ARTICLE 1157

G.R. No. L-3489 September 7, 1907

VICENTE NAVALES, plaintiff-appellee,
vs.
EULOGIA RIAS, ET AL., defendants-appellants.
Pantaleon E. del Rosario for appellants.
F. Sevilla y Macam for appellee.
TORRES, J.:
On the 18th of November, 1904, Vicente Navales filed a complaint with the Court of First Instance of Cebu against
Eulogia Rias and Maximo Requiroso, claiming that the latter should be sentenced to pay him the sum of 1,200 pesos,
Philippine currency, as damages, together with costs and such other expenses as the court might consider just and
equitable. To this end he alleged that the said defendants, without due cause, ordered the pulling down and
destruction of his house erected in Daanbuangan, town of Naga, Island of Cebu, which was 6 meters in height with an
area of 8.70 square meters, built of wood with a nipa roof, and worth 1,000 pesos, which amount he expended in its
construction. He further alleged that the destruction took place in the month of April, 1904, and that, notwithstanding
his efforts, he had not obtained any reimbursement from the defendants, and that by reason of their refusal he had
been prejudiced to the extent of 200 pesos, Philippine currency.
The defendant, in answer to the foregoing complaint, denied all and each one of the allegations therein contained, and
asked that judgment be entered dismissing the complaint with costs against the plaintiff.
After considering the proofs submitted by both parties and the proceedings upon the trial, the judge, on the 17th of
January, 1906, rendered judgment declaring that the decision entered by the justice of the peace of Naga, and the
order given by virtue thereof were illegal, as well as the action of the deputy sheriff Luciano Bacayo, that the
defendant were thereby liable for the damages caused to the plaintiff, which amounted to 500 pesos, and that the
defendants were sentenced to pay the said sum to the plaintiff, with costs. The defendant upon being informed of this
decision, asked that it be set aside, and also moved for a new trial on the ground that the decision was not in
accordance with the weight of the evidence. The motion was denied, to which exception was taken, and at the request
of the interested party, the corresponding bill of exceptions was limited.
The aim of this litigation, therefore, is to obtain payment through a judicial decision, of the damages said to have been
caused by the execution of a judgment rendered by the justice of the peace, in an action for ejectment.
It is undeniable that, in order to remove from the land of Eulogia Rias, situated within the jurisdiction of the town of
Naga, the house which Vicente Navales had constructed thereon, by virtue of the decision of the justice in the action
instituted by the said Eulogia Rias against the owner of the house , Vicente Navales, the deputy sheriff who carried the
judgment into execution was obliged to destroy the said house and removed it from the land, according to the usual
procedure in the action for ejectment.
In the order of execution issued to the deputy sheriff, the directive portion of the judgment of the justice of the peace
was inserted, and it contained the essential statement that the said judgment, by reason of its not having been
appealed from, had become final, and from the contents of the same may be inferred that there had been an action
for ejectment between the above-named parties, and that there was no reason why it should not be enforced when it
had already become final and acquired the nature of res adjudicata.
Section 72 of the Code of Civil Procedure reads:
Execution. — If no appeal from a judgment of a justice of the peace shall be perfected as herein provided, the
justice of the peace shall, at the request of the successful party, issue execution for the enforcement of the
judgment, and the expiration of the time limited by law for the perfection of an appeal.
Assuming that the order for execution of final judgment was issued in accordance with the law, and in view of the fact
that it has not been alleged nor proven that the sheriff when complying with the same had committed trespass or
exceeded his functions, it must be presumed according to section 334 (14) of the said Code of Procedure, that the
official duty was regularly performed. Therefore, it is not possible to impute liability to the plaintiff who obtained the
judgment and the execution thereof, when the same was not disputed nor alleged to be null or illegal, and much less
to compel the payment of damages to the person who was defeated in the action and sentenced to be ejected from
the land which he improperly occupied with his house.
No proof has been submitted that a contract had been entered into between the plaintiff and the defendants, or that
the latter had committed illegal acts or omissions or incurred in any kind of fault or negligence, from any of which an
obligation might have arisen on the part of the defendants to indemnify the plaintiff. For this reason, the claim for
indemnity, on account of acts performed by the sheriff while enforcing a judgment, can not under any consideration be
sustained. (Art. 1089, Civil Code.)
The illegality of the judgment of the justice of the peace, that of the writ of execution thereunder, or of the acts
performed by the sheriff for the enforcement of the judgment, has not been shown. Therefore, for the reasons
hereinbefore set forth, the judgment appealed from is hereby reversed, and the complaint for damages filed by
Vicente Navales against Eulogia Rias and Maximo Requiroso is dismissed without special ruling as to costs. So ordered.
Arellano, C.J., Johnson, Willard, and Tracey, JJ., concur.

G.R. No. L-46179 January 31, 1978

CANDIDA VIRATA, TOMAS VIRATA, MANOLITO VIRATA, EDERLINDA VIRATA, NAPOLEON VIRATA, ARACELY
VIRATA, ZENAIDA VIRATA, LUZMINDA VIRATA, PACITA VIRATA, and EVANGELINA VIRATA, petitioners,
vs.
VICTORIO OCHOA, MAXIMO BORILLA and THE COURT OF FIRST INSTANCE OF CAVITE, 7th JUDICIAL
DISTRICT, BRANCH V, stationed at BACOOR, CAVITE, respondents.
Remulla, Estrella & Associates for petitioners
Exequil C. Masangkay for respondents.

FERNANDEZ, J.:
This is an appeal by certiorari, from the order of the Court of First Instance of Cavite, Branch V, in Civil Case No. B-134
granting the motion of the defendants to dismiss the complaint on the ground that there is another action pending
between the same parties for the same cause. 1
The record shows that on September 24, 1975 one Arsenio Virata died as a result of having been bumped while
walking along Taft Avenue, Pasay City by a passenger jeepney driven by Maximo Borilla and registered in the name Of
Victoria Ochoa; that Borilla is the employer of Ochoa; that for the death of Arsenio Virata, a action for homicide
through reckless imprudence was instituted on September 25, 1975 against Maximo Borilla in the Court of First
Instance of Rizal at Pasay City, docketed as C Case No. 3162-P of said court; that at the hearing of the said criminal
case on December 12, 1975, Atty. Julio Francisco, the private prosecutor, made a reservation to file a separate civil
action for damages against the driver on his criminal liability; that on February 19, 1976 Atty. Julio Francisco filed a
motion in said c case to withdraw the reservation to file a separate civil action; that thereafter, the private prosecutor
actively participated in the trial and presented evidence on the damages; that on June 29, 1976 the heirs of Arsenio
Virata again reserved their right to institute a separate civil action; that on July 19, 1977 the heirs of Arsenio Virata,
petitioners herein, commenced Civil No. B-134 in the Court of First Instance of Cavite at Bacoor, Branch V, for
damages based on quasi-delict against the driver Maximo Borilla and the registered owner of the jeepney, Victorio
Ochoa; that on August 13, 1976 the defendants, private respondents filed a motion to dismiss on the ground that there
is another action, Criminal Case No. 3162-P, pending between the same parties for the same cause; that on September
8, 1976 the Court of First Instance of Rizal at Pasay City a decision in Criminal Case No. 3612-P acquitting the accused
Maximo Borilla on the ground that he caused an injury by name accident; and that on January 31, 1977, the Court of
First Instance of Cavite at Bacoor granted the motion to Civil Case No. B-134 for damages. 2
The principal issue is weather or not the of the Arsenio Virata, can prosecute an action for the damages based on
quasi-delict against Maximo Borilla and Victoria Ochoa, driver and owner, respectively on the passenger jeepney that
bumped Arsenio Virata.
It is settled that in negligence cases the aggrieved parties may choose between an action under the Revised Penal
Code or of quasi-delict under Article 2176 of the Civil Code of the Philippines. What is prohibited by Article 2177 of the
Civil Code of the Philippines is to recover twice for the same negligent act.
The Supreme Court has held that:
According to the Code Commission: 'The foregoing provision (Article 2177) though at first sight
startling, is not so novel or extraordinary when we consider the exact nature of criminal and civil
negligence. The former is a violation of the criminal law, while the latter is a 'culpa aquiliana' or quasi-
delict, of ancient origin, having always had its own foundation and individuality, separate from criminal
negligence. Such distinction between criminal negligence and 'culpa extra-contractual' or quasi-delito
has been sustained by decision of the Supreme Court of Spain and maintained as clear, sound and
perfectly tenable by Maura, an outstanding Spanish jurist. Therefore, under the proposed Article 2177,
acquittal from an accusation of criminal negligence, whether on reasonable doubt or not, shall not be a
bar to a subsequent civil action, not for civil liability arising from criminal negligence, but for damages
due to a quasi-delict or 'culpa aquiliana'. But said article forestalls a double recovery. (Report of the
Code Commission, p. 162.)
Although, again, this Article 2177 does seem to literally refer to only acts of negligence, the same
argument of Justice Bocobo about construction that upholds 'the spirit that given life' rather than that
which is literal that killeth the intent of the lawmaker should be observed in applying the same. And
considering that the preliminary chapter on human relations of the new Civil Code definitely
establishes the separability and independence of liability in a civil action for acts criminal in character
(under Articles 29 to 32) from the civil responsibility arising from crime fixed by Article 100 of the
Penal Code, and, in a sense, the Rules of Court, under Sections 2 and 3(c), Rule 111, contemplate also
the same separability, it is 'more congruent' with the spirit of law, equity and justice, and more in
harmony with modern progress', to borrow the felicitous language in Rakes vs. Atlantic Gulf and Pacific
Co., 7 Phil. to 359, to hod as We do hold, that Article 2176, where it refers to 'fault covers not only acts
'not punishable by law' but also criminal in character, whether intentional and voluntary or
consequently, a separate civil action lies against the in a criminal act, whether or not he is criminally
prosecuted and found guilty and acquitted, provided that the offended party is not allowed, if he is
actually charged also criminally, to recover damages on both scores, and would be entitled in such
eventuality only to the bigger award of the, two assuming the awards made in the two cases vary. In
other words the extinction of civil liability refereed to in Par. (c) of Section 13, Rule 111, refers
exclusively to civil liability founded on Article 100 of the Revised Penal Code, whereas the civil liability
for the same act considered as a quasi-delict only and not as a crime is not extinguished even by a
declaration in the criminal case that the criminal act charged has not happened or has not been
committed by the accused. Brief stated, We hold, in reitration of Garcia, that culpa aquilina includes
voluntary and negligent acts which may be punishable by law.3
The petitioners are not seeking to recover twice for the same negligent act. Before Criminal Case No. 3162-P was
decided, they manifested in said criminal case that they were filing a separate civil action for damages against the
owner and driver of the passenger jeepney based on quasi-delict. The acquittal of the driver, Maximo Borilla, of the
crime charged in Criminal Case No. 3162-P is not a bar to the prosecution of Civil Case No. B-134 for damages based
on quasi-delict The source of the obligation sought to be enforced in Civil Case No. B-134 is quasi-delict, not an act or
omission punishable by law. Under Article 1157 of the Civil Code of the Philippines, quasi-delict and an act or omission
punishable by law are two different sources of obligation.
Moreover, for the petitioners to prevail in the action for damages, Civil Case No. B-134, they have only to establish
their cause of action by preponderance of the evidence.
WHEREFORE, the order of dismissal appealed from is hereby set aside and Civil Case No. B-134 is reinstated and
remanded to the lower court for further proceedings, with costs against the private respondents.
SO ORDERED.
Teehankee (Chairman), Makasiar, Muñoz Palma and Guerrero, JJ., concur.
HOSPICIO DE SAN JOSE G.R. No. 140847

DE BARILI, CEBU CITY, '

Petitioner, Present:

PUNO, J.,

- versus' - ' Chairman,

AUSTRIA-MARTINEZ,

CALLEJO, SR.,

TINGA, and

CHICO-NAZARIO, JJ.

DEPARTMENT OF AGRARIAN

REFORM,

Respondent.Promulgated:

September 23, 2005

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

DECISION

TINGA, J.:

At the core of this case is an obscure old special law. The issue is whether a provision in the law prohibiting the sale of
the properties donated to the charitable organization that was incorporated by the same law bars the implementation
of agrarian reform laws as regards said properties.

Petitioner Hospicio de San Jose de Barili (Hospicio') is a charitable organization created as a body corporate in 1925 by
Act No. 3239. The law was enacted in order to formally accept the offer made by Pedro Cui and Benigna Cui to
establish a home for the care and support, free of charge, of indigent invalids and incapacitated and helpless persons.
[1] The Hospicio was to be maintained with the revenues of the personal and real properties to be endowed by the
Cuis and other donors.[2]

Section 4 of Act No. 3239 provides that '[t]he personal and real property donated to the [Hospicio] by its founders or
by other persons shall not be sold under any consideration.[3]

On 10 October 1987, the Department of Agrarian Reform Regional Office (DARRO) Region VII issued an order ordaining
that two parcels of land owned by the Hospicio be placed under Operation Land Transfer in favor of twenty-two (22)
tillers thereof as beneficiaries. Presidential Decree (P.D.) No. 27, a land reform law, was cited as legal basis for the
order. The Hospicio filed a motion for the reconsideration of the order with the Department of Agrarian Reform (DAR)
Secretary, citing the aforementioned Section 4 of Act No. 3239. It argued that Act No. 3239 is a special law, which
could not have been repealed by P.D. No. 27, a general law, or by the latter's general repealing clause.
The DAR Secretary rejected the motion for reconsideration in an Order dated 30 March 1997. Therein, the DAR
Secretary held that P.D. No. 27 was a special law, as it applied only to particular individuals in the State, specifically
the tenants of rice and corn lands. Moreover, P.D. No. 27, which covered all rice and corn lands, provides no
exemptions based on the manner of acquisition of the land by the landowner.[4]

The Order of the DAR Secretary was assailed in a Petition for Certiorari filed with the Court of Appeals. In a Decision[5]
dated 9 July 1999, the Court of Appeals Special Eleventh Division affirmed the DAR Secretary's issuance. It sustained
the position of the Office of the Solicitor General (OSG) position that Section 4 of Act No. 3239 was expressly repealed
not only by P.D. No. 27, but also by Republic Act No. 6657, otherwise known as the Comprehensive Agrarian Reform
Law of 1988, both laws being explicit in mandating the distribution of agricultural lands to qualified beneficiaries. The
Court of Appeals further noted that the subject lands did not fall among the exemptions provided under Section 10 of
Rep. Act No. 6657. Finally, the appellate court brought into play the aims of land reform, affirming as it did 'the need
to distribute and create an economic equilibrium among the inhabitants of this land, most especially those with less
privilege in life, our peasant farmer.[6]

Unsatisfied with the Court of Appeals' Decision, the Hospicio lodged the present Petition for Review. The Hospicio
alleges' that P.D. No. 27, the CARL, and Executive Order No. 407[7] all violate Section 10, Article III of the Constitution,
which provides that no law impairing the obligation of contracts shall be passed. More sedately, the Hospicio also
argues that Act No. 3239 was not repealed either by P.D. No. 27 or Rep. Act No. 6657 and that the forced disposition of
the Hospicio's landholdings would incapacitate the discharge of its charitable functions, which equally promote social
justice and the upliftment of the lives of the less fortunate.

On the other hand, the OSG, representing respondent DAR, bluntly replies that Act No. 3239 was repealed by P.D. No.
27 and Rep. Act No. 6657, which do not exempt lands owned by eleemosynary or charitable institutions from the
coverage of those agrarian reform laws.

A brief recapitulation of the relevant laws is in order.

P.D. No. 27, "Decreeing the Emancipation of Tenants from the Bondage of the Soil, Transferring to Them Ownership of
the Land they Till, and Providing the Instrument and Mechanism Therefor, has once been touted as perhaps 'a radical
solution in its pristine sense, one that goes at the root [of the problem of land tenancy].[8] Its constitutionality was
upheld in De Chavez v. Zobel.[9] The law generally 'ordains the emancipation of tenants and confers on them
ownership of the lands they till.[10] The following provisions of P.D. No. 27 have concretized this policy:

NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the powers vested in me by the
Constitution as Commander-in-Chief of all the Armed Forces of the Philippines, and pursuant to Proclamation No. 1081,
dated September 21, 1972, and General Order No. 1 dated September 22, 1972, as amended do hereby decree and
order the emancipation of all tenant farmers as of this day, October 21, 1972;
This shall apply to tenant farmers of private agricultural lands[[11]] primarily devoted to rice and corn under a system
of sharecrop or lease-tenancy, whether classified as landed estate or not;

The tenant farmer, whether in land classified as landed estate or not, shall be deemed owner of a portion constituting
a family-size farm of five (5) hectares if not irrigated and three (3) hectares if irrigated;

In all cases, the landowner may retain an area of not more than seven (7) hectares if such landowner is cultivating
such area or will now cultivate it;

The CARL was not yet in effect when the DARRO and the DAR issued their respective orders. Said law vests P.D. No. 27
with suppletory effect insofar as the earlier law does not run inconsistent with the later law.[12] Under Section 4 of the
CARL, placed under coverage are all public and private agricultural lands regardless of tenurial arrangement and
commodity produced, subject to the exempted lands listed in Section 10 thereof.

We agree with the Court of Appeals that neither P.D. No. 27 nor the CARL exempts the lands of the Hospicio or other
charitable institutions from the coverage of agrarian reform. Ultimately, the result arrived at in the assailed issuances
should be affirmed. Nonetheless, both the DAR Secretary and the appellate court failed to appreciate what to this
Court is indeed the decisive legal dimension of the case.

Section 4 of Act No. 3239 prohibits the sale 'under any consideration of the lands donated to the Hospicio. But the land
transfers mandated under P.D. No. 27 cannot be considered a conventional sale under our civil laws.

Generally, sale arises out of a contractual obligation. Thus, it must meet the first essential requisite of every contract
that is the presence of consent.[13] Consent implies an act of volition in entering into the agreement.[14] The absence
or vitiation of consent renders the sale either void or voidable.

In this case, the deprivation of the Hospicio's property did not arise as a consequence of the Hospicio's consent to the
transfer. There was no meeting of minds between the Hospicio, on one hand, and the DAR or the tenants, on the other,
on the properties and the cause which are to constitute the contract[15] that is to serve ultimately as the basis for the
transfer of ownership of the subject lands.[16] Instead, the obligation to transfer arises by compulsion of law,
particularly P.D. No. 27.[17]

Agrarian reform is justified under the State's inherent power of eminent domain that enables it to forcibly acquire
private lands intended for public use upon payment of just compensation to the owner.[18] It has even been
characterized as beyond the traditional exercise of eminent domain, but a revolutionary kind of expropriation. As
expounded in the landmark case of Association of Small Landowners in the Philippines, Inc. v. Secretary of Agrarian
Reform, thus:
. . . . However, we do not deal here with the traditional exercise of the power of eminent domain. This is not an
ordinary expropriation where only a specific property of relatively limited area is sought to be taken by the State from
its owner for a specific and perhaps local purpose. What we deal with here is a revolutionary kind of expropriation.

The expropriation before us affects all private agricultural lands whenever found and of whatever kind as long as they
are in excess of the maximum retention limits allowed their owners. This kind of expropriation is intended for the
benefit not only of a particular community or of a small segment of the population but of the entire Filipino nation,
from all levels of our society, from the impoverished farmer to the land-glutted owner. Its purpose does not cover only
the whole territory of this country but goes beyond in time to the foreseeable future, which it hopes to secure and
edify with the vision and the sacrifice of the present generation of Filipinos. Generations yet to come are as involved in
this program as we are today, although hopefully only as beneficiaries of a richer and more fulfilling life we will
guarantee to them tomorrow through our thoughtfulness today. And, finally, let it not be forgotten that it is no less
than the Constitution itself that has ordained this revolution in the farms, calling for "a just distribution" among the
farmers of lands that have heretofore been the prison of their dreams but can now become the key at least to their
deliverance.[19]

This characterization is warranted whether the expropriation is operative under the CARL or P.D. No. 27, as both laws
are keyed into the same governmental objective. Moreover, under both laws, the landowner is entitled to just
compensation for the properties taken.

The twin process of expropriation of lands under agrarian reform and the payment of just compensation is akin to a
forced sale, which has been aptly described in common law jurisdictions as 'sale made under the process of the court,
and in the mode prescribed by law, and 'which is not the voluntary act of the owner, such as to satisfy a debt, whether
of a mortgage, judgment, tax lien, etc.[20] The term has not been precisely defined in this jurisdiction, but reference
to the phrase itself is made in Articles 223, 232, 237 and 243 of the Civil Code, which uniformly exempt the family
home 'from execution, forced sale, or attachment.[21] Yet a forced sale is clearly different from the sales described
under Book V of the Civil Code which are conventional sales, as it does not arise from the consensual agreement of the
vendor and vendee, but by compulsion of law. Still, since law is recognized as one of the sources of obligation, there
can be no dispute on the efficacy of a forced sale, so long as' it is authorized by law.

The crucial question now arises, whether the sale prohibited under Section 4 of Act No. 3239 includes even a forced
sale. Of course an overly literal reading of the provision would justify such inclusion, but appropriately a more
sophisticated approach to statutory construction is warranted.

No sance is required to discern the intent of Section 4. It ensures that the properties received by the Hospicio are not
alienated for profit by the officers or administrators, in contravention of the charitable purpose for which the Hospicio
was created. To an extent, it makes possible the perpetual operation of the Hospicio, which was empowered by law to
operate for an indefinite period, by assuring the existence of the property on which the Hospicio could operate. We
also do not doubt that whatever fruits of the forcibly retained property would also serve a source of funding for the
operations of the Hospicio.

The salutariness of these objectives is beyond doubt. The interests they seek to protect are present whether the
prohibition encompasses only conventional sales, or even forced sales. Yet to insist that Section 4 likewise prohibits
sales or dispositions by operation of law would necessarily imply that the Hospicio is also beyond the reach of any form
of judicial execution. The charitable nature of the Hospicio does not shield it from susceptibility to civil liability, and an
absolute prohibition on sales, whether forced or conventional, deprives whatever judgment creditors of the Hospicio
from any effective means of enforcing relief.

Was it the intent of the framers of Act No. 3239 to exempt the Hospicio from all judicial processes, even those arising
from civil transactions? We do not think so. The contemporaneous construction of Section 4 indicates that the
prohibition intended by the crafters of the law pertained only to conventional sales, and not forced sales. The law was
promulgated in 1925, or when the Spanish Civil Code of 1889 was in effect. The provisions in the Civil Code referring to
'forced sales' were not derived from the Spanish Civil Code. On the other hand, the consensual nature of the contract
of sale, and of
contracts in general, is recognized under the Spanish Civil Code. Under Article 1261 of the Spanish Civil Code, there is
no contract unless the consent of the contracting parties exists.[22]

Evidently, the word 'sale, as contemplated by the framers of the law in 1925, pertains to its concept in civil law, with
the requisite of consent being present. It cannot refer to sales or dispositions that arise by operation of law, such as
through judicial execution, or, as in this case, expropriation.

