?
Q Do you know how to affix your signature? A He was asking me also to sign.
A Yes, Your Honor. COURT (To the witness)
Q You sign your name here. (witness is given a Q Were you threatened with a gun or any
piece of paper by the court wherein he was made instrument?
to sign his name)
A No, Your Honor.
ATTY. SARMIENTO:
Q How were you threatened?
Q You said that you remember you have
signed a document. Did you come to know A I was shoved aside by Sencio and Miguel
what kind of document was that which you and I was surprised why they made me sign.
signed at that time?
Q Did you fall down when you were shoved?
A I do not know.
A I was made to move to the side.
Q Where did you sign that document?
Q And because of that you signed that
A I signed that document in the house of Sencio. document that you were being forced to sign?
CONTRACTS FINALS ACJUCO 89

A Yes, sir. emphasized that petitioners did not rebut her


testimony.
Q What kind of paper did you sign?
Even the consideration, if any, was not shown to
A A coupon bond paper.
be actually paid to respondent. Extant from the
Q Was there something written? records is the fact that Miguel profited from the
entire transaction and gave only small amounts of
A There was something written on it, but I do money to respondent, thus:
not know.
"Q Do you know how much money was given to
Q Was it typewritten? Miguel and from whom did that money come
A There was something typewritten when it was from?
shown to me but I do not know what it A I do not know how much, but the money
was."18(Underscoring supplied) came from Atty. Balguma.
The circumstances surrounding the execution of Q You do not know how much amount was
the contract manifest a vitiated consent on the part given by Atty. Balguma and for what
of respondent. Undue influence was exerted upon consideration was the money given you are
him by his brother Miguel and Inocencio Valdez not aware of that?
(petitioners) and Atty. Balguma. It was his brother
Miguel who negotiated with Atty. Balguma. A I am not aware because I was not there, I
However, they did not explain to him the nature do not know anything.
and contents of the document. Worse, they
Q You want to tell the court that despite that
deprived him of a reasonable freedom of choice.
it is you being the owner of this property it was
It bears stressing that he reached only grade
Miguel who negotiated the asking of money
three. Thus, it was impossible for him to
from Atty. Balguma?
understand the contents of the contract written in
English and embellished in legal jargon. Even the A Yes, it is like that.
trial court, in reinstating the case which it earlier
Q Were you consulted by your brother Miguel
dismissed, took cognizance of the medical finding
when he asked money from Atty. Balguma?
of Dr. Revilla (presented by respondent’s counsel
as expert witness) who testified during the hearing A No, sir, in the beginning he kept it a secret
of respondent’s motion for reconsideration of the then later on he told us.
first order dismissing the complaint. According to
her, based on the tests she conducted, she found Q You want to tell this court that it was only
that respondent has a very low IQ and a mind of a when your brother Miguel gave (you) money
six-year old child.19 In fact, the trial court had to that he told you that "we have now the money
clarify certain matters because Braulio was either from Atty. Balguma"?
confused, forgetful or could not A No, sir, I did not even know where that
20
comprehend. Thus, his lack of education, money came from. He was about to leave for
coupled with his mental affliction, placed him not abroad when he told me that he received
only at a hopelessly disadvantageous position vis- money from Atty. Balguma.
à-vis petitioners to enter into a contract, but
virtually rendered him incapable of giving rational Q Did you receive any amount from Miguel
consent. To be sure, his ignorance and weakness every time he was given by Atty. Balguma?
made him most vulnerable to the deceitful cajoling You received also money from Miguel every
and intimidation of petitioners. The trial court time he was given by Atty. Balguma?
obviously erred when it disregarded Dr. Revilla’s
testimony without any reason at all. It must be
CONTRACTS FINALS ACJUCO 90

A Yes, he would give me small documents turned out to be a Deed of Absolute


denominations, "barya". Sale where it was stipulated that she sold her
property for P 1,200,000.00, a consideration
Q When you said "barya", would you be able to
which she did not receive. The Court ruled that
tell the court how much this barya you are referring
Rosalina, who was quite old at that time she
to is?
signed the deed, was tricked by her own husband,
A May be twenty pesos, may be ten pesos, who employed fraud and deceit, into believing that
but they are all loose change. what she was signing was her application for
reconstitution of title.
Q Tell us how many times did Miguel receive
money from Atty. Balguma as much as you can A contract where one of the parties is incapable
recall? of giving consent or where consent is vitiated by
mistake, fraud, or intimidation is not void ab
A I do not know because every time my initio but only voidable and is binding upon the
brother Miguel and Atty. Balguma would parties unless annulled by proper Court action.
transact business, I was not present. The effect of annulment is to restore the parties to
x x x the status quo ante insofar as legally and
equitably possible-- this much is dictated by Article
Q Before or after the signing of this piece of 1398 of the Civil Code. As an exception however
paper were you given any big amount of to the principle of mutual restitution, Article 1399
money by your brother Miguel or Atty. provides that when the defect of the contract
Balguma or Sencio? consists in the incapacity of one of the parties, the
A After signing that document, Atty. incapacitated person is not obliged to make any
Balguma gave me several loose change restitution, except when he has been benefited by
"barya", no paper bills. A just handful of the things or price received by him. Thus, since
coins."21 (Underscoring supplied) the Deed of Absolute Sale between respondent
and the Balguma brothers is voidable and hereby
We are convinced that respondent was telling the annulled, then the restitution of the property and
truth that he did not receive the purchase price. its fruits to respondent is just and proper.
His testimony on this point was not controverted Petitioners should turn over to respondent all the
by Miguel. Moreover, Atty. Balguma admitted amounts they received starting January, 1986 up
that it was Miguel who received the money to the time the property shall have been returned
from him.22 What Miguel gave respondent was to the latter. During the pre-trial and as shown by
merely loose change or "barya-barya," grossly the Pre-Trial Order, the contending parties
disproportionate to the value of his property. We stipulated that the Balguma brothers received
agree with the conclusion of the Court of Appeals from the lessees monthly rentals in the following
that "it is then most probable that it was Miguel amounts:
who wanted to go abroad and needed the money
for it." PERIOD AMOUNT OF
RENTALS
In the case of Archipelago Management and
Marketing Corp. vs. Court of Appeals,23 penned by January, 1986 to
Justice Artemio V. Panganiban, this Court December, 1987 ₱ 481.00 per month
sustained the decision of the Court of Appeals
annulling the deed of sale subject thereof. In that January, 1988 to
case, Rosalina (the owner) was convinced by her December, 1988 ₱2,100.00 per month
second husband to sign several documents,
purportedly an application for the reconstitution of
her burned certificate of title. However, said
CONTRACTS FINALS ACJUCO 91

January, 1989 to
present ₱3,025.00 per month

Article 24 of the Civil Code enjoins courts to be


vigilant for the protection of a party to a contract
who is placed at a disadvantage on account of his
ignorance, mental weakness or other handicap,
like respondent herein. We give substance to this
mandate.
WHEREFORE, the petition is DENIED. The
assailed Decision of the Court of Appeals dated
July 3, 1997 in CA-GR CV No. 45928
is AFFIRMED with MODIFICATION in the sense
that petitioners Edgardo Balguma and Leopoldo
Balguma, Jr., are ordered to turn over to
respondent Braulio Katipunan, Jr. the rentals they
received for the five-door apartment
corresponding to the period from January, 1986
up to the time the property shall have been
returned to him, with interest at the legal rate.
Costs against petitioners.
SO ORDERED.
CONTRACTS FINALS ACJUCO 92

indebtedness of Aldecoa & Co., but that this


obligation had been wrongfully transferred by
Alejandro S. Macleod into an obligation in favor in
his wife, Mercedes Martinez, to the prejudice of
the bank. In May, 1907, Aldecoa & Co. began a
civil action against Alejandro S. Macleod and
VIOLENCE OR INTIMIDATION others for the recovery of certain shares of stock
of the par value of P161.000 and for damages in
G.R. No. L-5496 February 19, 1910 the sum of P150,000, basing its right to recover
upon alleged criminal misconduct of Mr. Macleod
MERCEDES MARTINEZ Y FERNANDEZ, ET
in his management of the firm's affairs.
AL., plaintiffs-appellants,
vs. When the two causes of action above referred to
THE HONGKONG & SHANGHAI BANKING were discovered and the suits there mentioned
CORPORATION, ET AL., defendants-appellants. commenced, Alejandro S. Macleod and Mercedes
Martinez, his wife, engaged the services of
Bruce & Lawrence, for appellants.
Messrs. Del-Pan, Ortigas and Fisher, attorneys at
Haussermann & Cohn and Rosado, Sanz &
law, to represent and defend them in the matter.
Opisso, for appellees.
Soon thereafter these attorneys made overtures
MORELAND, J.: to the liquidation of Aldecoa & Co, for the
settlement of the latter's claims. While these
This is an action to set aside a contract on the negotiations were pending Aldecoa & Co. claimed
ground that plaintiff's consent thereto was given that they had made discoveries of many frauds
under duress and undue influence. Alejandro S. which Macleod had perpetrated against the
Macleod is joined as plaintiff only for the reason company during the period of his management,
that he is the husband of Mercedes Martinez and whereby the company had been defrauded of
he takes no part in the action personally. many thousands of pesos.
In the statement of facts and some of the legal On the 13th day of July, 1907, it becoming
propositions involved, we have made free use of apparent that criminal proceedings would be
the forms contained in the briefs of both parties. instituted against him, Macleod went from Manila
Alejandro S. Macleod was for many years the to the Portuguese colony of Macao, a territory not
managing partner of the house of Aldecoa & Co. covered, it appears, by extradition treaty between
in the city of Manila. He withdrew from the the United States and the Portuguese
management on the 31st day of December, 1906, Government. Four days thereafter, on the 17th
when Aldecoa & Co. went into liquidation. At the day of July, Aldecoa & Co. filed a complaint
time that Aldecoa & Co. ceased active business against Mr. Macleod, charging him with the
the Hongkong & Shanghai banking Corporation falsification of a commercial document, and a
was a creditor of that firm to the extent of several warrant for his arrest was issued by the Court of
hundred thousand pesos and claimed to have a First Instance of Manila, and the executive
creditor's lien in the nature of a pledge over certain department of the Philippine Government issued
properties of the debtor. In April, 1907, the bank a formal request to the Portuguese authorities for
began a civil action against Alejandro S. Macleod, the extradition of the accused. This request was
his wife, Mercedes Martinez, Aldecoa & Co., and denied. In the meantime the attorneys for the
the firm known as Viuda e Hijos de Escaño. In the respective parties were engaged in negotiations
bank's complaint it was alleged that a certain for the settlement and compromise of the
undertaking in favor of Aldecoa & Co. had been difference then pending and a clearance of Mr.
hypothecated to the bank to secure the Macleod from all claims and demands of his
creditors. Aldecoa & Co. and the bank, as a
CONTRACTS FINALS ACJUCO 93

consideration for such settlement, insisted upon law, the plaintiff, before she signed the document
the conveyance not only of all the property of in question is in dispute in this case. There is some
Alejandro S. Macleod but also of at least a portion doubt from the record as to the exact language
of the property claimed by his wife, the plaintiff used in this conversation between Kingcome and
herein. The settlement offered at that time was the Stephen, but it appears that some reference was
same which was subsequently accepted and made tothe interest which the British colony in
consummated on the 14th of August as shown by Manila, of which Messrs. Stephen, Kingcome, and
Exhibit A. There appears to have been little Macleod were prominent members, would have in
resistance to this demand on the part of the avoiding the scandal and disgrace to the latter
representatives of Mr. Macleod, but his wife, the which might be expected to ensue unless the
plaintiff herein, stoutly objected to the conveyance differences between the parties to this action were
required of her, maintaining that the property amicably arranged. It seems at that interview that
which she was asked to transfer was her separate Mr. Stephen suggested to Mr. Kingcome that he
and exlusive property and not liable for the debts advise his mother-in-law to act reasonably in
of her husband. Her position was fully stated by negotiating the proposed settlement. It appears
her to her attorney, Mr. Fisher, and to her attorney- that Mr. Kingcome got the impression from that
in-fact, Mr. William Macleod. An interview interview that Mr. Stephen thought unless the
between her attorney and the attorney for Aldecoa settlement were consummated additional and
& Co. followed this declaration on her part. mortifying misfortunes wound fall upon Mr.
Thereafter and on the night of August 4 another Macleod's family.
interview was had between the plaintiff and her
About the time that the inmterview between
counsel, Mr. Fisher, and others, at which a long
Kingcome and Stephen was celebrated Mr. Fisher
list of claims against Mr. Macleod, prepared by
was enlisting the services of Mr. William Macleod,
Aldecoa & Co., was exhibited to the plaintiff and
a nephew and close friend of plaintiff and her
its contends explained to her by Mr. Fisher and her
husband, and plaintiff's attorney-in-fact, for a
attorney-in-fact. Some of these claims involved
mission to plaintiff of a similar character to that of
criminal as well as civil liability. Mr. Fisher at that
Mr. Kingcome. Mr. William Macleod, as well as Mr.
time favored a settlement in accordance with the
Kingcome, seems to have been persuaded by
terms proposed by Aldecoa & Co. The plaintiff,
what he was told that the consequences of
however, refused to accept such settlement.
plaintiff's continued refusal to make the settlement
This being the state of affairs, one of the attorneys would be disastrous to Alejandro S. Macleod and
for the bank, on the 7th of August, 1907, was his family and would be an exhibition of very bad
called upon by counsel for both Aldecoa & Co. and judgment in every way.
the plaintiff in this action, who requested him to act
On August 9, 1907, the prosecuting attorney filed
as intermediary between the parties and to
a second complaint against Alejandro S. Macleod
suggest means by which a settlement could be
and his associate, Osorio, charging them with
obtained. At that interview it was agreed that a full
embezzlement and causing warrants of
explanation of the condition of affairs should be
extradition to issue. The complaint was made at
made to Mr. Kingcome, a son-in-law of the plaintiff
the instance of the prosecuting attorney because
and a businessman. This explanation was made
he had heard that Macleod and Osorio were about
by Mr. Stephen, manager of the Hongkong &
to leave for Europe and he wanted to intercept
Shanghai Banking Corporation, one of the friends
them in territory from which they could be
of Mr. Kingcome, at an interview arranged
extradited.
between them pursuant to the arrangements
made by the attorneys for the parties. Whether or On the 11th of August a long conference was held
not Mr. Kingcome communicated the substance of between plaintiff, her attorney, Mr. Kingcome, her
that interview with Mr. Stephen to his mother-in- son-in-law, and William Macleod, her attorney-in-
CONTRACTS FINALS ACJUCO 94

fact, at which she was informed in substance that judgment was rendered in favor of defendants on
if she assented to the requirements of Aldecoa & the 29th day of May, 1909. From this judgment,
Co. and the bank the civil suits against herself and after the usual motion for a new trial, its denial and
her husband would be dismissed and the criminal exception to such denial, plaintiff appealed to this
charges against him withdrawn, while if she court.
refused her husband must either spend the rest of
The Civil Code in relation to the subject-matter in
his life in Macao or be criminally prosecuted on the
hand contains the following provisions:
charged already filed and tobe filed. At that
interview plaintiff refused to accede to the terms of ART. 1265. Consent given under error, violence,
settlement and that interview was terminated by a intimidation, or deceit shall be null.
statement on the part of Mr. Fisher, which was
"Gentlemen, it is evident that there can be no ART. 1267. There is violence when, inorder to
compromise or settlement, and the only thing left obtain the consent, irresistible force is used.
us to do is to defend Mr. Macleod in the best There is intimidation when one of the contracting
possible manner." parties gives his consent on account of a
On the 12th of August, at an interview had reasonable and well-grounded fear of suffering an
between theplaintiff and her attorney-in-fact, Mr. imminent and serious injury to his person or
William Macleod, the plaintiff acceded to the terms property, or to the person or property of his
proposed by the defendants and authorized Mr. spouse, descendants, or ascendants.
William Macleod to execute the contractof In determining whether or not there is intimidation
settlement on her behalf. The document of the age, sex, and status of the person intimidated
settlement was prepared and after certain must be considered.
corrections upon the part of the plaintiff's
attorneys, making the same entirely satisfactory to Fear of displeasing the persons to whom
them, it was signed by the plaintiff's attorney-in- obedience and respect are due shall not annul the
fact on her behalf on the 14th of August. It was contract.
thereafter and on the same day ratified by the ART. 1268. Violence or intimidation shall annul
plaintiff, who executed the same in person. the obligation, even though such violence or
After Adecoa & Co. and the bank had taken intimidation shall have been used by a third
possession of the property of plaintiff and her person who did not take part in the contract.
husband, conveyed to them by Exhibit A, the civil In order that this contract be annuled it must be
suits were dismissed, the criminal charges shown that the plaintiff never gave her consent to
withdrawn, and Mr. Macleod returned from macao the execution thereof. If a competent person has
to Manila. The plaintiff had a surveyor divide the once assented to a contract freely and fairly, he is
property in Malate, of which she had conveyed a bound. Contracts which are declared void and of
half interest, into two equal parts. She negotiated no force upon the ground that they were obtained
for apartition of the land on the basis of this by fraud, duress, or undue influence are so
survey. She joined in the motion for the dismissal declared for the reason that the complaining party
of the civil action to which she had been a party never really gave his consent thereto. The
and in the motion in the Court of Land Registration consent in such case is not in the eye of the law a
for the recording in the name of thegrantees of a consent at all. The person has not acted. He has
half interest in the Malate land. All of these acts done nothing he was in vinculis.
were in pursuance of Exhibit A.
It is necessary to distinguish between real duress
On December 3, 1907, the plaintiff filed her and the motive which is present when one gives
complaint in the present action, and, after the his consent reluctantly. A contract is valid even
joining of issue and thehearing of evidence, though one of the parties entered into it against his
CONTRACTS FINALS ACJUCO 95

wishes and desires or even against his better but they are not duress of themselves. In the
judgment. Contracts are also valid even though absence of other proof and circumstances, they
they are entered into by one of the parties without might very well be held to establish duress. But
hope of advantage or profit. A contract whereby there is other proof and we do not believe that
reparation is made by one party for injuries which under all the facts of this case as disclosed by the
he has willfully inflicted upon another is one which record we can say that the court below erred when
from its inherent nature is entered into reluctantly he refused to findthat the plaintiff entered into the
and against the strong desires of the party making contract in question by reason of duress and
the reparation. He is confronted with a situation in undue influence. We find lacking in this case amny
which he finds the necessityeither of making of the essential elements usually found in cases of
reparation or of taking the consequences, civil or duress. The most that the facts disclose is that the
criminal, of his unlawfull acts. Hemakes the plaintiff was loath to relinquish certain rights which
contract of reparation with extreme reluctance and she claimed to have in certain property to the end
only by thecompelling force of the punishment that she might be relieved from litigation then
threatened. Nevertheless such contract is binding pending against her and that her husband might
and enforceable. Such a contract differs entirely in escape prosecution for crimes alleged to have
its incidents from a contractentered into by a party been committed; and that she persisted for a
for the purpose of gain. The latter contract is made considerable time in her refusal to relinquish such
with pleasure and its terms complied with gladly. claimed rights. The fact that she did relinquish
The former is a contract the execution of which the them upon such consideration and under such
party is very apt to repent and the terms of which condition does not of itself constitute duress or
he is very likely to evade if he can. It is not intimidation, nor does it destroy the obligatory
conclusive against them that Aldecoa & Co. effect and force of her consent. In order to do so
demanded that the plaintiff do something upon something more is needed. Such influence must
pain of punishing her husband for his crimes. It is havebeen exercised over her that she was
not conclusive that the plaintiff disliked deprived of her free will and choice. She must
exceedingly to do what they demanded. Neither is have acted from fear and not from judgment.
it conclusive that the plaintiff now regrets having
Not every contract made by a wife to relieve her
performed at their demand instead of compelling
husband from the consequences of his crimes is
a resort to judicial proceedings. It is not for these
viodable. Subject to certain restrictions a wife may
reasons that this contract may be declared null
legally dispose of herproperty as she pleases; she
and void. If such a contract were illegal whereby
may squander it; she may give it away; she may
pending litigation is settled by agreement of the
pledge or transfer it to keep her husband out of
parties rather than by decision of the court. If such
state prison. The question in each case is exactly
a contract were null and void, then would be null
the same as in all such relations, was she acting
and void every contract whereby a wrongdoer and
according to the dictates of her own judgment,
he who assisted him made reparation for that
whether good or bad, or from fear, force, or undue
which he had mis appropriated or misapplied. In
influence? If there are time and opportunity for
legal effect there is no difference between a
judgment to take the place of fear, and if apart
contract wherein one of the contracting parties
from the threat there are reasons disclosed which
exchanges one condition for another because he
might lead one in the exercise of good judgment
looks for greater gain or profit by reason of such
to perform the acts complained of, then the
change and an agreement wherein one of the
evidence as to duress and undue influence must
contracting parties agrees to accept the lesser of
be very clear in order that such acts may be
two disadvantages. In either case he makes a
recalled.
choice free and untrammeled and must
accordingly abide by it. These are evidence of
duress, facts from which duress may be inferred,
CONTRACTS FINALS ACJUCO 96