Thus, we can hardly characterize the acquisition of the subject properties from the Hospicio for the benefit of the
tenants as a sale, within the contemplation of Section 4 of Act No. 3239. The transfer arises from compulsion of law,
and not the desire of any parties. Even if the Hospicio had voluntarily offered to surrender its properties to agrarian
reform, the resulting transaction would not be considered as a conventional sale, since the obligation is created not
out of the mandate of the parties, but the will of the law.

The DARRO Order did note that Section 4 of Act No. 3239 is not applicable in this case, since the transfer is
compulsory on the part of the landowner, unlike in

ordinary sale.[23] Regrettably, the DAR Secretary and the Court of Appeals failed to apply that sound principle,
preferring to rely instead on the conclusion that Section 4 was repealed by P.D. No. 27 and the CARL.

Nonetheless, even assuming for the nonce that Section 4 contemplates even forced sales such as those through
expropriation, we would agree with the DAR Secretary and the Court of Appeals that Section 4 is deemed repealed by
P.D. No. 27 and the CARL.

The scope of lands subjected to agrarian reform under these two laws is overwhelming. P.D. No. 27 applies to all
private agricultural lands primarily devoted to rice and corn with tenant farmers under a system of sharecrop or lease-
tenancy,[24] while the CARL is even broader in scope, generally covering all public and private agricultural lands
regardless of tenurial arrangement and commodity produced. Under Section 10 of the CARL, the only exempted lands
are:

Lands actually, directly and exclusively used and found to be necessary for parks, wildlife, forest reserves,
reforestation, fish sanctuaries and breeding grounds, watersheds, and mangroves, national defense, school sites and
campuses including experimental farm stations operated by public or private schools for educational purposes, seeds
and seedlings research and pilot production centers, church sites and convents appurtenant thereto, mosque sites and
Islamic centers appurtenant thereto, communal burial grounds and cemeteries, penal colonies and penal farms
actually worked by the inmates, government and private research and quarantine centers and all lands with eighteen
percent (18%) slope and over, except those already developed . . . .

Arguing against 'too literal an interpretation of Section 10, the Hospicio claims that a serious reading of the provision is
revelatory of the spirit and intent of the exemptions. It argues that there are three categories of exemption as: '(1)
those needed by the nation, such as parks, wildlife and forest reserves, fishponds and for national defense, etc.; (2)
those for educational purposes such as school sites; and (3) for religious and charitable purposes like church sites, etc.
[25] The Hospicio then claims it falls under the third category of 'religious and charitable purposes.[26]

To begin with, the terms 'charitable purposes' and 'charitable organizations' do not appear in Section 10 of the CARL.
For its part, Hospicio unduly assumes that charity is integrally wedded to religiosity, despite the fact that there are
charitable institutions that are avowedly secular in orientation. We disagree that there is a clear intent or spirit to
include properties held by charitable institutions, even those directly utilized for charitable purposes, in the list of
exempted properties under the CARL. Section 10 does not include properties which are generally used for charitable
purposes, such as orphanages, from the exemption. Not even all properties owned by religious institutions are
exempt, save for those places of worship and the convents/Islamic centers appurtenant thereto. Even assuming that
the Hospicio were actually owned and operated by the Catholic Church, it still would not be exempted from the CARL.

It is axiomatic that where a general rule is established by a statute with exceptions, the Court will not curtail nor add
to the latter by implication, and it is a rule that an express exception excludes all others.[27] We cannot simply impute
into a statute an exception which the Congress did not incorporate. Moreover, general welfare legislation such as land
reform laws is to be construed in favor of the promotion of social justice to ensure the well-being and economic
security of the people.[28] Since a broad construction of the provision listing the properties exempted under the CARL
would tend to denigrate the aims of agrarian reform, a strict application of these exceptions is in order.

The crafters of P.D. No. 27 and the CARL were presumably aware of the radical scale of the intended legislation, and
the massive effects on property relations nationwide. Considering the magnitude of the changes ordained in these
laws, it would be foolhardy to require or expect the legislature to denominate each and every law that would be
consequently or logically amended or repealed by the new laws. Hence, the viability of general repealing clauses,
which are existent in both P.D. No. 27[29] and the CARL,[30] as a means of repealing all previous enactments
inconsistent with revolutionary new laws. The presence of such general repealing clause in a later statute clearly
indicates the legislative intent to repeal all prior inconsistent laws on the subject matter, whether the prior law is a
general law or a special law, or as in this case, a special private law. Without such clause, a later general law will
ordinarily not repeal a prior special law on the same subject. But with such clause contained in the subsequent general
law, the prior special law will be deemed repealed, as the clause is a clear legislative intent to bring about that result.
[31]

Should we construe Section 4 of Act No. 3239 as barring forced sales through expropriation of the properties of the
Hospicio, such prohibition would irreconcilably countermand both P.D. No. 27 and the CARL and their mandate to
subject the properties to agrarian reform. The general repealing clauses of the two later laws would then sufficiently
repeal Section 4 of Act No. 3239, to the extent that it may prohibit expropriation of agricultural lands for agrarian
reform.

Still, in light of our earlier determinative pronouncement that Section 4 of Act No. 3239 does not contemplate forced
sales as part of the prohibition therein, there ultimately is no need to make an abject declaration that Section 4 has
indeed been repealed. Indeed, the Court considers the prohibition on Section 4 as still effectual, but only insofar as it
relates to conventional sales under the Civil Code.

The other arguments raised by the Hospicio are similarly bereft of merit. It wants us to hold that P.D. No. 27 and the
CARL, both enacted to implement the urgently needed policy of agrarian reform, violate the non-impairment of
contracts clause under the Bill of Rights. Yet the broad sweep of this argument ignores the nuances adopted by this
Court in interpreting Section 10 of Article III. We have held that the State's exercise of police powers may prevail over
obligations imposed by private contracts.[32] Especially in point is Kabiling v. NHA,[33] wherein a law authorizing the
expropriation of properties in favor of qualified squatter families was challenged on the basis of the non-impairment
clause. The Court held:

The stated objective of the decree, namely, to resolve the land tenure problem in the Agno-Leveriza area to allow the
implementation of the comprehensive development plans for this depressed community, provides the justification for
the exercise of the police power of the State. The police power of the State has been described as "the most essential,
insistent and illimitable of powers." It is a power inherent in the State, plenary, "suitably vague and far from precisely
defined, rooted in the conception that man in organizing the state and imposing upon the government limitations to
safeguard constitutional rights did not intend thereby to enable individual citizens or group of citizens to obstruct
unreasonably the enactment of such salutary measure to ensure communal peace, safety, good order and welfare.

The objection raised by petitioners that P.D. No. 1808 impairs the obligations of contract is without merit. The
constitutional guaranty of non-impairment of obligations of contract is limited by and subject to the exercise of the
police power of the State in the interest of public health, safety, morals and general welfare.[34]
More pertinently, what the Hospicio alleges would be impaired is not actually a contract, but a legislative act, Act No.
3239. The Hospicio admits just as much in its petition, '[Act No. 3239] is not merely an ordinary contract but a contract
enacted into law . . . Act No. 3239 is thus a contract within the purview of the impairment clause of the Constitution.
[35]

The inanity of this argument is palpable. The non-impairment clause reads: 'No law impairing the obligation of
contracts shall be passed. If, as the Hospicio argues, the constitutional provision applies as well to the impairment of
obligations created by law, then Section 10, Article III operates to bar the legislature from amending or repealing its
own enactments. This is of course not the case, as the provision was intended to shield the impairment of obligations
created by private agreements, and not by legislative fiat. Certainly, Congress can at any time expressly amend or
repeal any and all sections of Act No. 3239 without fear of violating the non-impairment clause of the Constitution. In
fine, Section 10[36] of Act 3239 provides that the privileges granted by the Act to the Hospicio are subject to the
conditions on the grant of franchises as provided in the Jones Law. Section 28 of the Jones Law in turn provides in part,
thus:

No franchise or right shall be granted to any individual, firm, or corporation except under the conditions that it shall be
subject to amendment, alteration, or repeal by the Congress of the United States, and that lands or right of use and
occupation of lands thus granted shall revert to the government by which they were respectively granted upon the
termination of the franchises and rights under which they were granted or upon their revocation or repeal. (Emphasis
supplied.)

Finally, the Hospicio alludes to its functions as a charitable institution, which equally promote social justice and the
upliftment of lives of the less fortunate. It notes that these purposes are no less noble than giving land to the landless,
whom they, with perhaps a touch of contempt, suggest are 'perfectly healthy to care for themselves.[37]

The rationale for holding that the properties of the Hospicio are covered by P.D. No. 27 and Rep. Act No. 6657 is so
well-grounded in law that it obviates any resort to the sordid game of choosing which of the two competing aspirations
is nobler. The body which would have unquestionable discretion in assigning hierarchical values on the modalities by
which social justice may be implemented is the legislature. Land reform affords the opportunity for the landless to
break away from the vicious cycle of having to perpetually rely on the kindness of others. By refusing to exempt
properties owned by charitable institutions or maintained for charitable purposes from agrarian reform, the legislature
has indicated a policy choice which the Court is bound to implement.

WHEREFORE, the Petition is DENIED. No pronouncement as to costs.

G.R. No. 186382 April 5, 2010

PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee,
vs.
DOMINGO PANITERCE, Accused-Appellant.
RESOLUTION
LEONARDO-DE CASTRO, J.:
Before Us is an appeal filed by Domingo Paniterce y Martinez (Paniterce) assailing the Decision 1 dated August 22, 2008
of the Court of Appeals in CA-G.R. CR-H.C. No. 01001, entitled People of the Philippines v. Domingo Paniterce," which
affirmed with modification the Decision dated March 2, 2005 of the Regional Trial Court (RTC) of Iriga City, Branch 37,
in Criminal Case Nos. 6076, 6077, 6078, 6079, 6080 and 6081. 2 The RTC found Paniterce guilty beyond reasonable
doubt of the crimes of Rape and Acts of Lasciviousness.
In four Informations, all dated February 11, 2002, 4th Assistant Provincial Prosecutor Hedy S. Aganan charged
Paniterce with four counts of rape of his daughter AAA. Except for the dates 3 of the commission of the rapes, the four
Informations identically read:
Criminal Case Nos. 6076, 6077, 6078 and 6079
That sometime in the year 1997 in x x x Philippines and within the jurisdiction of this Honorable Court, the above-
named accused, with grave abuse of confidence being the father of the offended party with lewd designs by means of
force and intimidation, did then and there willfully, unlawfully and feloniously succeed in having carnal knowledge with
his daughter AAA, a 10 year-old minor, against her will and without her consent, to her damage and prejudice in such
amount as may be awarded by the Honorable Court.4
In two Amended Informations, both dated December 3, 2002, Assistant Provincial Prosecutor Daniel M. Salvadora
charged Paniterce with two counts of rape of his other daughter BBB. Aside from the dates 5 of the commission of the
rapes, the Informations similarly state:
Criminal Case Nos. 6080 and 6081
That on or about 6:00 o’clock in the morning of August 26, 2000 x x x Philippines, and within the jurisdiction of this
Honorable Court, the above-named accused, with grave abuse of confidence being the father of the offended party
with lewd designs by means of force and intimidation, did then and there willfully, unlawfully and feloniously
committed RAPE upon his 12- year old daughter BBB by then and there, caressing and inserting his finger inside her
vagina against her will and without her consent, to her damage and prejudice in such amount as may be awarded by
the Honorable Court.6
When arraigned, Paniterce pleaded not guilty to all the charges.
After trial on the merits, the RTC rendered a Decision on March 2, 2005, with the following dispositive portion:
WHEREFORE, in view of all the foregoing, the prosecution having proved the guilt of accused Domingo Paniterce of the
crimes of Rape as charged in the aforementioned Informations, he is hereby sentenced to suffer the penalties of
imprisonment, to wit:
In Criminal Case No. 6076, he is hereby sentenced to suffer the penalty of imprisonment ranging from FOUR (4)
MONTHS and ONE (1) DAY of arresto mayor as minimum to FOUR (4) YEARS, TWO (2) MONTHS AND ONE (1) DAY of
prision correccional as maximum for Acts of Lasciviousness under Article 336 of the Revised Penal Code as the alleged
molestation took place in April 1997 and RA 8353 took effect only on October 22, 1997;
In Criminal Cases Nos. 6077, 6078, 6080 and 6081, he is hereby sentenced to suffer in each every case the penalty of
imprisonment ranging from FOUR (4) YEARS, TWO (2) MONTHS and ONE (1) DAY of prision correccional as minimum to
EIGHT (8) YEARS and ONE (1) DAY of prision mayor as maximum and to pay AAA and BBB Fifty Thousand Pesos
(P50,000.00) each as moral damages and Fifty Thousand Pesos (P50,000.00) as exemplary damages;
In Criminal Case No. 6079, he is hereby sentenced to suffer the penalty of DEATH and to pay AAA the amount of Fifty
Thousand Pesos (P50,000.00) as moral damages and Fifty Thousand Pesos (P50,000.00) as exemplary damages.7
On June 4, 2005, Paniterce was committed to the Bureau of Corrections in Muntinlupa City.
Paniterce filed an appeal with the Court of Appeals, which was docketed as CA-G.R. CR-H.C. No. 01001. The appellate
court rendered a Decision on August 22, 2008 affirming the RTC judgment with modifications, to wit:
WHEREFORE, the Decision of the trial court convicting DOMINGO PANITERCE is hereby AFFIRMED with the following
modifications:
1. For Acts of Lasciviousness, in Criminal Cases Nos. 6077, 6078, 6080 and 6081, appellant is hereby
sentenced to suffer in each [and] every case an indeterminate prison term of six (6) months of arresto mayor,
as minimum, to six (6) years of prision correccional, as maximum and to pay AAA and BBB Fifty Thousand
Pesos (P50,000.00) each as moral damages and Fifty Thousand Pesos (P50,000.00) as exemplary damages;
and
2. For Rape, in Criminal Case No. 6079, appellant is hereby sentenced to suffer the penalty of Reclusion
Perpetua and to pay AAA the amount of Fifty Thousand Pesos (P50,000.00) as moral damages and Fifty
Thousand Pesos (P50,000.00) as exemplary damages.
The decision of the trial court finding appellant guilty for Acts of Lasciviousness in Criminal Case No. 6076 is AFFIRMED
without any modification.8
On 16 September 2008, Paniterce, through counsel, filed a Notice of Appeal with the Court of Appeals conveying his
intention to appeal to us the aforementioned Decision dated August 22, 2008 of the appellate court. The Court of
Appeals gave due course to Paniterce’s Notice of Appeal on September 23, 2008, 9 and directed its Judicial Records
Division to elevate to us the original records in CA-G.R. CR-H.C. No. 01001.
On 15 April 2009, we required 10 the parties to file their supplemental briefs, and the Director of the Bureau of
Corrections to confirm the commitment of Paniterce at the Bureau of Corrections and submit his report thereon within
10 days from notice.
Paniterce filed his Supplemental Brief11 on June 16, 2009, while the Office of the Solicitor General filed a
Manifestation12 on June 18, 2009 stating that it would no longer file a supplemental brief considering that Paniterce did
not raise any new issue in his appeal. On July 22, 2009, we submitted G.R. No. 186382 for resolution.
However, in a letter dated October 12, 2009, Julio A. Arciaga, the Assistant Director for Prisons and Security of the
Bureau of Corrections, informed us that Paniterce had died on August 22, 2009 at the New Bilibid Prison Hospital.
Paniterce’s Death Certificate was attached to said letter.
Given Paniterce’s death, we are now faced with the question of the effect of such death on the present appeal.
Paniterce’s death on August 22, 2009, during the pendency of his appeal, extinguished not only his criminal liabilities
for the rape and acts of lasciviousness committed against his daughters, but also his civil liabilities solely arising from
or based on said crimes.1awphi1
According to Article 89(1) of the Revised Penal Code, criminal liability is totally extinguished:
1. By the death of the convict, as to the personal penalties; and as to pecuniary penalties, liability therefor is
extinguished only when the death of the offender occurs before final judgment.
Applying the foregoing provision, we laid down the following guidelines in People v. Bayotas13:
1. Death of the accused pending appeal of his conviction extinguishes his criminal liability as well as the civil
liability based solely thereon. As opined by Justice Regalado, in this regard, "the death of the accused prior to
final judgment terminates his criminal liability and only the civil liability directly arising from and based solely
on the offense committed, i.e., civil liability ex delicto in senso strictiore."
 2. Corollarily, the claim for civil liability survives notwithstanding the death of (the) accused, if the same may
also be predicated on a source of obligation other than delict. Article 1157 of the Civil Code enumerates these
other sources of obligation from which the civil liability may arise as a result of the same act or omission:
a) Law
b) Contracts
c) Quasi-contracts
xxxx
e) Quasi-delicts
3. Where the civil liability survives, as explained in Number 2 above, an action for recovery therefor may be
pursued but only by way of filing a separate civil action and subject to Section 1, Rule 111 of the 1985 Rules
on Criminal Procedure as amended. This separate civil action may be enforced either against the
executor/administrator or the estate of the accused, depending on the source of obligation upon which the
same is based as explained above.
4. Finally, the private offended party need not fear a forfeiture of his right to file this separate civil action by
prescription, in cases where during the prosecution of the criminal action and prior to its extinction, the
private-offended party instituted together therewith the civil action. In such case, the statute of limitations on
the civil liability is deemed interrupted during the pendency of the criminal case, conformably with the
provisions of Article 1155 of the Civil Code that should thereby avoid any apprehension on a possible privation
of right by prescription.14
Clearly, it is unnecessary for the Court to rule on Paniterce’s appeal. Whether or not he was guilty of the crimes
charged has become irrelevant since, following Article 89(1) of the Revised Penal Code and our disquisition in Bayotas,
even assuming Paniterce had incurred criminal liabilities, they were totally extinguished by his death. Moreover,
because Paniterce’s appeal was still pending and no final judgment of conviction had been rendered against him when
he died, his civil liabilities arising from the crimes, being civil liabilities ex delicto, were likewise extinguished by his
death.
Consequently, the appealed Decision dated August 22, 2008 of the Court of Appeals – finding Paniterce guilty of rape
and acts of lasciviousness, sentencing him to imprisonment, and ordering him to indemnify his victims – had become
ineffectual.
WHEREFORE, in view of the death of accused-appellant Domingo Paniterce y Martinez, the Decision dated August 22,
2008 of the Court of Appeals in CA-G.R. CR-H.C. No. 01001 is SET ASIDE and Criminal Case Nos. 6076, 6077, 6078,
6079, 6080, and 6081 before the Regional Trial Court of Iriga City are DISMISSED. Costs de oficio.
SO ORDERED.

ARTICLE 1158

G.R. No. L-30511 February 14, 1980

MANUEL M. SERRANO, petitioner,
vs.
CENTRAL BANK OF THE PHILIPPINES; OVERSEAS BANK OF MANILA; EMERITO M. RAMOS, SUSANA B.
RAMOS, EMERITO B. RAMOS, JR., JOSEFA RAMOS DELA RAMA, HORACIO DELA RAMA, ANTONIO B. RAMOS,
FILOMENA RAMOS LEDESMA, RODOLFO LEDESMA, VICTORIA RAMOS TANJUATCO, and TEOFILO
TANJUATCO, respondents.
Rene Diokno for petitioner.
F.E. Evangelista & Glecerio T. Orsolino for respondent Central Bank of the Philippines.
Feliciano C. Tumale, Pacifico T. Torres and Antonio B. Periquet for respondent Overseas Bank of Manila.
Josefina G. Salonga for all other respondents.

CONCEPCION, JR., J.:

Petition for mandamus and prohibition, with preliminary injunction, that seeks the establishment of joint and solidary
liability to the amount of Three Hundred Fifty Thousand Pesos, with interest, against respondent Central Bank of the
Philippines and Overseas Bank of Manila and its stockholders, on the alleged failure of the Overseas Bank of Manila to
return the time deposits made by petitioner and assigned to him, on the ground that respondent Central Bank failed in
its duty to exercise strict supervision over respondent Overseas Bank of Manila to protect depositors and the general
public. 1 Petitioner also prays that both respondent banks be ordered to execute the proper and necessary documents
to constitute all properties fisted in Annex "7" of the Answer of respondent Central Bank of the Philippines in G.R. No.
L-29352, entitled "Emerita M. Ramos, et al vs. Central Bank of the Philippines," into a trust fund in favor of petitioner
and all other depositors of respondent Overseas Bank of Manila. It is also prayed that the respondents be prohibited
permanently from honoring, implementing, or doing any act predicated upon the validity or efficacy of the deeds of
mortgage, assignment. and/or conveyance or transfer of whatever nature of the properties listed in Annex "7" of the
Answer of respondent Central Bank in G.R. No. 29352. 2
A sought for ex-parte preliminary injunction against both respondent banks was not given by this Court.
Undisputed pertinent facts are:
On October 13, 1966 and December 12, 1966, petitioner made a time deposit, for one year with 6% interest, of One
Hundred Fifty Thousand Pesos (P150,000.00) with the respondent Overseas Bank of Manila. 3 Concepcion Maneja also
made a time deposit, for one year with 6-½% interest, on March 6, 1967, of Two Hundred Thousand Pesos
(P200,000.00) with the same respondent Overseas Bank of Manila. 4
On August 31, 1968, Concepcion Maneja, married to Felixberto M. Serrano, assigned and conveyed to petitioner
Manuel M. Serrano, her time deposit of P200,000.00 with respondent Overseas Bank of Manila. 5
Notwithstanding series of demands for encashment of the aforementioned time deposits from the respondent
Overseas Bank of Manila, dating from December 6, 1967 up to March 4, 1968, not a single one of the time deposit
certificates was honored by respondent Overseas Bank of Manila. 6
Respondent Central Bank admits that it is charged with the duty of administering the banking system of the Republic
and it exercises supervision over all doing business in the Philippines, but denies the petitioner's allegation that the
Central Bank has the duty to exercise a most rigid and stringent supervision of banks, implying that respondent
Central Bank has to watch every move or activity of all banks, including respondent Overseas Bank of Manila.
Respondent Central Bank claims that as of March 12, 1965, the Overseas Bank of Manila, while operating, was only on
a limited degree of banking operations since the Monetary Board decided in its Resolution No. 322, dated March 12,
1965, to prohibit the Overseas Bank of Manila from making new loans and investments in view of its chronic reserve
deficiencies against its deposit liabilities. This limited operation of respondent Overseas Bank of Manila continued up to
1968. 7
Respondent Central Bank also denied that it is guarantor of the permanent solvency of any banking institution as
claimed by petitioner. It claims that neither the law nor sound banking supervision requires respondent Central Bank
to advertise or represent to the public any remedial measures it may impose upon chronic delinquent banks as such
action may inevitably result to panic or bank "runs". In the years 1966-1967, there were no findings to declare the
respondent Overseas Bank of Manila as insolvent. 8
Respondent Central Bank likewise denied that a constructive trust was created in favor of petitioner and his
predecessor in interest Concepcion Maneja when their time deposits were made in 1966 and 1967 with the respondent
Overseas Bank of Manila as during that time the latter was not an insolvent bank and its operation as a banking
institution was being salvaged by the respondent Central Bank. 9
Respondent Central Bank avers no knowledge of petitioner's claim that the properties given by respondent Overseas
Bank of Manila as additional collaterals to respondent Central Bank of the Philippines for the former's overdrafts and
emergency loans were acquired through the use of depositors' money, including that of the petitioner and Concepcion
Maneja. 10
In G.R. No. L-29362, entitled "Emerita M. Ramos, et al. vs. Central Bank of the Philippines," a case was filed by the
petitioner Ramos, wherein respondent Overseas Bank of Manila sought to prevent respondent Central Bank from
closing, declaring the former insolvent, and liquidating its assets. Petitioner Manuel Serrano in this case, filed on
September 6, 1968, a motion to intervene in G.R. No. L-29352, on the ground that Serrano had a real and legal
interest as depositor of the Overseas Bank of Manila in the matter in litigation in that case. Respondent Central Bank in
G.R. No. L-29352 opposed petitioner Manuel Serrano's motion to intervene in that case, on the ground that his claim as
depositor of the Overseas Bank of Manila should properly be ventilated in the Court of First Instance, and if this Court
were to allow Serrano to intervene as depositor in G.R. No. L-29352, thousands of other depositors would follow and
thus cause an avalanche of cases in this Court. In the resolution dated October 4, 1968, this Court denied Serrano's,
motion to intervene. The contents of said motion to intervene are substantially the same as those of the present
petition. 11
This Court rendered decision in G.R. No. L-29352 on October 4, 1971, which became final and executory on March 3,
1972, favorable to the respondent Overseas Bank of Manila, with the dispositive portion to wit:
WHEREFORE, the writs prayed for in the petition are hereby granted and respondent Central Bank's
resolution Nos. 1263, 1290 and 1333 (that prohibit the Overseas Bank of Manila to participate in
clearing, direct the suspension of its operation, and ordering the liquidation of said bank) are hereby
annulled and set aside; and said respondent Central Bank of the Philippines is directed to comply with
its obligations under the Voting Trust Agreement, and to desist from taking action in violation therefor.
Costs against respondent Central Bank of the Philippines. 12
Because of the above decision, petitioner in this case filed a motion for judgment in this case, praying for a decision on
the merits, adjudging respondent Central Bank jointly and severally liable with respondent Overseas Bank of Manila to
the petitioner for the P350,000 time deposit made with the latter bank, with all interests due therein; and declaring all
assets assigned or mortgaged by the respondents Overseas Bank of Manila and the Ramos groups in favor of the
Central Bank as trust funds for the benefit of petitioner and other depositors. 13
By the very nature of the claims and causes of action against respondents, they in reality are recovery of time deposits
plus interest from respondent Overseas Bank of Manila, and recovery of damages against respondent Central Bank for
its alleged failure to strictly supervise the acts of the other respondent Bank and protect the interests of its depositors
by virtue of the constructive trust created when respondent Central Bank required the other respondent to increase its
collaterals for its overdrafts said emergency loans, said collaterals allegedly acquired through the use of depositors
money. These claims shoud be ventilated in the Court of First Instance of proper jurisdiction as We already pointed out
when this Court denied petitioner's motion to intervene in G.R. No. L-29352. Claims of these nature are not proper in
actions for mandamus and prohibition as there is no shown clear abuse of discretion by the Central Bank in its exercise
of supervision over the other respondent Overseas Bank of Manila, and if there was, petitioner here is not the proper
party to raise that question, but rather the Overseas Bank of Manila, as it did in G.R. No. L-29352. Neither is there
anything to prohibit in this case, since the questioned acts of the respondent Central Bank (the acts of dissolving and
liquidating the Overseas Bank of Manila), which petitioner here intends to use as his basis for claims of damages
against respondent Central Bank, had been accomplished a long time ago.
Furthermore, both parties overlooked one fundamental principle in the nature of bank deposits when the petitioner
claimed that there should be created a constructive trust in his favor when the respondent Overseas Bank of Manila
increased its collaterals in favor of respondent Central Bank for the former's overdrafts and emergency loans, since
these collaterals were acquired by the use of depositors' money.
Bank deposits are in the nature of irregular deposits. They are really loans because they earn interest. All kinds of
bank deposits, whether fixed, savings, or current are to be treated as loans and are to be covered by the law on
loans. 14 Current and savings deposit are loans to a bank because it can use the same. The petitioner here in making
time deposits that earn interests with respondent Overseas Bank of Manila was in reality a creditor of the respondent
Bank and not a depositor. The respondent Bank was in turn a debtor of petitioner. Failure of he respondent Bank to
honor the time deposit is failure to pay s obligation as a debtor and not a breach of trust arising from depositary's
failure to return the subject matter of the deposit
WHEREFORE, the petition is dismissed for lack of merit, with costs against petitioner.
SO ORDERED.
Antonio, Abad Santos, JJ., concur.
Barredo (Chairman) J., concur in the judgment on the of the concurring opinion of Justice Aquino.

G.R. No. 177056 September 18, 2009

THE OFFICE OF THE SOLICITOR GENERAL, Petitioner,
vs.
AYALA LAND INCORPORATED, ROBINSON'S LAND CORPORATION, SHANGRI-LA PLAZA CORPORATION and
SM PRIME HOLDINGS, INC., Respondents.
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari, 1 under Rule 45 of the Revised Rules of Court, filed by petitioner
Office of the Solicitor General (OSG), seeking the reversal and setting aside of the Decision 2 dated 25 January 2007 of
the Court of Appeals in CA-G.R. CV No. 76298, which affirmed in toto the Joint Decision 3 dated 29 May 2002 of the
Regional Trial Court (RTC) of Makati City, Branch 138, in Civil Cases No. 00-1208 and No. 00-1210; and (2) the
Resolution4 dated 14 March 2007 of the appellate court in the same case which denied the Motion for Reconsideration
of the OSG. The RTC adjudged that respondents Ayala Land Incorporated (Ayala Land), Robinsons Land Corporation
(Robinsons), Shangri-la Plaza Corporation (Shangri-la), and SM Prime Holdings, Inc. (SM Prime) could not be obliged to
provide free parking spaces in their malls to their patrons and the general public.
Respondents Ayala Land, Robinsons, and Shangri-la maintain and operate shopping malls in various locations in Metro
Manila. Respondent SM Prime constructs, operates, and leases out commercial buildings and other structures, among
which, are SM City, Manila; SM Centerpoint, Sta. Mesa, Manila; SM City, North Avenue, Quezon City; and SM Southmall,
Las Piñas.
The shopping malls operated or leased out by respondents have parking facilities for all kinds of motor vehicles, either
by way of parking spaces inside the mall buildings or in separate buildings and/or adjacent lots that are solely devoted
for use as parking spaces. Respondents Ayala Land, Robinsons, and SM Prime spent for the construction of their own
parking facilities. Respondent Shangri-la is renting its parking facilities, consisting of land and building specifically used
as parking spaces, which were constructed for the lessor’s account.
Respondents expend for the maintenance and administration of their respective parking facilities. They provide
security personnel to protect the vehicles parked in their parking facilities and maintain order within the area. In turn,
they collect the following parking fees from the persons making use of their parking facilities, regardless of whether
said persons are mall patrons or not:

Respondent Parking Fees

Ayala Land
On weekdays, P25.00 for the first four hours andP10.00
for every succeeding hour; on weekends, flat rate
of P25.00 per day

Robinsons
P20.00 for the first three hours and P10.00 for every
succeeding hour

Shangri-la
Flat rate of P30.00 per day

SM Prime
P10.00 to P20.00 (depending on whether the parking
space is outdoors or indoors) for the first three hours
and 59 minutes, and P10.00 for every succeeding hour
or fraction thereof