The appellant cites many cases in support of her 4. The treats made to secure the performance of
contention that the contract of the 14th of August the acts complained of were made directly to the
should be abrogated. complaining party by the person directly interested
or by somene in his behalf who was working in his
We have carefully examined not only all of the
interest and who had no interest whatever in the
cases cited by the appellant but also substancially
welfare of the complaining party.
all of the cases within our reach relating to the
questions before vs. Among them are the 5. There was no consideration for the
following: Adams vs. Irving National Bank (116 performance of the act complained of except
N.Y., 606); Allen vs Laflore County (76 Miss., immunity from the prosecution threatened.
671); Bently vs. Ronson (11 Mich., 691; Burton vs
6. The property transferred or incumbered by the
McMillan (8 L. R. A., N.S., 991); Bell vs. Campbell
act complained of was the separate property of the
(123 Mo., 1); Galusha vs Sherman (47 L. R. A.,
person performing the act in which the person for
417); MaMahon vs. Smith (47 Conn., 221, 36 Am
whome the act was performed claimed no interest
Rep., 67); Gorringe vs Reed (23 Utah, 120, 90 Am
whatever.
St. Rep., 692); Bank vs Bryan (62 Ia., 42);
Rau vs. Zedlitz (132 Mass., 164); 7. There was no dispute as to the title of the
Lomerson vs. Johnston (47 N. J. Eq., 312); property transferred or incumbered, no claim
McGrory vs. Reilly (14 Phila., 111); made to it by anybody, no suits pending to recover
Foley vs. Greene (14 R.I., 618); it or any portion of it, and no pretension that it
Coffman vs. Lookout Bank (5 Lea., 232); could be taken for the debts of the husband or of
Haynes vs. Rudd (102 N. Y., 372); any other person.
Cribbs vs. Sowle (87 Mich., 340);
Osborne vs. Robins (36 N.Y., 365); In the cases of Harris vs. Carmody,
Rall vs. Raguet (4 Ohio, 400); Bank vs. Kirk (90 Hesinger vs. Dyer, and Williams vs. Bayley,
Pa. St., 49); Eadie vs. Slimmon (26 N.Y., 9); above excepted, the complainant had the benefit
Harris vs. Carmody (131 Mass., 51; of legal advice and the advice of some friend but
Taylor vs. Jacques (106 Mass., 291); in none of those were there present any of the
Bryant vs. Peck & W. Co. (154 Mass., 460); other circumstances just enumerated.
Hesinger vs. Dyer (147 Mo., 219); Mack vs. Praug In the case of Hesinger and another vs. Dyer (147
(104 Wis., 1); Benedict vs. Broome (106 Mich., Mo., 219), it appeared that the plaintiffs were the
378); Williams vs Bayley (1 Eng. & Ir. App. Cas., tenants of the defendant on defendant's farm.
200); Central Bank vs. Copeland (18 Md., 305 , 81 During the last year that they had occupied this
Am. Dec., 597); Bradley vs. Irish (42 Ill. app., 85); farm they raised some 500 bushels of corn upon
Snyder vs. Willey (33 Mich., 483). which the defendant claimed to have a lien under
All of the above cases, except the statue. The plaintiff Hesinger sold the corn and
Harris vs. Carmody, Hesinger vs. Dyer, and applied the proceeds to his own use. Dyer
Williams vs. Bayley, are distinguishable from the threatened to institute criminal proceedings
case at bar in the following particulars: against Hesinger for embezzling the corn if he and
his wife did not execute to him their note for its
1. In those cases there was no time within which value, secured by a deed of trust upon the land of
to deliberate the matter as it should have been Mrs. Hesinger. They testified that because of this
deliberated. threat and in fear of said prosecution they
executed the note and deed of trust as required.
2. There was no time or opportunity to take the
Shortly before the papers were executed the
advice of friends or of disinterested persons.
defendant's home, taking with him a notary public
3. There was no time or opportunity to take advice to take the acknowledgement of the deed of trust
of counsel. in the event that he succeeded in getting the
CONTRACTS FINALS ACJUCO 97

plaintiffs to execute it. This was one of the assumed by him. Subsequently this agreement
occasions upon which the defendant threatened was ratified by the family council, which imposed,
to prosecute Hesinger if he and his wife did not however, an additional condition that security
execute the deed of trust as required. Mrs. should be given by Doronila for the payment of
Hesinger had all the time refused and still refused P16,000 in case the missing papers should not be
to execute the deed; but upon the afternoon of that produced within six months and the novation of
day plaintiffs went to Sedalia to consult with their the debt of Juan Casells accepted by the debtor.
son and with their attorney and thereafter went to Thereafter he was brought before the provost
J.M. Bailer's office and there executed the papers judge in the pending proceeding and was ordered
in question. The court held that the note and deed to give additional security, and failing to do so was
of trust were voidable as having been executed committed to jail, where he had already been once
under duress. confined on the institution of the proceeding. As all
of his property was already bound to the estate for
It is at once apparent, however, that the facts differ
the performance of his duty as guardian, it
materially from those in the case at bar. In that
became expedient to find a surety for him, and the
case the plaintiffs contended against the personal
plaintiff (wife of Doronila), who had accompanied
presence of the defendant and all of the influence
him to the court, was thereupon induced to join
which that presence implies. In that case there
with him in this undertaking. As to the preceedings
was absolutely no consideration moving to Mrs.
in court, the testimony of the plaintiff, reduced to
Hesinger inducing the execution of the papers in
narrative form, is as follows:
question except the release of her husband from
prosecution. There was lacking in that case "I remeber having been in the office of the provost
everything, every consideration which would judge of Iloilo in December, 1900. I went there to
appeal to the judgment or reason of the visit my husband, who was in jail. While there I
complaining party. was summoned before the provost judge by a
soldier, and I went up before the provost and
The same may be said of the other two cases,
requested him to set my husband free, he not
Harris vs. Carmody and Williams vs. Bayley.
being guilty of anything. I asked him, crying, to put
The plaintiff cites also the case of Jalbuena vs. my husmand at liberty, but the provost did not
Ledesma et al. (8 Phil. Rep., 601). In that case it listen to me; on the contrary, he asked me to file
appeared, as stated by the court, that — security for what was lost in my house during the
bombardment, and he told me that he was going
Ildefonso Doronila, having been the tutor of the to put my husband in jail if I did not obligate my
Ledesma minor children, was cited in August, property as security. Fearing that he was going to
1900, before the provost court of Iloilo on the be put in jail again, I was compelled to sign, it
petition of the defendant Lopez, to show cause being a time when we and others were under fear
why he should not surrender the papers, and I was afraid that he would be punished and
securities, and money in his charge, and he was that they would deport him. In the fear that I was
in the course of the proceeding ordered to render then under I did not know any other remedy but to
his accounts as tutor, and it is to be inferred from sign. He told me that my husband would be sent
the testimony of the defendant Ledesma that the again to jail if I did not sign."
accounts were in fact rendered. On December 3
he came to an agreement with the defendant This communication was carried on through the
Lopez, as representative of the children, whereby medium of an interpreter, one Pedro Regalado,
his accounts were allowed and accepted and the who testified:
value of the missing papers, claimed to have been
"The provost judge told Sra. Vicenta . . . in these
lost in the bombardment of Iloilo, was fixed at
terms: "You sign a document guaranteeing with
P12,000, and a certain obligation of the estate to
your property the obligation contracted by Sr.
Juan Casells to the amount of P4,000 was
CONTRACTS FINALS ACJUCO 98

Doronila, your husband." She answered to these especial desire of said person, the negotiations
words that her husband was not guilty of the loss would be broken off by Aldecoa & Co. before a
of the documents, as when the bombardment settlement could be consummated. The
came the documents were in a trunk and were lost defendants never urged the ultimatum laid down
during the bombardment. When she said that she by the defendants. They simply stated to the
could not respond, then the provost said: "You attorneys for the plaintiffs that they must claims,
sign this document; you either sign this document and it appeared from the position assumed that it
or I will send you husband back to jail." More or was immaterial to them whether they obtained
less I remember that he said: "Interpreter, tell her those properties through the courts or by means
to either sign this document or I will have her of a settlement. They left Macleod and his wife to
husband sent again to jail." choose foir themselves, upon their own judgment
and upon the advice of their attorneys and
In this case the wife sued to set aside the
relatives, the course to be by them pursued. That
obligation upon the ground that it was obtained
the defendants were not especially urging the
from her by duress and undue influence. She
settlement in question is demonstrated by the fact
justly succeded.
that Mr. Fisher, the attorney for the plaintiffs, was
A mere reading of the facts in that case discloses doubtful about securing the participation of
that it can not be used as an authority in the case Aldecoa & Co. in the agreement up to the very
at bar. It is widely different in its facts. moment of its execution, and it appears from the
evidence of Mr. Cohn that Mr. Fisher, laboring
A careful analysis of this case discloses the under such apprehension, actually withheld
following pecularities: important information from Aldecoa & Co. for fear
In the first place, the undisputed evidence such information would deter them at the last
demostrates that the first offers of compromise moment from giving their assent to the
were made by the plaintiff herself through her arrangement.
representatives. It appears that from first to last In the secon place, there were at no time during
the effort and anxiety to compromise the claims of the course of these negotiations for settlement
the defendants were on the part of the plaintiff any direct personal relations or communications
through her representatives. The position of between the parties to this action. During the
Aldecoa & Co. throughout the negotiations, as it whole course of the negotiations no person
appears from the testimony in the case, was that communicated with the plaintiffs on behalf of the
a settlement of their claims against the plaintiffs defendants alone. The offers, proposition, or
would not result in any peculiar or especial benefit treats, if any, made by the defendants were filtered
to them inasmuch as by the actions already to her through the personality, mind, and judgment
commenced against the plaintiff and her husband of her own attorneys or relatives, all of them being
the defendants would be able, so they contended, persons who had her welfare and the welfare of
to secure exactly the same property that they her family deeply at heart and who were acting for
would obtain by the settlement proposed. The her and her husband and not for the defendants.
soundness of this contention was admitted by the That personal presence of threatening party and
attorneys for the plaintiff. It was the desire on the the influence springing therefrom, factors so
part of at least one of the persons especially potent in duress and undue influence, were wholly
interested in Aldecoa & Co. that Alejandro S. lacking.
Macleod should suffer criminally for the acts which
he had committed against that company and such On the trial an attempt was made to show that the
person did not hesitate to say so repeatedly. defendants had attempted to influence the
There seems to have been throughout the plaintiff, Mercedes Martinez, by acting upon her
negotations a fear of the part of the attornets for through her son-in-law, Mr. Kingcome. As stated
the plaintiff that, partly, at least, by reason of this above, Mr. Stephen was asked by the attorneys
CONTRACTS FINALS ACJUCO 99

for the plaintiff, as well as the attorneys for the unfounded. These are the only interest which the
defendants, to see Mr. Kingcome and ask him to plaintiff, Mercedes Martinez, released or gave
explain to his mother-in-law the facts and over in the settlement complainted of. Both of the
circumstances which were the cause of the claims were substantially in litigation and the
attempts at settlement for the purpose of inducing legality of both was seriously questioned and
her to act reasonably in the premises. There was strongly doubted by her own attorneys. While it is
some dispute as to whether or not Mr. Kingcome not necessary to decide and we do not decide
actually communicated the substance of the whether her claim to either of those properties was
interview to his mother-in-law prior to her signing valid or invalid, still the fact that the validity of her
the contract in question. Mr. Kingcome in his claims thereto was denied by her own attorneys
testimony states that according to his best strongly tends to impeach the claim that she
recollection he communicated the substance of released those properties by reason of duress and
that interview to his mother-in-law on the 11th day undue influence, rather that as a result of her own
of August. In considering this matter it must be deliberate judgment.
remembered that the interview between Mr.
In the fourt place, it must be remembered that the
Stephen and Mr. Kingcome was not brought about
plaintiff, Mercedes Martinez, never at any time
by Aldecoa & Co. or its representative. It was
stood alone in the negotiations. There was never
brought about by Mr. Cohn acting as mediary
a moment when she did not have interposed
between Mr. Fisher and Mr. Rosado, the one the
between her and the defendants the counsel of
attorney for the plaintiffs and the other the attorney
skilled attorneys and of interested relatives.
for the defendant company, upon the request and
Whatever came to her from the defendants, their
with the express approval of both of them. The
demands or their threats, if any, reached her
interview which followed between Mr. Stephen
through the medium of her friends and advisers.
and Mr. Kingcome was the direct act of plaintiff in
She had the assistance of legal learning and
exactly the same manner and in exactly the same
business intelligence and experience. She had the
degree as it was the act of Aldecoa & Co.
careful and thoughtful advice of her family. She
In the third place, the plaintiff by means of the was as far as possible relieved from all fear,
negotiations and settlement in question was stress, or influence except such as were inherent
engaged partly at least in the settlement of her in the circumstances themselves. It appears
own suits and controversies. The plaintiff, undisputed that she and her relatives and lawyers
Mercedes Martinez, together with Aldecoa & Co. considered throughout the negotiations and down
and Viuda e Hijos de F. Escaño were sued in April, to and including the time of the execution of the
1907, by the Hongkong & Shanghai Banking agreement of settlement that her best interest
Corporation in relation to P45,000 worth of notes would be subserved by acceding to the terms laid
claimed to have been fraudulently taken from the down by the defendants. From the evidence in the
assets of Aldecoa & Co. and transferred into the case it is difficult to arrive at a conclusion other
name and possessio of the plaintiff, Mercedes that that the acts which she performed in making
Martinez. This was one of the actions settled and the settlement in question were acts which
terminated by the contract in question. In this contributed to her welfare and the welfare of her
property the plaintiff released her rights under the whole family. While this fact may not be conclusive
settlement. The only other property to which she in the present case, it nevertheless is of very
released her rights was a half interest in property importance and significance in determining the
in Malate. As to the legality of her claim that this question whether duress and undue influence
property was her own individual property there were exercised or weighing the reasons pro and
was a serious question, so serious in fact that she con.
was formally and reapetedly advised by her
In the fifth place, we must bot overlook the fact that
attorneys that such claim was in their judgment
the plaintiff took advantage of said contract after
CONTRACTS FINALS ACJUCO 100

its execution and required the complete fulfilling of On the other hand contracts entered into by a wife
every one of its provisions favorable to herself. whereby she conveys property unquestionably
She negotiated with Aldecoa & Co. for a partition hers, the sole and only consideration for which
of the Malate property and to that end caused a contract is the obtaining for her husband immunity
survey and a division thereof to be made. She from criminal prosecution, are always justly the
demanded of Aldecoa & Co. payment of the objects of suspicion, and it is a wise jurisprudence
P2,000 provided for by the contract, which said which holds that, where she defends upon the
sum she received. She caused one-half of said ground that she was duressed, the party enforcing
Malate property to be assessed against said such contract must expect the very closest
company. She caused a change to be made in the scrunity of the transaction with the presumptions
proceedings to register the title to said Malate all against him. Where, however, as in this case,
lands, previously begun by her, so as to register there is a real question as to the validity of claims
her title to only one-half thereof. She caused to be laid by the wife to the property transferred, some
dismissed the action pending against her on of which claimed rights are involved in actual
account of the Escaño notes, which dismissal litigation in which she is a party, while the
occured after this present action was commenced. remainder are alleged by opposing claimants to
be subject to seizure and sale under judgements
These acts are mentioned not to show a
against the husband; and competent and
ratification of the contract in the sence that those
honorable counsel, after careful and extended
acts estopped her from thereafter questioning the
consideration of the facts and the law, advise her
same, but rather as confirmatory of the theory that
that the rights so claimed by her in the property
in the execution of the contract complained of she
transferred are fictitious, unreal, and defeasible,
acted accroding to the dictates of good business
having no foundation in law, and she, after
judgment rather that from duress and undue
abundant opportunity for deliberate consideration,
influence.
release such claimed rights and thereby not only
As we have already stated, not every contract secures immunity for her husband, but also quiets
executed by a wife, even though made solely to litigation against herself, a very different question
save her husband from the consequences of his is presented. It is undisputed that the attorneys for
crimes, is voidable. Solicitation, importunity, the plaintiff in this case advised her that, from the
argument, and persuasion are not undue facts which they had before them, facts of which
influence and a contract is not to be set aside she was fully informed, her husband had been
merely because one party used these means to guilty of embezzlement and misappropriation in
obtain the consent of the other. Influence obtained the management of the business of Aldecoa & Co.
by persuation or argument or by appeals to the and that, in their judgment, if prosecuted therefor,
affection is not prohibited either in law or morals he would be convicted. They further advised her
and is not obnoxious even in courts of equity. that the P45,000 worth of notes claimed by her
Such may be termed "due influence." The line and to recover which was part of the purpose of
between due and undue influence, when drawn, the action against her and her husband by the
must be with full recognition of the liberty due Hongkong & Shanghai Banking Corporation were
every true owner to obey the voice of justice, the a part of the property of which her husband had
dictates of friendship, of gratitude and of criminally deprived the said company. They
benevolence, as well as the claims of kindred, advised her that she would not be able to hold
and, when not hindered by personal incapacity or such notes as her own. They further advised her
particular regulation, to dispose of his own that from the facts before them Aldecoa & Co.
property according to his own free choice. (9 Cyc. would have no difficulty in getting a judgment for a
455, and cases there cited.) very large amount against her husband, and, in
that event, the interest which she claimed in the
Malate property would be liable in their
CONTRACTS FINALS ACJUCO 101

judgment ganancial. They informed her that all The judgment of the court below, is therefore,
that Aldecoa & Co. required of here was the affirmed with costs against the appellant. So
transfer of her claims rights in said property. They ordered.
further advised her that if she did not so transfer
such property, Aldecoa & Co. would nevertheless
obtain it by means of the actions already
commenced and to be commenced; that if she did
transfer it she would lose no more than she would
lose by means of said action and she would gain
in addition the immunity of her husband from
criminal prosecution. In other words, under the
advice of her counsel, the situation was so
presented to her that it was evidenct that in signing
the agreement of the 14th of August she had all to
gain and nothing to lose, whereas, in refusing to
sign said agreement, she had all to lose and
nothing to gain. In the one case she would lose
her property and save her husband. In the other,
she would lose her property and her husband too.
The argument thus presented to her by her
attorneys addressed itself to judgment and not to
fear. It appealed to reason and not to passion. It
asked her to be moved by common sense and not
by love of family. It spoke to her own interest as
much as to those of her husband. The argument
went to her financial interest as well as to those of
the defendants. It spoke to her business judgment
as well as to her wifely affections. From the
opinions of her attorneys, as they were presented
to her upon facts assumed by all to be true, we do
not well see how she could reasonably have
reached a conclusion other than that which she
did reach. It is of no consequence here whether or
not her lawyers, as matter of law, she would have
been deprived of her alleged interests in the
properties mentioned in the manner described
and advised by her attorneys. The important thing
is that she believed and accepted their judicial and
acted upon it. The question is not did he make a
mistake, but did she consent; not was she wrongly
advised, but was she coerced; not was she wise,
but was she duressed.
From the whole case we are of the opinion that the
finding of the court below that the plaintiff
executed the contract in suit of her own free will
and choice and not from duress is fully sustained
by the evidence.
CONTRACTS FINALS ACJUCO 102

hereby sentenced to suffer an imprisonment of


THREE (3) MONTHS, of arresto mayor, medium,
and to pay a fine of P250.00, with cost.
The accused is further ordered to indemnify the
offended party, Pelagia Paulino de Chin, by way
of civil liability the sum of P5,000.00 as moral
damages and the sum of P2,000.00 as exemplary
G.R. No. 90423 September 6, 1991 damages.

FRANCIS LEE, petitioner, ... (p. 33, Rollo)


vs. The facts as stated by the respondent Court of
COURT OF APPEALS, PEOPLE OF THE Appeals are undisputed, thus:
PHILIPPINES AND PELAGIA PANLINO DE
CHIN, respondents. At about 10:00 o'clock in the morning of June 20,
1984, the complainant Maria Pelagia Paulino de
Arturo S. Santos for petitioner. Chin, 23 years old, was fetched from her house at
MEDIALDEA, J.: 112 BLISS Site, 8th Avenue, Caloocan City by
Atanacio Lumba, a bank employee, upon the
This is a petition for review on certiorari to set instruction of the petitioner Branch Manager
aside the decision of the Court of Appeals dated Francis Lee of Pacific Banking Corporation
June 29, 1989 which reversed the decision of the (hereinafter referred to as bank). Upon arriving at
Regional Trial Court (RTC), National Capital the office of Pacific Banking Corporation located
Judicial Region, Branch 129 at Caloocan City, at Caloocan City, petitioner Francis Lee did not
Metro Manila, and reinstated as well as affirmed in attend to her immediately. After an hour later, the
toto the decision of the Metropolitan Trial Court petitioner confronted the complainant about a
(MTC), Branch 2, same city. The RTC decision forged Midland National Bank Cashier Check No.
found the petitioner guilty of the crime of light 3526794, which the latter allegedly deposited in
coercion, the dispositive portion of which reads: the account of Honorio Carpio. During the said
IN VIEW OF ALL THE FOREGOING, the confrontation, the petitioner Francis Lee was
judgment appealed from is hereby modified. The shouting at her with piercing looks and threatened
accused Francis Lee is hereby found guilty to file charges against her unless and until she
beyond reasonable doubt of the crime of light returned all the money equivalent of the subject
coercion, as penalized under paragraph 2 of cashier check. Accordingly, the complainant was
Article 287 of the Revised Penal Code and he is caused to sign a prepared withdrawal slip, and
hereby sentenced to suffer a penalty of TWENTY later, an affidavit prepared by the bank's lawyer,
(20) DAYS of ARRESTO MENOR and to pay one- where she was made to admit that she had
third (1/3) of the costs. (p. 40, Rollo) swindled the bank and had return the money
equivalent of the spurious check. During her stay
On the other hand, the MTC decision convicted at the said bank, the complainant, who was five
the petitioner of the offense of grave coercion, the (5) months in the family way, was watched by the
pertinent portion of the same is hereby quoted as bank's employees and security guards. It was
follows: about six o'clock in the afternoon of the same day
when the complainant was able to leave the bank
WHEREFORE, premises considered, the Court
premises.
finds the accused Francis Lee, guilty beyond
reasonable doubt of the offense of Grave Upon the other hand, the petitioner, 37 years old,
Coercion, as charged, defined and penalized presented his version, basically a denial of the
under Art. 286 of the Revised Penal Code, and is charges, to wit: he was the Branch Bank Manager
CONTRACTS FINALS ACJUCO 103

of Pacific Banking Corporation. After having been Article 1335 of the New Civil Code on intimidation
informed that Midland National Bank Cashier are relevant. It states:
Check No. 3526794 was dishonored for being
Art. 1335. ...
spurious, he examined the relevant bank records
and discovered that complainant Maria Pelagia There is intimidation when one of the contracting
Paulino de Chin was instrumental in inducing their parties is compelled by a reasonable and well-
bank to accept the subject dollar check and was grounded fear of an imminent and grave evil upon
also the one who withdrew the proceeds thereof, his person or property, or upon the person or
by utilizing a withdrawal slip purportedly signed by property of his spouse, descendants or
Honorio Carpio. Petitioner, thru Atanacio Lumba, ascendants, to give his consent.
invited the complainant to his office. Responding
to his invitation, the complainant arrived at the To determine the degree of the intimidation, the
bank before noon of June 20, 1984, but was not age, sex and condition of the person shall be
attended to immediately as the petitioner had to borne in mind.
attend to other bank clients. The complainant was A threat to enforce once's claim through
merely informed about the subject fake dollar competent authority, if the claim is just or legal,
check that was deposited with said bank upon her does not vitiate consent.
assurance that it was genuine. The complainant
was not compelled into signing the withdrawal slip, As a general rule, the findings of facts of the Court
but she acted freely and voluntarily in executing of Appeals command utmost respect. However,
her affidavit and in returning the money equivalent such findings are disregarded if there appears in
of the subject check. There was nothing unusual the record some fact or circumstance of weight
during her lengthy stay in the bank. (pp. 44-45, and influence which has been overlooked or the
Rollo) significance of which has been misinterpreted
that, if considered, would affect the result of the
The sole issue posed in this petition is whether or case (see San Sebastian College v. Court of
not the acts of petitioner in simply "shouting at the Appeals, et al., G.R. No. 84401, May 15, 1991).
complainant with piercing looks" and "threats to
file charges against her" are sufficient to convict While the appellate court emphasized the
him of the crime of grave coercion (p. 6, Rollo). pregnancy and feminine gender of the
complainant, it overlooked other significant
Article 286 of the Revised Penal Code provides: personal circumstances which are material in
ART. 286. Grave coercions. — The penalty determining the presence of coercion in this case.
of arresto mayor and a fine not exceeding 500 The records show that complainant is a highly
pesos shall be imposed upon any person who, educated person who is familiar with banking
without authority of law, shall, by means of procedures. She is a graduate of Business
violence, prevent another from doing something Administration major in Banking and Finance from
not prohibited by law, or compel him to do NCBA. She also finished one semester of MA in
something against his will, whether it be right or graduate school. In 1983, complainant worked
wrong. with the Insular Bank of Asia and America as a
If the coercion be committed for the purpose of bank teller (TSN, November 20, 1984, pp. 5-7;
compelling another to perform any religious act or Records, pp. 96-98).
to prevent him from so doing, the penalty next Likewise, it appears that complainant actively
higher in degree shall be imposed. participated in the deposit and withdrawal of the
Considering that the present case does not proceeds of the controversial check. We find that
involve violence but intimidation, the provisions of she told Honorio Carpio (Carpio, for short), a
relative and payee of the check; to open a savings
CONTRACTS FINALS ACJUCO 104

account with the Pacific Banking Corporation the case of Berg v. National City Bank of New
(Bank, for short) and accompanied him; that York (102 Phil. 309, 316), We ruled that:
subsequently, she presented a Midland National
... It is a practice followed not only by banks but
Bank Cashier's check payable to Carpio in the
even by individuals to demand payment of their
sum of $5,200.00 to Mr. Lamberto R. Cruz (Cruz,
accounts with the threat that upon failure to do so
for short), PRO Manager, Foreign Department;
an action would be instituted in court. Such a
that she claimed that she was requested by her
threat is proper within the realm of the law as a
uncle to deposit the check for collection; that she
means to enforce collection. Such a threat cannot
was a bank depositor and she "knew somebody
constitute duress even if the claim proves to be
downstairs"; that she assured Cruz that the check
unfounded so long as the creditor believes that it
would be honored between banks (TSN, April 15,
was his right to do so.
1985, pp. 89-92; Records, 180-183); that on June
11, 1984, the bank, after the usual clearing period, The Solicitor General argues that the complainant
sent out a notice to Carpio that the proceeds of the was intimidated and compelled into disclosing her
check were already credited to his account but the time deposit, signing the typewritten withdrawal
same was returned to the bank because the slip and the affidavit by the petitioner's threat to
address was false or not true; that the total amount detain her at the bank.
of the check in pesos was P92,557.44; that the
total deposit of Carpio was P92,607.44, his initial At this point, there is a need to make a distinction
deposit of P50.00 being added to the amount of between a case where a person gives his consent
the check; that on the same day, complainant reluctantly and against his good sense and
personally inquired from the bank whether the judgment and where he gives no consent at all, as
proceeds of the check have already been credited where he acts against his will under a pressure he
to Carpio's account (TSN, June 11, 1985, p. 163, cannot resist. Thus, in Vales v. Villa (35 Phil. 769,
records, p. 163); that upon an affirmative answer, 789), We ruled:
the bank records show that on that day, the ... It is clear that one acts as voluntarily and
complainant withdrew the sum of P12,607.00 thru independently in the eye of the law when he acts
a withdrawal slip purportedly signed by Carpio; reluctantly and with hesitation as when he acts
that in the interim, Carpio allegedly left abroad spontaneously and joyously. Legally speaking he
(Annex C, p. 17, Records); that on June 13, 1984, acts as voluntarily and freely when he acts wholly
she withdrew the sum of P80,000.44 from Carpio's against his better sense and judgment as when he
account by means of a withdrawal slip allegedly acts in conformity with them. Between the two acts
signed by Carpio and then, she closed his there is no difference in law. But when his sense,
account; that out of the said amount, she judgment, and his will rebel and he refuses
redeposited the sum of P50,000.00 to her own absolutely to act as requested, but is nevertheless
savings account and received in cash the overcome by force or intimidation to such an
remaining balance of P30,000.44; and on June 15 extent that he becomes a mere automaton and
and 18, 1984, complainant withdrew the amounts acts mechanically only, a new element enters,
of P2,000.00 and P18,000.00, respectively from namely, a disappearance of the personality of the
her savings account (Exh. "3", Records, p. 15, in actor. He ceases to exist as an independent entity
relation to TSN, October 8, 1985, pp. 194-195, with faculties and judgment, and in his place is
Records, pp. 286-287). substituted another — the one exercising the force
In the light of the foregoing circumstances, or making use of the intimidation. While his hand
petitioner's demand that the private respondent signs, the will which moves it is another's. While a
return the proceeds of the check accompanied by contract is made, it has, in reality and in law, only
a threat to file criminal charges was not improper. one party to it; and, there being only one party, the
There is nothing unlawful on the threat to sue. In one using the force or the intimidation, it is
unenforceable for lack of a second party.
CONTRACTS FINALS ACJUCO 105

From these considerations it is clear that every A When I was about to sign the withdrawal slip I
case of alleged intimidation must be examined to inquired from him If I signed it I can leave already
determine within which class it falls. If it is within but he insisted that I should not leave, Sir.
the first class it is not duress in law, if it falls in the
Q When he told you that did it not occur to you to
second, it is.
stand up and go out of the bank?
The circumstances of this case reveal that the
A No, Sir.
complainant, despite her protestations, indeed
voluntarily, albeit reluctantly, consented to do all Q Why?
the aforesaid acts.
A He was insisting that I return the amount I have
Bearing in mind her involvement in the deposit and withdrawn especially on June 18 when I withdrew
encashment of the check, the complainant P18,000.00, Sir.
admitted to being nervous upon being informed
that the check was spurious (TSN, November 20, COURT:
1984, p. 15; Record, p. 106) The question is why did you not leave and
We find that complainant's lengthy stay at the disregarded him?
bank was not due to the petitioner's threat. It was A Because I cannot just leave him that way, Your
rather due to her desire to prove her innocence. Honor.
Her testimony on this point is a revelation:
Atty. Dizon:
Atty. Dizon: (counsel for petitioner)
Why? What was the reason that you cannot leave
You are always talking of signing the withdrawal him?
slip by force, is it not that earlier you admitted that
no actual force was employed upon you in A Because he is insisting that the responsibility of
connection with the signing of this document and one person be my responsibility and at that time I
the force that you are claiming was the alleged was feeling nervous and he did not tell me to stand
shouting against you coupled with the statement up and leave, Sir. (ibid, pp. 18-20, Records, pp.
that you could not leave? 109-111)

A Yes, sir. In her insistence to clear up her name, it is not


farfetched for Us to think that the complainant
Q When Mr. Lee was requiring you to sign the voluntarily but grudgingly returned the money to
withdrawal slip did it not occur to you to leave the show good faith. Thus, it was she who informed
bank? the petitioner about the existence of the RCBC
Atty. Pangilinan: Time Deposit Certificate (Exh. "A", pp. 4-5,
Records). The allegation that she did so because
The question has already been answered she said of petitioner's threats came from the complainant
she cannot leave because she is being herself. She has not been able to present any
threatened. other witness to buttress her claim.
Atty. Dizon: Further, We find that contrary to complainant's
allegations in her affidavit (ibid, p. 5) it was not the
That was during the time when she first met Mr.
petitioner who suggested the encashment of the
Lee.
RCBC Time Deposit Certificate but her sister; and
Court: that again, it was not the petitioner who agreed to
the sister's suggestion but Cruz, the PRO
Witness may answer.
Manager, Foreign Department of the bank (TSN,
CONTRACTS FINALS ACJUCO 106

January 8, 1985, pp. 40-41, Records, pp. 131- reflects on the capability and efficiency of the
132). manager and one can just imagine the kind of
mental attitude and feeling of anger the latter
Moreover, while complainant claimed that her
would have towards the alleged swindler.
freedom of movement was restrained, she,
Shouting, raising of voice and dagger looks are
however, was able to move about freely
common characteristics of an angry man and that
unguarded from the office of the petitioner situated
was what accused Lee exhibited to a fragile
at the ground floor to the office of Cruz at the
weaker sex and pregnant offended party. It would
mezzanine floor where her sister found her (ibid,
be natural to get angry with someone who had
pp. 39- 40, Records, pp. 130-131). Undoubtedly,
victimized you. Naturalness, however is not
during that time, there were many bank clients
always righteous. It is like taking the law into your
who transacted business with the bank (TSN,
hands and that was what the accused Lee did.
November 20, 1984, p. 21; Records, p. 112). The
(CA Decision, pp. 11-12, Rollo, pp. 52-53)
bank security guards then were at their posts.
Complainant herself admitted that they This pronouncement creates an impression that
manifested no overt acts to prevent her from the petitioner had made a personal case out of the
leaving despite the alleged loud threats of the situation. However, the evidence does not support
petitioner (ibid, pp. 20- 21, Records, pp. 111-112) this view. We find that at the time the check was
which could be heard considering that the door to deposited and encashed, the petitioner was then
petitioner's office was kept open (TSN, October 8, on leave (TSN, June 11, 1985, p. 156; Records, p.
1985, p. 184, Records, p. 276). Given such 248). Under this circumstance, it is not fair to
atmosphere, the complainant still did not leave the consider the bank's mistake in accepting and
bank. paying the check as the petitioner's mistake which
could militate against his efficiency. The petitioner
The respondent court cited the prepared
attributed the mistake in the payment of the forged
typewritten withdrawal slip and the non-
check to the usual risks in banking business. He
presentation of the complainant's passbook as
stated:
indicators of her involuntary acts.
Atty. Pangilinan, Private prosecutor (authorized by
We disagree. The petitioner testified that the
the Fiscal to prosecute the case in the latter's
general rule was that the bank requires the
stead)
presentation of the passbook whenever
withdrawals are made. However, there was an Q So you no longer consider him (Carpio) as
exception to this rule, i.e. when the depositor is a entitled in (sic) the proceeds of the chek (sic) and
regular customer in depositing or withdrawing therefore at that point of (sic) time you will now
money in the bank (TSN, October 8, 1985, pp. concede that the payment made by you to him
189-190, Records, pp. 281-282). The prosecution was a big mistake?
failed to submit evidence to rebut his contentions.
A When we were asking for the respondent and
Besides, the trial court's conclusion that the
we were locating Honorio Carpio and we cannot
withdrawal slip was typewritten was without basis
locate him, I consider that a mistake, Sir.
considering that the complainant merely averred
that the withdrawal slip was already prepared Q It was a big mistake as a matter of fact?
when she signed it (Exh. "A", Records, p. 4).
A When it comes to the falling of the business
We also take exception to the following ruling of considering the big amount I would say big
the appellate court: mistake but only a mistake, it was a usual risk in
banking business, Sir.
It must be noted that the position of a bank
manager is one of prestige and dignity and when
the said bank was cheated or swindled it certainly
CONTRACTS FINALS ACJUCO 107

Q But of course Mr. Lee, being a mistake that alleged threats of the petitioner (TSN, January 8,
mistake will harm and tense your personality as a 1985, p. 48; Records, p. 139). American
Bank Manager? authorities have declared that "(t)he force which is
claimed to have compelled criminal conduct
A It is up to our Manager to decide but when it
against the will of the actor must be immediate
comes to other transactions I am handling Three
and continuous and threaten grave danger to his
Million plus and considering that check I don't
person during all of the time the act is being
think with all modesty it will affect me, Sir.
committed. That is, it must be a dangerous force
Q But you are called upon to try to recover any threatened 'in praesenti.' It must be a force
money which was in your judgment was unlawfully threatening great bodily harm that remains
taken from you by anybody constant in controlling the will of the unwilling
participant while the act is being performed and
A When it comes to procedure I don't think it was from which he cannot then withdraw in safety."
unlawfully taken, as a matter of fact it was our (State v. Hood, 165 NE 2d, 28, 31-32, Emphasis
bank who credited this account, Sir. ours).
Q So it is your bounded (sic) duty to recover The complainant proferred excuses for her action.
money which was paid to someonelse (sic) which For one, she claimed that her sister's presence
payment is not due to him, am I correct? helped her recover her composure (TSN,
A It is the duty of our lawyer to recover it, Sir. November 20, 1984, p. 29, Records, p. 120).

Q Is it not a fact that your lawyer is only your We are not persuaded. If indeed she had
agent? recovered her composure because of her sister's
presence, she could have just left the premises in
Atty. Dizon: a huff without encashing the RCBC Time Deposit
I think we are going too far, it has nothing to do Certificate or if they (complainant and sister) were
with the particular incident subject matter of the already at the RCBC, they could have desisted
criminal offense. from encashing the check and then could have left
for home notwithstanding the alleged presence of
Court: Mr. Lumba who was no longer in his own bank but
among the RCBC clients or she could have
I see the point of the defense but the witness is
refused to sign the affidavit which was handed to
very intelligent, I can see the point of counsel,
her first before the promissory note. Yet, she did
because in order not to effect his integrity he
neither of these logical possibilities.
resorted to this, for example in case of a bank
employee who stole P500.00 and the other one is Secondly, she averred that she refused to sign the
P200.00, it could have the same mistake which is promissory note because she was able to read its
supposed to be admonished by removal. You contents unlike the affidavit and she realized that
answer. she would have a great responsibility to return the
amount taken by Carpio (ibid, pp. 27-28, Records,
A Yes that is the same case whether it is small or
pp. 118-119).
big but when it comes to the Manager the Head
Office is very understanding when it comes to Such an excuse is flimsy and weak. It is strange
bogus checks and of course my work is a that complainant's sister, who was with her, failed
supervisory. Sir. (ibid, pp. 170-171; Records, pp. to corroborate her statement that she was denied
263-264) the opportunity to read the affidavit. Her bare
assertion simply confirms the voluntariness of her
The most telling proof of the absence of
actions. All her disputed acts were geared towards
intimidation was the fact that the complainant
proving her good faith. Complainant was willing to
refused to sign the promissory note in spite of the
return the sum of P48,000.00 she took since it was
CONTRACTS FINALS ACJUCO 108

only up to this amount where her involvement lies.


However, as soon as she realized that she would
have the enormous task of reimbursing the bank
the balance of the proceeds of the forged check
allegedly taken by Carpio, she refused to
cooperate any further. Notwithstanding the
alleged threats of petitioner, she did not budge.
Thus, We find it as a logical consequence that she
merely asked for the receipt of the P18,000.00 she
deposited rather than the cancellation of her
earlier withdrawal. On this point, complainant
claimed that after her refusal to sign the
document, she no longer insisted on the return of
the money because she felt that it was the only
way she could leave the bank premises (TSN,
November 20, 1984, p. 31, Records, p. 120). This
pretense, however, was belied by her subsequent
actuations. We find that she and her sister left the
bank unescorted to eat their snack; that they were
required by the petitioner to come back; and that
they decided not to eat but instead went home
(TSN, November 20, 1984, pp. 31-32, Records,
pp. 122-123 and January 8, 1965, pp. 49-50,
Records, pp. 140-141). With such behavior, We
are at a loss to understand how coercion could
attach in this case. Obviously, the complainant
has not been cowed into submission.
Against this backdrop, We hold that coercion did
not exist in this case. Consequently, the petitioner
should be acquitted.
ACCORDINGLY, the decision appealed from is
hereby REVERSED and a new one hereby
entered ACQUITTING the accused of the crime of
grave coercion.
SO ORDERED.
CONTRACTS FINALS ACJUCO 109

bearing its name, that he had interested a


prominent financier (defendant herein) in the
business, who was willing to invest half a million
dollars in the bottling and distribution of the said
beverages, and requested, in order that he may
close the deal with him, that the right to bottle and
distribute be granted him for a limited time under
the condition that it will finally be transferred to the
corporation (Exhibit H). Pursuant for this request,
plaintiff was given "a thirty-days" option on
exclusive bottling and distribution rights for the
Philippines" (Exhibit J). Formal negotiations
between plaintiff and defendant began at a
FRAUD OR DOLO meeting on November 27, 1947, at the Manila
G.R. No. L-4811 July 31, 1953 Hotel, with their lawyers attending. Before this
meeting plaintiff's lawyer had prepared the draft of
CHARLES F. WOODHOUSE, plaintiff-appellant, the agreement, Exhibit II or OO, but this was not
vs. satisfactory because a partnership, instead of a
FORTUNATO F. HALILI, defendant-appellant. corporation, was desired. Defendant's lawyer
Tañada, Pelaez & Teehankee for defendant and prepared after the meeting his own draft, Exhibit
appellant. HH. This last draft appears to be the main basis of
Gibbs, Gibbs, Chuidian & Quasha for plaintiff and the agreement, Exhibit A.
appellant. The contract was finally signed by plaintiff on
LABRADOR, J.: December 3, 1947. Plaintiff did not like to go to the
United States without the agreement being not
On November 29, 1947, the plaintiff entered on a first signed. On that day plaintiff and defendant
written agreement, Exhibit A, with the defendant, went to the United States, and on December 10,
the most important provisions of which are (1) that 1947, a franchise agreement (Exhibit V) was
they shall organize a partnership for the bottling entered into the Mission Dry Corporation and
and distribution of Mision soft drinks, plaintiff to act Fortunato F. Halili and/or Charles F. Woodhouse,
as industrial partner or manager, and the granted defendant the exclusive right, license, and
defendant as a capitalist, furnishing the capital authority to produce, bottle, distribute, and sell
necessary therefor; (2) that the defendant was to Mision beverages in the Philippines. The plaintiff
decide matters of general policy regarding the and the defendant thereafter returned to the
business, while the plaintiff was to attend to the Philippines. Plaintiff reported for duty in January,
operation and development of the bottling plant; 1948, but operations were not begun until the first
(3) that the plaintiff was to secure the Mission Soft week of February, 1948. In January plaintiff was
Drinks franchise for and in behalf of the proposed given as advance, on account of profits, the sum
partnership; and (4) that the plaintiff was to receive of P2,000, besides the use of a car; in February,
30 per cent of the net profits of the business. The 1948, also P2,000, and in March only P1,000. The
above agreement was arrived at after various car was withdrawn from plaintiff on March 9, 1948.
conferences and consultations by and between
them, with the assistance of their respective When the bottling plant was already on operation,
attorneys. Prior to entering into this agreement, plaintiff demanded of defendant that the
plaintiff had informed the Mission Dry Corporation partnership papers be executed. At first defendant
of Los Angeles, California, U.S.A., manufacturers executed himself, saying there was no hurry. Then
of the bases and ingridients of the beverages he promised to do so after the sales of the product
had been increased to P50,000. As nothing
CONTRACTS FINALS ACJUCO 110