The parking tickets or cards issued by respondents to vehicle owners contain the stipulation that respondents shall not
be responsible for any loss or damage to the vehicles parked in respondents’ parking facilities.
In 1999, the Senate Committees on Trade and Commerce and on Justice and Human Rights conducted a joint
investigation for the following purposes: (1) to inquire into the legality of the prevalent practice of shopping malls of
charging parking fees; (2) assuming arguendo that the collection of parking fees was legally authorized, to find out the
basis and reasonableness of the parking rates charged by shopping malls; and (3) to determine the legality of the
policy of shopping malls of denying liability in cases of theft, robbery, or carnapping, by invoking the waiver clause at
the back of the parking tickets. Said Senate Committees invited the top executives of respondents, who operate the
major malls in the country; the officials from the Department of Trade and Industry (DTI), Department of Public Works
and Highways (DPWH), Metro Manila Development Authority (MMDA), and other local government officials; and the
Philippine Motorists Association (PMA) as representative of the consumers’ group.
After three public hearings held on 30 September, 3 November, and 1 December 1999, the afore-mentioned Senate
Committees jointly issued Senate Committee Report No. 2255 on 2 May 2000, in which they concluded:
In view of the foregoing, the Committees find that the collection of parking fees by shopping malls is contrary to the
National Building Code and is therefor [sic] illegal. While it is true that the Code merely requires malls to provide
parking spaces, without specifying whether it is free or not, both Committees believe that the reasonable and logical
interpretation of the Code is that the parking spaces are for free. This interpretation is not only reasonable and logical
but finds support in the actual practice in other countries like the United States of America where parking spaces
owned and operated by mall owners are free of charge.
Figuratively speaking, the Code has "expropriated" the land for parking – something similar to the subdivision law
which require developers to devote so much of the land area for parks.
Moreover, Article II of R.A. No. 9734 (Consumer Act of the Philippines) provides that "it is the policy of the State to
protect the interest of the consumers, promote the general welfare and establish standards of conduct for business
and industry." Obviously, a contrary interpretation (i.e., justifying the collection of parking fees) would be going
against the declared policy of R.A. 7394.
Section 201 of the National Building Code gives the responsibility for the administration and enforcement of the
provisions of the Code, including the imposition of penalties for administrative violations thereof to the Secretary of
Public Works. This set up, however, is not being carried out in reality.
In the position paper submitted by the Metropolitan Manila Development Authority (MMDA), its chairman, Jejomar C.
Binay, accurately pointed out that the Secretary of the DPWH is responsible for the implementation/enforcement of the
National Building Code. After the enactment of the Local Government Code of 1991, the local government units
(LGU’s) were tasked to discharge the regulatory powers of the DPWH. Hence, in the local level, the Building Officials
enforce all rules/ regulations formulated by the DPWH relative to all building plans, specifications and designs
including parking space requirements. There is, however, no single national department or agency directly tasked to
supervise the enforcement of the provisions of the Code on parking, notwithstanding the national character of the
law.6
Senate Committee Report No. 225, thus, contained the following recommendations:
In light of the foregoing, the Committees on Trade and Commerce and Justice and Human Rights hereby recommend
the following:
1. The Office of the Solicitor General should institute the necessary action to enjoin the collection of parking
fees as well as to enforce the penal sanction provisions of the National Building Code. The Office of the
Solicitor General should likewise study how refund can be exacted from mall owners who continue to collect
parking fees.
2. The Department of Trade and Industry pursuant to the provisions of R.A. No. 7394, otherwise known as the
Consumer Act of the Philippines should enforce the provisions of the Code relative to parking. Towards this
end, the DTI should formulate the necessary implementing rules and regulations on parking in shopping malls,
with prior consultations with the local government units where these are located. Furthermore, the DTI, in
coordination with the DPWH, should be empowered to regulate and supervise the construction and
maintenance of parking establishments.
3. Finally, Congress should amend and update the National Building Code to expressly prohibit shopping malls
from collecting parking fees by at the same time, prohibit them from invoking the waiver of liability.7
Respondent SM Prime thereafter received information that, pursuant to Senate Committee Report No. 225, the DPWH
Secretary and the local building officials of Manila, Quezon City, and Las Piñas intended to institute, through the OSG,
an action to enjoin respondent SM Prime and similar establishments from collecting parking fees, and to impose upon
said establishments penal sanctions under Presidential Decree No. 1096, otherwise known as the National Building
Code of the Philippines (National Building Code), and its Implementing Rules and Regulations (IRR). With the
threatened action against it, respondent SM Prime filed, on 3 October 2000, a Petition for Declaratory Relief8 under
Rule 63 of the Revised Rules of Court, against the DPWH Secretary and local building officials of Manila, Quezon City,
and Las Piñas. Said Petition was docketed as Civil Case No. 00-1208 and assigned to the RTC of Makati City, Branch
138, presided over by Judge Sixto Marella, Jr. (Judge Marella). In its Petition, respondent SM Prime prayed for judgment:
a) Declaring Rule XIX of the Implementing Rules and Regulations of the National Building Code as ultra vires,
hence, unconstitutional and void;
b) Declaring [herein respondent SM Prime]’s clear legal right to lease parking spaces appurtenant to its
department stores, malls, shopping centers and other commercial establishments; and
c) Declaring the National Building Code of the Philippines Implementing Rules and Regulations as ineffective,
not having been published once a week for three (3) consecutive weeks in a newspaper of general circulation,
as prescribed by Section 211 of Presidential Decree No. 1096.
[Respondent SM Prime] further prays for such other reliefs as may be deemed just and equitable under the premises.9
The very next day, 4 October 2000, the OSG filed a Petition for Declaratory Relief and Injunction (with Prayer for
Temporary Restraining Order and Writ of Preliminary Injunction)10 against respondents. This Petition was docketed as
Civil Case No. 00-1210 and raffled to the RTC of Makati, Branch 135, presided over by Judge Francisco B. Ibay (Judge
Ibay). Petitioner prayed that the RTC:
1. After summary hearing, a temporary restraining order and a writ of preliminary injunction be issued
restraining respondents from collecting parking fees from their customers; and
2. After hearing, judgment be rendered declaring that the practice of respondents in charging parking fees is
violative of the National Building Code and its Implementing Rules and Regulations and is therefore invalid,
and making permanent any injunctive writ issued in this case.
Other reliefs just and equitable under the premises are likewise prayed for.11
On 23 October 2000, Judge Ibay of the RTC of Makati City, Branch 135, issued an Order consolidating Civil Case No. 00-
1210 with Civil Case No. 00-1208 pending before Judge Marella of RTC of Makati, Branch 138.
As a result of the pre-trial conference held on the morning of 8 August 2001, the RTC issued a Pre-Trial Order 12of even
date which limited the issues to be resolved in Civil Cases No. 00-1208 and No. 00-1210 to the following:
1. Capacity of the plaintiff [OSG] in Civil Case No. 00-1210 to institute the present proceedings and relative
thereto whether the controversy in the collection of parking fees by mall owners is a matter of public welfare.
2. Whether declaratory relief is proper.
3. Whether respondent Ayala Land, Robinsons, Shangri-La and SM Prime are obligated to provide parking
spaces in their malls for the use of their patrons or the public in general, free of charge.
4. Entitlement of the parties of [sic] award of damages.13
On 29 May 2002, the RTC rendered its Joint Decision in Civil Cases No. 00-1208 and No. 00-1210.
The RTC resolved the first two issues affirmatively. It ruled that the OSG can initiate Civil Case No. 00-1210 under
Presidential Decree No. 478 and the Administrative Code of 1987. 14 It also found that all the requisites for an action for
declaratory relief were present, to wit:
The requisites for an action for declaratory relief are: (a) there is a justiciable controversy; (b) the controversy is
between persons whose interests are adverse; (c) the party seeking the relief has a legal interest in the controversy;
and (d) the issue involved is ripe for judicial determination.
SM, the petitioner in Civil Case No. 001-1208 [sic] is a mall operator who stands to be affected directly by the position
taken by the government officials sued namely the Secretary of Public Highways and the Building Officials of the local
government units where it operates shopping malls. The OSG on the other hand acts on a matter of public interest and
has taken a position adverse to that of the mall owners whom it sued. The construction of new and bigger malls has
been announced, a matter which the Court can take judicial notice and the unsettled issue of whether mall operators
should provide parking facilities, free of charge needs to be resolved.15
As to the third and most contentious issue, the RTC pronounced that:
The Building Code, which is the enabling law and the Implementing Rules and Regulations do not impose that parking
spaces shall be provided by the mall owners free of charge. Absent such directive[,] Ayala Land, Robinsons, Shangri-la
and SM [Prime] are under no obligation to provide them for free. Article 1158 of the Civil Code is clear:
"Obligations derived from law are not presumed. Only those expressly determined in this Code or in special laws are
demandable and shall be regulated by the precepts of the law which establishes them; and as to what has not been
foreseen, by the provisions of this Book (1090).["]
xxxx
The provision on ratios of parking slots to several variables, like shopping floor area or customer area found in Rule XIX
of the Implementing Rules and Regulations cannot be construed as a directive to provide free parking spaces, because
the enabling law, the Building Code does not so provide. x x x.
To compel Ayala Land, Robinsons, Shangri-La and SM [Prime] to provide parking spaces for free can be considered as
an unlawful taking of property right without just compensation.
Parking spaces in shopping malls are privately owned and for their use, the mall operators collect fees. The legal
relationship could be either lease or deposit. In either case[,] the mall owners have the right to collect money which
translates into income. Should parking spaces be made free, this right of mall owners shall be gone. This, without just
compensation. Further, loss of effective control over their property will ensue which is frowned upon by law.
The presence of parking spaces can be viewed in another light. They can be looked at as necessary facilities to entice
the public to increase patronage of their malls because without parking spaces, going to their malls will be
inconvenient. These are[,] however[,] business considerations which mall operators will have to decide for themselves.
They are not sufficient to justify a legal conclusion, as the OSG would like the Court to adopt that it is the obligation of
the mall owners to provide parking spaces for free.16
The RTC then held that there was no sufficient evidence to justify any award for damages.
The RTC finally decreed in its 29 May 2002 Joint Decision in Civil Cases No. 00-1208 and No. 00-1210 that:
FOR THE REASONS GIVEN, the Court declares that Ayala Land[,] Inc., Robinsons Land Corporation, Shangri-la Plaza
Corporation and SM Prime Holdings[,] Inc. are not obligated to provide parking spaces in their malls for the use of their
patrons or public in general, free of charge.
All counterclaims in Civil Case No. 00-1210 are dismissed.
No pronouncement as to costs.17
CA-G.R. CV No. 76298 involved the separate appeals of the OSG18 and respondent SM Prime19 filed with the Court of
Appeals. The sole assignment of error of the OSG in its Appellant’s Brief was:
THE TRIAL COURT ERRED IN HOLDING THAT THE NATIONAL BUILDING CODE DID NOT INTEND MALL PARKING SPACES
TO BE FREE OF CHARGE[;]20
while the four errors assigned by respondent SM Prime in its Appellant’s Brief were:
I
THE TRIAL COURT ERRED IN FAILING TO DECLARE RULE XIX OF THE IMPLEMENTING RULES AS HAVING BEEN ENACTED
ULTRA VIRES, HENCE, UNCONSTITUTIONAL AND VOID.
II
THE TRIAL COURT ERRED IN FAILING TO DECLARE THE IMPLEMENTING RULES INEFFECTIVE FOR NOT HAVING BEEN
PUBLISHED AS REQUIRED BY LAW.
III
THE TRIAL COURT ERRED IN FAILING TO DISMISS THE OSG’S PETITION FOR DECLARATORY RELIEF AND INJUNCTION
FOR FAILURE TO EXHAUST ADMINISTRATIVE REMEDIES.
IV
THE TRIAL COURT ERRED IN FAILING TO DECLARE THAT THE OSG HAS NO LEGAL CAPACITY TO SUE AND/OR THAT IT IS
NOT A REAL PARTY-IN-INTEREST IN THE INSTANT CASE.21
Respondent Robinsons filed a Motion to Dismiss Appeal of the OSG on the ground that the lone issue raised therein
involved a pure question of law, not reviewable by the Court of Appeals.
The Court of Appeals promulgated its Decision in CA-G.R. CV No. 76298 on 25 January 2007. The appellate court
agreed with respondent Robinsons that the appeal of the OSG should suffer the fate of dismissal, since "the issue on
whether or not the National Building Code and its implementing rules require shopping mall operators to provide
parking facilities to the public for free" was evidently a question of law. Even so, since CA-G.R. CV No. 76298 also
included the appeal of respondent SM Prime, which raised issues worthy of consideration, and in order to satisfy the
demands of substantial justice, the Court of Appeals proceeded to rule on the merits of the case.
In its Decision, the Court of Appeals affirmed the capacity of the OSG to initiate Civil Case No. 00-1210 before the RTC
as the legal representative of the government,22 and as the one deputized by the Senate of the Republic of the
Philippines through Senate Committee Report No. 225.
The Court of Appeals rejected the contention of respondent SM Prime that the OSG failed to exhaust administrative
remedies. The appellate court explained that an administrative review is not a condition precedent to judicial relief
where the question in dispute is purely a legal one, and nothing of an administrative nature is to be or can be done.
The Court of Appeals likewise refused to rule on the validity of the IRR of the National Building Code, as such issue was
not among those the parties had agreed to be resolved by the RTC during the pre-trial conference for Civil Cases No.
00-1208 and No. 00-1210. Issues cannot be raised for the first time on appeal. Furthermore, the appellate court found
that the controversy could be settled on other grounds, without touching on the issue of the validity of the IRR. It
referred to the settled rule that courts should refrain from passing upon the constitutionality of a law or implementing
rules, because of the principle that bars judicial inquiry into a constitutional question, unless the resolution thereof is
indispensable to the determination of the case.
Lastly, the Court of Appeals declared that Section 803 of the National Building Code and Rule XIX of the IRR were clear
and needed no further construction. Said provisions were only intended to control the occupancy or congestion of
areas and structures. In the absence of any express and clear provision of law, respondents could not be obliged and
expected to provide parking slots free of charge.
The fallo of the 25 January 2007 Decision of the Court of Appeals reads:
WHEREFORE, premises considered, the instant appeals are DENIED. Accordingly, appealed Decision is hereby
AFFIRMED in toto.23
In its Resolution issued on 14 March 2007, the Court of Appeals denied the Motion for Reconsideration of the OSG,
finding that the grounds relied upon by the latter had already been carefully considered, evaluated, and passed upon
by the appellate court, and there was no strong and cogent reason to modify much less reverse the assailed judgment.
The OSG now comes before this Court, via the instant Petition for Review, with a single assignment of error:
THE COURT OF APPEALS SERIOUSLY ERRED IN AFFIRMING THE RULING OF THE LOWER COURT THAT RESPONDENTS
ARE NOT OBLIGED TO PROVIDE FREE PARKING SPACES TO THEIR CUSTOMERS OR THE PUBLIC.24
The OSG argues that respondents are mandated to provide free parking by Section 803 of the National Building Code
and Rule XIX of the IRR.
According to Section 803 of the National Building Code:
SECTION 803. Percentage of Site Occupancy
(a) Maximum site occupancy shall be governed by the use, type of construction, and height of the building and
the use, area, nature, and location of the site; and subject to the provisions of the local zoning requirements
and in accordance with the rules and regulations promulgated by the Secretary.
In connection therewith, Rule XIX of the old IRR,25 provides:
RULE XIX – PARKING AND LOADING SPACE REQUIREMENTS
Pursuant to Section 803 of the National Building Code (PD 1096) providing for maximum site occupancy, the following
provisions on parking and loading space requirements shall be observed:
1. The parking space ratings listed below are minimum off-street requirements for specific uses/occupancies for
buildings/structures:
1.1 The size of an average automobile parking slot shall be computed as 2.4 meters by 5.00 meters for perpendicular
or diagonal parking, 2.00 meters by 6.00 meters for parallel parking. A truck or bus parking/loading slot shall be
computed at a minimum of 3.60 meters by 12.00 meters. The parking slot shall be drawn to scale and the total
number of which shall be indicated on the plans and specified whether or not parking accommodations, are attendant-
managed. (See Section 2 for computation of parking requirements).
xxxx
1.7 Neighborhood shopping center – 1 slot/100 sq. m. of shopping floor area
The OSG avers that the aforequoted provisions should be read together with Section 102 of the National Building
Code, which declares:
SECTION 102. Declaration of Policy
It is hereby declared to be the policy of the State to safeguard life, health, property, and public welfare, consistent with
the principles of sound environmental management and control; and to this end, make it the purpose of this Code to
provide for all buildings and structures, a framework of minimum standards and requirements to regulate and control
their location, site, design, quality of materials, construction, use, occupancy, and maintenance.
The requirement of free-of-charge parking, the OSG argues, greatly contributes to the aim of safeguarding "life, health,
property, and public welfare, consistent with the principles of sound environmental management and control."
Adequate parking spaces would contribute greatly to alleviating traffic congestion when complemented by quick and
easy access thereto because of free-charge parking. Moreover, the power to regulate and control the use, occupancy,
and maintenance of buildings and structures carries with it the power to impose fees and, conversely, to control --
partially or, as in this case, absolutely -- the imposition of such fees.
The Court finds no merit in the present Petition.
The explicit directive of the afore-quoted statutory and regulatory provisions, garnered from a plain reading thereof, is
that respondents, as operators/lessors of neighborhood shopping centers, should provide parking and loading spaces,
in accordance with the minimum ratio of one slot per 100 square meters of shopping floor area. There is nothing
therein pertaining to the collection (or non-collection) of parking fees by respondents. In fact, the term "parking fees"
cannot even be found at all in the entire National Building Code and its IRR.
Statutory construction has it that if a statute is clear and unequivocal, it must be given its literal meaning and applied
without any attempt at interpretation.26 Since Section 803 of the National Building Code and Rule XIX of its IRR do not
mention parking fees, then simply, said provisions do not regulate the collection of the same. The RTC and the Court of
Appeals correctly applied Article 1158 of the New Civil Code, which states:
Art. 1158. Obligations derived from law are not presumed. Only those expressly determined in this Code or in special
laws are demandable, and shall be regulated by the precepts of the law which establishes them; and as to what has
not been foreseen, by the provisions of this Book. (Emphasis ours.)
Hence, in order to bring the matter of parking fees within the ambit of the National Building Code and its IRR, the OSG
had to resort to specious and feeble argumentation, in which the Court cannot concur.
The OSG cannot rely on Section 102 of the National Building Code to expand the coverage of Section 803 of the same
Code and Rule XIX of the IRR, so as to include the regulation of parking fees. The OSG limits its citation to the first part
of Section 102 of the National Building Code declaring the policy of the State "to safeguard life, health, property, and
public welfare, consistent with the principles of sound environmental management and control"; but totally ignores the
second part of said provision, which reads, "and to this end, make it the purpose of this Code to provide for all
buildings and structures, a framework of minimum standards and requirements to regulate and control their location,
site, design, quality of materials, construction, use, occupancy, and maintenance." While the first part of Section 102
of the National Building Code lays down the State policy, it is the second part thereof that explains how said policy
shall be carried out in the Code. Section 102 of the National Building Code is not an all-encompassing grant of
regulatory power to the DPWH Secretary and local building officials in the name of life, health, property, and public
welfare. On the contrary, it limits the regulatory power of said officials to ensuring that the minimum standards and
requirements for all buildings and structures, as set forth in the National Building Code, are complied with.
Consequently, the OSG cannot claim that in addition to fixing the minimum requirements for parking spaces for
buildings, Rule XIX of the IRR also mandates that such parking spaces be provided by building owners free of charge. If
Rule XIX is not covered by the enabling law, then it cannot be added to or included in the implementing rules. The
rule-making power of administrative agencies must be confined to details for regulating the mode or proceedings to
carry into effect the law as it has been enacted, and it cannot be extended to amend or expand the statutory
requirements or to embrace matters not covered by the statute. Administrative regulations must always be in
harmony with the provisions of the law because any resulting discrepancy between the two will always be resolved in
favor of the basic law.27
From the RTC all the way to this Court, the OSG repeatedly referred to Republic v. Gonzales28 and City of Ozamis v.
Lumapas29 to support its position that the State has the power to regulate parking spaces to promote the health,
safety, and welfare of the public; and it is by virtue of said power that respondents may be required to provide free
parking facilities. The OSG, though, failed to consider the substantial differences in the factual and legal backgrounds
of these two cases from those of the Petition at bar.
In Republic, the Municipality of Malabon sought to eject the occupants of two parcels of land of the public domain to
give way to a road-widening project. It was in this context that the Court pronounced:
Indiscriminate parking along F. Sevilla Boulevard and other main thoroughfares was prevalent; this, of course, caused
the build up of traffic in the surrounding area to the great discomfort and inconvenience of the public who use the
streets. Traffic congestion constitutes a threat to the health, welfare, safety and convenience of the people and it can
only be substantially relieved by widening streets and providing adequate parking areas.
The Court, in City of Ozamis, declared that the City had been clothed with full power to control and regulate its streets
for the purpose of promoting public health, safety and welfare. The City can regulate the time, place, and manner of
parking in the streets and public places; and charge minimal fees for the street parking to cover the expenses for
supervision, inspection and control, to ensure the smooth flow of traffic in the environs of the public market, and for
the safety and convenience of the public.
Republic and City of Ozamis involved parking in the local streets; in contrast, the present case deals with privately
owned parking facilities available for use by the general public. In Republic and City of Ozamis, the concerned local
governments regulated parking pursuant to their power to control and regulate their streets; in the instant case, the
DPWH Secretary and local building officials regulate parking pursuant to their authority to ensure compliance with the
minimum standards and requirements under the National Building Code and its IRR. With the difference in subject
matters and the bases for the regulatory powers being invoked, Republic and City of Ozamis do not constitute
precedents for this case.
Indeed, Republic and City of Ozamis both contain pronouncements that weaken the position of the OSG in the case at
bar. In Republic, the Court, instead of placing the burden on private persons to provide parking facilities to the general
public, mentioned the trend in other jurisdictions wherein the municipal governments themselves took the initiative to
make more parking spaces available so as to alleviate the traffic problems, thus:
Under the Land Transportation and Traffic Code, parking in designated areas along public streets or highways is
allowed which clearly indicates that provision for parking spaces serves a useful purpose. In other jurisdictions where
traffic is at least as voluminous as here, the provision by municipal governments of parking space is not limited to
parking along public streets or highways. There has been a marked trend to build off-street parking facilities with the
view to removing parked cars from the streets. While the provision of off-street parking facilities or carparks has been
commonly undertaken by private enterprise, municipal governments have been constrained to put up carparks in
response to public necessity where private enterprise had failed to keep up with the growing public demand. American
courts have upheld the right of municipal governments to construct off-street parking facilities as clearly redounding
to the public benefit.30
In City of Ozamis, the Court authorized the collection by the City of minimal fees for the parking of vehicles along the
streets: so why then should the Court now preclude respondents from collecting from the public a fee for the use of
the mall parking facilities? Undoubtedly, respondents also incur expenses in the maintenance and operation of the
mall parking facilities, such as electric consumption, compensation for parking attendants and security, and upkeep of
the physical structures.
It is not sufficient for the OSG to claim that "the power to regulate and control the use, occupancy, and maintenance of
buildings and structures carries with it the power to impose fees and, conversely, to control, partially or, as in this
case, absolutely, the imposition of such fees." Firstly, the fees within the power of regulatory agencies to impose are
regulatory fees. It has been settled law in this jurisdiction that this broad and all-compassing governmental
competence to restrict rights of liberty and property carries with it the undeniable power to collect a regulatory fee. It
looks to the enactment of specific measures that govern the relations not only as between individuals but also as
between private parties and the political society.31 True, if the regulatory agencies have the power to impose
regulatory fees, then conversely, they also have the power to remove the same. Even so, it is worthy to note that the
present case does not involve the imposition by the DPWH Secretary and local building officials of regulatory fees upon
respondents; but the collection by respondents of parking fees from persons who use the mall parking facilities.
Secondly, assuming arguendo that the DPWH Secretary and local building officials do have regulatory powers over the
collection of parking fees for the use of privately owned parking facilities, they cannot allow or prohibit such collection
arbitrarily or whimsically. Whether allowing or prohibiting the collection of such parking fees, the action of the DPWH
Secretary and local building officials must pass the test of classic reasonableness and propriety of the measures or
means in the promotion of the ends sought to be accomplished.32
Keeping in mind the aforementioned test of reasonableness and propriety of measures or means, the Court notes that
Section 803 of the National Building Code falls under Chapter 8 on Light and Ventilation. Evidently, the Code deems it
necessary to regulate site occupancy to ensure that there is proper lighting and ventilation in every building. Pursuant
thereto, Rule XIX of the IRR requires that a building, depending on its specific use and/or floor area, should provide a
minimum number of parking spaces. The Court, however, fails to see the connection between regulating site
occupancy to ensure proper light and ventilation in every building vis-à-vis regulating the collection by building owners
of fees for the use of their parking spaces. Contrary to the averment of the OSG, the former does not necessarily
include or imply the latter. It totally escapes this Court how lighting and ventilation conditions at the malls could be
affected by the fact that parking facilities thereat are free or paid for.
The OSG attempts to provide the missing link by arguing that:
Under Section 803 of the National Building Code, complimentary parking spaces are required to enhance light and
ventilation, that is, to avoid traffic congestion in areas surrounding the building, which certainly affects the ventilation
within the building itself, which otherwise, the annexed parking spaces would have served. Free-of-charge parking
avoids traffic congestion by ensuring quick and easy access of legitimate shoppers to off-street parking spaces
annexed to the malls, and thereby removing the vehicles of these legitimate shoppers off the busy streets near the
commercial establishments.33
The Court is unconvinced. The National Building Code regulates buildings, by setting the minimum specifications and
requirements for the same. It does not concern itself with traffic congestion in areas surrounding the building. It is
already a stretch to say that the National Building Code and its IRR also intend to solve the problem of traffic
congestion around the buildings so as to ensure that the said buildings shall have adequate lighting and ventilation.
Moreover, the Court cannot simply assume, as the OSG has apparently done, that the traffic congestion in areas
around the malls is due to the fact that respondents charge for their parking facilities, thus, forcing vehicle owners to
just park in the streets. The Court notes that despite the fees charged by respondents, vehicle owners still use the mall
parking facilities, which are even fully occupied on some days. Vehicle owners may be parking in the streets only
because there are not enough parking spaces in the malls, and not because they are deterred by the parking fees
charged by respondents. Free parking spaces at the malls may even have the opposite effect from what the OSG
envisioned: more people may be encouraged by the free parking to bring their own vehicles, instead of taking public
transport, to the malls; as a result, the parking facilities would become full sooner, leaving more vehicles without
parking spaces in the malls and parked in the streets instead, causing even more traffic congestion.
Without using the term outright, the OSG is actually invoking police power to justify the regulation by the State,
through the DPWH Secretary and local building officials, of privately owned parking facilities, including the collection
by the owners/operators of such facilities of parking fees from the public for the use thereof. The Court finds, however,
that in totally prohibiting respondents from collecting parking fees from the public for the use of the mall parking
facilities, the State would be acting beyond the bounds of police power.
Police power is the power of promoting the public welfare by restraining and regulating the use of liberty and property.
It is usually exerted in order to merely regulate the use and enjoyment of the property of the owner. The power to
regulate, however, does not include the power to prohibit. A fortiori, the power to regulate does not include the power
to confiscate. Police power does not involve the taking or confiscation of property, with the exception of a few cases
where there is a necessity to confiscate private property in order to destroy it for the purpose of protecting peace and
order and of promoting the general welfare; for instance, the confiscation of an illegally possessed article, such as
opium and firearms. 34
When there is a taking or confiscation of private property for public use, the State is no longer exercising police power,
but another of its inherent powers, namely, eminent domain. Eminent domain enables the State to forcibly acquire
private lands intended for public use upon payment of just compensation to the owner.35
Normally, of course, the power of eminent domain results in the taking or appropriation of title to, and possession of,
the expropriated property; but no cogent reason appears why the said power may not be availed of only to impose a
burden upon the owner of condemned property, without loss of title and possession.36 It is a settled rule that neither
acquisition of title nor total destruction of value is essential to taking. It is usually in cases where title remains with the
private owner that inquiry should be made to determine whether the impairment of a property is merely regulated or
amounts to a compensable taking. A regulation that deprives any person of the profitable use of his property
constitutes a taking and entitles him to compensation, unless the invasion of rights is so slight as to permit the
regulation to be justified under the police power. Similarly, a police regulation that unreasonably restricts the right to
use business property for business purposes amounts to a taking of private property, and the owner may recover
therefor.371avvphi1
Although in the present case, title to and/or possession of the parking facilities remain/s with respondents, the
prohibition against their collection of parking fees from the public, for the use of said facilities, is already tantamount
to a taking or confiscation of their properties. The State is not only requiring that respondents devote a portion of the
latter’s properties for use as parking spaces, but is also mandating that they give the public access to said parking
spaces for free. Such is already an excessive intrusion into the property rights of respondents. Not only are they being
deprived of the right to use a portion of their properties as they wish, they are further prohibited from profiting from its
use or even just recovering therefrom the expenses for the maintenance and operation of the required parking
facilities.
The ruling of this Court in City Government of Quezon City v. Judge Ericta38 is edifying. Therein, the City Government
of Quezon City passed an ordinance obliging private cemeteries within its jurisdiction to set aside at least six percent
of their total area for charity, that is, for burial grounds of deceased paupers. According to the Court, the ordinance in
question was null and void, for it authorized the taking of private property without just compensation:
There is no reasonable relation between the setting aside of at least six (6) percent of the total area of all private
cemeteries for charity burial grounds of deceased paupers and the promotion of' health, morals, good order, safety, or
the general welfare of the people. The ordinance is actually a taking without compensation of a certain area from a
private cemetery to benefit paupers who are charges of the municipal corporation. Instead of' building or maintaining
a public cemetery for this purpose, the city passes the burden to private cemeteries.
'The expropriation without compensation of a portion of private cemeteries is not covered by Section 12(t) of Republic
Act 537, the Revised Charter of Quezon City which empowers the city council to prohibit the burial of the dead within
the center of population of the city and to provide for their burial in a proper place subject to the provisions of general
law regulating burial grounds and cemeteries. When the Local Government Code, Batas Pambansa Blg. 337 provides in
Section 177(q) that a sangguniang panlungsod may "provide for the burial of the dead in such place and in such
manner as prescribed by law or ordinance" it simply authorizes the city to provide its own city owned land or to buy or
expropriate private properties to construct public cemeteries. This has been the law, and practise in the past. It
continues to the present. Expropriation, however, requires payment of just compensation. The questioned ordinance is
different from laws and regulations requiring owners of subdivisions to set aside certain areas for streets, parks,
playgrounds, and other public facilities from the land they sell to buyers of subdivision lots. The necessities of public
safety, health, and convenience are very clear from said requirements which are intended to insure the development
of communities with salubrious and wholesome environments. The beneficiaries of the regulation, in turn, are made to
pay by the subdivision developer when individual lots are sold to homeowners.
In conclusion, the total prohibition against the collection by respondents of parking fees from persons who use the mall
parking facilities has no basis in the National Building Code or its IRR. The State also cannot impose the same
prohibition by generally invoking police power, since said prohibition amounts to a taking of respondents’ property
without payment of just compensation.
Given the foregoing, the Court finds no more need to address the issue persistently raised by respondent SM Prime
concerning the unconstitutionality of Rule XIX of the IRR. In addition, the said issue was not among those that the
parties, during the pre-trial conference for Civil Cases No. 12-08 and No. 00-1210, agreed to submit for resolution of
the RTC. It is likewise axiomatic that the constitutionality of a law, a regulation, an ordinance or an act will not be
resolved by courts if the controversy can be, as in this case it has been, settled on other grounds.39
WHEREFORE, the instant Petition for Review on Certiorari is hereby DENIED. The Decision dated 25 January 2007 and
Resolution dated 14 March 2007 of the Court of Appeals in CA-G.R. CV No. 76298, affirming in toto the Joint Decision
dated 29 May 2002 of the Regional Trial Court of Makati City, Branch 138, in Civil Cases No. 00-1208 and No. 00-1210
are hereby AFFIRMED. No costs.
SO ORDERED.

ARTICLE 1159

G.R. No. 121810 December 7, 2001

SPOUSES INOCENCIO AND ADORACION SAN ANTONIO, petitioners,
vs.
COURT OF APPEALS AND SPOUSES MARIO AND GREGORIO GERONIMO, respondents.
QUISUMBING, J.:
This is a petition for review seeking the reversal of the decision1 dated April 28, 1995, of the Court of Appeals in CA-
G.R. SP No. 35271 affirming the orders dated May 5, 1994,2July 12, 19943 and September 1, 1994, 4 respectively, of the
Regional Trial Court of Malolos Bulacan, Branch 22, granting the motion for execution of compromise judgment dated
September 22, 1993 in Civil Case No. 233-M-92.
The facts, as culled from the records, are as follows:
Private respondents spouses Mario and Gregoria Geronimo obtained a loan in the amount of One Million Twenty Eight
Thousand Pesos (P1,028,000) from petitioners, the spouses Inocencio and Adoracion San Antonio. To secure the loan,
private respondents mortgaged two parcels of land covered by TCT No. RT-6653 with an area of 10,390 square meters
and TCT No. RT-6652 with an area of 2,556 square meters, both situated in Barrio Tabe, Guiguinto, Bulacan.
Subsequently, private respondents obtained an additional loan of Nine Hundred Fifty Nine Pesos (P991,859) with an
interest of 3.33% per month, thus making their total obligation in the amount of Two Million Nineteen Thousand Eight
Hundred Fifty Nine Pesos (P2,019,859), payable on or before February 15, 1991. Private respondents failed to pay the
loan and the interest on the due date, hence, the mortgage was extra-judicially foreclosed. During the auction sale,
petitioners, being the highest bidder bought the two parcels of land.
Before the one-year redemption period expired, private respondents filed a complaint for annulment of extra-judicial
foreclosure with preliminary mandatory injunction, docketed as Civil Case No. 233-M-92, with the Regional Trial Court
of Bulacan, Branch 22. After the parties presented their respective evidence, they submitted to the court on
September 16, 1993, a compromise agreement dated August 25, 1993, the terms and conditions of which are quoted
as follows:
COME NOW parties assisted by their respective counsels and before the Honorable Court most respectfully
submit this compromise agreement, the terms and conditions of which are:
1. For a consideration of TWO MILLION PESOS (P2,000,000.00) Philippine Currency in hand received today by
the defendants spouses Inocencio and Adoracion San Antonio from the plaintiffs, defendants San Antonio will
execute a deed of resale/reconveyance/redemption of that subject property covered by TCT No. RT-6653 (T-
209250) of the Registry of Deeds of Bulacan including its improvements;
2. For the release/resale/reconveyance of the other property involved in the case described in TCT No. RT-6652
(T-296744) of the other property involved in the case described in TCT No. RT-6652 (T-296744) of the Registry
of Deeds of Bulacan together with its improvements, plaintiffs obligate themselves to transfer the ownership of
the following to the defendants San Antonio.
a. That lot including its improvements situated in Brgy. Tuctucan, Municipality of Guiguinto, Bulcan,
covered by TCT No. 29832, Blk. 4, Lot No. 3 consisting of 135 square meters;
b. That lot situated in Brgy. Tuctucan, Municipality of Guiguinto, Bulcan covered by TCT No. 30078, Blk.
9, Lot 27 consisting of 78 square meters;
c. Another lot situated in Brgy. Tuctucan, Municipality of Guiguinto, Bulcan, covered by TCT No. 30079,
Blk. No. 38 consisting of 75 square meters.
 Within six (6) months from signing of this compromise agreement simultaneous to which delivery of the title to
the afore-mentioned properties in the names of the defendants San Antonio, the defendants San Antonio will
execute the corresponding instrument of resale/reconveyance/redemption over that properly together with its
improvements covered by TCT No. RT-6652 (T-296744), for the purpose of the cancellation of the annulment of
the sale in the title subject to the condition that should plaintiffs fail to deliver the titles to the three lots
heretofore mentioned to the defendants San Antonio, the said plaintiffs shall be deemed to have waived and
renounced any all rights, claims and demands whatsoever they may have over that property covered by TCT
No. RT-6652 (T-296744) including its improvements and thenceforth bind themselves to respect the right of
ownership, and possession of the defendants San Antonio over said property, or to pay Two Million Pesos
(P2,000,000.00) within the same period;
3. That the parties further agree to set aside any claim, damages and counter-claims they may have against
each other;
4. That in the meantime, the possession of the plaintiffs of the subject property covering TCT No. 6652 (T-
296744) and TCT No. RT-6653 (T-209250) shall it be respect; (SIC)
5. This compromise agreement shall be in full settlement of the obligations of the plaintiffs with respect to
Kasulatan ng Sanglaan dated February 14, 1989 and the Susog ng Kasulatan ng Sanglaan dated July 16, 1990,
subject matter of the complaint, and those related there.
6. This compromise agreement is immediately executory (underscoring supplied).5
Finding the above to be in order, the trial court approved the same in its order dated September 22, 1993, thus:
A careful perusal of the Compromise Agreement dated August 25, 1993 reveals that the terms and conditions
thereof are not contrary to law, morals and public policy.
ACCORDINGLY, the compromise agreement dated August 25, 1993 is hereby APPROVED. The parties are
enjoined to comply faithfully with their obligation under said agreement.
SO ORDERED.6
In accordance with the stipulations in paragraph 1 of the Compromise Agreement, petitioners executed a Certificate of
Redemption and Cancellation of Sale covering TCT No. RT-6653 after private respondents paid them Two Million Pesos
(P2,000,000). Private respondents, however, failed to transfer the ownership and deliver the titles of the three parcels
of land described in paragraph 2 of the agreement or to pay 2 Million Pesos within the six-month period from August
25, 1993. It was only on March 4, 1994, after the lapse of six months that private respondents delivered the three
titles to petitioners. As the delivery was beyond the agreed six-month period, petitioners refused to accept the same
or execute an instrument for the resale, reconveyance or redemption of the property covered by TCT No. RT-6652.
Consequently, TCT No. RT-6652 was cancelled and in lieu thereof, TCT No. T-47229 was issued in the names of
petitioners.
Private respondents filed a motion for execution of the September 22, 1993 order with the trial court. This was granted
on May 5, 1994. Petitioners filed a motion for reconsideration but this was denied on July 12, 1994. A second motion
for reconsideration by petitioners was likewise denied in an order dated September 1, 1994.
Petitioners filed a Petition for Certiorari with application for a Temporary Restraining Order and/or Writ of Preliminary
Injunction with the Court of Appeals. As said earlier, the Court of Appeals denied the petition on April 28, 1995, thus:
WHEREFORE, the petition for certiorari is hereby DENIED DUE COURSE, and is DISMISSED. The Orders of
respondent court dated May 1[5], July 12, and September 1, 1994 are AFFIRMED.
SO ORDERED.7
Hence this petition for review wherein petitioners aver that the Court of Appeals erred in:
I. …RULING THAT THE ORDER DATED MAY 5, 1994 DID NOT SUBSTANTIALLY AMEND THE FINAL AND
EXECUTORY JUDGMENT RENDERED BASED ON A COMPROMISE AGREEMENT.
II. …RULING THAT THE PRINCIPLE OF EQUITY IS A GROUND TO JUSTIFY THE AMENDMENT OF A FINAL AND
EXECUTORY JUDGMENT.
III. …RULING THAT THE DELAY IN THE DELIVERY OF THE TITLES IS ATTRIBUTABLE TO THE REGISTER OF DEEDS
OF BULACAN.
IV. …APPLYING ARTICLE 1191 OF THE NEW CIVIL CODE.
V. …NOT RULING THAT THE COMPROMISE AGREEMENT IS IMMEDIATELY EXECUTORY AS PROVIDED IN
PARAGRAPH 6 THEREOF.
VI. … NOT RULING THAT PETITIONERS HAVE ALREADY COMPLIED WITH PARAGRAPH 1 OF THE COMPROMISE
AGREEMENT.8
In sum, petitioners raise the following issues for our resolution:
1. Did the trial court err in granting the writ to execute the compromise judgment?
2. Is Article 1191 of the New Civil Code applicable in this case?
On the first issue, did the trial court err in granting the writ to execute the compromise judgment? Petitioners claim
that the trial court did. The compromise agreement approved by the trial court in its order dated September 22, 1993,
provided that private respondents had six months within which to deliver the titles. If they failed, ownership of the land
covered by TCT No. RT-6652 would be transferred to petitioners. Petitioners contend that judgement based on a
compromise is conclusive upon the parties and is immediately executory. It has the force and effect of res
judicata, hence it cannot be modified. The trial court therefore, cannot compel petitioners, via a writ of execution, to
accept the three titles beyond the six-month period, because it is in effect an amendment to the compromise
agreement, petitioners said. They explain that even on equitable considerations this was not allowed because once a
decision becomes final, the court which rendered it loses jurisdiction over the case and it can no longer be modified
except for clerical errors.
Petitioners also contend that private respondents should not blame the Register of Deeds for the delay in the delivery
of the three titles since private respondents submitted the registration documents to the Register of Deeds only on
March 2, 1994, beyond the six-month period deadline.
Further, petitioners deny that they are guilty of delay for not executing the deed of resale, reconveyance or
redemption despite their receipt of two million pesos. They said that as early as August 25, 1993, they already
executed a Certificate of Redemption and Cancellation of Sale of the land covered by TCT No. RT-6653.
Private respondents counter that there has been no modification of the final judgment when the trial judge issued the
writ of execution, as the judge issued the writ of execution, as the judge was merely performing a ministerial duty.
Also, private respondents deny that they delivered the three titles late and if ever the delivery was delayed it was the
Register of Deeds who was to blame. Private respondents additionally point out that in reciprocal obligations, like the
ones in this case, delay sets in only when one part fulfills his obligation and the other is unable to perform his part of
the obligation. Likewise, a person obligated to deliver something incurs in delay only after demand. As herein
petitioners have not yet made demand and as they have not yet performed their part of the agreement, which was the
execution of the deed of reconveyance, delay by private respondents has not yet occurred.
We find petitioners' petition impressed with merit.
A compromise agreement, once approved by final order of the court, has the force of res judicata between the parties
and should not be disturbed except for vices of consent or forgery.9 In this case, the compromise agreement clearly
provided private respondents six months, i.e., from August 25, 1993 to February 25, 1994, to deliver the titles to the
three parcels of land described in the agreement. If after the lapse of the said period and no delivery is yet made by
private respondents, ownership over the land covered by TCT No. RT-6652 would be transferred to petitioners. As the
facts of this case show, private respondents failed to deliver the titles on February 25, 1994, as it was only on March 4,
1994, when they gave the titles to petitioners. Hence, pursuant to the terms of the compromise agreement, petitioners
could rightfully refuse acceptance of the titles. It was error therefore for the trial court to grant the writ of execution in
favor of private respondents because it effectively compelled petitioners to accept delivery of the three titles in
exchange for the release of the land covered by TCT No. RT-6652 even after the lapse of the six-month period.
Private respondents claim that the trial court, in issuing the writ, was merely performing a ministerial duty. While it
becomes the trial court's ministerial duty to issue a writ of execution may be refused on equitable grounds.10 In this
case, it will be unjust to petitioners if we compel them to accept the three titles despite the lapse of the agreed period.
Contractual obligations between parties have the force of law between them and absent any allegation that the same
are contrary to law, morals, good customs, public order or public policy, they must be complied with in good faith.11
Both the trial court and the Court of Appeals attributed to the Register of Deeds private respondents' delay in the
delivery of the three titles. But as shown in their decisions, private respondents submitted to the Register of Deeds the
pertinent documents for registration of the three titles in petitioners' name only on March 2, 1994, beyond the six-
month period.12 Private respondents could have done so earlier, but they did not. This only shows that private
respondents did not intend to truly comply with their obligations.
As to the alleged delay on the part of petitioners in executing the Deed of Resale and Reconveyance, we find that this
point serves only to confuse the Court on the real facts of the case. Despite the fact that the compromise agreement
involved two parcels of land up for redemption, private respondents did not indicate as to which parcel of land
petitioners did not execute a deed of resale.13 Nevertheless, private respondents admitted that petitioners already
executed a Certificate of Redemption. 14 For us, this was sufficient compliance of petitioners' duty under the
Compromise Agreement.
Lastly, is Article 1191 of the New Civil Code15 applicable in this case? According to petitioners, the Court of Appeals
erred when it found that private respondents' delay did not constitute substantial breach to warrant rescission of the
compromise agreement. They assert that they were not seeking rescission of the compromise agreement but its full
enforcement regardless of whether the delay is slight or substantial.
While indeed private respondents did not meet head on this issue, we find that it should be properly addressed. In
filing the petition before the Court of Appeals, petitioners sought the appellate court's declaration that the trial court
committed grave abuse of discretion. In their view, the trial court should have enforced the compromise agreement
instead of rescinding it. Thus, it was error for the Court of Appeals to apply Article 1191 of the New Civil Code which
concerns rescission of contract. Applicable here is Article 1159 which enjoins compliance in good faith by the parties
who entered into a valid contract.16 Compromise agreements are contracts, whereby the parties undertake reciprocal
obligations to avoid litigation, or put an end to one already commenced.17
WHEREFORE, the petition is GRANTED. The decision dated April 28, 1995, and resolution dated September 11, 1995,
of the Court of Appeals in CA-G.R. SP No. 35271 areREVERSED AND SET ASIDE. Accordingly, the orders dated May
5, 1994, July 12, 1994 and September 1, 1994, of the Regional Trial Court of Malolos, Bulacan, Branch 22, are hereby
declared NULL AND VOID. Private respondents are ordered to cease and desist from disturbing the ownership and
possession by petitioners of the parcel of land covered by TCT No. RT-6652. Costs against private respondents.
SO ORDERED.

G.R. No. 142830 March 24, 2006

WILLIAM GOLANGCO CONSTRUCTION CORPORATION, Petitioner,
vs.
PHILIPPINE COMMERCIAL INTERNATIONAL BANK*, Respondent

DECISION
CORONA, J.:

The facts of this case are straightforward.1

William Golangco Construction Corporation (WGCC) and the Philippine Commercial International Bank (PCIB) entered
into a contract for the construction of the extension of PCIB Tower II (denominated as PCIB Tower II, Extension Project
[project])2 on October 20, 1989. The project included, among others, the application of a granitite wash-out finish3 on
the exterior walls of the building.
PCIB, with the concurrence of its consultant TCGI Engineers (TCGI), accepted the turnover of the completed work by
WGCC in a letter dated June 1, 1992. To answer for any defect arising within a period of one year, WGCC submitted a
guarantee bond dated July 1, 1992 issued by Malayan Insurance Company, Inc. in compliance with the construction
contract.4
The controversy arose when portions of the granitite wash-out finish of the exterior of the building began peeling off and falling from the walls in

1993. WGCC made minor repairs after PCIB requested it to rectify the construction defects. In 1994, PCIB entered into another contract with Brains and

Brawn Construction and Development Corporation to re-do the entire granitite wash-out finish after WGCC manifested that it was "not in a position to do

the new finishing work," though it was willing to share part of the cost. PCIB incurred expenses amounting to P11,665,000 for the repair work.

PCIB filed a request for arbitration with the Construction Industry Arbitration Commission (CIAC) for the reimbursement of its expenses for the repairs

made by another contractor. It complained of WGCC’s alleged non-compliance with their contractual terms on materials and workmanship. WGCC

interposed a counterclaim for P5,777,157.84 for material cost adjustment.

The CIAC declared WGCC liable for the construction defects in the project.5 WGCC filed a petition for review with the Court of Appeals (CA) which

dismissed it for lack of merit.6Its motion for reconsideration was similarly denied.7

In this petition for review on certiorari, WGCC raises this main question of law: whether or not petitioner WGCC is liable for defects in the granitite wash-

out finish that occurred after the lapse of the one-year defects liability period provided in Art. XI of the construction contract.8

We rule in favor of WGCC.

The controversy pivots on a provision in the construction contract referred to as the defects liability period:

ARTICLE XI – GUARANTEE

Unless otherwise specified for specific works, and without prejudice to the rights and causes of action of the OWNER under Article 1723 of the Civil

Code, the CONTRACTOR hereby guarantees the work stipulated in this Contract, and shall make good any defect in materials and

workmanship which [becomes] evident within one (1) year after the final acceptance of the work. The CONTRACTOR shall leave the work in

perfect order upon completion and present the final certificate to the ENGINEER promptly.

If in the opinion of the OWNER and ENGINEER, the CONTRACTOR has failed to act promptly in rectifying any defect in the work which appears within the

period mentioned above, the OWNER and the ENGINEER may, at their own discretion, using the Guarantee Bond amount for corrections, have the work

done by another contractor at the expense of the CONTRACTOR or his bondsmen.

However, nothing in this section shall in any way affect or relieve the CONTRACTOR’S responsibility to the OWNER. On the completion of

the [w]orks, the CONTRACTOR shall clear away and remove from the site all constructional plant, surplus materials, rubbish and temporary works of every

kind, and leave the whole of the [s]ite and [w]orks clean and in a workmanlike condition to the satisfaction of the ENGINEER and OWNER.9 (emphasis

ours)

Although both parties based their arguments on the same stipulations, they reached conflicting conclusions. A careful reading of the stipulations,

however, leads us to the conclusion that WGCC’s arguments are more tenable.

Autonomy of contracts

The autonomous nature of contracts is enunciated in Article 1306 of the Civil Code.

Article 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not

contrary to law, morals, good customs, public order, or public policy.

Obligations arising from contracts have the force of law between the parties and should be complied with in good faith.10 In characterizing the contract

as having the force of law between the parties, the law stresses the obligatory nature of a binding and valid agreement.

The provision in the construction contract providing for a defects liability period was not shown as contrary to law, morals, good customs, pubic order or

public policy. By the nature of the obligation in such contract, the provision limiting liability for defects and fixing specific guaranty periods was not only

fair and equitable; it was also necessary. Without such limitation, the contractor would be expected to make a perpetual guarantee on all materials and

workmanship.

The adoption of a one-year guarantee, as done by WGCC and PCIB, is established usage in the Philippines for private and government construction

contracts.11 The contract did not specify a different period for defects in the granitite wash-out finish; hence, any defect therein should have been

brought to WGCC’s attention within the one-year defects liability period in the contract.

We cannot countenance an interpretation that undermines a contractual stipulation freely and validly agreed upon. The courts will not relieve a party

from the effects of an unwise or unfavorable contract freely entered into.12

[T]he inclusion in a written contract for a piece of work [,] such as the one in question, of a provision defining a warranty period against defects, is not

uncommon. This kind of a stipulation is of particular importance to the contractor, for as a general rule, after the lapse of the period agreed upon therein,

he may no longer be held accountable for whatever defects, deficiencies or imperfections that may be discovered in the work executed by him.13

Interpretation of contracts

To challenge the guarantee period provided in Article XI of the contract, PCIB calls our attention to Article 62.2 which provides:

62.2 Unfulfilled Obligations

Notwithstanding the issue of the Defects Liability Certificate[,] the Contractor and the Owner shall remain liable for the fulfillment of any

obligation[,] incurred under the provisions of the Contract prior to the issue of the Defects Liability Certificate[,] which remains
unperformed at the time such Defects Liability Certificate is issued[. And] for the purpose of determining the nature and extent of any such

obligation, the Contract shall be deemed to remain in force between the parties of the Contract. (emphasis ours)

The defects in the granitite wash-out finish were not the "obligation" contemplated in Article 62.2. It was not an obligation that remained unperformed or

unfulfilled at the time the defects liability certificate was issued. The alleged defects occurred more than a year from the final acceptance by PCIB.

An examination of Article 1719 of the Civil Code is enlightening:

Art. 1719. Acceptance of the work by the employer relieves the contractor of liability for any defect in the work, unless:

(1) The defect is hidden and the employer is not, by his special knowledge, expected to recognize the same; or

(2) The employer expressly reserves his rights against the contractor by reason of the defect.

The lower courts conjectured that the peeling off of the granitite wash-out finish was probably due to "defective materials and workmanship." This they

characterized as hidden or latent defects. We, however, do not agree with the conclusion that the alleged defects were hidden.

First, PCIB’s team of experts14 (who were specifically employed to detect such defects early on) supervised WGCC’s workmanship. Second, WGCC

regularly submitted progress reports and photographs. Third, WGCC worked under fair and transparent circumstances. PCIB had access to the site and it

exercised reasonable supervision over WGCC’s work. Fourth, PCIB issued several "punch lists" for WGCC’s compliance before the issuance of PCIB’s final

certificate of acceptance. Fifth, PCIB supplied the materials for the granitite wash-out finish. And finally, PCIB’s team of experts gave their concurrence to

the turnover of the project.

The purpose of the defects liability period was precisely to give PCIB additional, albeit limited, opportunity to oblige WGCC to make good any defect,

hidden or otherwise, discovered within one year.

Contrary to the CA’s conclusion, the first sentence of the third paragraph of Article XI on guarantee previously quoted did not operate as a blanket

exception to the one-year guarantee period under the first paragraph. Neither did it modify, extend, nullify or supersede the categorical terms of the

defects liability period.

Under the circumstances, there were no hidden defects for which WGCC could be held liable. Neither was there any other defect for which PCIB made any

express reservation of its rights against WGCC. Indeed, the contract should not be interpreted to favor the one who caused the confusion, if any. The

contract was prepared by TCGI for PCIB.15

WHEREFORE, the petition is hereby GRANTED. The decision of the Court of Appeals in CA-G.R. SP No. 41152 is ANNULED and SET ASIDE.

SO ORDERED.