definite was forthcoming, after this condition was by attorneys, and that if any party thereto got the
attained, and as defendant refused to give further worse part of the bargain, this fact alone would not
allowances to plaintiff, the latter caused his invalidate the agreement. On this appeal the
attorneys to take up the matter with the defendant defendant, as appellant, insists that plaintiff did
with a view to a possible settlement. as none could represent to the defendant that he had an
be arrived at, the present action was instituted. exclusive franchise, when as a matter of fact, at
the time of its execution, he no longer had it as the
In his complaint plaintiff asks for the execution of
same had expired, and that, therefore, the
the contract of partnership, an accounting of the
consent of the defendant to the contract was
profits, and a share thereof of 30 per cent, as well
vitiated by fraud and it is, consequently, null and
as damages in the amount of P200,000. In his
void.
answer defendant alleges by way of defense (1)
that defendant's consent to the agreement, Exhibit Our study of the record and a consideration of all
A, was secured by the representation of plaintiff the surrounding circumstances lead us to believe
that he was the owner, or was about to become that defendant's contention is not without merit.
owner of an exclusive bottling franchise, which Plaintiff's attorney, Mr. Laurea, testified that
representation was false, and plaintiff did not Woodhouse presented himself as being the
secure the franchise, but was given to defendant exclusive grantee of a franchise, thus:
himself; (2) that defendant did not fail to carry out
A. I don't recall any discussion about that matter. I
his undertakings, but that it was plaintiff who
took along with me the file of the office with
failed; (3) that plaintiff agreed to contribute the
regards to this matter. I notice from the first draft
exclusive franchise to the partnership, but plaintiff
of the document which I prepared which calls for
failed to do so. He also presented a counter-claim
the organization of a corporation, that the
for P200,000 as damages. On these issues the
manager, that is, Mr. Woodhouse, is represented
parties went to trial, and thereafter the Court of
as being the exclusive grantee of a franchise from
First Instance rendered judgment ordering
the Mission Dry Corporation. . . . (t.s.n., p.518)
defendant to render an accounting of the profits of
the bottling and distribution business, subject of As a matter of fact, the first draft that Mr. Laurea
the action, and to pay plaintiff 15 percent thereof. prepared, which was made before the Manila
it held that the execution of the contract of Hotel conference on November 27th, expressly
partnership could not be enforced upon the states that plaintiff had the exclusive franchise.
parties, but it also held that the defense of fraud Thus, the first paragraph states:
was not proved. Against this judgment both
parties have appealed. Whereas, the manager is the exclusive grantee of
a franchise from the Mission Dry Corporation San
The most important question of fact to be Francisco, California, for the bottling of Mission
determined is whether defendant had falsely products and their sale to the public throughout
represented that he had an exclusive franchise to the Philippines; . . . .
bottle Mission beverages, and whether this false
representation or fraud, if it existed, annuls the 3. The manager, upon the organization of the said
agreement to form the partnership. The trial court corporation, shall forthwith transfer to the said
found that it is improbable that defendant was corporation his exclusive right to bottle Mission
never shown the letter, Exhibit J, granting plaintiff products and to sell them throughout the
had; that the drafts of the contract prior to the final Philippines. . . . .
one can not be considered for the purpose of (Exhibit II; emphasis ours)
determining the issue, as they are presumed to
have been already integrated into the final The trial court did not consider this draft on the
agreement; that fraud is never presumed and principle of integration of jural acts. We find that
must be proved; that the parties were represented the principle invoked is inapplicable, since the
CONTRACTS FINALS ACJUCO 111

purpose of considering the prior draft is not to 1947. (See Exhibit J.) If this option for an exclusive
vary, alter, or modify the agreement, but to franchise was intended by plaintiff as an
discover the intent of the parties thereto and the instrument with which to bargain with defendant
circumstances surrounding the execution of the and close the deal with him, he must have used
contract. The issue of fact is: Did plaintiff represent his said option for the above-indicated purpose,
to defendant that he had an exclusive franchise? especially as it appears that he was able to
Certainly, his acts or statements prior to the secure, through its use, what he wanted.
agreement are essential and relevant to the
Plaintiff's own version of the preliminary
determination of said issue. The act or statement
conversation he had with defendant is to the effect
of the plaintiff was not sought to be introduced to
that when plaintiff called on the latter, the latter
change or alter the terms of the agreement, but to
answered, "Well, come back to me when you have
prove how he induced the defendant to enter into
the authority to operate. I am definitely interested
it — to prove the representations or inducements,
in the bottling business." (t. s. n., pp. 60-61.) When
or fraud, with which or by which he secured the
after the elections of 1949 plaintiff went to see the
other party's consent thereto. These are expressly
defendant (and at that time he had already the
excluded from the parol evidence rule. (Bough
option), he must have exultantly told defendant
and Bough vs. Cantiveros and Hanopol, 40 Phil.,
that he had the authority already. It is improbable
209; port Banga Lumber Co. vs. Export & Import
and incredible for him to have disclosed the fact
Lumber Co., 26 Phil., 602; III Moran 221,1952 rev.
that he had only an option to the exclusive
ed.) Fraud and false representation are an
franchise, which was to last thirty days only, and
incident to the creation of a jural act, not to its
still more improbable for him to have disclosed
integration, and are not governed by the rules on
that, at the time of the signing of the formal
integration. Were parties prohibited from proving
agreement, his option had already expired. Had
said representations or inducements, on the
he done so, he would have destroyed all his
ground that the agreement had already been
bargaining power and authority, and in all
entered into, it would be impossible to prove
probability lost the deal itself.
misrepresentation or fraud. Furthermore, the parol
evidence rule expressly allows the evidence to be The trial court reasoned, and the plaintiff on this
introduced when the validity of an instrument is put appeal argues, that plaintiff only undertook in the
in issue by the pleadings (section 22, par. (a), Rule agreement "to secure the Mission Dry franchise
123, Rules of Court),as in this case. for and in behalf of the proposed partnership." The
existence of this provision in the final agreement
That plaintiff did make the representation can also
does not militate against plaintiff having
be easily gleaned from his own letters and his own
represented that he had the exclusive franchise; it
testimony. In his letter to Mission Dry Corporation,
rather strengthens belief that he did actually make
Exhibit H, he said:.
the representation. How could plaintiff assure
. . . He told me to come back to him when I was defendant that he would get the franchise for the
able to speak with authority so that we could come latter if he had not actually obtained it for himself?
to terms as far as he and I were concerned. That Defendant would not have gone into the business
is the reason why the cable was sent. Without this unless the franchise was raised in his name, or at
authority, I am in a poor bargaining position. . . least in the name of the partnership. Plaintiff
assured defendant he could get the franchise.
I would propose that you grant me the exclusive
Thus, in the draft prepared by defendant's
bottling and distributing rights for a limited period
attorney, Exhibit HH, the above provision is
of time, during which I may consummate my
inserted, with the difference that instead of
plants. . . .
securing the franchise for the defendant, plaintiff
By virtue of this letter the option on exclusive was to secure it for the partnership. To show that
bottling was given to the plaintiff on October 14, the insertion of the above provision does not
CONTRACTS FINALS ACJUCO 112

eliminate the probability of plaintiff representing holder of the exclusive franchise. The defendant
himself as the exclusive grantee of the franchise, was made to believe, and he actually believed,
the final agreement contains in its third paragraph that plaintiff had the exclusive franchise.
the following: Defendant would not perhaps have gone to
California and incurred expenses for the trip,
. . . and the manager is ready and willing to allow
unless he believed that plaintiff did have that
the capitalists to use the exclusive franchise . . .
exclusive privilege, and that the latter would be
and in paragraph 11 it also expressly states: able to get the same from the Mission Dry
Corporation itself. Plaintiff knew what defendant
1. In the event of the dissolution or termination of believed about his (plaintiff's) exclusive franchise,
the partnership, . . . the franchise from Mission Dry as he induced him to that belief, and he may not
Corporation shall be reassigned to the manager. be allowed to deny that defendant was induced by
These statements confirm the conclusion that that belief. (IX Wigmore, sec. 2423; Sec. 65, Rule
defendant believed, or was made to believe, that 123, Rules of Court.)
plaintiff was the grantee of an exclusive franchise. We now come to the legal aspect of the false
Thus it is that it was also agreed upon that the representation. Does it amount to a fraud that
franchise was to be transferred to the name of the would vitiate the contract? It must be noted that
partnership, and that, upon its dissolution or fraud is manifested in illimitable number of
termination, the same shall be reassigned to the degrees or gradations, from the innocent praises
plaintiff. of a salesman about the excellence of his wares
Again, the immediate reaction of defendant, when to those malicious machinations and
in California he learned that plaintiff did not have representations that the law punishes as a crime.
the exclusive franchise, was to reduce, as he In consequence, article 1270 of the Spanish Civil
himself testified, plaintiff's participation in the net Code distinguishes two kinds of (civil) fraud, the
profits to one half of that agreed upon. He could causal fraud, which may be a ground for the
not have had such a feeling had not plaintiff annulment of a contract, and the incidental deceit,
actually made him believe that he (plaintiff) was which only renders the party who employs it liable
the exclusive grantee of the franchise. for damages. This Court had held that in order that
fraud may vitiate consent, it must be the causal
The learned trial judge reasons in his decision that (dolo causante), not merely the incidental (dolo
the assistance of counsel in the making of the causante), inducement to the making of the
contract made fraud improbable. Not necessarily, contract. (Article 1270, Spanish Civil Code; Hill vs.
because the alleged representation took place Veloso, 31 Phil. 160.) The record abounds with
before the conferences were had, in other words, circumstances indicative that the fact that the
plaintiff had already represented to defendant, principal consideration, the main cause that
and the latter had already believed in, the induced defendant to enter into the partnership
existence of plaintiff's exclusive franchise before agreement with plaintiff, was the ability of plaintiff
the formal negotiations, and they were assisted by to get the exclusive franchise to bottle and
their lawyers only when said formal negotiations distribute for the defendant or for the partnership.
actually took place. Furthermore, plaintiff's The original draft prepared by defendant's counsel
attorney testified that plaintiff had said that he had was to the effect that plaintiff obligated himself to
the exclusive franchise; and defendant's lawyer secure a franchise for the defendant. Correction
testified that plaintiff explained to him, upon being appears in this same original draft, but the change
asked for the franchise, that he had left the papers is made not as to the said obligation but as to the
evidencing it.(t.s.n., p. 266.) grantee. In the corrected draft the word
We conclude from all the foregoing that plaintiff did "capitalist"(grantee) is changed to "partnership."
actually represent to defendant that he was the The contract in its final form retains the substituted
CONTRACTS FINALS ACJUCO 113

term "partnership." The defendant was, therefore, defendant a share of 30 per cent of the net profits;
led to the belief that plaintiff had the exclusive in other words, by pretending that he had the
franchise, but that the same was to be secured for exclusive franchise and promising to transfer it to
or transferred to the partnership. The plaintiff no defendant, he obtained the consent of the latter to
longer had the exclusive franchise, or the option give him (plaintiff) a big slice in the net profits. This
thereto, at the time the contract was perfected. But is the dolo incidente defined in article 1270 of the
while he had already lost his option thereto (when Spanish Civil Code, because it was used to get the
the contract was entered into), the principal other party's consent to a big share in the profits,
obligation that he assumed or undertook was to an incidental matter in the agreement.
secure said franchise for the partnership, as the
El dolo incidental no es el que puede producirse
bottler and distributor for the Mission Dry
en el cumplimiento del contrato sino que significa
Corporation. We declare, therefore, that if he was
aqui, el que concurriendoen el consentimiento, o
guilty of a false representation, this was not the
precediendolo, no influyo para arrancar porsi solo
causal consideration, or the principal inducement,
el consentimiento ni en la totalidad de la
that led plaintiff to enter into the partnership
obligacion, sinoen algun extremo o accidente de
agreement.
esta, dando lugar tan solo a una accion para
But, on the other hand, this supposed ownership reclamar indemnizacion de perjuicios. (8 Manresa
of an exclusive franchise was actually the 602.)
consideration or price plaintiff gave in exchange
Having arrived at the conclusion that the
for the share of 30 percent granted him in the net
agreement may not be declared null and void, the
profits of the partnership business. Defendant
question that next comes before us is, May the
agreed to give plaintiff 30 per cent share in the net
agreement be carried out or executed? We find no
profits because he was transferring his exclusive
merit in the claim of plaintiff that the partnership
franchise to the partnership. Thus, in the draft
was already a fait accompli from the time of the
prepared by plaintiff's lawyer, Exhibit II, the
operation of the plant, as it is evident from the very
following provision exists:
language of the agreement that the parties
3. That the MANAGER, upon the organization of intended that the execution of the agreement to
the said corporation, shall forthwith transfer to the form a partnership was to be carried out at a later
said corporation his exclusive right to bottle date. They expressly agreed that they shall form a
Mission products and to sell them throughout the partnership. (Par. No. 1, Exhibit A.) As a matter of
Philippines. As a consideration for such transfer, fact, from the time that the franchise from the
the CAPITALIST shall transfer to the Manager Mission Dry Corporation was obtained in
fully paid non assessable shares of the said California, plaintiff himself had been demanding
corporation . . . twenty-five per centum of the that defendant comply with the agreement. And
capital stock of the said corporation. (Par. 3, plaintiff's present action seeks the enforcement of
Exhibit II; emphasis ours.) this agreement. Plaintiff's claim, therefore, is both
inconsistent with their intention and incompatible
Plaintiff had never been a bottler or a chemist; he
with his own conduct and suit.
never had experience in the production or
distribution of beverages. As a matter of fact, As the trial court correctly concluded, the
when the bottling plant being built, all that he defendant may not be compelled against his will
suggested was about the toilet facilities for the to carry out the agreement nor execute the
laborers. partnership papers. Under the Spanish Civil Code,
the defendant has an obligation to do, not to give.
We conclude from the above that while the
The law recognizes the individual's freedom or
representation that plaintiff had the exclusive
liberty to do an act he has promised to do, or not
franchise did not vitiate defendant's consent to the
to do it, as he pleases. It falls within what Spanish
contract, it was used by plaintiff to get from
CONTRACTS FINALS ACJUCO 114

commentators call a very personal act (acto tiene caracter visiblemente penal, sino por
personalismo), of which courts may not compel motivos que interesen a la colectividad de
compliance, as it is considered an act of violence ciudadanos. Es, pues, posible y licita esta
to do so. violencia cuando setrata de las obligaciones que
hemos llamado ex lege, que afectanal orden
Efectos de las obligaciones consistentes en
social y a la entidad de Estado, y aparecen
hechos personalismo.—Tratamos de la ejecucion
impuestas sinconsideracion a las conveniencias
de las obligaciones de hacer en el solocaso de su
particulares, y sin que por estemotivo puedan
incumplimiento por parte del deudor, ya sean los
tampoco ser modificadas; pero no debe serlo
hechos personalisimos, ya se hallen en la facultad
cuandola obligacion reviste un interes puramente
de un tercero; porque el complimiento espontaneo
particular, como sucedeen las contractuales, y
de las mismas esta regido por los preceptos
cuando, por consecuencia, paraceria salirseel
relativos al pago, y en nada les afectan las
Estado de su esfera propia, entrado a dirimir, con
disposiciones del art. 1.098.
apoyo dela fuerza colectiva, las diferencias
Esto supuesto, la primera dificultad del asunto producidas entre los ciudadanos. (19 Scaevola
consiste en resolver si el deudor puede ser 428, 431-432.)
precisado a realizar el hecho y porque medios.
The last question for us to decide is that of
Se tiene por corriente entre los autores, y se damages,damages that plaintiff is entitled to
traslada generalmente sin observacion el principio receive because of defendant's refusal to form the
romano nemo potest precise cogi ad factum. partnership, and damages that defendant is also
Nadie puede ser obligado violentamente a entitled to collect because of the falsity of plaintiff's
haceruna cosa. Los que perciben la posibilidad de representation. (Article 1101, Spanish Civil Code.)
la destruccion deeste principio, añaden que, aun Under article 1106 of the Spanish Civil Code the
cuando se pudiera obligar al deudor, no deberia measure of damages is the actual loss suffered
hacerse, porque esto constituiria una violencia, y and the profits reasonably expected to be
noes la violenciamodo propio de cumplir las received, embraced in the terms daño
obligaciones (Bigot, Rolland, etc.). El maestro emergente and lucro cesante. Plaintiff is entitled
Antonio Gomez opinaba lo mismo cuandodecia under the terms of the agreement to 30 per cent
que obligar por la violencia seria infrigir la libertad of the net profits of the business. Against this
eimponer una especie de esclavitud. amount of damages, we must set off the damage
defendant suffered by plaintiff's misrepresentation
xxx xxx xxx that he had obtained a very high percentage of
En efecto; las obligaciones contractuales no se share in the profits. We can do no better than
acomodan biencon el empleo de la fuerza fisica, follow the appraisal that the parties themselves
no ya precisamente porque seconstituya de este had adopted.
modo una especie de esclavitud, segun el When defendant learned in Los Angeles that
dichode Antonio Gomez, sino porque se supone plaintiff did not have the exclusive franchise which
que el acreedor tuvo encuenta el caracter he pretended he had and which he had agreed to
personalisimo del hecho ofrecido, y calculo sobre transfer to the partnership, his spontaneous
laposibilidad de que por alguna razon no se reaction was to reduce plaintiff's share form 30 per
realizase. Repugna,ademas, a la conciencia cent to 15 per cent only, to which reduction
social el empleo de la fuerza publica, mediante defendant appears to have readily given his
coaccion sobre las personas, en las relaciones assent. It was under this understanding, which
puramente particulares; porque la evolucion de amounts to a virtual modification of the contract,
las ideas ha ido poniendo masde relieve cada dia that the bottling plant was established and plaintiff
el respeto a la personalidad humana, y nose worked as Manager for the first three months. If
admite bien la violencia sobre el individuo la cual the contract may not be considered modified as to
CONTRACTS FINALS ACJUCO 115

plaintiff's share in the profits, by the decision of


defendant to reduce the same to one-half and the
assent thereto of plaintiff, then we may consider
the said amount as a fair estimate of the damages
plaintiff is entitled to under the principle
enunciated in the case of Varadero de Manila vs.
Insular Lumber Co., 46 Phil. 176. Defendant's
decision to reduce plaintiff's share and plaintiff's
consent thereto amount to an admission on the
part of each of the reasonableness of this amount
as plaintiff's share. This same amount was fixed
by the trial court. The agreement contains the
stipulation that upon the termination of the
partnership, defendant was to convey the
franchise back to plaintiff (Par. 11, Exhibit A). The
judgment of the trial court does not fix the period
within which these damages shall be paid to
plaintiff. In view of paragraph 11 of Exhibit A, we
declare that plaintiff's share of 15 per cent of the
net profits shall continue to be paid while
defendant uses the franchise from the Mission Dry
Corporation.
With the modification above indicated, the
judgment appealed from is hereby affirmed.
Without costs.
CONTRACTS FINALS ACJUCO 116

latter sent its representative, Alberto Vito Cruz,


who gave her the brochure for the tour and later
discussed its highlights. The European tours
offered were classified into four, and petitioner
chose the classification denominated as
"VOLARE 3" covering a 22-day tour of Europe for
$2,990.00. She paid the total equivalent amount
of P190,000.00 charged by private respondent for
her and her sister, Dolores.
G.R. No. 108253 February 23, 1994 Petitioner claimed that, during the tour, she was
LYDIA L. GERALDEZ, petitioner, very uneasy and disappointed when it turned out
vs. that, contrary to what was stated in the brochure,
HON. COURT OF APPEALS and KENSTAR there was no European tour manager for their
TRAVEL CORPORATION, respondents. group of tourists, the hotels in which she and the
group were bullited were not first-class, the UGC
Natividad T. Perez for petitioner. Leather Factory which was specifically added as
a highlight of the tour was not visited, and the
Bito, Lozada, Ortega & Castillo for private
Filipino lady tour guide by private respondent was
respondent.
a first timer, that is, she was performing her duties
REGALADO, J.: and responsibilities as such for the first time.2
Our tourism industry is not only big business; it is In said action before the Regional Trial Court of
a revenue support of the nation's economy. It has Quezon City, petitioner likewise moved for the
become a matter of public interest as to call for its issuance of a writ of preliminary attachment
promotion and regulation on a cabinet level. We against private respondent on the ground that it
have special laws and policies for visiting tourists, committed fraud in contracting an obligation, as
but such protective concern has not been equally contemplated in Section 1(d), Rule 57 of the Rules
extended to Filipino tourists going abroad. Thus, of Court, to which no opposition by the latter
with the limited judicial relief available within the appears on the record. This was granted by the
ambit of present laws, our tourists often prefer who court a quo3 but the preliminary attachment was
fail to deliver on their undertakings. This case subsequently lifted upon the filing by private
illustrates the recourse of one such tourist who respondent of a counterbond amounting to
refused to forget. P990,000.00.4
An action for damages by reason of contractual During the pendency of said civil case for
breach was filed by petitioner Lydia L. Geraldez damages, petitioner also filed other complaints
against private respondent Kenstar Travel before the Department of Tourism in DOT Case
Corporation, docketed as Civil Case No. Q-90- No. 90-121 and the Securities and Exchange
4649 of the Regional Trial Court of Quezon City, Commission in PED Case No. 90-3738,5wherein,
Branch 80.1 After the parties failed to arrive at an according to petitioner, herein private respondent
amicable settlement, trial on the merits ensued. was meted out a fine of P10,000.00 by the
Commission and P5,000.00 by the
Culling from the records thereof, we find that 6
Department, which facts are not disputed by
sometime in October, 1989, Petitioner came to private respondent in its comment on the present
know about private respondent from numerous petition.
advertisements in newspapers of general
circulation regarding tours in Europe. She then On July 9, 1991, the court a quo rendered its
contacted private respondent by phone and the decision7 ordering private respondent to pay
petitioner P500.000.00 as moral damages,
CONTRACTS FINALS ACJUCO 117