G.R. No. 179105 July 26, 2010

METROPOLITAN BANK AND TRUST COMPANY, Petitioner,
vs.
LARRY MARIÑAS, Respondent.
DECISION
NACHURA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court, seeking to annul and set aside the Court
of Appeals (CA) Decision1 dated July 31, 2007, affirming with modification the Regional Trial Court (RTC)
decision2 dated October 14, 2004.
The factual and procedural antecedents are as follows:
Sometime in April 1998, respondent Larry Mariñas returned to the Philippines from the United States of America. He
opened a personal dollar savings account 3 by depositing US$100,000.00 with petitioner Metropolitan Bank and Trust
Company. On April 13, 1998, respondent obtained a loan from petitioner in the amount of P2,300,000.00, evidenced
by Promissory Note No. 355873.4 From the initial deposit of US$100,000.00, respondent withdrew5US$67,227.95,6 then
deposited it under Account No. 0-26400171-6 (Foreign Currency Deposit [FCD] No. 505671), 7 which he used as
security8 for the P2,300,000.00 loan.
Respondent subsequently opened two more foreign currency accounts ― Account No. 0-26400244-5 (FCD No.
505688)9 and Account No. 0-264-00357-3 (FCD No. 739809) 10 ― depositing therein US$25,000.00 and US$17,000.00,
respectively. On April 30, 1999, respondent obtained a second loan of P645,150.00,11 secured12by Account No. 0-264-
00357-3 (FCD No. 739809).
When he inquired about his dollar deposits, respondent discovered that petitioner made deductions against the
former’s accounts. On May 31, 1999, respondent, through his counsel, demanded from petitioner a proper and
complete accounting of his dollar deposits, and the restoration of his deposits to their proper amount without the
deductions.13 In response, petitioner explained that the deductions made from respondent’s dollar accounts were used
to pay the interest due on the latter’s loan with the former. These deductions, according to petitioner, were authorized
by respondent through the Deeds of Assignment with Power of Attorney voluntarily executed by respondent.14
Unsatisfied, and believing that the deductions were unauthorized, respondent commenced an action for Damages
against petitioner and its Kabihasnan, Parañaque City Branch Manager Expedito Fernandez (Fernandez) before the
RTC, Las Piñas City. The case was docketed as Civil Case No. 99-0172 and was raffled to Branch 255. While admitting
the existence of the P2,300,000.00 and P645,150.00 loans, respondent claimed that when he signed the loan
documents, they were all in blank and they were actually filled up by petitioner. Aside from the complete accounting of
his dollar accounts and the restoration of the true amounts of his deposits, respondent sought the payment
of P400,000.00 as moral damages, P100,000.00 as exemplary damages, and P100,000.00 as attorney’s fees.15
On its part, petitioner insisted that respondent freely and voluntarily signed the loan documents. While admitting the
full payment of respondent’s P2,300,000.00 and P645,150.00 loans, petitioner claimed that the payments were made
using the former’s US$67,227.95, US$25,000.00, and US$17,000.00 time deposits. Accordingly, there was nothing to
account for and restore. By way of counterclaim, petitioner prayed for the payment of P200,000.00 as attorney’s
fees, P1,000,000.00 as moral damages, and P500,000.00 as exemplary damages.16
As no amicable settlement was reached, trial on the merits ensued.
On October 14, 2004, the RTC rendered a decision in favor of respondent, the dispositive portion of which reads:
WHEREFORE, the foregoing considered, judgment is hereby rendered in favor of plaintiff Larry Mari[ñ]as, and against
the defendants Metropolitan Bank and Trust Company and Expedito Fernandez, ordering the said defendants to
account for the dollar deposits of the plaintiff in the amounts of US$30,000.00 and US$25,000.00, respectively, and
then return the same, including the interests due thereon reckoned from 31 May 1999 until fully paid.
Likewise, the defendants are hereby directed to pay to the herein plaintiff the following amounts, to wit:
1. P100,000.00 in moral damages;
2. P50,000.00 in exemplary damages;
3. P50,000.00 as and by way of attorney’s fees; and
4. Costs of suit.
SO ORDERED.17
The RTC sustained the validity and regularity of the loan documents signed by respondent, and consequently the
existence of the P2,300,000.00 and P645,150.00 loans obtained from petitioner. Acknowledging the full payment of
both loans, the trial court found that the payments were made from respondent’s foreign currency deposits,
particularly Account Numbers 0-26400171-6 (FCD No. 505671) and 0-264-00357-3 (FCD No. 739809), amounting to
US$67,227.95 and US$17,000.00, respectively. There is no doubt that respondent specifically assigned these accounts
to secure the payment of his loans pursuant to the Deeds of Assignment with Power of Attorney. Hence, the
deductions made from such accounts were valid. However, the RTC found that petitioner should account for and
eventually return the US$30,000.00 and US$25,000.00 deposits of respondent since they were not assigned to answer
for the latter’s loans, and that any deductions made from these accounts were, therefore, illegal. Consequently,
petitioner was made to answer for damages suffered by respondent. 18 Being the petitioner’s Kabihasnan Branch
Manager, Fernandez was declared solidarily liable with petitioner.
On appeal, the CA modified the RTC decision by absolving Fernandez from liability. The appellate court held that
Fernandez could not be made to answer for acts done in the performance of his duty absent any showing that he
assented to patently unlawful acts of the corporation or was guilty of bad faith or gross negligence in directing its
affairs, or that he agreed to hold himself personally and solidarily liable with the corporation. 19 No proof was adduced
in this regard.
Hence, the instant petition raising the following issues:
1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN ORDERING PETITIONER TO ACCOUNT
FOR AND RETURN TO RESPONDENT THE SUMS OF US$30,000.00 AND US$25,000.00.
2. WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN HOLDING PETITIONER LIABLE TO
RESPONDENT FOR MORAL AND EXEMPLARY DAMAGES, AS WELL AS ATTORNEY’S FEES AND COSTS OF SUIT.20
Petitioner assails the CA Decision affirming the former’s culpability for making unlawful deductions from respondent’s
dollar accounts without the latter’s consent. Additionally, it questions the award of moral and exemplary damages, as
well as attorney’s fees.
We agree with the CA’s factual findings as to the deposits and withdrawals made and loans obtained by respondent.
We do not, however, agree with its conclusion that petitioner absolutely lacked the authority to make deductions from
respondent’s deposits for the payment of his outstanding obligations.
It is apt to stress the well-settled principle that factual findings of the trial court, affirmed by the CA, are binding and
conclusive upon this Court.21 In the absence of any showing that the findings complained of are totally devoid of
support in the evidence on record, or that they are so glaringly erroneous as to constitute serious abuse of discretion,
such findings must stand.22 The Court is not a trier of facts, its jurisdiction being limited to reviewing only errors of law
that may have been committed by the lower courts. 23 It is not the function of the Court to analyze or weigh all over
again the evidence or premises supportive of such factual determination. 24 The law creating the CA was intended
mainly to take away from the Supreme Court the work of examining the evidence, so that it may confine its task to the
determination of questions which do not call for the reading and study of transcripts containing the testimony of
witnesses.25
In the present case, we find no justification to deviate from the factual findings of the trial court and the appellate
court. Petitioner has utterly failed to convince us that the assailed findings are devoid of basis or are not supported by
substantial evidence.
It is noteworthy that respondent opened four accounts with petitioner: 1) Account No. 2264-00145-0 for
US$100,000.00; 2) Account No. 0-26400171-6 (FCD No. 505671) for US$67,227.95; 3) Account No. 0-26400244-5 (FCD
No. 505688) for US$25,000.00; and 4) Account No. 0-264-00357-3 (FCD No. 739809) for US$17,000.00. Admittedly,
respondent withdrew $70,000.00 from Account No. 2264-00145-0, leaving a balance of $30,000.00.
It is likewise undisputed that respondent obtained two separate loans from petitioner in amounts of P2,300,000.00
and P645,150.00. These were evidenced by promissory notes and secured by respondent’s two dollar accounts ―
Account Numbers 0-26400171-6 (FCD No. 505671) and 0-264-00357-3 (FCD No. 739809) ― for US$67,227.95 and
US$17,000.00, respectively. Respondent’s first loan of P2,300,000.00, obtained on April 13, 1998, was payable on April
8, 1999; while the second loan of P645,150.00, obtained on April 30, 1999, was payable on April 24, 2000. Records
show that the first loan was paid on April 21, 1999, with the payment therefor taken from Account No. 0-26400171-6.
The second loan, on the other hand, was paid on May 10, 1999, out of respondent’s Account No. 0-264-00357-3. It
should be clarified, though, that these payments referred only to the payment of the principal (P2,300,000.00
and P645,150.00) of respondent’s loans, exclusive of interests stipulated in the promissory notes executed by the
latter.
Aside from obligating himself to pay P2,300,000.00 as principal, respondent also agreed to pay interest at the rate of
22.929% per annum (not monthly) from April 13, 1998 until full payment. As respondent made full payment of the
principal on April 21, 1999, respondent was also obliged to pay interest until that date. As to the P645,150.00 loan,
respondent agreed to pay interest at the rate of 16.987% per annum.
Respondent later discovered that his accounts with petitioner were all depleted. Upon inquiry from petitioner, it
explained that pursuant to the Deeds of Assignment with Power of Attorney executed by respondent, it deducted from
respondent’s accounts the interest due on his loans.1avvphi1
Contrary to the conclusions of the RTC and the CA, we find that petitioner is empowered to make lawful deductions
from respondent’s accounts for such amounts due it. This is authorized in the Promissory Notes and Deeds of
Assignment with Power of Attorney executed by respondent, to wit:
I/We hereby give the Bank a general lien upon, and/or right of set-off and/or right to hold and/or apply to the loan
account, or any claim of the Bank against any of us, all my/our rights, title and interest in and to the balance of every
deposit account, money, negotiable instruments, commercial papers, notes, bonds, stocks, dividends, securities,
interest, credits, chose in action, claims, demands, funds or any interest in any thereof, and in any other property,
rights and interest of any of us or any evidence thereof, which have been, or at any time shall be delivered to, or
otherwise come into the possession, control or custody of the Bank or any of its subsidiaries, affiliates, agents or
correspondents now or anytime hereafter, for any purpose, whether or not accepted for the purpose or purposes for
which they are delivered or intended. For this purpose, I/We hereby appoint the Bank as my/our irrevocable Attorney-
in-fact with full power of substitution/delegation to sign or endorse any and all documents and perform any and all acts
and things required or necessary in the premises.26
Effective upon default in the payment of CREDIT, or any part thereof, the ASSIGNOR hereby grants to the ASSIGNEE,
full power and authority to collect/withdraw the deposit/proceeds/receivables/ investments/securities and apply the
collection/deposit to the payment of the outstanding principal, interest and other charges on the CREDIT. For this
purpose, the ASSIGNOR hereby names, constitutes and appoints the ASSIGNEE as his/its true and lawful Attorney-in-
Fact, with powers of substitution, to ask, demand, collect, sue for, recover and receive the
deposit/proceeds/receivables/investments/securities or any part thereof, as well as to encash, negotiate and endorse
checks, drafts and other commercial papers/instruments received by and paid to the ASSIGNEE, incident thereto and
to execute all instruments and agreements connected therewith. A written Certification by the ASSIGNEE of the
amount of its claims from the ASSIGNOR and/or the BORROWER shall be conclusive on the ASSIGNOR and/or the
BORROWER absent manifest error.27
As provided in Article 1159 of the Civil Code, "obligations arising from contract have the force of law between the
contracting parties and should be complied with in good faith." Verily, parties may freely stipulate their duties and
obligations which perforce would be binding on them. Not being repugnant to any legal proscription, the agreement
entered into between petitioner and respondent must be respected and given the force of law between them.28
Upon the maturity of the first loan on April 8, 1999, petitioner was authorized to automatically deduct, by way of
offsetting, respondent’s outstanding debt (including interests) to it from the latter’s deposit accounts and their
accumulated interest. Respondent did not object to the deduction made from the proceeds of Account No. 0-
26400171-6, but would limit such deduction only to the payment of the principal of P2,300,000.00. However, it should
be borne in mind that in addition to the authority to effect the said deduction for the principal loan amount, petitioner
was authorized to make further deductions for interest payments at the rate of 22.929% per annum until April 21,
1999.
With respect to the second loan, barely a month after the execution of the promissory note and definitely prior to the
maturity date, respondent already paid the principal of P645,150.00 out of the deposited amount in Account No. 0-
264-00357-3. Pursuant to the promissory note, respondent agreed to pay interest at the rate of 16.987% per annum.
While it is conceded that petitioner had the right to offset the unpaid interests due it against the deposits of
respondent, the issue of whether it acted judiciously is an entirely different matter. 29 As business affected with public
interest, and because of the nature of their functions, banks are under obligation to treat the accounts of their
depositors with meticulous care, always having in mind the fiduciary nature of their relationship.30
Pursuant to the above disquisition, it is clear that despite such authority, petitioner should still account for whatever
excess deductions made on respondent’s deposits and return to respondent such amounts taken from him. To be sure,
respondent had interest-earning deposits with petitioner in accordance with their agreement. On the other hand, after
respondent paid the principal on April 21, 1999 and May 10, 1999 on the two loans which he obtained from petitioner,
the latter had the authority to make deductions for the payment of interest as stipulated in respondent’s promissory
notes.
When we consider the total amount of respondent’s deposits in his dollar accounts inclusive of interests earned vis-à-
vis his total obligations to petitioner, we find that the total depletion of his accounts is not warranted. Hence, we find
no reason to disturb the CA conclusion on the award of damages. As aptly explained in Bank of the Philippine Islands v.
Court of Appeals:
For the above reasons, the Court finds no reason to disturb the award of damages granted by the CA against
petitioner. This whole incident would have been avoided had petitioner adhered to the standard of diligence expected
of one engaged in the banking business. A depositor has the right to recover reasonable moral damages even if the
bank’s negligence may not have been attended with malice and bad faith, if the former suffered mental anguish,
serious anxiety, embarrassment and humiliation. Moral damages are not meant to enrich a complainant at the
expense of defendant. It is only intended to alleviate the moral suffering she has undergone. The award of exemplary
damages is justified, on the other hand, when the acts of the bank are attended by malice, bad faith or gross
negligence. The award of reasonable attorney’s fees is proper where exemplary damages are awarded. It is proper
where depositors are compelled to litigate to protect their interest.31
WHEREFORE, premises considered, the Court of Appeals Decision dated July 31, 2007 is hereby AFFIRMED with
MODIFICATION. Petitioner is ordered to account for respondent’s dollar deposits inclusive of interests, subject to its
right to deduct from the said deposits his loan obligations amounting to P2,300,000.00, plus interest at 22.929% per
annum until full payment on April 21, 1999; and P645,150.00, plus interest at 16.987% per annum until full payment
on May 10, 1999. After such accounting, petitioner shall restore to respondent whatever excess amounts may have
been deducted from such deposits, together with the earned interests.
All other aspects of the assailed decision STAND.
SO ORDERED.
G.R. No. 185066 October 2, 2009
PHILIPPINE CHARTER INSURANCE CORPORATION, Petitioner,
vs.
PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, Respondent.
RESOLUTION
BRION, J.:
Petitioner Philippine Charter Insurance Corporation (PCIC) submits the present motion for the reconsideration1 of our
Resolution dated December 17, 2008, which denied due course to its petition for review on certiorari.2 It seeks to
reinstate the petition and effect a reversal of the Court of Appeals (CA) Decision3 and Resolution4 dated January 7,
2008 and October 29, 2008, respectively, in CA-G.R. CV No. 86948. In its petition, the petitioner imputes reversible
error on the appellate court for ruling that it is liable under PCIC Bond No. 27547 and under PCIC Bond No. 27546, as
the latter bond was not covered by the complaint for collection of sum of money filed by respondent Philippine
National Construction Corporation (PNCC).5
The facts, as drawn from the records, are briefly summarized below.
PNCC is engaged in the construction business and tollway operations. On October 16, 1997, PNCC conducted a public
bidding for the supply of labor, materials, tools, supervision, equipment, and other incidentals necessary for the
fabrication and delivery of 27 tollbooths to be used for the automation of toll collection along the expressways.
Orlando Kalingo (Kalingo) won in the bidding and was awarded the contract.
On November 13, 1997, PNCC issued – in favor of Kalingo – Purchase Order (P.O.) No. 71024L for 25 units of tollbooths
for a total of P2,100,000.00, and P.O. No. 71025L for two units of tollbooths amounting to P168,000.00. These
issuances were subject to the condition, among others, that each P.O. shall be covered by a surety bond equivalent to
100% of the total down payment (50% of the total cost reflected on the P.O.), and that the surety bond shall continue
in full force until the supplier shall have complied with all the undertakings and covenants to the full satisfaction of
PNCC.
Kalingo, hence, posted surety bonds – Surety Bond Nos. 27546 and 27547 – issued by the PCIC and whose terms and
conditions read:
Surety Bond No. 27546
To supply labor, materials, tools, supervision equipment, and other incidentals necessary for the fabrication and
delivery of Two (2) Units Toll Booth at San Fernando Interchange SB Entry as per Purchase Order No. 71025L, copy of
which is attached as Annex "A." This bond also guarantees the repayment of the down payment or whatever balance
thereof in the event of failure on the part of the Principal to finish the project due to his own fault.
It is understood that the liability of the Surety under this bond shall in no case exceed the sum of P84 ,000.00,
Philippine Currency.6
Surety Bond No. 27547
To supply labor, materials, tools, supervision equipment, and other incidentals necessary for the fabrication and
delivery of Twenty-five (25) Units Toll Booth at designated Toll Plaza as per Purchase Order No. 71024L, copy of which
is attached as Annex "A." This bond also guarantees the repayment of the down payment or whatever balance thereof
in the event of failure on the part of the Principal to finish the project due to his own fault.
It is understood that the liability of the Surety under this bond shall in no case exceed the sum of P1,050,000.00,
Philippine Currency.7
To illustrate, the PCIC surety bonds are in the amounts corresponding to down payments on each P.O., as follows:

Surety Bond No. Purchase Order Units Total Cost Surety

Covered Amount(equivalent to
50% down payment)

Bond No. 27547 P.O. No. 71024L 25 P2,100,000 P1,050,000

Bond No. 27546 P.O. No. 71025L 2 P 168,000 P 84,000

Both surety bonds also contain the following conditions: (1) the liability of PCIC under the bonds expires on March 16,
1998; and (2) a written extrajudicial demand must first be tendered to the surety, PCIC, within 15 days
from the expiration date; otherwise PCIC shall not be liable thereunder and the obligee waives the right
to claim or file any court action to collect on the bond. The following stipulation appears in the last paragraph of
these bonds:
The liability of PHILIPPINE CHARTER INSURANCE CORPORATION under this bond will expire on March 16, 1998.
Furthermore, it is hereby agreed and understood that PHILIPPINE CHARTER INSURANCE CORPORATION will not
be liable for any claim not presented to it in writing within FIFTEEN (15) DAYS from the expiration of this
bond, and that the Obligee hereby waives its right to claim or file any court action against the Surety
after the termination of FIFTEEN (15) DAYS from the time its cause of action accrues.8 (Emphasis supplied.)
PNCC released two checks to Kalingo representing the down payment of 50% of the total project cost, which were
properly receipted by Kalingo.9 Kalingo in turn submitted the two PCIC surety bonds securing the down payments,
which bonds were accepted by PNCC.
On March 3, 4, and 5, 1998, Kalingo made partial/initial delivery of four units of tollbooths under P.O. No. 71024L.
However, the tollbooths delivered were incomplete or were not fabricated according to PNCC specifications. Kalingo
failed to deliver the other 23 tollbooths up to the time of filing of the complaint; despite demands, he failed and
refused to comply with his obligation under the POs.
On March 9, 1998, six days before the expiration of the surety bonds and after the expiration of the delivery period
provided for under the award, PNCC filed a written extrajudicial claim against PCIC notifying it of Kalingo’s default and
demanding the repayment of the down payment on P.O. No. 71024L as secured by PCIC Bond No. 27547, in the
amount of P1,050,000.00. The claim went unheeded despite repeated demands. For this reason, on April 24, 2001,
PNCC filed with the Regional Trial Court (RTC), Mandaluyong City a complaint for collection of a sum of money against
Kalingo and PCIC.10 PNCC's complaint against PCIC called solely on PCIC Bond No. 27547; it did not raise or plead
collection under PCIC Bond No. 27546 which secured the down payment of P84,000.00 on P.O. No. 71025L.
PCIC, in its answer, argued that the partial delivery of four out of the 25 units of tollbooth by Kalingo under P.O. No.
71024L should reduce Kalingo's obligation.
The RTC, by Decision of October 31, 2005, ruled in favor of PNCC and ordered PCIC and Kalingo to jointly and severally
pay the latter P1,050,000.00, representing the value of PCIC Bond No. 27547, plus legal interest from last demand,
and P50,000.00 as attorney's fees. Reconsideration of the trial court's decision was denied. The trial court made no
ruling on PCIC’s liability under PCIC Bond No. 27546, a claim that was not pleaded in the complaint.
On appeal, the CA, by Decision 11 of January 7, 2008, held that the RTC erred in ruling that PCIC's liability is limited only
to the payment of P1,050,000.00 under PCIC Bond No. 27547 which secured the down payment on P.O. No.
71024L. The appellate court held that PCIC, as surety, is liable jointly and severally with Kalingo for the amount of
the two bonds securing the two POs to Kalingo; thus, the CA also held PCIC liable under PCIC Bond No. 27546 which
secured the P84,000.00 down payment on P.O. No. 71025L.
Reconsideration having been denied by the appellate court in its Resolution 12 of October 29, 2008, the PCIC lodged a
petition for review on certiorari13 before this Court.
The Court, by Resolution of December 17, 2008, denied due course to the petition. 14 Hence, the PCIC filed the present
motion for reconsideration submitting the following issues for our resolution:
I. WHETHER THE APPELLATE COURT ERRED IN RULING THAT PCIC SHOULD ALSO BE HELD LIABLE UNDER BOND
NO. 27546, COLLECTION UNDER WHICH WAS NOT SUBJECT OF RESPONDENT PNCC's COMPLAINT FOR
COLLECTION OF SUM OF MONEY;
II. WHETHER THE CHECKS ISSUED IN "1997" BY RESPONDENT PNCC TO KALINGO WERE GIVEN 10 MONTHS
PRIOR TO THE AWARD OF THE PROJECT AND AMOUNTS TO CONCEALMENT OF MATERIAL FACT VITIATING THE
SURETY BONDS ISSUED BY THE PETITIONER; and
III. WHETHER THE APPELLATE COURT ERRED IN HOLDING PETITIONER PCIC LIABLE FOR ATTORNEY'S FEES.
The second issue is a factual matter not proper in proceedings before this Court. The PCIC’s position that the checks
were issued 10 months prior to the award had already been rejected by both the RTC and the CA; both found that the
year "1997" appearing on the checks was a mere typographical error which should have been written as
"1998."15 Consequently, we shall no longer discuss the PCIC's allegation of material concealment; the factual findings
of the RTC, as affirmed by the CA, are conclusive on us.
Our consideration shall focus on the remaining two issues.
The PCIC presents, as its first issue, the argument that "[w]hen the Court of Appeals rendered judgment on Bond No.
27546, which was not subject of respondent's complaint, on the ground that respondent was incorrect in not filing suit
for Bond No. 27546, the Court of Appeals virtually acted as lawyer for respondent."16
We find the PCIC’s position meritorious.
The issue before us calls for a discussion of a court’s basic appreciation of allegations in a complaint. The fundamental
rule is that reliefs granted a litigant are limited to those specifically prayed for in the complaint; other reliefs prayed for
may be granted only when related to the specific prayer(s) in the pleadings and supported by the evidence on record.
Necessarily, any such relief may be granted only where a cause of action therefor exists, based on the complaint, the
pleadings, and the evidence on record.
Section 2, Rule 2 of the 1997 Rules of Civil Procedure defines a cause of action as the act or omission by which a party
violates the right of another. It is the delict or the wrongful act or omission committed by the defendant in violation of
the primary right of the plaintiff.17 Its essential elements are as follows:
1. A right in favor of the plaintiff by whatever means and under whatever law it arises or is created;
2. An obligation on the part of the named defendant to respect or not to violate such right; and
3. Act or omission on the part of such defendant in violation of the right of the plaintiff or constituting a breach of the
obligation of the defendant to the plaintiff for which the latter may maintain an action for recovery of damages or
other appropriate relief.18
Only upon the occurrence of the last element does a cause of action arise, giving the plaintiff the right to maintain an
action in court for recovery of damages or other appropriate relief.19
Each of the surety bonds issued by PCIC created a right in favor of PNCC to collect the repayment of the bonded down
payments made on the two POs if contractor Kalingo defaults on his obligation under the award to fabricate and
deliver to PNCC the tollbooths contracted for. Concomitantly, PCIC, as surety, had the obligation to comply with its
undertaking under the bonds to repay PNCC the down payments the latter made on the POs if Kalingo defaults.
It must be borne in mind that each of the two bonds is a distinct contract by itself, subject to its own terms and
conditions. They each contain a provision that the surety, PCIC, will not be liable for any claim not presented to it in
writing within 15 days from the expiration of the bond, and that the obligee (PNCC) thereby waives its right to claim or
file any court action against the surety (PCIC) after the termination of 15 days from the time its cause of action
accrues. This written claim provision creates a condition precedent for the accrual of: (1) PCIC’s obligation
to comply with its promise under the particular bond, and of (2) PNCC's right to collect or sue on these
bonds. PCIC’s liability to repay the bonded down payments arises only upon PNCC's filing of a written
claim – notifying PCIC of principal Kalingo’s default and demanding collection under the bond – within 15
days from the bond’s expiry date. PNCC’s failure to comply with the written claim provision has the
effect of extinguishing PCIC’s liability and constitutes a waiver by PNCC of the right to claim or sue under
the bond.
Liability on a bond is contractual in nature and is ordinarily restricted to the obligation expressly assumed therein. We
have repeatedly held that the extent of a surety's liability is determined only by the clause of the contract of
suretyship and by the conditions stated in the bond. It cannot be extended by implication beyond the terms of the
contract.20 Equally basic is the principle that obligations arising from contracts have the force of law between the
parties and should be complied with in good faith.21 Nothing can stop the parties from establishing stipulations,
clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy. 22 Here, nothing in the records shows the invalidity of the written claim
provision; therefore, the parties must strictly and in good faith comply with this requirement.
The records reveal that PNCC complied with the written claim provision, but only with respect to PCIC Bond No. 27547.
PNCC filed an extrajudicial demand with PCIC informing it of Kalingo’s default under the award and demanding the
repayment of the bonded down payment on P.O. No. 71024L. Conversely, nothing in the records shows that PNCC ever
complied with the provision with respect to PCIC Bond No. 27546. Why PNCC complied with the written claim provision
with respect to PCIC Bond No. 27547, but not with respect to PCIC Bond No. 27546, has not been explained by
PNCC. Under the circumstances, PNCC’s cause of action with respect to PCIC Bond No. 27546 did not and
cannot exist, such that no relief for collection thereunder may be validly awarded.
Hence, the trial court’s decision finding PCIC liable solely under PCIC Bond No. 27547 is correct – not only
because collection under the other bond, PCIC Bond No. 27546, was not raised or pleaded in the
complaint, but for the more important reason that no cause of action arose in PNCC’s favor with respect
to this bond. Consequently, the appellate court was in error for including liability under PCIC Bond No.
27546.
PNCC insists that conformably with the ruling of the CA, it should be entitled to collection under PCIC Bond No. 27546,
although collection thereunder was not specifically raised or pleaded in its complaint, because the bond was attached
to the complaint and formed part of the records. Also, considering that PCIC’s liability as surety has been duly proven
before the trial and appellate courts, PNCC posits that it is entitled to repayment under PCIC Bond No. 27546.
PNCC might be alluding to Section 2(c), Rule 7 of the Rules of Court, which provides that a pleading shall specify the
relief sought, but may add a general prayer for such further or other reliefs as may be deemed just and equitable.
Under this rule, a court can grant the relief warranted by the allegation and the proof even if it is not specifically
sought by the injured party;23 the inclusion of a general prayer may justify the grant of a remedy different from or
together with the specific remedy sought, 24 if the facts alleged in the complaint and the evidence introduced so
warrant.25
We find PNCC’s argument to be misplaced. A general prayer for "other reliefs just and equitable" appearing on a
complaint or pleading normally enables the court to award reliefs supported by the complaint or other pleadings, by
the facts admitted at the trial, and by the evidence adduced by the parties, even if these reliefs are not specifically
prayed for in the complaint. We cannot, however, grant PNCC the "other relief" of recovering under PCIC Bond No.
27546 because of the respect due the contractual stipulations of the parties. While it is true that PCIC’s liability under
PCIC Bond No. 27546 would have been clear under ordinary circumstances (considering that Kalingo's default under
his contract with PNCC is now beyond dispute), it cannot be denied that the bond contains a written claim provision,
and compliance with it is essential for the accrual of PCIC’s liability and PNCC’s right to collect under the bond.
As already discussed, this provision is the law between the parties on the matter of liability and collection under the
bond. Knowing fully well that PCIC Bond No. 27546 is a matter of record, duly proven and susceptible of the court’s
scrutiny, the trial and appellate courts must respect the terms of the bond and cannot just disregard its terms and
conditions in the absence of any showing that they are contrary to law, morals, good customs, public order, or public
policy. For its failure to file a written claim with PCIC within 15 days from the bond’s expiry date, PNCC clearly waived
its right to collect under PCIC Bond No. 27546. That, wittingly or unwittingly, PNCC did not collect under one bond in
favor of calling on the other creates no other conclusion than that the right to collect under the former had been lost.
Consequently, PNCC’s cause of action with respect to PCIC Bond No. 27546 cannot juridically exist and no relief
therefore may be validly given. Hence, the CA invalidly rendered judgment with respect to PCIC Bond No. 27546, and
its award based on this bond must be deleted.
On the third issue, we hold that PCIC should be held liable for the attorney's fees PNCC incurred in bringing suit. PCIC’s
unjust refusal to pay despite PNCC’s written claim compelled the latter to hire the services of an attorney to collect on
PCIC Bond No. 27547.
WHEREFORE, premises considered, we SET ASIDE our Resolution of December 17, 2008 and GRANT the present
motion for reconsideration. The petition for review on certiorari is PARTLY GRANTED. The assailed Court of Appeals
Decision of January 7, 2008 and Resolution of October 29, 2008 are hereby AFFIRMED with
MODIFICATION, deleting petitioner PCIC's liability under PCIC Bond No. 27546. All other matters in the assailed Court
of Appeals decision and resolution are AFFIRMED.
SO ORDERED.

ARTICLE 1161

[G.R. No. 104392. February 20, 1996]

RUBEN MANIAGO, petitioner, vs. THE COURT OF APPEALS (First Division), HON. RUBEN C. AYSON, in his capacity as

Acting Presiding Judge, Regional Trial Court, Branch IV, Baguio City, and ALFREDO BOADO, respondents.

DECISION

MENDOZA, J.:
Petitioner Ruben Maniago was the owner of shuttle buses which were used in transporting employees of the Texas

Instruments, (Phils.), Inc. from Baguio City proper to its plant site at the Export Processing Authority in Loakan,

Baguio City.

On January 7, 1990, one of his buses figured in a vehicular accident with a passenger jeepney owned by private

respondent Alfredo Boado along Loakan Road, Baguio City. As a result of the accident, a criminal case for reckless

imprudence resulting in damage to property and multiple physical injuries was filed on March 2, 1990 against

petitioner’s driver, Herminio Andaya, with the Regional Trial Court of Baguio City, Branch III, where it was docketed

as Criminal Case No. 7514-R. A month later, on April 19, 1990, a civil case for damages was filed by private

respondent Boado against petitioner himself The complaint, docketed as Civil Case No. 2050-R, was assigned to

Branch IV of the same court.

Petitioner moved for the suspension of the proceedings in the civil case against him, citing the pendency of the

criminal case against his driver. But the trial court, in its order dated August 30, 1991, denied petitioner’s motion on

the ground that pursuant to the Civil Code, the action could proceed independently of the criminal action, in addition

to the fact that the petitioner was not the accused in the criminal case.

Petitioner took the matter on certiorari and prohibition to the Court of Appeals, maintaining that the civil action

could not proceed independently of the criminal case because no reservation of the right to bring it separately had

been made in the criminal case.

On January 31, 1992, the Court of Appeals dismissed his petition on the authority of Garcia v. Florido ,1 and Abellana

v. Marave,2 which it held allowed a civil action for damages to be filed independently of the criminal action even

though no reservation to file the same has been made. Therefore, it was held, the trial court correctly denied

petitioner’s motion to suspend the proceedings in the civil case.3

Hence this petition for review on certiorari. There is no dispute that private respondent, as offended party in the

criminal case, did not reserve the right to bring a separate civil action, based on the same accident, either against

the driver, Herminio Andaya, or against the latter’s employer, herein petitioner Ruben Maniago. The question is

whether despite the absence of such reservation, private respondent may nonetheless bring an action for damages

against petitioner under the following provisions of the Civil Code:

Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay

for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is

called a quasi-delict and is governed by the provisions of this Chapter.

Art. 2180. The obligation imposed by Article 2176 is demandable not only for one’s own acts or omissions, but also

for those of persons for whom one is responsible.

xxx xxx xxx

Employers shall be liable for the damages caused by their employees and household helpers acting within the scope

of their assigned tasks, even though the former are not engaged in any business or industry.

Art. 2177 states that responsibility for fault or negligence under the above-quoted provisions is entirely separate

and distinct from the civil liability arising from negligence under the Revised Penal Code.

However, Rule 111 of the Revised Rules of Criminal Procedure, while reiterating that a civil action under these

provisions of the Civil Code may be brought separately from the criminal action, provides that the right to bring it

must be reserved. This Rule reads:

Section 1. Institution of criminal and civil actions. - When a criminal action is instituted, the civil action for the

recovery of civil liability is impliedly instituted with the criminal action, unless the offended party waives the civil

action, reserves his right to institute it separately, or institutes the civil action prior to the criminal action.

Such civil action includes recovery of indemnity under the Revised Penal Code, and damages under Articles 32, 33,

34 and 2176 of the Civil Code of the Philippines arising from the same act or omission of the accused.

xxx xxx xxx

The reservation of the right to institute the separate civil actions shall be made before the prosecution starts to

present its evidence and under circumstances affording the offended party a reasonable opportunity to make such

reservation.

xxx xxx xxx

Sec. 3. When civil action may proceed independently. - In the cases provided for in Articles 32, 33, 34 and 2176 of

the Civil Code of the Philippines, the independent civil action which has been reserved may be brought by the

offended party, shall proceed independently of the criminal action, and shall require only a preponderance of

evidence.
Based on these provisions, petitioner argues that the civil action against him was impliedly instituted in the criminal

action previously filed against his employee because private respondent did not reserve his right to bring this action

separately. (The records show that while this case was pending in the Court of Appeals, the criminal action was

dismissed on July 10, 1992 for failure of the prosecution to file a formal offer of its evidence, with the consequence

that the prosecution failed to prosecute its case. Accordingly, it seems to be petitioner’s argument that since the

civil action to recover damages was impliedly instituted with the criminal action, the dismissal of the criminal case

brought with it the dismissal of the civil action.)

Private respondent admits that he did not reserve the right to institute the present civil action against Andaya’s

employer. He contends, however, that the rights provided in Arts. 2176 and 2177 of the Civil Code are substantive

rights and, as such, their enforcement cannot be conditioned on a reservation to bring the action to enforce them

separately. Private respondent cites in support of his position statements made in Abellana v. Marave,4 Tayag v.

Alcantara,5 Madeja v. Caro,6 and Jarantilla v. Court of Appeals,7 to the effect that the requirement to reserve the

civil action is substantive in character and, therefore, is beyond the rulemaking power of this Court under the

Constitution.8

After considering the arguments of the parties, we have reached the conclusion that the right to bring an action for

damages under the Civil Code must be reserved as required by Rule 111, § 1, otherwise it should be dismissed.

I.

A. To begin with, §1 quite clearly requires that a reservation must be made to institute separately all civil actions for

the recovery of civil liability, otherwise they will be deemed to have been instituted with the criminal case. Such civil

actions are not limited to those which arise “from the offense charged,” as originally provided in Rule 111 before the

amendment of the Rules of Court in 1988. In other words the right of the injured party to sue separately for the

recovery of the civil liability whether arising from crimes (ex delicto) or from quasi delict under Art. 2176 of the Civil

Code must be reserved otherwise they will be deemed instituted with the criminal action.9

Thus Rule 111, §1 of the Revised Rules of Criminal Procedure expressly provides:

Section 1. Institution of criminal and civil actions.- When a criminal action is instituted, the civil action for the

recovery of civil liability is impliedly instituted with the criminal action, unless the offended party waives the civil

action, reserves his right to institute it separately, or institutes the civil action prior to the criminal action.

Such civil action includes recovery of indemnity under the Revised Penal Code, and damages under Articles 32, 33,

34 and 2176 of the Civil Code of the Philippines arising from the same act or omission of the accused.
B. There are statements in some cases implying that Rule 111, §§1 and 3 are beyond the rulemaking power of the

Supreme Court under the Constitution. A careful examination of the cases, however, will show that approval of the

filing of separate civil action for damages even though no reservation of the right to institute such civil action had

been reserved rests on considerations other than that no reservation is needed.

In Garcia v. Florido10 the right of an injured person to bring an action for damages even if he did not make a

reservation of his action in the criminal prosecution for physical injuries through reckless imprudence was upheld on

the ground that by bringing the civil action the injured parties had “in effect abandoned their right to press for

recovery of damages in the criminal case. . .. Undoubtedly an offended party loses his right to intervene in the

prosecution of a criminal case, not only when he has waived the civil action or expressly reserved his right to

institute, but also when he has actually instituted the civil action. For by either of such actions his interest in the

criminal case has disappeared.”11 The statement that Rule 111, § 1 of the 1964 Rules is “an unauthorized

amendment of substantive law, Articles 32, 33 and 34 of the Civil Code, which do not provide for the reservation” is

not the ruling of the Court but only an aside, quoted from an observation made in the footnote of a decision in

another case.12

Another case cited by private respondent in support of his contention that the civil case need not be reserved in the

criminal case is Abellana v. Marave13 in which the right of persons injured in a vehicular accident to bring a separate

action for damages was sustained despite the fact that the right to bring it separately was not reserved. But the

basis of the decision in that case was the fact that the filing of the civil case was equivalent to a reservation because

it was made after the decision of the City Court convicting the accused had been appealed. Pursuant to Rule 123, §7

of the 1964 Rules, this had the effect of vacating the decision in the criminal case so that technically, the injured

parties could still reserve their right to institute a civil action while the criminal case was pending in the Court of

First Instance. The statement “the right of a party to sue for damages independently of the criminal action is a

substantive right which cannot be frittered away by a construction that could render it nugatory” without raising a

“serious constitutional question”14 was thrown in only as additional support for the ruling of the Court.

On the other hand, in Madeja v. Caro15 the Court held that a civil action for damages could proceed even while the

criminal case for homicide through reckless imprudence was pending and did not have to await the termination of

the criminal case precisely because the widow of the deceased had reserved her right to file a separate civil action

for damages. We do not see how this case can lend support to the view of private respondent.

In Jarantilla v. Court of Appeals16 the ruling is that the acquittal of the accused in the criminal case for physical

injuries through reckless imprudence on the ground of reasonable doubt is not a bar to the filing of an action for

damages even though the filing of the latter action was not reserved. This is because of Art. 29 of the Civil Code

which provides that “when an accused is acquitted on the ground that his guilt has not been proved beyond

reasonable doubt, a civil action for damages for the same act or omission may be instituted.” This ruling obviously

cannot apply to this case because the basis of the dismissal of the criminal case against the driver is the fact that

the prosecution failed to prove its case as a result of its failure to make a formal offer of its evidence. Rule 132, §34

of the Revised Rules on Evidence provides that “The court shall consider no evidence which has not been formally

offered. The purpose for which the evidence is offered must be specified.”
To the same effect are the holdings in Tayag, Sr. v. Alcantara,17 Bonite v. Zosa18 and Diong Bi Chu v. Court of

Appeals.19 Since Art. 29 of the Civil Code authorizes the bringing of a separate civil action in case of acquittal on

reasonable doubt and under the Revised Rules of Criminal Procedure such action is not required to be reserved, it is

plain that the statement in these cases that to require a reservation to be made would be to sanction an

unauthorized amendment of the Civil Code provisions is a mere dictum. As already noted in connection with the case

of Garcia v. Florido, that statement was not the ruling of the Court but only an observation borrowed from another

case.20

The short of it is that the rulings in these cases are consistent with the proposition herein made that, on the basis of

Rule 111, §§1-3, a civil action for the recovery of civil liability is, as a general rule, impliedly instituted with the

criminal action, except only (1) when such action arising from the same act or omission, which is the subject of the

criminal action, is waived; (2) the right to bring it separately is reserved or (3) such action has been instituted prior

to the criminal action. Even if an action has not been reserved or it was brought before the institution of the criminal

case, the acquittal of the accused will not bar recovery of civil liability unless the acquittal is based on a finding that

the act from which the civil liability might arise did not exist because of Art. 29 of the Civil Code.

Indeed the question on whether the criminal action and the action for recovery of the civil liability must be tried in a

single proceeding has always been regarded a matter of procedure and, since the rulemaking power has been

conferred by the Constitution on this Court, it is in the keeping of this Court. Thus the subject was provided for by

G.O. No. 58, the first Rules of Criminal Procedure under the American rule. Sec. 107 of these Orders provided:

The privileges now secured by law to the person claiming to be injured by the commission of an offense to take part

in the prosecution of the offense and to recover damages for the injury sustained by reason of the same shall not be

held to be abridged by the provisions of this order; but such person may appear and shall be heard either

individually or by attorney at all stages of the case, and the court upon conviction of the accused may enter

judgment against him for the damages occasioned by his wrongful act. It shall, however, be the duty of the promotor

fiscal to direct the prosecution, subject to the right of the person injured to appeal from any decision of the court

denying him a legal right.

This was superseded by the 1940 Rules of Court, Rule 106 of which provided:

SEC. 15. Intervention of the offended party in criminal action. - Unless the offended party has waived the civil action

or expressly reserved the right to institute it after the termination of the criminal case, and subject to the provisions

of Section 4 hereof, he may intervene, personally or by attorney, in the prosecution of the offense.

This Rule was amended thrice, in 1964, in 1985 and lastly in 1988. Through all the shifts or changes in policy as to

the civil action arising from the same act or omission for which a criminal action is brought, one thing is clear: The

change has been effected by this Court. Whatever contrary impression may have been created by Garcia v. Florid21
and its progeny22 must therefore be deemed to have been clarified and settled by the new rules which require

reservation of the right to recover the civil liability, otherwise the action will be deemed to have been instituted with

the criminal action.

Contrary to private respondent’s contention, the requirement that before a separate civil action may be brought it

must be reserved does not impair, diminish or defeat substantive rights, but only regulates their exercise in the

general interest of orderly procedure. The requirement is merely procedural in nature. For that matter the Revised

Penal Code, by providing in Art. 100 that any person criminally liable is also civilly liable, gives the offended party

the right to bring a separate civil action, yet no one has ever questioned the rule that such action must be reserved

before it may be brought separately.

Indeed, the requirement that the right to institute actions under the Civil Code separately must be reserved is not

incompatible with the independent character of such actions. There is a difference between allowing the trial of civil

actions to proceed independently of the criminal prosecution and requiring that, before they may be instituted at all,

a reservation to bring them separately must be made. Put in another way, it is the conduct of the trial of the civil

action - not its institution through the filing of a complaint - which is allowed to proceed independently of the

outcome of the criminal case.

C. There is a practical reason for requiring that the right to bring an independent civil action under the Civil Code

separately must be reserved. It is to avoid the filing of more than one action for the same act or omission against the

same party. Any award made against the employer, whether based on his subsidiary civil liability under Art. 103 of

the Revised Penal Code or his primary liability under Art. 2180 of the Civil Code, is ultimately recoverable from the

accused.23

In the present case, the criminal action was filed against the employee, bus driver. Had the driver been convicted

and found insolvent, his employer would have been held subsidiarily liable for damages. But if the right to bring a

separate civil action (whether arising from the crime or from quasi-delict) is reserved, there would be no possibility

that the employer would be held liable because in such a case there would be no pronouncement as to the civil

liability of the accused. In such a case the institution of a separate and independent civil action under the Civil Code

would not result in the employee being held liable for the same act or omission. The rule requiring reservation in the

end serves to implement the prohibition against double recovery for the same act or omission.24 As held in Barredo

v. Garcia,25 the injured party must choose which of the available causes of action for damages he will bring. If he

fails to reserve the filing of a separate civil action he will be deemed to have elected to recover damages from the

bus driver on the basis of the crime. In such a case his cause of action against the employer will be limited to the

recovery of the latter’s subsidiary liability under Art. 103 of the Revised Penal Code.

II.
Nor does it matter that the action is against the employer to enforce his vicarious liability under Art. 2180 of the

Civil Code. Though not an accused in the criminal case, the employer is very much a party, as long as the right to

bring or institute a separate action (whether arising from crime or from quasi delict) is not reserved.26 The ruling

that a decision convicting the employee is binding and conclusive upon the employer “not only with regard to its civil

liability but also with regard to its amount because the liability of an employer cannot be separated but follows that

of his employee”27 is true not only with respect to the civil liability arising from crime but also with respect to the

civil liability under the Civil Code. Since whatever is recoverable against the employer is ultimately recoverable by

him from the employee, the policy against double recovery requires that only one action be maintained for the same

act or omission whether the action is brought against the employee or against his employer. Thus in Dulay v. Court

of Appeals28 this Court held that an employer may be sued under Art. 2180 of the Civil Code and that the right to

bring the action did not have to be reserved because, having instituted before the criminal case against the

employee, the filing of the civil action against the employer constituted an express reservation of the right to

institute its separately.

WHEREFORE, the decision appealed from is RESERVED and the complaint against petitioner is DISMISSED.

SO ORDERED.

G.R. No. 119771 April 24, 1998

SAN ILDEFONSO LINES, INC., and EDUARDO JAVIER, petitioners,
vs.
COURT OF APPEALS (Thirteenth Division) and PIONEER INSURANCE and SURETY
CORPORATION,respondents.