P200,000.00 as nominal damages, P300,000.00 was unconscionable since petitioner did not suffer
as exemplary damages, P50,000.00 as and for actual or substantial damage from the breach of
attorney's fees, and the costs of the suit.8 On contract, 13 hence its reduction of such award as
appeal, respondent court9 deleted the award for hereinbefore stated.
moral and exemplary damages, and reduced the
After thorough and painstaking scrutiny of the
awards for nominal damages and attorney's fees
case records of both the trial and appellate courts,
to P30,000.00 and P10,000.00, respectively. 10
we are satisfactorily convinced, and so hold, that
Hence, the instant petition from which, after sifting private respondent did commit fraudulent
through the blades of contentions alternately misrepresentations amounting to bad faith, to the
thrust and parried in the exchanges of the parties, prejudice of petitioner and the members of the tour
the pivotal issue that emerges is whether or not group.
private respondent acted in bad faith or with gross
By providing the Volare 3 tourist group, of which
negligence in discharging its obligations under the
petitioner was a member, with an inexperienced
contract.
and a first timer tour escort, private respondent
Both the respondent court and the court a manifested its indifference to the convenience,
quo agree that private respondent failed to comply satisfaction and peace of mind of its clients during
faithfully with its commitments under the Volare 3 the trip, despite its express commitment to provide
tour program, more particularly in not providing such facilities under the Volare 3 Tour Program
the members of the tour group with a European which had the grandiose slogan "Let your heart
tour manger whose duty, inter alia, was to explain sing. 14
the points of interest of and familiarize the tour
Evidently, an inexperienced tour escort, who
group with the places they would visit in Europe,
admittedly had not even theretofore been to
and in assigning instead a first timer Filipino tour
Europe, 15 cannot effectively acquaint the tourists
guide, in the person of Rowena Zapanta, 11 to
with the interesting areas in the cities and places
perform that role which definitely requires
included in the program, or to promptly render
experience and knowledge of such places. It is
necessary assistance, especially where the latter
likewise undisputed that while the group was able
are complete strangers thereto, like witnesses Luz
to pay a visit to the site of the UGC Leather
Sui Haw and her husband who went to Europe for
Factory, they were brought there at a very late
their honeymoon. 16
hour such that the factory was already closed and
they were unable to make purchases at We agree with petitioner that the selection of
supposedly discounted prices. 12 As to the first- Zapanta as the group's tour guide was deliberate
class hotels, however, while the court a quo found and conscious choice on the part of private
that the hotels were not fist-class, respondent respondent in order to afford her an on-the-job
court believed otherwise, or that, at least, there training and equip her with the proper
was substantial compliance with such a opportunities so as to later qualify her as an
representation. "experienced" tour guide and eventually be an
asset of respondent corporation. 17 Unfortunately,
While clearly there was therefore a violation of the
this resulted in a virtual project experimentation
rights of petitioner under the aforementioned
with petitioner and the members of the tour as the
circumstances, respondent court, contrary to the
unwitting participants.
findings of the trial court, ruled that no malice or
bad faith could be imputed to private respondent, We are, therefore, one with respondent court in
hence there is no justification for the award of faulting private respondent's choice of Zapanta as
moral and exemplary damages. Furthermore, it a qualified tour guide for the Volare 3 tour
held that while petitioner is entitled to nominal package. It brooks no argument that to be true to
damages, the amount awarded by the trial court its undertakings, private respondent should have
CONTRACTS FINALS ACJUCO 118

selected an experienced European tour guide, or however, that the visit to the UGC Leather Factory
it could have allowed Zapanta to go merely as an was one of the highlights 22 of the Volare 3
understudy under the guidance, control and program which even had to be specifically
supervision of an experienced and competent inserted in the itinerary, hence it was incumbent
European or Filipino tour guide, 18 who could give upon the organizers of the tour to take special
her the desired training. efforts to ensure the same. Besides, petitioner did
expect much from the visit to that factory since it
Moreover, a tour guide is supposed to attend to
was represented by private respondent that
the routinary needs of the tourists, not only when
quality leather goods could be bought there at
the latter ask for assistance but at the moment
lower prices. 23
such need becomes apparent. In other words, the
tour guide, especially by reason of her experience Private respondent represents Zapanta's act of
in previous tours, must be able to anticipate the making daily overseas calls to Manila as an
possible needs and problems of the tourists exercise of prudence and diligence on the latter's
instead of waiting for them to bring it to her part as a tour guide. 24 It further claims that these
attention. While this is stating the obvious, it is her calls were needed so that it could monitor the
duty to see to it that basic personal necessities progress of the tour and respond to any problem
such as soap, towels and other daily amenities are immediately. 25 We are not persuaded. The truth
provided by the hotels. It is also expected of her to of the matter is that Zapanta, as an inexperienced
see to it that the tourists are provided with sanitary trainee-on-the-job, was required to make these
surroundings and to actively arrange for medical calls to private respondent for the latter to gauge
attention in case of accidents, as what befell her ability in coping with her first assignment and
petitioner's sister and wherein the siblings had to to provide instructions to her. 26
practically fend for themselves since, after merely
Clearly, therefore, private respondent's choice of
calling for an ambulance, Zapanta left with the
Zapanta as the tour guide is a manifest disregard
other tour participants. 19
of its specific assurances to the tour group,
Zapanta fell far short of the performance expected resulting in agitation and anxiety on their part, and
by the tour group, her testimony in open court which deliberate omission is contrary to the
being revelatory of her inexperience even on the elementary rules of good faith and fair play. It is
basic function of a tour guide, to wit: extremely doubtful if any group of Filipino tourists
would knowingly agree to be used in effect as
Q Now, are you aware that there were times that
guinea pigs in an employees' training program of
the tourists under the "Volare 3" were not provided
a travel agency, to be conducted in unfamiliar
with soap and towels?
European countries with their diverse cultures,
A They did not tell me that but I was able to ask lifestyles and languages.
them later on but then nobody is complaining. 20 .
On the matter of the European tour manager,
...
private respondent's advertisement in its tour
The inability of the group to visit the leather factory contract declares and represents as follows:
is likewise reflective of the neglect and ineptness
FILIPINO TOUR ESCORT!
of Zapanta in attentively following the itinerary of
the day. This incompetence must necessarily be He will accompany you throughout Europe. He
traced to the lack of due diligence on the part of speaks your language, shares your culture and
private respondent in the selection of its feels your excitement.
employees. It is true that among the thirty-two
He won't be alone because you will also be
destinations, which included twenty-three cities
accompanied by a . . .
and special visits to nine tourist spots, this was the
only place that was not visited. 21 It must be noted, EUROPEAN TOUR MANAGER!
CONTRACTS FINALS ACJUCO 119

You get the best of both worlds. Having done so As to why the word "he" was used in the
may tours in the past with people like you, he aforequoted advertisement, private respondent
knows your sentiments, too. So knowledgeable maintains that the pronoun "he" also includes the
about Europe, there is hardly a question he can't word "it," as where it is used as a "nominative case
answer. 27 form in general statements (as in statutes) to
include females, fictitious persons (as
Private respondent contends that the term 31
corporations)." We are constrained to reject this
"European Tour Manager" does not refer to an
submission as patently strained and untenable. As
individual but to an organization, allegedly the
already demonstrated, it is incredible that the word
Kuoni Travel of Switzerland which supposedly
"he" was used by private respondent to denote an
prepared the itinerary for its "Volare Europe Tour,"
artificial or corporate being. From its
negotiated with all the hotels in Europe, selected
advertisement, it is beyond cavil that the import of
tourist spots and historical places to visit, and
the word "he" is a natural and not a juridical
appointed experienced local tour guides for the
person. There is no need for further interpretation
tour group. 28
when the wordings are clear. The meaning that
We regret this unseemly quibbling which perforce will determine the legal effect of a contract is that
cannot be allowed to pass judicial muster. which is arrived at by objective standards; one is
bound, not by what he subjectively intends, but by
A cursory reading of said advertisement will what he leads others reasonably to think he
readily reveal the express representation that the intends. 32
contemplated European tour manager is a natural
person, and not a juridical one as private In an obvious but hopeless attempt to arrive at a
respondent asserts. A corporate entity could not possible justification, private respondent further
possibly accompany the members of the tour contends that it explained the concept of a
group to places in Europe; neither can it answer European tour manager to its clients at the pre-
questions from the tourists during the tour. Of departure briefing, which petitioner did not
course, it is absurd that if a tourist would want to attend. 33 Significantly, however, private
know how he could possibly go to the nearest respondent failed to present even one member of
store or supermarket, he would still have to call the tour group to substantiate its claim. It is a basic
Kuoni Travel of Switzerland. rule of evidence that a party must prove his own
affirmative allegations. 34Besides, if it was really
Furthermore, both lower courts observed, and we its intention to provide a juridical European tour
uphold their observations, that indeed private manager, it could not have kept on promising its
respondent had the obligation to provide the tour tourists during the tour that a European tour
group not only with a European tour manger, but manager would come, 35 supposedly to join and
also with local European tour guides. The latter, assist them.
parenthetically, were likewise never made
available. 29 Zapanta claims that she was Veering to another line of defense, private
accompanied by a European local tour guide in respondent seeks sanctuary in the delimitation of
most of the major cities in Europe. We entertain its responsibility as printed on the face of its
serious doubts on, and accordingly reject, this brochure on the Volare 3 program, to wit:
pretension for she could not even remember the
RESPONSIBILITIES: KENSTAR TRAVEL
name of said European tour guide. 30 If such a
CORPORATION, YOUR TRAVEL AGENT,
guide really existed, it is incredible why she could
THEIR EMPLOYEES OR SUB-AGENTS SHALL
not even identify the former when she testified a
BE RESPONSIBLE ONLY FOR BOOKING AND
year later, despite the length of their sojourn and
MAKING ARRANGEMENTS AS YOUR
the duration of their association.
AGENTS. Kenstar Travel Corporation, your travel
Agent, their employees or sub-agents assume no
CONTRACTS FINALS ACJUCO 120

responsibility or liability arising out of or in cannot be prejudiced by an act, declaration,


connection with the services or lack of services, of or omissionof another, a statutory adaptation of
any train, vessel, other conveyance or station the first branch of the hornbook rule of res inter
whatsoever in the performance of their duty to the alios acta 42 which we do not have to belabor here.
passengers or guests, neither will they be
Besides, it is a commonly known fact that there
responsible for any act, error or omission, or of
are tourists who, although the tour was far from
any damages, injury, loss, accident, delay or
what the tour operator undertook under the
irregularity which may be occasioned by reason
contract, choose to remain silent and forego
(of) or any defect in . . . lodging place or any
recourse to a suit just to avoid the expenses,
facilities . . . . (Emphasis by private respondent.) 36
hassle and rancor of litigation, and not because
While, generally, the terms of a contract result the tour was in accord with was promised. One
from the mutual formulation thereof by the parties does not relish adding to the bitter memory of a
thereto, it is of common knowledge that there are misadventure the unpleasantness of another
certain contracts almost all the provisions of which extended confrontation. Furthermore, contrary to
have been drafted by only one party, usually a private respondent's assertion, not only petitioner
corporation. Such contracts are called contracts of but two other members of the tour group, Luz Sui
adhesion, because the only participation of the Haw and Ercilla Ampil, confirmed petitioner's
party is the affixing of his signature or his complaints when they testified as witnesses for
"adhesion" thereto. 37 In situations like these, her as plaintiff in the court below. 43
when a party imposes upon another a ready-made
Private respondent likewise committed a grave
form of contract, 38 and the other is reduced to the
misrepresentation when it assured in its Volare 3
alternative of taking it or leaving it, giving no room
tour package that the hotels it had chosen would
for negotiation and depriving the latter of the
provide the tourists complete amenities and were
opportunity to bargain on equal footing, a contract
conveniently located along the way for the daily
of adhesion results. While it is true that an
itineraries. 44 It turned out that some of the hotels
adhesion contract is not necessarily void, it must
were not sufficiently equipped with even the basic
nevertheless be construed strictly against the one
facilities and were at a distance from the cities
who drafted the same. 39 This is especially true
covered by the projected tour. Petitioner testified
where the stipulations are printed in fine letters
on her disgust with the conditions and locations of
and are hardly legible as is the case of the tour
the hotels, thus:
contract 40 involved in the present controversy.
Q And that these bathrooms ha(ve) bath tub(s)
Yet, even assuming arguendo that the contractual
and hot and cold shower(s)?
limitation aforequoted is enforceable, private
respondent still cannot be exculpated for the A Not all, sir.
reason that responsibility arising from fraudulent
acts, as in the instant case, cannot be stipulated Q Did they also provide soap and towels?
against by reason of public policy. Consequently, A Not all, sir, some (had) no toilet paper. 45
for the foregoing reasons, private respondent
cannot rely on its defense of "substantial Q Which one?
compliance" with the contract. A The 2 stars, the 3 stars and some 4 stars (sic)
Private respondent submits likewise that the tour hotels.
was satisfactory, considering that only petitioner, Q What I am saying . . .
out of eighteen participants in the Volare 3 Tour
Program, actually complained. 41 We cannot A You are asking a question? I am answering you.
accept this argument. Section 28, Rule 130 of the 2 stars, 3 stars and some 4 stars (sic) hotels, no
Rules of Court declares that the rights of a party
CONTRACTS FINALS ACJUCO 121

soap, toilet paper and (the) bowl the condition of the hotel. And I was so dissatisfied
stinks. . . . because the European Tour Manager was not
around there (were) beautiful promises. They kept
xxx xxx xxx
on telling us that a European Tour Manager will
Q And that except for the fact that some of these come over; until our Paris tour was ended there
four star hotels were outside the city they provided was no European tour manager. 49
you with the comfort?
xxx xxx xxx
A Not all, sir.
Q You will file an action against the defendant
Q Can you mention some which did not provide because there was a disruption of your happiness,
you that comfort? in your honeymoon, is that correct?

A For example, if Ramada Hotel Venezia is in A That is one of my causes of (sic) coming up
Quezon City, our hotel is in Meycauayan. And if here. Secondly, i was very dissatisfied (with) the
Florence or Ferenze is in manila, our hotel is in condition. Thirdly, that Volare 89 it says it will let
Muntinlupa. 46 your heart sing. That is not true. There was no
European tour (manager) and the highlights of the
xxx xxx xxx tour (were) very poor. The hotels were worse (sic)
A One more hotel, sir, in Barcelona, Hotel Saint hotels. 50
Jacques is also outside the city. Suppose Q All the conditions of the hotels as you . . .
Barcelona is in Quezon City, our hotel is in
Marilao. We looked for this hotel inside the city of A Not all but as stated in the brochure that it is first
Barcelona for three (3) hours. We wasted our time class hotel. The first class hotels state that all
looking for almost all the hotels and places where things are beautiful and it is neat and clean with
to eat. That is the kind of tour that you have. 47 complete amenities and I encountered the
Luxembourg hotel which is quite very dilapidated
Luz Sui Haw, who availed of the Volare 3 tour because of the flooring when you step on the side
package with her husband for their honeymoon, "kumikiring" and the cabinets (are) antiques and
shared the sentiments of petitioner and testified as as honeymooners we don't want to be disturbed
follows: or seen. 51
Q . . . Will you kindly tell us why the hotels where xxx xxx xxx
you stayed are not considered first class hotels?
Q None of these are first class hotels?
A Because the hotels where we went, sir, (are) far
from the City and the materials used are not first A Yes, sir.
class and at times there were no towels and soap.
Q So, for example Ramada Hotel Venezia which
And the two (2) hotels in Nevers and Florence the
according to Miss Geraldez is first class hotel is
conditions (are) very worse (sic). 48
not first class hotel?
Q Considering that you are honeymooners
A Yes, sir.
together with your husband, what (were) your
feelings when you found out that the condition Q You share the opinion of Miss Geraldez?
were not fulfilled by the defendant?
A Yes, sir.
A I would like to be very honest. I got sick when I
Q The same is true with Grand Hotel Palatino
reached Florence and half of my body got itch
which is not a first class hotel?
(sic). I think for a honeymooner I would like to
emphasize that we should enjoy that day of our life A Yes, sir.
and it seems my feet kept on itching because of
CONTRACTS FINALS ACJUCO 122

Q And Hotel Delta Florence is not first class hotel? provide basic necessities and sanitary
accommodations. We are accordingly not at all
A That is how I got my itch, sir. Seven (7) days of
impressed by private respondent's attempts to
itch.
trivialize the complaints thereon by petitioner and
Q How about Hotel Saint-Jacquez, Paris? her companions.

A It is far from the city. It is not first class hotel. In a last ditch effort to justify its choice of the
hotels, private respondent contends that it merely
Q So with Hotel Le Prieure Du Coeur de Jesus provided such "first class" hotels which are
neither a first class hotel? commensurate to the tourists budget, or which
A Yes, sir. were, under the given circumstances, the "best for
their money." It postulated that it could not have
Q Hotel De Nevers is not a first class hotel? offered better hostelry when the consideration
A Yes, sir. paid for hotel accommodations by the tour
participants was only so much,57 and the tour
Q Hotel Roc Blanc Andorra is not a first class price of $2,990.00 covers a European tour for 22
hotel? days inclusive of lower room rates and
meals. 58 this is implausible, self-serving and
A Yes, sir.
borders on sophistry.
Q Saint Just Hotel, Barcelona is not a first class
The fact that the tourists were to pay a supposedly
hotel?
lower amount, such that private respondent
A Yes, sir. allegedly retained hardly enough as reasonable
profit, 59 does not justify a substandard form of
Q Hotel Pullman Nice neither is not a first class service in return. It was private respondent, in the
hotel? first place, which fixed the charges for the package
A Yes, sir. tour and determined the services that could be
availed of corresponding to such price. Hence, it
Q Hotel Prinz Eugen and Austrotel are not first cannot now be heard to complain that it only made
class hotels? a putative marginal profit out of the transaction. if
A Yes, sir. 52 it could not provide the tour participants with first-
class lodgings on the basis of the amount that they
Private respondent cannot escape responsibility paid, it could and should have instead increased
by seeking refuge under the listing of first-class the price to enable it to arrange for the promised
hotels in publications like the "Official Hotel and first-class accommodations.
Resort Guide" and Worldwide Hotel
53
Guide." Kuoni Travel, its tour operator, which54 On the foregoing considerations, respondent court
prepared the hotel listings, is a European-based erred in deleting the award for moral and
travel agency 55 and, as such, could have easily exemplary damages. Moral damages may be
verified the matter of first-class accommodations. awarded in breaches of contract where the obligor
Nor can it logically claim that the first-class hotels acted fraudulently or in bad faith. 60 From the facts
in Europe may not necessarily be the first-class earlier narrated, private respondent can be faulted
hotels here in the Philippines. 56 It is reasonable with fraud in the inducement, which is employed
for petitioner to assume that the promised first- by a party to a contract in securing the consent of
class hotels are equivalent to what are considered the other.
first-class hotels in Manila. Even This fraud or dolo which is present or employed at
assuming arguendo that there is indeed a the time of birth or perfection of a contract may
difference in classifications, it cannot be gainsaid either be dolocausante or dolo incidente. The
that a first-class hotel could at the very least first, or causal fraud referred to in Article 1338, are
CONTRACTS FINALS ACJUCO 123

those deceptions or misrepresentations of a way of example or correction for the public good,
serious character employed by one party and in addition to moral, temperate, liquidated or
without which the other party would not have compensatory damages. According to the code
entered into the contract. Dolo incidente, or Commission, exemplary damages are required by
incidental fraud which is referred to in Article 1344, public policy, for wanton acts must be
are those which are not serious in character and suppressed. 67 An award, therefore, of
without which the other party would still have P50,000.00 is called for to deter travel agencies
entered into the contract. 61 Dolo from resorting to advertisements and enticements
causantedetermines or is the essential cause of with the intention of realizing considerable profit at
the consent, while dolo incidente refers only to the expense of the public, without ensuring
some particular or accident of the compliance with their express commitments.
obligations. 62 The effects of dolo causante are While, under the present state of the law,
the nullity of the contract and the indemnification extraordinary diligence is not required in travel or
of damages, 63 and dolo incidente also obliges the tour contracts, such as that in the case at bar, the
person employing it to pay damages. 64 travel agency acting as tour operator must
nevertheless be held to strict accounting for
In either case, whether private respondent has
contracted services, considering the public
committed dolo causante or dolo incidente by
interest in tourism, whether in the local or in the
making misrepresentations in its contracts with
international scene. Consequently, we have to
petitioner and other members of the tour group,
likewise reject the theory of private respondent
which deceptions became patent in the light of
that the promise it made in the tour brochure may
after-events when, contrary to its representations,
be regarded only as "commendatory trade talk." 68
it employed an inexperienced tour guide, housed
the tourist group in substandard hotels, and With regard to the honorarium for counsel as an
reneged on its promise of a European tour item of damages, since we are awarding moral
manager and the visit to the leather factory, it is and exemplary damages, 69 and considering the
indubitably liable for damages to petitioner. legal importance of the instant litigation and the
efforts of counsel evident from the records of three
In the belief that an experienced tour escort and a
levels of the judicial hierarchy, we favorably
European tour manager would accompany them,
consider the amount of P20,000.00 therefor.
with the concomitant reassuring and comforting
thought of having security and assistance readily WHEREFORE, premises considered, the decision
at hand, petitioner was induced to join the Volare of respondent Court of Appeals is hereby SET
3 tourists, instead of travelling alone 65 She ASIDE, and another one rendered, ordering
likewise suffered serious anxiety and distress private respondent Kenstar Travel Corporation to
when the group was unable to visit the leather pay petitioner Lydia L. Geraldez the sums of
factory and when she did not receive first-class P100,000.00 by way of moral damages,
accommodations in their lodgings which were P50,000.00 as exemplary damages, and
misrepresented as first-class hotels. These, to our P20,000.00 as and for attorney's fees, with costs
mind, justify the award for moral damages, which against private respondent. The award for nominal
are in the category of an award designed to damages is hereby deleted.
compensate the claimant for that injury which she
had suffered, and not as a penalty on the
wrongdoer, 66 we believe that an award of
P100,000.00 is sufficient and reasonable.
When moral damages are awarded, especially for
fraudulent conduct, exemplary damages may also
be decreed. Exemplary damages are imposed by
CONTRACTS FINALS ACJUCO 124

Consolidated Electric Company for about sixteen


months, that is, from March 20, 1921, to July 19,
1922. On the date last mentioned, the property
was sold under execution by reason of a judgment
in the case of Levy Hermanos vs. The Philippine
Electric Light Company. The purchaser at said
sale was Gregorio Marquez, brother of Crisanto
Marquez, who paid P5,501.57 for the property.
With this general background of the controversy,
we have to give special attention to one clause in
the contract and its antecedents. The contract
FAILURE TO DISCLOSE FACTS WHEN
Exhibit B entered into by Tuason and Marquez
THERE IS A DUTY TO REVEAL THEM included as a portion of the property sold by
G.R. No. L-20659 November 3, 1923 Marquez to Tuason "el derecho a la franquicia
concedido a la Compañia para la explotacion de
MARIANO S. TUASON, plaintiff-appellant, la industria a que la misma esta dedicada."
vs.
CRISANTO MARQUEZ, defendant-appellee. It appears that originally in either 1913 or 1914, a
franchise for thirty-five years was granted the
Ramon Sotelo for appellant. Lucena Electric Company. The rights of this
Emiliano T. Tirona for appellee. company passed to Crisanto Marquez at a
MALCOLM, J.: sheriff's sale on September 10, 1919. The
company seems never to have functioned very
Out of the vicissitudes of the unfortunate Electric efficiently either at that time or at any other time,
Light Company of Lucena, Tayabas, has arisen as appears from the constant complaint of the
the present litigation between Mariano S. Tuason, municipal authorities of Lucena. Evidently,
plaintiff and appellant, and Crisanto Marquez, Marquez became disgusted with the business,
defendant and appellee. The facts are not in with the result that on February 28, 1921, that is,
dispute, and the legal phases of the case are fairly prior to the accomplishment of the contract, he
evident. announced to the Public Utility Commissioner his
intention to give up the franchise. On March 29,
On March 5, 1921, Crisanto Marquez, the owner
1921, that is, subsequent to the accomplishment
of the electric light plan of Lucena Tayabas,
of the contract, the Public Utility Commissioner
called Sucesores del Lucena Electric, gave an
took action and declared cancelled the franchise
option to Antonio Tuason for the purchase of the
acquired by Crisanto Marquez from the Lucena
plant for P14,400. The option was taken
Electric Light, Ice & Water Company.
advantage of by Mariano S. Tuason, the real
principal, on the 9th of the same month and year, Tuason and his outfit were permitted to operate
and the contracts as then formulated was ratified the company pursuant to a special license which
before a notary public on the 18th of the month was to continue until they obtained a new
and year. The agreement was, that Tuason was to franchise. The new franchise was finally granted
pay Marquez a total of P14,400; P2,400 within by the Public Utility Commissioner with certain
sixty days, and the remainder, P12,000, within a conditions, which amounted to a renovation of the
year. The first installment was paid subsequent to entire plant. It was then, following a knowledge of
the sixty-day period; the second installment has what was expected by the Government, and
not been paid. following the execution sale, that Tuason
conceived the idea of bringing action against
Tuason being once in possession of the electric
Marquez for a rescission of the contract.
light plant, it was run under the management of the
CONTRACTS FINALS ACJUCO 125

In the complaint filed in the Court of First Instance had proved disastrous and only after the property
of Manila, Mariano S. Tuason, the plaintiff, asked had passed into the hands of a third
for judgment against Crisanto Marquez, party. lawphil.net
defendant, for a total of P37,400. The answer and
We find no proof of fraud on the part of the
cross-complaint of the defendant asked for a
defendant and find the plaintiff in estopped to
dismissal of the action and for an allowance of a
press his action.
total of P12,654.50 from the plaintiff. The case
was submitted on an agreed statement of facts in In accordance with the foregoing, we are clearly of
relation with certain telegrams of record. the opinion that judgment should be, as it is
Judgment was rendered, absolving the defendant hereby affirmed, with costs against the appellant.
from the complaint and permitting the defendant So ordered.
to recover from the plaintiff P12,240, with legal
interest from August 1, 1922. Parenthetically, it
may be explained that P12,000 of this judgment
represented the amount still due on the contract,
and P240 represented rent which the plaintiff was
expected to pay the defendant.
The plaintiff claims in effect that the contract
should be rescinded and that he should be
allowed his damages, on account of the
misrepresentation and fraud perpetrated by the
defendant in selling an electric light plan with a
franchise, when the defendant had already given
up his rights to that franchise. In this connection,
however, it should be emphasized that the
contract in making mention of the property of the
electric light company, merely renewed a previous
inventory of the property. The franchise, therefore,
was not the determining cause of the purchase.
Indeed, the franchise was then in force and either
party could easily have ascertained its status by
applying at the office of the Public Utility
Commissioner. The innocent non-disclosure of a
fact does not effect the formation of the contract
or operate to discharge the parties from their
agreement. The maxim caveat emptor should be
recalled.
The equitable doctrine termed with questionable
propriety "estoppel by laches," has particular
applicability to the facts before us. Inexcusable
delay in asserting a right and acquiescene in
existing conditions are a bar to legal action. The
plaintiff operated the electric light plant for about
sixteen months without question; he made the first
payment on the contract without protest; he
bestirred himself to secure what damages he
could from the defendant only after the venture
CONTRACTS FINALS ACJUCO 126

of Manuel Behis, married to Cristina Behis (Exhibit


B). Said land originally was part of a bigger tract
of land owned by Behis (one name), father of
Manuel Behis, covered by OCT-0-33 (Exhibit 26,
Halsema, for history of the land). And upon the
latters death on September 24, 1971, his children,
namely: Saro Behis, Marcelo Behis, Manuel
Behis, Lucia Behis, Clara Behis and Arana Behis,
in an extrajudicial settlement with Simultaneous
[G.R. No. 110672. September 14, 1999] Sale of Inheritance dated September 28, 1978,
agreed to sell the land to Manuel Behis, married
RURAL BANK OF STA. MARIA, PANGASINA, to Cristina Behis (Exhibit `2, Halsema) but which
petitioner vs. THE HONORABLE COURT OF A subsequently was explained as only an
PPEALS, ROSARIO R. RAYANDAYAN, CARM arrangement adopted by them to facilitate
EN R. ARCEO,respondents. transactions over the land in a Confirmation of
Rights of Co-Ownership over real Property
[G.R. No. 111201. September 14, 1999]
dated September 26, 1983, showing that the
ROSARIO R. RAYANDAYAN and CARMEN R. Behis brothers and sisters, including Manuel
ARCEO, petitioners vs. COURT OF APPEALS, Behis, are still co-owners thereof (Exhibit `30,
HALSEMA INC. and RURAL BANK OF STA. M Halsema, Exhibit `AA).
ARIA,PANGASINAN, INC., respondents.
Manuel Behis mortgaged said land in favor of the
DECISION Bank in a Real Estate Mortgage dated October
23, 1978 (Exhibit `Q-1) as security for loans
GONZAGA_REYES, J.:
obtained, covered by six promissory notes and
Before us are two consolidated[1] petitions for trust receipts under the Supervised Credit
review on certiorari under Rule 45 of the Revised Program in the total sum of P156,750.00 (Exhibit
Rules of Court. In G.R. No. 110672, petitioner `Q-2 to `Q-7, Exhibits `4-A to `4-F, Halsema) and
Rural Bank of Sta. Maria, Pangasinan, assails annotated at the back of the title on February 13,
portions of the Decision dated March 17, 1993, 1979 as Entry No. 85538-10-231 (Exhibit 1-A-1,
and the Resolution dated January 25, 1993, of the Halsema). The mortgage, the promissory notes
Court of Appeals[2] in CA-G.R. CV No. 21918, and trust receipts bear the signatures of both
which affirmed with modification the Decision of Manuel Behis and Cristina Behis.
the Regional Trial Court (Branch 6, Baguio Unfortunately thereafter, Manuel Behis was
City)[3] in Civil Case No. 890-R entitled Rosario R. delinquent in paying his debts.
Rayandayan and Carmen R. Arceo versus Rural
Bank of Sta. Maria, Pangasinan and Halsema, On January 9, 1985, Manuel Behis sold the land
Inc. In G.R. No. 111201, petitioners Rosario R. to the plaintiffs[4] in a Deed of Absolute Sale with
Rayandayan and Carmen R. Arceo likewise assail Assumption of Mortgage for the sum of
portions of said Decision adverse to it. P250,000.00 (Exhibit `A) which bears the
signature of his wife Cristina Behis. Manuel Behis
The facts as found by the trial court and adopted took it upon himself to secure the signature of his
by the Court of Appeals insofar as pertinent to the wife and came back with it. On the same date of
instant petitions are as follows: January 9, 1985, plaintiffs and Manuel
xxx, the Court Finds that a parcel of land of about Behis simultaneously executed another
49,969 square meters, located in Residence Agreement (Exhibit `15) whereby plaintiffs are
Section J, Camp 7, Baguio City, covered by TCT indebted to Manuel Behis for the sum of
T-29817 (land for short) is registered in the name P2,400,000.00 payable in installments with
CONTRACTS FINALS ACJUCO 127

P10,000.00 paid upon signing and in case of broken down as to principal, interest and other
default in the installments, Manuel Behis shall charges (Exhibit `E).
have legal recourse to the portions of the land
Thereafter, plaintiffs finally presented the Deed of
equivalent to the unpaid balance of the amounts
Absolute Sale with Assumption of Mortgage
in installments. Obviously, the real
(Exhibit `A) to the Bank when negotiating with its
consideration of the sale of the land of Manuel
principal stockholder, Engr. Edilberto Natividad, in
Behis to the plaintiffs is contained in this
Manila, but did not show to the latter the
Agreement (Exhibit `15).
Agreement (Exhibit `15) with Manuel Behis
Plaintiffs did not present to the Register of Deeds providing for the real consideration of
of Baguio said two contracts and ask that the title, P2,400,000.00. And thus, on August 1, 1985,
TCT T-29817 in the name of Manuel Behis be a Memorandum of Agreement (Exhibit `F) was
cancelled and a new one issued in their name entered into between plaintiffs, as assignees of
which normally a buyer does. Neither did plaintiffs Manuel Behis, and the Bank, the salient features
annotate at the back of the title the aforesaid two of which are:
contracts. Nor did they immediately go to the Bank
`x x x x x x x x x
and present said two contracts. Thus, the title to
the land, TCT No. T-29817, remained in the name `3. That during the lifetime of Manuel Behis he had
of Manuel Behis. executed a Deed of Absolute Sale with
Assumption of Mortgage in favor of Carmen Arceo
Pursuant to their two contracts with Manuel Behis,
and Rosario Rayandayan;
plaintiffs paid him during his lifetime the sum of
P10,000.00 plus P50,000.00 plus P145,800.00 `4. That the total obligation of the late Manuel
(Exhibit `U as stipulated in the hearing), and the Behis to the Bank amounts to P343,782.22;
sum of P21,353.75 for the hospitalization, medical
and burial expenses of Manuel Behis when he `5. That the assignees hereby offer to redeem the
died on June 21, 1985 (Exhibit `II, `JJ, `KK, `LL, aforesaid real property and the Bank hereby
`PP, `OO, and `RR). Obviously, from the above agrees to release the mortgage thereon under the
payments, the plaintiffs were unable to complete following terms and conditions:
their full payment to Manuel Behis of the sale of (a). That the amount of P35,000.00 shall be paid
the land as it is nowhere near P2,400,000.00. by the assignees to the Bank upon execution of
Meantime, the loan in the name of Manuel Behis this Agreement;
with the Bank secured by the Real Estate (b). That the amount of P108,000.00 shall be paid
Mortgage on the land continued to accumulate by the assignees to the Bank at the rate
being delinquent. By May 30, 1985, in a of P36,000.00 a month payable on September 15,
Statement of Account (Exhibit `D) sent to Manuel 1985, October 15, 1985 and November 15, 1985;
Behis by the Bank thru the Paredes Law Office for
collection, the debt of P150,750.00 has ballooned (c). That the balance of P200,000.00 shall be
into P316,368.13, with interest and other renewed for one year and shall be secured by
charges. In fact, the Bank, thru its President, another mortgage over the same property which
Vicente Natividad, initiated foreclosure is renewable every year upon payment of interests
proceedings. But after the usual publication, the and at least 10 percent of the principal;
same was discontinued since many parties were (d). That the bank shall release the mortgage of
interested to buy the land outside the said Manuel Behis and a new mortgage shall be
procedure but none materialized. executed by the assignees and the bank shall give
On June 19, 1985, Atty. William Arceo, in behalf its consent for the transfer of the title under the
of Manuel Behis, wrote a letter asking for a more name of the assignees.
detailed Statement of Account from the Bank
CONTRACTS FINALS ACJUCO 128

x x x. (Exhibit 4, Halsema), Cristina Behis stressed she


did not authorize anybody to redeem the property
Plaintiffs did not annotate the Memorandum of
in her behalf as one of the mortgagors of the land.
Agreement in the title, TCT T-29817.
On January 7, 1986, plaintiffs demanded in a letter
Pursuant to the Memorandum of Agreement,
(Exhibit `O) that the Bank comply with its
plaintiffs paid the Bank the following:
obligation under the Memorandum of Agreement
(1) P35,000.00 on August 1, 1985 as initial deposit to (1) release the mortgage of Manuel Behis, (2)
when the Agreement was signed (Exhibits `G and give its consent for the transfer of title in the name
`H); of the plaintiffs, and (3) execute a new mortgage
with plaintiffs for the balance of P200,000.00 over
(2) P15,000.00 on September 16, 1985 (Exhibit `I) the same land.
and P21,000.00 on September 20, 1985 (Exhibit
`J) to cover the obligation of P36,000.00 on Meanwhile on January 18, 1986, Cristina Behis
September 15, 1985; went to the Bank inquiring about her protest about
her signature. The Bank told her it did not receive
(3) P20,000.00 on October 17, 1985 (Exhibit `K) her two letters and instead advised her to write the
and P16,000.00 on October 25, 1985 (Exhibit `L) Bank again as well as the plaintiffs about her
to cover the obligation to pay P36,000.00 on objections.
October 15, 1985;
In a reply letter dated February 11, 1986, (Exhibit
(4) P36,000.00 in the form of dollars remitted to `B) to the demand of the plaintiffs, the Bank said it
Engr. Edilberto Natividad on December 18, 1985 cannot comply because of supervening
(Exhibit `N) to cover the obligation to pay circumstances, enclosing the two letters of
P36,000.00 on November 15, 1985. Cristina Behis dated September 5, 1985 and
After the last payment of P36,000.00 on October 28, 1985 which they said were both self
December 18, 1985, received in dollars (Exhibit explanatory, and suggested that plaintiffs take up
`N) which completed the P143,000.00 under the matter with Mrs. Cristina Behis.
paragraphs 5 (a) and 5 (b) of the Memorandum of On February 15, 1986, as suggested by the Bank,
Agreement Engr. Edilberto Natividad, wrote a Cristina Behis wrote another letter to the Bank
letter (Exhibit M) to Vicente Natividad, with claiming this time that she was not a party to the
instructions that payment be duly credited and Deed of Absolute Sale with Assumption of
Atty. Arceo will communicate about the transfer of Mortgage and her signature was forged (Exhibit 5,
title to them and to consult the Banks counsel on Halsema) and requesting the Bank not to release
the matter, and with instructions also to Ana the title with copy furnished to the plaintiffs (Exhibit
Acosta of the Rural Bank of Tuba to debit said `5-B, Halsema).
amount from the savings of Edilberto
Natividad. xxx. Then, months passed, and nothing was heard
from the plaintiffs by the Bank. On the first week
From the above payments made, the total amount of July, 1986, Teodoro Verzosa, President of
of P143,000.00 as required by paragraphs 5 (a) Halsema, Inc., heard about the land and got
and 5 (b) of the Memorandum of Agreement interested and had preliminary talks with Vicente
was fully paid by plaintiffs although they were not Natividad, President of the Bank, and with
paid on time. Edilberto Natividad, the principal stockholder of
Meanwhile, on September 5, 1985, Cristina Behis, the bank.
widow of Manuel Behis, wrote a letter to the Bank x x x.
(Exhibit `3, Halsema) claiming the Real Estate
mortgage was without her signature. And in xxx, upon suggestion of the lawyer of Halsema,
another letter dated October 28, 1985 to the Bank an Assignment of Mortgage was entered into on
CONTRACTS FINALS ACJUCO 129

July 28, 1986 between Halsema and the Bank for Agreement which was considered by the Bank as
the consideration of P520,765.45 (Exhibit `1, cancelled.
Bank) which amount was the total indebtedness of
xxx xxx xxx.
Manuel Behis with the Bank at the time (Exhibit `7-
A, Halsema). Note however, that what was After the assignment of mortgage, the Bank
assigned was the Mortgage made originally by returned the P143,000.00 to plaintiffs (Exhibit `13,
Manuel Behis and not the Mortgage as assumed Bank). But the latter rejected the
by plaintiffs under a restructured and liberalized same maintaining the Memorandum of
terms. Agreement is valid until annulled by Court
Action. Subsequently, however, the Bank paid
As explained by Halsema lawyer, she suggested
plaintiffs P143,000.00 and P90,000.00 interest in
the Assignment of Mortgage as the cheapest and
settlement of the criminal case of Estafa against
fastest way for Halsema to acquire the property of
Edilberto Natividad and Vicente Natividad (Exhibit
Manuel Behis as (1) they assume the role of the
`14, Bank).
Bank as Mortgagee with the assignment of
mortgage credit, (2) they acquire the property for In the meantime, since the account of the late
the amount only of the mortgage debt at the time, Manuel Behis has been delinquent and his widow,
(3) after execution thereof, the Bank is out of the Cristina Behis, and his brothers and sisters could
picture, and (4) in case of foreclosure, Halsema not pay as in fact they have already assigned their
controls the foreclosure proceedings and is rights to redeem, Halsema as Mortgage Creditor
assured of its legality. in place of the Bank instituted foreclosure
proceedings by filing an Application for
In turn, the Bank explained it entered into the
Foreclosure of Real Estate Mortgage in
Assignment of Mortgage because at the time
the Office of the Sheriff on July 31, 1986(Exhibit
it considered the Memorandum of Agreement
`37, Halsema) setting the public auction sale on
cancelled as first, plaintiffs failed to settle the
September 2, 1986 and was published and posted
objections of Cristina Behis aforesaid on her
as required by law. A Notice of Foreclosure was
signature being forged in the Deed of Sale with
sent directly to the mortgagor (Exhibit `38,
Assumption of Mortgage despite the lapse of time
Halsema) and the public auction sale was held on
from February, 1986 to July, 1986. Second, the
September 2, 1986 at 10:00 a.m. at the City Hall,
terms of the Memorandum of Agreement have not
Baguio City, with Halsema as the only bidder to
been fully complied with as the payments were not
whom accordingly the Sheriffs Certificate of Sale
made on time on the dates fixed therein; and third,
was issued (Exhibit `8, Halsema).
their consent to the Memorandum of Agreement
was secured by the plaintiffs thru fraud as the At the auction sale, the lawyer of Halsema was
Bank was not shown the Agreement containing approached by the plaintiff Rosario Rayandayan
the real consideration of P2,400,000.00 of the who told the former that the land foreclosed was
sale of the land of Manuel Behis to plaintiffs. also sold to the plaintiffs. Since plaintiffs could not
do anything anymore, they registered and
On the same date of July 28, 1986, Vicente
annotated on the title, TCT T-29817, their adverse
Natividad of the Bank sent notice of the
claim on September 3, 1986.[5]
Assignment of Mortgage to the debtor mortgagor,
Manuel Behis (already dead at the time) and Since the Bank could not comply with the
Cristina Behis. Notice of the Assignment of Memorandum of Agreement, petitioners
Mortgage was not sent to plaintiffs for as aforesaid Rayandayan and Arceo instituted Civil Case No.
what was assigned was the Mortgage originally 890-R before the Regional Trial Court of Baguio
made by Manuel Behis and not the Mortgage as City (Branch 6) against the Rural Bank of Sta.
assumed by plaintiffs under the restructured and Maria, Pangasinan and Halsema, Inc. for Specific
liberalized terms in the Memorandum of Performance, Declaration of Nullity and/or
CONTRACTS FINALS ACJUCO 130

Annulment of Assignment of Mortgage and appealed. Defendant Rural Bank of Sta. Maria,
Damages on September 5, 1986, and caused a Pangasinan did not appeal.[7] The Court of
notice of lis pendens annotated at the back of the Appeals rendered herein assailed decision, the
title, TCT T-29817, on the same date. On March dispositive portion insofar as pertinent to this case
6, 1989, judgment was rendered, the dispositive reads:
portion of the decision pertinent to this case reads:
WHEREFORE, premises considered, decision is
WHEREFORE, in view of All the Foregoing, hereby rendered:
Judgment is hereby rendered, as follows:
1. xxx xxx xxx;
1. xxx xxx xxx;
2. xxx xxx xxx;
2. Declaring the Deed of Sale with assumption of
3. xxx xxx xxx;
Mortgage (Exhibit A) and the Agreement (Exhibit
15) taken together valid until annulled or 4. Declaring the Deed of Absolute Sale with
cancelled; Assumption of Mortgage, Exhibit A and the
Memorandum of Agreement, Exhibit F, valid as
3. Ordering the Bank to pay the plaintiffs the sum
between the parties thereto;
of P30,000.00 as Moral Damages, P10,000.00 as
Exemplary Damages, P20,000.00 as Attorneys 5. Ordering and sentencing defendant Rural Bank
fees and P5,000.00 as litigation expenses for their of Sta. Maria, Pangasinan to pay plaintiffs-
bad faith in violating the Memorandum of appellant the sum of P229,135.00 as actual
Agreement which took place while the damages, the sum of P30,000.00 as moral
Memorandum of Agreement was still valid there damages, P10,000.00 as exemplary
being no court action first filed to nullify it before damages, P20,000.00 as attorneys fees
entering into the Assignment of Mortgage; and P5,000.00 as litigation expenses;
4. Ordering the plaintiffs to pay the Bank the sum 6. Affirming the dismissal of all other
of P30,000.00 as Moral Damages, P10,000.00 as counterclaims for damages;
Exemplary Damages, P20,000.00 as Attorneys
fees and P5,000.00 as litigation expenses for 7. Reversing and setting aside all other
plaintiffs bad faith in deceiving the Bank to enter dispositions made by the trial court inconsistent
into the Memorandum of Agreement; with this decision;

5. Ordering the setting off in compensation the 8. There is no pronouncement as to costs.


Damages awarded to plaintiffs and the Bank. SO ORDERED.[8]
6. xxx xxx xxx; In sum, the Court of Appeals in its assailed
7. Declaring the Memorandum of Agreement as decision: (1) affirmed the validity of the
annulled due to the fraud of plaintiffs; Memorandum of Agreement between the parties
thereto; (2) reversed and set aside the finding of
8. xxx xxx xxx; the trial court on the bad faith of Rayandayan and
Arceo in concealing the real purchase price of the
9. xxx xxx xxx;
land sold to them by Manuel Behis during
10. xxx xxx xxx, negotiations with the bank on the assumption of
the mortgage debt; (3) modified the trial courts
Without pronouncement as to costs.
finding as to the damages due Rayandayan and
SO ORDERED.[6] Arceo from the bank by adding P229,135.00 as
actual damages; (4) dismissed the counterclaim
From the decision, plaintiffs Rayandayan and for damages by the bank and deleted the portion
Arceo and defendant Halsema, Inc. on the set-off of damages due between the bank
CONTRACTS FINALS ACJUCO 131

on the one hand, and Rayandayan and Arceo on Behis executed another Agreement embodying
the other. the real consideration of the sale of the land in the
sum of P2,400,000.00. Thereafter, Rayandayan
Motions for reconsideration were filed by plaintiffs-
and Arceo negotiated with the principal
appellants Rayandanan and Arceo and defendant
stockholder of the bank, Engr. Edilberto Natividad
Rural Bank of Sta. Maria, Pangasinan which were
in Manila, for the assumption of the indebtedness
denied for lack of merit.[9]
of Manuel Behis and the subsequent release of
Hence, the instant consolidated petitions. the mortgage on the property by the
bank. Rayandayan and Arceo did not show to the
In a Resolution dated August 25, 1993, this Court bank the Agreement with Manuel Behis providing
denied the petition for review on certiorari (G.R. for the real consideration of P2,400,000.00 for the
No. 111201) filed by Rayandayan and Arceo for sale of the property to the former. Subsequently,
having been filed out of time and for late payment the bank consented to the substitution of plaintiffs
of docket fees.[10] Petitioners Rayandayan and as mortgage debtors in place of Manuel Behis in
Arceo moved to reconsider; this Court in a a Memorandum of Agreement between private
Resolution dated November 22, 1993, resolved to respondents and the bank with restructured and
deny the same with finality considering petitioners liberalized terms for the payment of the mortgage
failed to show any compelling reason and to raise debt. Instead of the bank foreclosing immediately
any substantial argument which would warrant a for non-payment of the delinquent account,
modification of the said resolution.[11] petitioner bank agreed to receive only a partial
What remains for resolution then is G.R. No. payment of P143,000.00 by installment on
110672, wherein petitioner Rural Bank of Sta. specified dates. After payment thereof, the bank
Maria, Pangasinan, contends that: agreed to release the mortgage of Manuel Behis;
to give its consent to the transfer of title to the
I private respondents; and to the payment of the
THE MEMORANDUM OF AGREEMENT (EXH. F) balance of P200,000.00 under new terms with a
ENTERED INTO BETWEEN PRIVATE new mortgage to be executed by the private
RESPONDENTS, AS ALLEGED ASSIGNEES OF respondents over the same land.
MANUEL BEHIS, AND PETITIONER BANK IS This brings us to the first issue raised by petitioner
VOIDABLE AND MUST BE ANNULLED. bank that the Memorandum of Agreement is
II voidable on the ground that its consent to enter
said agreement was vitiated by fraud because
PRIVATE RESPONDENTS ARE IN BAD FAITH, private respondents withheld from petitioner bank
HENCE, THEY ARE NOT ENTITLED TO THE the material information that the real consideration
SUMS OF P30,000.00 AS MORAL DAMAGES; for the sale with assumption of mortgage of the
P10,000.00 AS EXEMPLARY DAMAGES; property by Manuel Behis to Rayandayan and
P20,000.00 AS ATTORNEYS FEES; AND Arceo is P2,400,000.00, and not P250,000.00
P5,000.00 AS LITIGATION EXPENSES.[12] as represented to petitioner bank. According to
petitioner bank, had it known of the real
The petition is devoid of merit.
consideration for the sale, i.e. P2.4 million, it
Briefly, the antecedents material to this appeal are would not have consented into entering the
as follows: A Deed of Absolute Sale with Memorandum of Agreement with Rayandayan
Assumption of Mortgage was executed between and Arceo as it was put in the dark as to the real
Manuel Behis as vendor/assignor and capacity and financial standing of private
Rayandayan and Arceo as vendees/assignees for respondents to assume the mortgage from
the sum of P250,000.00. On the same day, Manuel Behis.Petitioner bank pointed out that it
Rayandayan and Arceo together with Manuel would not have assented to the agreement, as it
CONTRACTS FINALS ACJUCO 132

could not expect the private respondents to pay deed of absolute sale with assumption of
the bank the approximately P343,000.00 mortgage was forged. Thus, the alleged nullity of
mortgage debt when private respondents have to the Memorandum of Agreement, Exhibit F, is a
pay at the same time P2,400,000.00 to Manuel clear aftertought. It was raised by defendant bank,
Behis on the sale of the land. by way of counterclaim only after it was sued.
The kind of fraud that will vitiate a contract refers The deceit which avoids the contract exists where
to those insidious words or machinations resorted the party who obtains the consent does so by
to by one of the contracting parties to induce the means of concealing or omitting to state material
other to enter into a contract which without them facts, with intent to deceive, by reason of which
he would not have agreed to.[13] Simply stated, the omission or concealment the other party was
fraud must be the determining cause of the induced to give a consent which he would not
contract, or must have caused the consent to be otherwise have given (Tolentino, Commentaries
given. It is believed that the non-disclosure to the and Jurisprudence on the Civil Code, Vol. IV, p.
bank of the purchase price of the sale of the land 480). In this case, the consideration for the sale
between private respondents and Manuel Behis with assumption of mortgage was not the
cannot be the fraud contemplated by Article 1338 inducement to defendant bank to give a consent
of the Civil Code.[14] From the sole reason which it would not otherwise have given.
submitted by the petitioner bank that it was kept in
Indeed, whether the consideration of the sale with
the dark as to the financial capacity of private
assumption of mortgage was P250,000.00 as
respondent, we cannot see how the omission or
stated in Exhibit A, or P2,400,000.00 as stated in
concealment of the real purchase price could have
the Agreement, Exhibit 15, should not be of
induced the bank into giving its consent to the
importance to the bank. Whether it was
agreement; or that the bank would not have
P250,000.00 or P2,400.000.00 the banks security
otherwise given its consent had it known of the
remained unimpaired.
real purchase price.
The stipulation in Exhibit 15, reading in case of
First of all, the consideration for the purchase of
default in all of the above, Manuel Behis shall have
the land between Manuel Behis and herein private
legal recourse to the portion of the parcel of land
respondents Rayandayan and Arceo could not
under TCT No. T-29817 equivalent to the unpaid
have been the determining cause for the petitioner
balance of the amount subject of this Agreement,
bank to enter into the memorandum of
obviously even if revealed would not have induced
agreement. To all intents and purposes, the bank
defendant bank to withhold its consent. The legal
entered into said agreement in order to effect
recourse to TCT No. T-29817 given to Manuel
payment on the indebtedness of Manuel Behis. As
Behis, under the Agreement, is subordinate and
correctly ruled by the Court of Appeals:
inferior to the mortgage to the bank.
xxx. The real consideration for the sale with
We are, therefore, constrained to uphold the
assumption of mortgage, or the non-disclosure
validity of the Memorandum of Agreement, Exhibit
thereof, was not the determining influence on the
F, and reverse and set aside the ruling declaring
consent of the bank.
the same annulled allegedly due to fraud of
The bank received payments due under the plaintiffs-appellants (paragraph 7, dispositive
Memorandum of Agreement, even if delayed. It portion).
initially claimed that the sale with assumption of
With the above conclusion reached, the award of
mortgage was invalid not because of the
moral and exemplary damages, attorneys fees
concealment of the real consideration
and expenses of litigation in favor of defendant
of P2,400,000.00 but because of the information
bank and against plaintiffs-appellants in
given by Cristina Behis, the widow of the
paragraph 4 of the dispositive portion of the
mortgagor Manuel Behis that her signature on the
CONTRACTS FINALS ACJUCO 133

decision of the trial court must likewise be for his concerns and that private transactions have
reversed and set aside; and similarly, paragraph been fair and regular. Petitioner bank's allegation
5. The basis for the award, which we quote for of fraud and deceit have not been established
plaintiffs bad faith in deceiving the Bank to enter sufficiently and competently to rebut the
into the Memorandum of Agreement is not correct presumption of regularity and due execution of the
as we have discussed.[15] agreement.
Secondly, pursuant to Article 1339 0f the Civil Based on the foregoing, the second issue raised
Code,[16] silence or concealment, by itself, does by petitioner bank must likewise fail. Petitioner
not constitute fraud, unless there is a special duty bank's imputation of bad faith to private
to disclose certain facts, or unless according to respondents premised on the same non-
good faith and the usages of commerce the disclosure of the real purchase price of the sale so
communication should be made. Verily, private as to preclude their entitlement to damages must
respondents Rayandayan and Arceo had no duty, necessarily be resolved in the negative. Petitioner
and therefore did not act in bad faith, in failing to bank does not question the actual damages
disclose the real consideration of the sale awarded to private respondents in the amount
between them and Manuel Behis. of P229,135.00, but only the moral damages
of P30,000.00, exemplary damages
Thirdly, the bank had other means and opportunity
of P10,000.00, attorney's fees of P20,000.00 and
of verifying the financial capacity of private
litigation expenses of P5,000.00. We may no
respondents and cannot avoid the contract on the
longer examine the amounts awarded by the trial
ground that they were kept in the dark as to the
court and affirmed by the appellate court as
financial capacity by the non-disclosure of the
petitioner bank did not appeal from the decision of
purchase price. As correctly pointed out by
the trial court. It is well-settled that a party who
respondent court, the bank security remained
does not appeal from the decision may not obtain
unimpaired regardless of the consideration of the
any affirmative relief from the appellate court other
sale. Under the terms of the Memorandum of
than what he has obtained from the lower court, if
Agreement, the property remains as security for
any, whose decision is brought up on appeal.[19]
the payment of the indebtedness, in case of
default of payment. Thus, petitioner bank does not WHEREFORE, the petition is hereby DENIED and
and can not even allege that the agreement was the decision of the Court of Appeals, dated March
operating to its disadvantage. If fact, the bank 17, 1993 is AFFIRMED. No cost.
admits that no damages has been suffered by
SO ORDERED.
it. [17]
Consequently, not all elements of fraud vitiating
consent for purposes of annulling a contract
concur, to wit: (a) It was employed by a contracting
party upon the other; (b) It induced the other party
to enter into the contract; (c) It was serious; and;
(d) It resulted in damages and injury to the party
seeking annulment.[18] Petitioner bank has not
sufficiently shown that it was induced to enter into
the agreement by the non-disclosure of the
purchase price, and that the same resulted in
damages to the bank. Indeed, the general rule is
that whosoever alleges fraud or mistake in any
transaction must substantiate his allegation, since
it is presumed that a person takes ordinary care
CONTRACTS FINALS ACJUCO 134

Trinidad paid the installment for 1970 and 1971 on


time but asked Francisco for an extension of 60
days to pay the third installment due on July 1,
1972. However, she says she eventually decided
not to continue paying the amortizations because
the house was flooded again on July 18, 21, and
USUAL EXAGGERATIONS IN TRADE: 30, 1972, the waters rising to as high as five feet
on July 21. Upon her return from the United
OPPORTUNITY TO KNOW THE FACTS
States on October 11, 1972, she wrote the City
G.R. No. 65922 Engineer's Office of Quezon City and requested
an inspection of the subject premises to determine
TRINIDAD VS INTERMEDIATE APPELLATE the cause of the flooding.
COURT
The finding of City Engineer Pantaleon P. Tabora
CRUZ, J.: was that "the lot is low and is a narrowed portion
The house looked beautiful in summer but not of the creek."
when the waters came. Then it was flooded five On January 10, 1973, the petitioner filed her
feet deep and less than prepossessing, let alone complaint against Francisco alleging that she was
livable. Disenchanted, the buyer sued the seller induced to enter into the contract of sale because
for the annulment of the sale and damages, of his misrepresentations. She asked that the
alleging fraud. agreement be annulled and her payments
The house was Bungalow No. 17, situated at refunded to her, together with the actual expenses
Commonwealth Village in Quezon City, and she had incurred for the
belonged to the late Vicente J. "annexes and decorations" she had made on the
Francisco. Sometime in early 1969, Laureta house. She also demanded the actual cost of the
Trinidad, the petitioner herein, approached him losses she had suffered as a result of the floods,
and offered to buy the property. Francisco was moral and exemplary damages in the sum of
willing to sell. Trinidad inspected the house and P200,000.00, and P10,000.00 attorney's fees.[2]
lot and examined a vicinity map which indicated In his answer and amended answer, the
drainage canals along the property. The defendant denied the charge of misrepresentation
purchase price was P70,000.00, with a down and stressed that the plaintiff had thoroughly
payment of P17,500.00. The balance was to be inspected the property before she decided to buy
paid in five equal annual installments not later it. The claimed creek was a drainage lot, and the
than July 1 of each year floods complained of were not uncommon in the
at 12% interest per annum. village and indeed even in the Greater Manila area
On March 29, 1969, Trinidad paid Francisco if not the entire Luzon. In any event, the floods
P5,000.00 as earnest money and entered into the were fortuitous events not imputable to him. He
possession of the house. However, as she asked for the rescission of the contract and the
relates it, she subsequently heard from her new forfeiture of the payments made by the plaintiff
neighbors that two buyers had previously vacated plus monthly rentals with interest of P700.00 for
the property because it was subject to the property from July 2, 1972, until the actual
flooding. She says she talked to Francisco about vacation of the property by the plaintiff. He also
this matter and that he told her everything had claimed litigation expenses, including attorney's
been fixed and the house would never be flooded fees.[3]
again. Thus assured, she gave him P12,500.00 In his decision dated June 17, 1975, Judge Sergio
to complete the down payment. They signed the F. Apostol of the then Court of First Instance of
Contract of Conditional Sale on August 8, 1969.[1]
CONTRACTS FINALS ACJUCO 135

Rizal held in favor of the plaintiff and disposed as required the parties to submit their respective
follows: memoranda. Pendente lite, Vicente J. Francisco
died and was eventually substituted by his
WHEREFORE, premises considered, judgment is
heirs,[5] two or whom, Trinidad J. Francisco and
hereby rendered:
Rosario F. Kelemen, filed their own joint
a) ordering the annulment of the contract of memorandum.[6] The Court has deliberated on the
conditional sale entered into by the parties; issues and the arguments of the parties and is
now ready to act on the motions filed by the
b) ordering defendant's representatives to pay to petitioner and the private respondents for the
the plaintiff the amount of P49,840.00 with interest resolution of this case.
from the time of the filing of the complaint;
The petitioner faults the respondent court on the
c) ordering the defendant's representatives to pay following grounds:
the amount of P39,800.00 representing the value
of the improvements and the losses she 1. The Intermediate Appellate Court palpably
incurred by virtue of the flood; erred in not finding that the lot on which the house
in question stands is a portion of a creek, hence
d) ordering plaintiff to return to the defendant's outside the commerce of man.
representatives the house and lot in question;
2. The Intermediate Appellate Court palpably
e) ordering defendant's representatives to pay the erred in finding that there was no fraud prior to the
amount of P5,000.00 as and by way of attorney's sale that induced petitioner to enter into the said
fees. sale.
WITH COSTS AGAINST THE DEFENDANT. 3. The Intermediate Appellate Court palpably
Upon separate motions for reconsideration filed erred in cancelling the complaint for non-payment
by both parties. Judge Apostol ordered and held of the installments and declaring the previous
a new trial, resulting in a new decision dated April installments forfeited.
13, 1976, reiterating his original dispositions. 4. The Intermediate Appellate Court erred in not
Both parties appealed to the respondent court, granting moral damages and attorney's fees to
which reversed the trial court in a decision petitioner.
promulgated on May 31, 1983.[4] The dispositive The basic issue in this controversy is whether or
portion read as follows: not, under the established facts, there was
WHEREFORE, the appeal of plaintiff is hereby misrepresentation on the part of Francisco to
dismissed. With respect to the appeal of justify the rescission of the sale and the award of
defendant, the decision of the lower court is damages to the petitioner.
hereby reversed and set aside and another one is The pertinent provisions of the Civil Code on fraud
rendered dismissing the complaint and, upon the are the following:
counterclaim, sustaining the cancellation of
the contract of conditional sale (Exh. B) and the Art. 1338. There is fraud when, through insidious
forfeiture of any and all sums of money paid by words or machinations of one of the contracting
plaintiff to the defendant on account of the contract parties, the other is induced to enter into a contract
to be treated as rentals for the use and occupation which, without them, he would not have agreed to.
of the property and ordering the plaintiff to vacate
Art. 1339. Failure to disclose facts, when there is
the property. No special pronouncement as to
a duty to reveal them, as when the parties are
costs.
bound by confidential relations, constitutes fraud.
This Court gave due course to the herein petition
for review on certiorari of the said decision and
CONTRACTS FINALS ACJUCO 136

Art. 1340. The usual exaggerations in trade, Sixth, the petitioner paid the 1970 and 1971
when the other party had an opportunity to know amortizations even if, according to her Complaint,
the facts, are not in themselves fraudulent. "since 1969 said lot had been under floods of
about one (1) foot deep."[10] and despite the floods
Fraud is never lightly inferred; it is good faith that
of September and November 1970.
is. Under the Rules of Court, it is presumed
that "a person is innocent of crime or Seventh, it is also curious that notwithstanding the
wrong" [7] and that "private transactions have been said floods, the petitioner still "made annexes and
fair and regular."[8] While disputable, these decorations on the house,"[11] all of a permanent
presumptions can be overcome only by clear and nature, for which she now claims reimbursement
preponderant evidence. from the private respondent.
Our finding is that the fraud alleged by the To repeat, it has not been satisfactorily
petitioner has not been satisfactorily established established that the private respondent inveigled
to call for the annulment of the contract. This the petitioner through false representation to buy
finding is based on the following considerations. the subject property. Assuming that he did make
such representations, as the petitioner contends,
First, it was the petitioner who admittedly
she is deemed to have accepted them at her own
approached the private respondent, who never
risk and must therefore be responsible for the
advertised the property nor offered it for sale to
consequences of her careless credulousness. In
her.
the case of Songco v. Sellner,[12]the Court said:
Second, the petitioner had full opportunity to
The law allows considerable latitude to seller's
inspect the premises, including the drainage
statements, or dealer's talk, and experience
canals indicated in the vicinity map that was
teaches that it is exceedingly risky to accept it at
furnished her, before she entered into the contract
its face value. x x x
of conditional sale.
Assertions concerning the property which is the
Third, it is assumed that she made her appraisal
subject of a contract of sale, or in regard to its
of the property not with the untrained eye of the
qualities and characteristics, are the usual and
ordinary prospective buyer but with the
ordinary means used by sellers to obtain a high
experience and even expertise of the licensed real
price and are always understood as affording to
estate broker that she was.[9] If she minimized the
buyers no ground for omitting to make inquiries. A
presence of the drainage canals, she has only her
man who relies upon such an affirmation made by
own negligence to blame.
a person whose interest might so readily prompt
Fourth, seeing that the lot was depressed and him to exaggerate the value of his property does
there was a drainage lot abutting it, she cannot so at his peril, and must take the consequences of
say she was not forewarned of the possibility that his own imprudence.
the place might be flooded. Notwithstanding the
We have also held that "one who contracts for the
obvious condition of the property, she still decided
purchase of real estate in reliance on the
to buy it.
representations and statements of the vendor as
Fifth, there is no evidence except her own to its character and value, but after he has visited
testimony that two previous owners of the property and examined it for himself and has had the
had vacated it because of the floods and that means and opportunity of verifying such
Francisco assured her that the house would not statements, cannot avoid the contract on the
be flooded again. The supposed previous owners ground that they were false and exaggerated."[13]
were not presented as witnesses and neither were
The Court must also reject the petitioner's
the neighbors. Francisco himself denied having
contention that the lot on which the house stands
made the alleged assurance.
CONTRACTS FINALS ACJUCO 137

is a portion of a creek and therefore outside the payments. If she suspended her payments, it was
commerce of man as part of the public domain. because she felt she was justified in doing so in
view of the defects she found in the property. It is
The said property is covered by TCT No. 102167
noteworthy that it was she who sued the private
of the Registry of Deeds of Quezon City. Under
respondent, not the other way round, and that it
the Land Registration Act, title to the property
was she who argued that the seller was not
covered by a Torrens certificate becomes
entitled to the additional installments because of
indefeasible after the expiration of one veer from
his violation of the contract. If she asked for the
the entry of the decree of registration. Such
annulment of the contract and the refund to her of
decree of registration is incontrovertible and is
the payments she had already made, plus
binding on all persons whether or not they were
damages, it was because she felt she had the right
notified of or participated in the registration
to do so.
proceedings.
Given such circumstances, the Court feels and so
If such title is to be challenged, it may not be done
holds that the above-quoted stipulation should not
collaterally, as in the present case, because the
be strictly enforced, to justify the rescission of the
judicial action required is a direct attack. Section
contract. To make her forfeit the payments
48 of the Property Registration Decree expressly
already made by her and at the same time return
provides that a certificate of title cannot be subject
the property to the private respondents for
to collateral attack and can be altered, modified or
standing up to what she considered her right
canceled only in a direct proceeding in
would, in our view, be unfair and
accordance with law. This was the same rule
unconscionable. Justice demands that we
under Act 496.[14]Moreover, the right of reversion
moderate the harsh effects of the
belongs to the State and may be invoked on its
stipulation. Accordingly, in the exercise of our
behalf only by the Solicitor General.[15]
equity jurisdiction, we hereby rule that the
It is true, as the private respondents have insisted Contract of Conditional Sale shall be maintained
and the respondent court has found, that the between the parties except that the petitioner shall
Contract of Conditional Sale contains the following not return the house to the private
condition: respondents. However, she will have to pay them
the balance of the purchase price in the sum of
(d) That should the SECOND PARTY fail to make P52,500.00,* with 12% annual interest from July
any of the payments referred to in the aforesaid 1, 1972, until full payment.
paragraphs 2(a) and (b), of thiscontract of
conditional sale, shall be considered automatically Obviously, rejection of the petitioner's claim for
rescinded and cancelled without the necessity of moral and exemplary damages must also be
notice to the SECOND PARTY, or of any judicial sustained.
declaration to that effect, and any and
What we see here is a bad bargain, not an illegal
all sums paid by the SECOND PARTY shall be
transaction vitiated by fraud. While we may
considered rents and liquidated damages for the
commiserate with the petitioner for a purchase
breach of this contract, and the SECOND PARTY
that has proved unwise, we can only echo what
shall forthwith vacate the foresaid property
Mr. Justice Moreland observed in Vales v.
peacefully.
Villa,[16] thus:
Nevertheless, we cannot say that the petitioner
x x x Courts cannot follow one every step of his life
was, strictly speaking, in default in the payment of
and extricate him from bad bargains, protect him
the remaining amortizations in the sense
from unwise investments, relieve him from one-
contemplated in that stipulation. She was not
sided contracts, or annul the effects of foolish
simply unable to make the required
acts. Courts cannot constitute themselves
payments. The fact is she refused to make such
guardians of persons who are not legally
CONTRACTS FINALS ACJUCO 138

incompetent. Courts operate not because one


person has been defeated or overcome by
another, but because he has been defeated or
overcome illegally. Men may do foolish things,
make ridiculous contracts, use miserable
judgment, and lose money by them - indeed, all
they have in the world; but not for that alone can
the law intervene and restore. There must be, in
addition, a violation of law, the commission of
what the law knows as an actionable
wrong, before the courts are authorized to lay hold
of the situation and remedy it.
WHEREFORE, the appealed decision is
AFFIRMED as above modified, with no
pronouncement as to costs. It is so ordered.
CONTRACTS FINALS ACJUCO 139

defendant was made under oath, and contained a


general denial of all the allegations of the
complaint. The answer also contained the
allegation, asserted by way of special defense,
that the promissory note in question was obtained
from the defendant by means of certain false and
fraudulent representations therein specified. The
note was admitted in evidence by the court; and
error is here assigned upon this action, on the
ground that the genuineness and due execution of
MERE EXPRESSION OF OPINION
the note was not proved. There is nothing in this
G.R. No. L-11513 December 4, 1917 contention for several reasons. In the first place a
general denial of a complaint does not raise a
LAMBERTO SONGCO, plaintiff-appellee, question as to the genuineness or due execution
vs. of a written instrument. Under section 103 of the
GEORGE C. SELLNER, defendant-appellant. Code of Civil Procedure it is necessary that the
Thos. D. Aitken for appellant. genuineness and due execution of the instrument
Perfecto Gabriel for appellee. shall be specifically denied before an issue is
raised up on this point. This means that the
STREET, J.: defendant must declare under oath that he did not
In December, 1915, the defendant, George C. sign the document or that it is otherwise false or
Sellner, was the owner of a farm at Floridablanca, fabricated. Neither does the statement of the
Pampanga, which was contiguous to a farm answer to the effect that the instrument was
owned by the plaintiff Lamberto Songco. Both procured by fraudulent representation raise any
properties had a considerable quantity of the issue as to its genuineness or due execution. On
sugar cane ready to be cut. At Dinalupijan, a short the contrary such a plea is an admission both of
distance away, was located a sugar central, and the genuineness and due execution thereof, since
Sellner desired to mill his cane at this central. One it seeks to avoid the instrument upon a ground not
obstacle was that the owners of the central were affecting either. Furthermore, in this particular
not sure they could mill his cane and would not case the fourth paragraph of the answer expressly
promise to take it. Sellner, however, learning that admits the execution of the instrument by the
the central was going to mill Songco's cane, defendant.
conceived the idea of buying the cane of the latter, The principal defense here urged relates to a false
expecting to run his own cane in that same time representation which, it is claimed, was made by
the other should be milled. Another motive which the plaintiff Songco with respect to the quantity of
evidently operated upon the mind of Sellner was uncut cane standing in the fields at the time the
the desire to get a right of way over Songco's land defendant Sellner became the purchaser thereof.
for converting his own sugar to the central. Upon this point it is proved that Songco estimated
Accordingly he bought Songco's cane as it stood that this cane would produce 3,000 piculs of the
in the fields for the agreed sum of P12,000 and sugar and that Sellner bought the crop believing
executed therefor three promissory notes of this estimate to be substantially correct. As the
P4,000 each. Two of these notes were paid; and crop turned out it produced 2,017 piculs, gross,
the present action was instituted to recover upon and after the toll for milling was deducted the net
the third. From a judgement rendered in favor of left to Sellner was very much less. It appears that
the plaintiff, the defendant has appealed. in the course of negotiations Sellner requested
The note, upon which the action was brought, was Songco to guarantee the quantity which the latter
exhibited with the complaint. The answer of the claimed to be in fields but he would not do so. He,
CONTRACTS FINALS ACJUCO 140

however, repeated that he was sure the fields The law allows considerable latitude to seller's
contained the quantity estimated by him. Some statements, or dealer's talk; and experience
evidence was introduced tending to show that the teaches that it is exceedingly risky to accept it at
disparity between Songco's estimate and the its face value. The refusal of the seller to warrant
quantity actually obtained would have been more his estimate should have admonished the
expeditiously conducted. We do not think there is purchaser that that estimate was put forth as a
much in this; and even making allowance for mere opinion; and we will not now hold the seller
weight unnecessary lost, the harvest fell far short to a liability equal to that which would have been
of the amount estimated by Songco. We think it is created by a warranty, if one had been given.
fairly shown by the evidence that Songco knew at
Assertions concerning the property which is the
the time he made the representation in question
subject of a contract of sale, or in regard to its
that he was greatly exaggerating the probable
qualities and characteristics, are the usual and
produce of his fields, and it is impossible to believe
ordinary means used by sellers to obtain a high
that his estimate honestly reflected his true
price and are always understood as affording to
opinion. He knew what these same fields had
buyers no ground for omitting to make inquiries. A
been producing over a long period of years; and
man who relies upon such an affirmation made by
he knew that, judging from the customary yield,
a person whose interest might so readily prompt
the harvest of this year should fall far below the
him to exaggerate the value of his property does
amount stated.
so at his peril, and must take the consequences of
Notwithstanding the fact that Songco's statement his own imprudence. The principles enunciated
as to the probable output of his crop was above are fully supported by the weight of the
disingenuous and uncandid, we nevertheless judicial authority. In a case where the owners of a
think that Sellner was bound and that he must pay certain logs represented to their vendee that the
the price stipulated. The representation in logs would produce a greater per cent of superior
question can only be considered matter of opinion lumber than was actually realized, but refused to
as the cane was still standing in the field, and the warrant their quality and required the vendee to
quantity of the sugar it would produce could not be examine for himself before making the contract, it
known with certainty until it should be harvested was held that the vendee could not avoid the
and milled. Undoubtedly Songco had better contract. (Fauntleroy vs. Wilcox, 80 Ill., 477.) In
experience and better information on which to Williamson vs. Holt (147 N. C., 515; 17 L. R. A. [N.
form an opinion on this question than Sellner. S.], 240), it appeared that the defendant had
Nevertheless the latter could judge with his own bought an ice plant with the knowledge that its
eyes as to the character of the cane, and it is operation had been abandoned because the
shown that he measured the fields and output did not equal its capacity. He had full
ascertained that they contained 96 1/2 hectares. opportunity to investigate its condition. It was held
that he could not avoid paying the purchase price
It is of course elementary that a misinterpretation
because the vendor stated that, with some
upon a mere matter of opinion is not an actionable
repairs, it would turn out about a certain amount
deceit, nor is it a sufficient ground for avoiding a
per day. In Poland vs. Brownell (131 Mass., 138),
contract as fraudulent. We are aware that
where a man who bought a stock of goods had
statements may be found in the books to the effect
ample opportunity to examine and investigate, it
that there is a difference between giving an honest
was held that he could not rely on the seller's
opinion and making a false representation as to
misrepresentations as to the value of the goods or
what one's real opinion is. We do not think,
the extent of the business. It would have been
however, that this is a case where any such
different if the seller had fraudulently induced him
distinction should be drawn.
to forbear inquiries or examination which he would
otherwise have made.
CONTRACTS FINALS ACJUCO 141

It is not every false representation relating to the him to sell a large quantity of sugar at a price much
subject matter of a contract which will render it lower than he would have received if he could
void. It must be as to matters of fact substantially have carried it a few weeks longer. We think the
affecting the buyer's interest, not as to matters of court below committed no error in refusing to
opinion, judgment, probability, or expectation. award damages upon this grounds, as such
(Long vs. Woodman, 58 Me., 52; Hazard vs. Irwin, damages were remote and speculative. It could
18 Pick. [Mass.], 95; Gordon vs. Parmelee, 2 Allen hardly be foreseen as a probable consequence of
[Mass.],212; Williamson vs. McFadden, 23 Fla., the suing out of this attachment that the hands of
143, 11 Am. St. Rep., 345.) When the purchaser the creditors would come down upon their
undertakes to make an investigation of his own, unfortunate client with such disastrous results;
and the seller does nothing to prevent this and the plaintiff certainly cannot be held
investigation from being as full as he chooses to accountable for the complications of the
make it, the purchaser cannot afterwards allege defendant's affairs which made possible the
that the seller made misrepresentations. (National damage which in fact resulted. The court below
Cash Register Co. vs. Townsend, 137 N. C., 652, also refused to award punitive damages claimed
70 L. R. A., 349; Williamson vs. Holt, 147 N. C., by the plaintiff on the ground that the attachment
515.) 1awphi1.net was maliciously sued out. The action of the court
in this respect will not be here disturbed.
We are aware that where one party to a contract,
having special or expert knowledge, takes From what has been said it follows that the
advantage of the ignorance of another to impose judgment of the court below must be affirmed, with
upon him, the false representation may afford costs against the appellant. So ordered.
ground for relief, though otherwise the injured
party would be bound. But we do not think that the
fact that Songco was an experienced farmer,
while Sellner was, as he claims, a mere novice in
the business, brings this case within that
exception.
An incident of this action was that the plaintiffs
sued out an attachment against the defendant, at
the time of the institution of the suit, upon the
ground that he was disposing of his property in
fraud of his creditors. This charge was completely
refuted by proof showing that the defendant is a
man of large resources and had not attempted to
convey away his property as alleged. The court
below therefore found that this attachment had
been wrongfully sued out, and awarded damages
to the defendant equivalent to the amount actually
paid out by him in procuring the dissolution of the
attachment. No appeal was taken from this action
of the court by the plaintiff; but the defendant
assigns error to the action of the court in refusing
to award to him further damages for the injury
done to his credit. In this connection he shows that
one of his creditors, being appraised of the fact
that the defendant had been made the subject of
an attachment, withheld further credit and forced
CONTRACTS FINALS ACJUCO 142

judgment, which the appellate court affirmed, in


the terms above described.
There can be no question about the responsibility
of Mrs. Rosario L. Braganza because the minority
of her consigners note release her from liability;
since it is a personal defense of the minors.
However, such defense will benefit her to the
MISREPRESENTATION extent of the shares for which such minors may be
responsible, (Art. 1148, Civil Code). It is not
G.R. No. L-12471 April 13, 1959 denied that at the time of signing Exhibit A,
Guillermo and Rodolfo Braganza were minors-16
ROSARIO L. DE BRAGANZA, ET
and 18 respectively. However, the Court of
AL., petitioners,
Appeals found them liable pursuant to the
vs.
following reasoning:
FERNANDO F. DE VILLA ABRILLE, respondent.
. . . . These two appellants did not make it appears
Oscar M. Herrera for petitioners.
in the promissory note that they were not yet of
R. P. Sarandi and F. Valdez Anama for
legal age. If they were really to their creditor, they
respondents.
should have appraised him on their incapacity,
BENGZON, J.: and if the former, in spite of the information relative
to their age, parted with his money, then he should
Rosario L. de Braganza and her sons Rodolfo and be contended with the consequence of his act.
Guillermo petition for review of the Court of But, that was not the case. Perhaps defendants in
Appeal's decision whereby they were required their desire to acquire much needed money, they
solidarily to pay Fernando F. de Villa Abrille the readily and willingly signed the promissory note,
sum of P10,000 plus 2 % interest from October 30, without disclosing the legal impediment with
1944. respect to Guillermo and Rodolfo. When minor,
The above petitioners, it appears, received from like in the instant case, pretended to be of legal
Villa Abrille, as a loan, on October 30, 1944 age, in fact they were not, they will not later on be
P70,000 in Japanese war notes and in permitted to excuse themselves from the
consideration thereof, promised in writing (Exhibit fulfillment of the obligation contracted by them or
A) to pay him P10,000 "in legal currency of the P. to have it annulled. (Mercado, et al. vs. Espiritu,
I. two years after the cessation of the present 37 Phil., 215.) [Emphasis Ours.]
hostilities or as soon as International Exchange We cannot agree to above conclusion. From the
has been established in the Philippines", plus 2 % minors' failure to disclose their minority in the
per annum. same promissory note they signed, it does not
Because payment had not been made, Villa follow as a legal proposition, that they will not be
Abrille sued them in March 1949. permitted thereafter to assert it. They had no
juridical duty to disclose their inability. In fact,
In their answer before the Manila court of first according to Corpuz Juris Secundum, 43 p. 206;
Instance, defendants claimed to have received
P40,000 only — instead of P70,000 as plaintiff . . . . Some authorities consider that a false
asserted. They also averred that Guillermo and representation as to age including a contract as
Rodolfo were minors when they signed the part of the contract and accordingly hold that it
promissory note Exhibit A. After hearing the cannot be the basis of an action in tort. Other
parties and their evidence, said court rendered authorities hold that such misrepresentation may
be the basis of such an action, on the theory that
such misrepresentation is not a part of, and does
CONTRACTS FINALS ACJUCO 143

not grow out of, the contract, or that the October 1947, he was 21 years old, and in
enforcement of liability for such misrepresentation October 1951, he was 25 years old. So that when
as tort does not constitute an indirect of enforcing this defense was interposed in June 1951, four
liability on the contract. In order to hold infant years had not yet completely elapsed from
liable, however, the fraud must be actual and not October 1947.
constructure. It has been held that his mere
Furthermore, there is reason to doubt the
silence when making a contract as to age does not
pertinency of the 4-years period fixed by Article
constitute a fraud which can be made the basis of
1301 of the Civil Code where minority is set up
an action of decit. (Emphasis Ours.)
only as a defense to an action, without the minors
The fraud of which an infant may be held liable to asking for any positive relief from the contract. For
one who contracts with him in the belief that he is one thing, they have not filed in this case an
of full age must be actual not constructive, and action for annulment.2 They merely interposed an
mere failure of the infant to disclose his age is not excuse from liability.
sufficient. (27 American Jurisprudence, p. 819.)
Upon the other hand, these minors may not be
The Mecado case1 cited in the decision under entirely absolved from monetary responsibility. In
review is different because the document signed accordance with the provisions of Civil Code, even
therein by the minor specifically stated he was of if their written contact is unenforceable because of
age; here Exhibit A contained no such statement. non-age, they shall make restitution to the extent
In other words, in the Mercado case, the minor that they have profited by the money they
was guilty of active misrepresentation; whereas in received. (Art. 1340) There is testimony that the
this case, if the minors were guilty at all, which we funds delivered to them by Villa Abrille were used
doubt it is of passive (or constructive) for their support during the Japanese occupation.
misrepresentation. Indeed, there is a growing Such being the case, it is but fair to hold that they
sentiment in favor of limiting the scope of the had profited to the extent of the value of such
application of the Mercado ruling, what with the money, which value has been authoritatively
consideration that the very minority which established in the so-called Ballantine Schedule:
incapacitated from contracting should likewise in October 1944, P40.00 Japanese notes were
exempt them from the results of equivalent to P1 of current Philippine money.
misrepresentation.
Wherefore, as the share of these minors was 2/3
We hold, on this point, that being minors, Rodolfo of P70,000 of P46,666.66, they should now return
and Guillermo Braganza could not be legally P1,166.67.3Their promise to pay P10,000 in
bound by their signatures in Exhibit A. Philippine currency, (Exhibit A) can not be
enforced, as already stated, since they were
It is argued, nevertheless, by respondent that
minors incapable of binding themselves. Their
inasmuch as this defense was interposed only in
liability, to repeat, is presently declared without
1951, and inasmuch as Rodolfo reached the age
regard of said Exhibit A, but solely in pursuance of
of majority in 1947, it was too late to invoke it
Article 1304 of the Civil Code.
because more than 4 years had elapsed after he
had become emancipated upon reaching the age Accordingly, the appealed decision should be
of majority. The provisions of Article 1301 of the modified in the sense that Rosario Braganza shall
Civil Code are quoted to the effect that "an action pay 1/3 of P10,000 i.e., P3,333.334 plus 2%
to annul a contract by reason of majority must be interest from October 1944; and Rodolfo and
filed within 4 years" after the minor has reached Guillermo Braganza shall pay jointly5 to the same
majority age. The parties do not specify the exact creditor the total amount of P1,166.67 plus 6%
date of Rodolfo's birth. It is undenied, however, interest beginning March 7, 1949, when the
that in October 1944, he was 18 years old. On the complaint was filed. No costs in this instance.
basis of such datum, it should be held that in
CONTRACTS FINALS ACJUCO 144