MARTINEZ, J.:
At around 3:30 in the afternoon of June 24, 1991, a Toyota Lite Ace Van being driven by its owner Annie U. Jao and a
passenger bus of herein petitioner San Ildefonso Lines, Inc. (hereafter, SILI) figured in a vehicular mishap at the
intersection of Julia Vargas Avenue and Rodriguez Lanuza Avenue in Pasig, Metro Manila, totally wrecking the Toyota
van and injuring Ms. Jao and her two (2) passengers in the process.
A criminal case was thereafter filed with the Regional Trial Court of Pasig on September 18, 1991 charging the driver
of the bus, herein petitioner Eduardo Javier, with reckless imprudence resulting in damage to property with multiple
physical injuries.
About four (4) months later, or on January 13, 1992, herein private respondent Pioneer Insurance and Surety
Corporation (PISC), as insurer of the van and subrogee, filed a case for damages against petitioner SILI with the
Regional Trial Court of Manila, seeking to recover the sums it paid the assured under a motor vehicle insurance policy
as well as other damages, totaling P564,500.00 (P454,000.00 as actual/compensatory damages; P50,000.00 as
exemplary damages; P50,000.00 as attorney's fees; P10,000.00 as litigation expenses; and P500.00 as appearance
fees.) 1
With the issues having been joined upon the filing of the petitioners' answer to the complaint for damages and after
submission by the parties of their respective pre-trial briefs, petitioners filed on September 18, 1992 a Manifestation
and Motion to Suspend Civil Proceedings grounded on the pendency of the criminal case against petitioner Javier in the
Pasig RTC and the failure of respondent PISC to make a reservation to file a separate damage suit in said criminal
action. This was denied by the Manila Regional Trial Court in its Order dated July 21, 1993, 2 ruling thus:
Answering the first question thus posed, the court holds that plaintiff may legally institute the present
civil action even in the absence of a reservation in the criminal action. This is so because it falls among
the very exceptions to the rule cited by the movant.
It is true that the general rule is that once a criminal action has been instituted, then civil action based
thereon is deemed instituted together with the criminal action, such that if the offended party did not
reserve the filing of the civil action when the criminal action was filed, then such filing of the civil
action is therefore barred; on the other hand, if there was such reservation, still the civil action cannot
be instituted until final judgment has been rendered in the criminal action;
But, this rule (Section 2, Rule 111, Revised Rules of Court) is subject to exemptions, the same being
those provided for in Section 3 of the same rule which states:
Sec. 3. When civil action may proceed independently. — In the cases provided for in
Articles 32, 33, 34 and 2176 of the Civil Code of the Philippines, the independent civil
action which was been reserved may be brought by the offended party, shall proceed
 independently of the criminal action, and shall require only a preponderance of
evidence.
Besides, the requirement in Section 2 of Rule 111 of the former Rules on Criminal Procedure that there
be a reservation in the criminal case of the right to institute an independent civil action has been
declared as not in accordance with law. It is regarded as an unauthorized amendment to our
substantive law, i.e., the Civil Code which does not require such reservation. In fact, the reservation of
the right to file an independent civil action has been deleted from Section 2, Rule 111 of the 1985
Rules on Criminal Procedure, in consonance with the decisions of this Court declaring such
requirement of a reservation as ineffective. (Bonite vs. Zosa, 162 SCRA 180).
Further, the Court rules that a subrogee-plaintiff may institute and prosecute the civil action, it being
allowed by Article 2207 of the Civil Code.
After their motion for reconsideration of said July 21, 1993 Order was denied, petitioners elevated the matter to this
Court via petition for certiorari which was, however, referred to public respondent Court of Appeals for disposition. On
February 24, 1995, a decision adverse to petitioners once again was rendered by respondent court, upholding the
assailed Manila Regional Trial Court Order in this wise:
A separate civil action lies against the offender in a criminal act, whether or not he is criminally
prosecuted and found guilty or acquitted, provided that the offended party is not allowed (if the
tortfeasor is actually charged also criminally), to recover damages on both scores, and would be
entitled in such eventuality only to the bigger award of the two, assuming the awards made in the two
cases vary.
To subordinate the civil action contemplated in the said articles to the result of the criminal
prosecution — whether it be conviction or acquittal — would render meaningless the independent
character of the civil action and the clear injunction in Art. 31, that this action may proceed
independently of the criminal proceedings and regardless of the result of the latter.
In Yakult Phil. vs. CA, the Supreme Court said:
Even if there was no reservation in the criminal case and that the civil action was not
filed before the filing of the criminal action but before the prosecution presented
evidence in the criminal action, and the judge handling the criminal case was informed
thereof, then the actual filing of the civil action is even far better than a compliance
with the requirement of an express reservation that should be made by the offended
party before the prosecution presented its evidence.
The purpose of this rule requiring reservation is to prevent the offended party from recovering
damages twice for the same act or omission.
Substantial compliance with the reservation requirement may, therefore, be made by making a
manifestation in the criminal case that the private respondent has instituted a separate and
independent civil action for damages.
Oft-repeated is the dictum that courts should not place undue importance on technicalities when by so
doing substantial justice is sacrificed. While the rules of procedure require adherence, it must be
remembered that said rules of procedure are intended to promote, not defeat, substantial justice, and
therefore, they should not be applied in a very rigid and technical sense.
Hence, this petition for review after a motion for reconsideration of said respondent court judgment was
denied.
The two (2) crucial issues to be resolved, as posited by petitioners, are:
1) If a criminal case was filed, can an independent civil action based on quasi-delict under Article 2176 of the Civil
Code be filed if no reservation was made in the said criminal case?
2) Can a subrogee of an offended party maintain an independent civil action during the pendency of a criminal action
when no reservation of the right to file an independent civil action was made in the criminal action and despite the fact
that the private complainant is actively participating through a private prosecutor in the aforementioned criminal
case?
We rule for petitioners.
On the chief issue of "reservation", at the fore is Section 3, Rule 111 of the Rules of Court which reads:
Sec. 3. When civil action may proceed independently. — In the cases provided for in Articles 32, 33, 34
and 2176 of the Civil Code of the Philippines, the independent civil action which has been reserved
may be brought by the offended party, shall proceed independently of the criminal action, and shall
require only a preponderance of evidence.
There is no dispute that these so-called "independent civil actions" based on the aforementioned Civil Code
articles are the exceptions to the primacy of the criminal action over the civil action as set forth in Section 2 of
Rule 111. 3However, it is easily deducible from the present wording of Section 3 as brought about by the 1988
amendments to the Rules on Criminal Procedure — particularly the phrase ". . . which has been reserved" —
that the "independent" character of these civil actions does not do away with the reservation requirement. In
other words, prior reservation is a condition sine qua non before any of these independent civil actions can be
instituted and thereafter have a continuous determination apart from or simultaneous with the criminal action.
That this should now be the controlling procedural rule is confirmed by no less than retired Justice Jose Y. Feria,
remedial law expert and a member of the committee which drafted the 1988 amendments, whose learned
explanation on the matter was aptly pointed out by petitioners, to wit:
The 1988 amendment expands the scope of the civil action which his deemed impliedly instituted with
the criminal action unless waived, reserved or previously instituted. . . .
Under the present Rule as amended, such a civil action includes not only recovery of indemnity under
the Revised Penal Code and damages under Articles 32, 33, 34 of the Civil Code of the Philippines, but
also damages under Article 2176 of the said code. . . .
Objections were raised to the inclusion in this Rule of quasi-delicts under Article 2176 of the Civil Code
of the Philippines. However, in view of Article 2177 of the said code which provides that the offended
 party may not recover twice for the same act or omission of the accused, and in line with the policy of
avoiding multiplicity of suits, these objections were overruled. In any event, the offended party is not
precluded from filing a civil action to recover damages arising from quasi-delict before the institution
of the criminal action, or from reserving his right to file such a separate civil action, just as he is not
precluded from filing a civil action for damages under Articles 32, 33 and 34 before the institution of
the criminal action, or from reserving his right to file such a separate civil action. It is only in those
cases where the offended party has not previously filed a civil action or has not reserved his right to
file a separate civil action that his civil action is deemed impliedly instituted with the criminal action.
It should be noted that while it was ruled in Abella vs. Marave (57 SCRA 106) that a reservation of the
right to file an independent civil action is not necessary, such a reservation is necessary under the
amended rule. Without such reservation, the civil action is deemed impliedly instituted with the
criminal action, unless previously waived or instituted. (Emphasis ours, Justice Jose Y. Feria [Ret.], 1988
Amendments to the 1985 Rules on Criminal Procedure, a pamphlet, published by Central Lawbook
Publishing Co., Inc., Philippine Legal Studies, Series No. 3, 5-6). 4
Sharing the same view on the indispensability of a prior reservation is Mr. Justice Florenz D. Regalado, whose analysis
of the historical changes in Rule 111 since the 1964 Rules of Court is equally illuminating. Thus,
1. Under Rule 111 of the 1964 Rules of Court, the civil liability arising from the offense charged was
impliedly instituted with the criminal action, unless such civil action was expressly waived or reserved.
The offended party was authorized to bring an independent civil action in the cases provided for in
Articles 31, 32, 33, 34 and 2177 of the Civil Code provided such right was reserved.
In the 1985 Rules on Criminal Procedure, the same Rule 111 thereof reiterated said provision on the
civil liability arising from the offense charged. The independent civil actions, however, were limited to
the cases provided for in Articles 32, 33 and 34 of the Civil Code, obviously because the actions
contemplated in Articles 31 and 2177 of said Code are not liabilities ex-delicto. Furthermore, no
reservation was required in order the civil actions in said Articles 32, 33 and 34 may be pursued
separately.
2. The present amendments introduced by the Supreme Court have the following notable features on
this particular procedural aspect, viz:
a. The civil action which is impliedly instituted with the criminal action, barring a waiver, reservation or
prior institution thereof, need not arise from the offense charged, as the phrase "arising from the
offense charged" which creates that nexus has been specifically eliminated.
b. The independent civil actions contemplated in the present Rule 111 include the quasi-
delicts provided for in Art. 2176 of the Civil Code, in addition to the cases provided in Arts. 32, 33 and
34 thereof. It is necessary, however, that the civil liability under all the said articles arise "from the
same act or omission of the accused." Furthermore, a reservation of the right to institute these
separate civil actions is again required otherwise, said civil actions are impliedly instituted with the
criminal action, unless the former are waived or filed ahead of the criminal action. (Emphasis
supplied.) 5
In fact, a deeper reading of the "Yakult Phils. vs. CA" case 6 relied upon by respondent court reveals an
acknowledgment of the reservation requirement. After recognizing that the civil case instituted by private respondent
therein Roy Camaso (represented by his father David Camaso) against petitioner Yakult Phils. (the owner of the
motorcycle that sideswiped Roy Camaso, only five years old at the time of the accident) and Larry Salvado (the driver
of the motorcycle) during the pendency of the criminal case against Salvado for reckless imprudence resulting to slight
physical injuries, as one based on tort, this Court said:
The civil liability sought arising from the act or omission of the accused in this case is a quasi-delict as
defined under Article 2176 of the Civil Code as follows:
xxx xxx xxx
The aforecited rule [referring to the amended Section l, Rule 111] requiring, such previous reservation
also covers quasi-delict as defined under Article 2176 of the Civil Code arising from the same act or
omission of the accused (emphasis supplied).
But what prompted the Court to validate the institution and non-suspension of the civil case involved in
"Yakult" was the peculiar facts attendant therein. Thus,
Although the separate civil action filed in this case was without previous reservation in the criminal
case, nevertheless since it was instituted before the prosecution presented evidence in the criminal
action, and the judge handling the criminal case was informed thereof, then the actual filing of the civil
action is even far better than a compliance with the requirement of an express reservation that should
be made by the offended party before the prosecution presents its evidence.
The distinct factual scenario in "Yakult" simply does not obtain in this case. No satisfactory proof exists to show that
private respondent PISC's damage suit was instituted before the prosecution presented its evidence in the criminal
case pending in the Pasig Regional Trial Court. Neither is there any indication that the judge presiding over the
criminal action has been made aware of the civil case. It is in this light that reliance on the "Yakult" case is indeed
misplaced.
Now that the necessity of a prior reservation is the standing rule that shall govern the institution of the independent
civil actions referred to in Rule 111 of the Rules of Court, past pronouncements that view the reservation requirement
as an "unauthorized amendment" to substantive law — i.e., the Civil Code, should no longer be controlling. There must
be a renewed adherence to the time-honored dictum that procedural rules are designed, not to defeat, but to
safeguard the ends of substantial justice. And for this noble reason, no less than the Constitution itself has mandated
this Court to promulgate rules concerning the enforcement of rights with the end in view of providing a simplified and
inexpensive procedure for the speedy disposition of cases which should not diminish, increase or modify substantive
rights. 7 Far from altering substantive rights, the primary purpose of the reservation is, to borrow the words of the
Court in "Caños v. Peralta": 8
. . . to avoid multiplicity of suits, to guard against oppression and abuse, to prevent delays, to clear
congested dockets, to simplify the work of the trial court; in short, the attainment of justice with the
least expense and vexation to the parties-litigants.
Clearly then, private respondent PISC, as subrogee under Article 2207 of the Civil Code, 9 is not exempt from the
reservation requirement with respect to its damages suit based on quasi-delict arising from the same act or ommission
of petitioner Javier complained of in the criminal case. As private respondent PISC merely stepped into the shoes of Ms.
Jao (as owner of the insured Toyota van), then it is bound to observe the procedural requirements which Ms. Jao ought
to follow had she herself instituted the civil case.
WHEREFORE, premises considered, the assailed decision of the Court of Appeals dated February 24, 1995 and the
Resolution dated April 3, 1995 denying the motion for reconsideration thereof are hereby REVERSED and SET ASIDE.
The "MANIFESTATION AND MOTION TO SUSPEND CIVIL PROCEEDINGS" filed by petitioners is GRANTED.
SO ORDERED.

G.R. No. L-18719 October 31, 1964

PILAR JOAQUIN, ET AL., plaintiffs-appellants,
vs.
FELIX ANICETO, ET AL., defendants-appellee.
Arturo B. Atienza & F. B. del Rosario for plaintiff appellants.
D. A. Karganilla for defendants-appellees.
REGALA, J.:
This case comes to Us for review directly from the Court of First Instance of Manila. The facts are not in dispute. They
are as follows:
While Pilar Joaquin was on the sidewalk of Aviles Street, Manila, on April 27, 1960, a taxicab driven by Felix Aniceto
and owned by Ruperto Rodelas bumped her As a result, she suffered physical injuries.
Aniceto was charged with serious physical injuries through reckless imprudence in the Municipal Court (now the City
Court) of Manila. He was subsequently found guilty and sentenced to imprisonment. However, no ruling was made on
his civil liability to the offended party in view of the latter's reservation to file a separate civil action for damages for
the injuries suffered by her.
Aniceto appealed the judgment of conviction to the Court of First Instance of Manila. While the criminal case was thus
pending appeal, Pilar Joaquin, the injured party, filed this case for damages in the Court of First Instance of Manila, in
accordance with the reservation which she had earlier made. Felix Aniceto and Ruperto Rodelas, driver and owner,
respectively, of the taxicab were made party defendants.
At the trial of this case, the plaintiff blocked all attempts of Rodelas to prove that, as employer, he had exercised due
diligence in the selection and supervision of his employee, on the ground that such a defense is not available in a civil
action brought under the Penal Code to recover the subsidiary civil liability arising from the crime. The lower court
sustained plaintiff's objection. However, it dismissed the case on the ground that in the absence of a final judgment of
conviction against the driver in the criminal case, any action to enforce the employer's subsidiary civil liability would
be premature. Such liability, the trial court added, may only be enforced on proof of the insolvency of the employee.
Hence, this appeal.
The issue in this case is: May an employee's primary civil liability for crime and his employer's subsidiary liability
therefor be proved in a separate civil action even while the criminal case against the employee is still pending?
To begin with, obligations arise from law, contract, quasi-contract, crime and quasi-delict.1According to appellant, her
action is one to enforce the civil liability arising from crimes. With respect to obligations arising from crimes, Article
1161 of the New Civil Code provides:
Civil obligations arising from criminal offenses shall be governed by the penal laws, subject to the provisions of
article 2177, and of the pertinent provisions of Chapter 2, Preliminary, Title, on Human Relations, and of Title
XVIII of this Book, regulating damages. (Emphasis supplied)
The Revised Penal Code provides in turn that "every person criminally liable for a felony is also civilly liable"2and that
in default of the persons criminally liable, employers, teachers persons and corporations engaged in any kind of
industry shall be civilly liable for felonies committed by their servants, pupils, workmen, apprentices or employees in
the discharge of their duties.3
As this Court held in City of Manila v. Manila Electric Co., 52 Phil. 586:
... The Penal Code authorizes the determination of subsidiary liability. The Civil Code negatives its applicability
providing that civil obligations arising from crimes or misdemeanors shall be governed by the provisions of the
Penal Code. In other words, the Penal Code affirms its jurisdiction while the Civil Code negatives its jurisdiction.
It is now settled that for an employer to be subsidiarily liable, the following requisites must be present: (1) That an
employee has committed a crime in the discharge of his duties; (2) that said employee is insolvent and has not
satisfied his civil liability; (3) that the employer is engaged in some kind of industry. (1 Padilla, Criminal Law, Revised
Penal Code 794 [1964])
Without the conviction of the employee, the employer cannot be subsidiarily liable.
Now, it is no reason to bring such action against the employer on the ground that in cases of defamation, fraud and
physical injuries, Article 33 of the Civil Code authorizes a civil action that is "entirely separate, and distinct from the
criminal action," (Carangdang v. Santiago, 51 O.G. 2878; Reyes v. De la Rosa, 52 O.G. 6548; Dyogi v. Yatco, G. R. No.
L-9623, January 22, 1957).
Can Article 33 above cited be made applicable to an employer in a civil action for subsidiary liability? The answer to
this question is undoubtedly in the negative.
What this article 33 authorizes is an action against the employee on his primary civil liability. It cannot apply to an
action against the employer to enforce his subsidiary civil liability as stated above, because such liability arises only
after conviction of the employee in the criminal case. Any action brought against him before the conviction of his
employee is premature.
In cases of negligence, the injured party or his heirs has the choice, between an action to enforce the civil liability
arising from crime under Article 100 of the Revised Penal Code and an action for quasi-delict under Articles 2176-2194
of the Civil Code. (See Barredo v. Garcia and Almario, 73 Phil. 607; Parker v. Panlilio, et al., 91 Phil. 1)
If he chooses an action for quasi-delict, he may hold an employer liable for the negligent act of the employee subject,
however, to the employer's defense of exercise of the diligence of a good father of the family. (Art. 2180, Civil Code)
On the other hand, should he choose to prosecute his action under Article 100 of the Penal Code, he can hold the
employer subsidiarily liable only upon prior conviction of the employee. While a separate and independent civil action
for damages may be brought against the employee under Article 33 of the Civil Code, no such action may be filed
against the employer on the latter's subsidiary civil liability because such liability is governed not by the Civil Code but
by the Penal Code, under which conviction of the employee is a condition sine qua non for the employer's subsidiary
liability. If the court trying the employee's liability adjudges the employee liable, but the court trying the criminal
action acquits the employee, the subsequent insolvency of the employee cannot make the employer subsidiary liable
to the offended party or to the latter's heirs.
WHEREFORE, the decision appealed from is affirmed, without pronouncement as to costs.

G.R. No. L-6913 November 21, 1913

THE ROMAN CATHOLIC BISHOP OF JARO, plaintiff-appellee,
vs.
GREGORIO DE LA PEÑA, administrator of the estate of Father Agustin de la Peña, defendant-appellant.
J. Lopez Vito, for appellant.
Arroyo and Horrilleno, for appellee.

MORELAND, J.:
This is an appeal by the defendant from a judgment of the Court of First Instance of Iloilo, awarding to the
plaintiff the sum of P6,641, with interest at the legal rate from the beginning of the action.
It is established in this case that the plaintiff is the trustee of a charitable bequest made for the construction of a
leper hospital and that father Agustin de la Peña was the duly authorized representative of the plaintiff to receive the
legacy. The defendant is the administrator of the estate of Father De la Peña.
In the year 1898 the books Father De la Peña, as trustee, showed that he had on hand as such trustee the sum
of P6,641, collected by him for the charitable purposes aforesaid. In the same year he deposited in his personal
account P19,000 in the Hongkong and Shanghai Bank at Iloilo. Shortly thereafter and during the war of the revolution,
Father De la Peña was arrested by the military authorities as a political prisoner, and while thus detained made an
order on said bank in favor of the United States Army officer under whose charge he then was for the sum thus
deposited in said bank. The arrest of Father De la Peña and the confiscation of the funds in the bank were the result of
the claim of the military authorities that he was an insurgent and that the funds thus deposited had been collected by
him for revolutionary purposes. The money was taken from the bank by the military authorities by virtue of such order,
was confiscated and turned over to the Government.
While there is considerable dispute in the case over the question whether the P6,641 of trust funds was included
in the P19,000 deposited as aforesaid, nevertheless, a careful examination of the case leads us to the conclusion that
said trust funds were a part of the funds deposited and which were removed and confiscated by the military
authorities of the United States.
That branch of the law known in England and America as the law of trusts had no exact counterpart in the
Roman law and has none under the Spanish law. In this jurisdiction, therefore, Father De la Peña's liability is
determined by those portions of the Civil Code which relate to obligations. (Book 4, Title 1.)
Although the Civil Code states that "a person obliged to give something is also bound to preserve it with the
diligence pertaining to a good father of a family" (art. 1094), it also provides, following the principle of the Roman
law, major casus est, cui humana infirmitas resistere non potest, that "no one shall be liable for events which could not
be foreseen, or which having been foreseen were inevitable, with the exception of the cases expressly mentioned in
the law or those in which the obligation so declares." (Art. 1105.)
By placing the money in the bank and mixing it with his personal funds De la Peña did not thereby assume an
obligation different from that under which he would have lain if such deposit had not been made, nor did he thereby
make himself liable to repay the money at all hazards. If the had been forcibly taken from his pocket or from his house
by the military forces of one of the combatants during a state of war, it is clear that under the provisions of the Civil
Code he would have been exempt from responsibility. The fact that he placed the trust fund in the bank in his personal
account does not add to his responsibility. Such deposit did not make him a debtor who must respond at all hazards.
We do not enter into a discussion for the purpose of determining whether he acted more or less negligently by
depositing the money in the bank than he would if he had left it in his home; or whether he was more or less negligent
by depositing the money in his personal account than he would have been if he had deposited it in a separate account
as trustee. We regard such discussion as substantially fruitless, inasmuch as the precise question is not one of
negligence. There was no law prohibiting him from depositing it as he did and there was no law which changed his
responsibility be reason of the deposit. While it may be true that one who is under obligation to do or give a thing is in
duty bound, when he sees events approaching the results of which will be dangerous to his trust, to take all
reasonable means and measures to escape or, if unavoidable, to temper the effects of those events, we do not feel
constrained to hold that, in choosing between two means equally legal, he is culpably negligent in selecting one
whereas he would not have been if he had selected the other.
The court, therefore, finds and declares that the money which is the subject matter of this action was deposited
by Father De la Peña in the Hongkong and Shanghai Banking Corporation of Iloilo; that said money was forcibly taken
from the bank by the armed forces of the United States during the war of the insurrection; and that said Father De la
Peña was not responsible for its loss.
The judgment is therefore reversed, and it is decreed that the plaintiff shall take nothing by his complaint.
Arellano, C.J., Torres and Carson, JJ., concur.
Separate Opinions
TRENT, J., dissenting:
I dissent. Technically speaking, whether Father De la Peña was a trustee or an agent of the plaintiff his books
showed that in 1898 he had in his possession as trustee or agent the sum of P6,641 belonging to the plaintiff as the
head of the church. This money was then clothed with all the immunities and protection with which the law seeks to
invest trust funds. But when De la Peña mixed this trust fund with his own and deposited the whole in the bank to
his personal account or credit, he by this act stamped on the said fund his own private marks and unclothed it of all
the protection it had. If this money had been deposited in the name of De la Peña as trustee or agent of the plaintiff, I
think that it may be presumed that the military authorities would not have confiscated it for the reason that they were
looking for insurgent funds only. Again, the plaintiff had no reason to suppose that De la Peña would attempt to strip
the fund of its identity, nor had he said or done anything which tended to relieve De la Peña from the legal
reponsibility which pertains to the care and custody of trust funds.
The Supreme Court of the United States in the United State vs. Thomas (82 U. S., 337), at page 343, said:
"Trustees are only bound to exercise the same care and solicitude with regard to the trust property which they would
exercise with regard to their own. Equity will not exact more of them. They are not liable for a loss by theft without
their fault. But this exemption ceases when they mix the trust-money with their own, whereby it loses its identity, and
they become mere debtors."
If this proposition is sound and is applicable to cases arising in this jurisdiction, and I entertain no doubt on this
point, the liability of the estate of De la Peña cannot be doubted. But this court in the majority opinion says: "The fact
that he (Agustin de la Peña) placed the trust fund in the bank in his personal account does not add to his
responsibility. Such deposit did not make him a debtor who must respond at all hazards. . . . There was no law
prohibiting him from depositing it as he did, and there was no law which changed his responsibility, by reason of the
deposit."
I assume that the court in using the language which appears in the latter part of the above quotation meant to
say that there was no statutory law regulating the question. Questions of this character are not usually governed by
statutory law. The law is to be found in the very nature of the trust itself, and, as a general rule, the courts say what
facts are necessary to hold the trustee as a debtor.
If De la Peña, after depositing the trust fund in his personal account, had used this money for speculative
purposes, such as the buying and selling of sugar or other products of the country, thereby becoming a debtor, there
would have been no doubt as to the liability of his estate. Whether he used this money for that purpose the record is
silent, but it will be noted that a considerable length of time intervened from the time of the deposit until the funds
were confiscated by the military authorities. In fact the record shows that De la Peña deposited on June 27, 1898,
P5,259, on June 28 of that year P3,280, and on August 5 of the same year P6,000. The record also shows that these
funds were withdrawn and again deposited all together on the 29th of May, 1900, this last deposit amounting to
P18,970. These facts strongly indicate that De la Peña had as a matter of fact been using the money in violation of the
trust imposed in him. lawph!1.net
If the doctrine announced in the majority opinion be followed in cases hereafter arising in this jurisdiction trust
funds will be placed in precarious condition. The position of the trustee will cease to be one of trust.

ARTICLE 1164

G.R. No. 91029 February 7, 1991

NORKIS DISTRIBUTORS, INC., petitioner,
vs.
THE COURT OF APPEALS & ALBERTO NEPALES, respondents.
Jose D. Palma for petitioner.
Public Attorney's Office for private respondent.

GRIÑO-AQUINO, J.:p
Subject of this petition for review is the decision of the Court of Appeals (Seventeenth Division) in CA-G.R. No. 09149,
affirming with modification the judgment of the Regional Trial Court, Sixth (6th) Judicial Region, Branch LVI.
Himamaylan, Negros Occidental, in Civil Case No. 1272, which was private respondent Alberto Nepales' action for
specific performance of a contract of sale with damages against petitioner Norkis Distributors, Inc.
The facts borne out by the record are as follows:
Petitioner Norkis Distributors, Inc. (Norkis for brevity), is the distributor of Yamaha motorcycles in Negros Occidental
with office in Bacolod City with Avelino Labajo as its Branch Manager. On September 20, 1979, private respondent
Alberto Nepales bought from the Norkis-Bacolod branch a brand new Yamaha Wonderbike motorcycle Model YL2DX
with Engine No.
L2-329401K Frame No. NL2-0329401, Color Maroon, then displayed in the Norkis showroom. The price of P7,500.00
was payable by means of a Letter of Guaranty from the Development Bank of the Philippines (DBP), Kabankalan
Branch, which Norkis' Branch Manager Labajo agreed to accept. Hence, credit was extended to Nepales for the price of
the motorcycle payable by DBP upon release of his motorcycle loan. As security for the loan, Nepales would execute a
chattel mortgage on the motorcycle in favor of DBP. Branch Manager Labajo issued Norkis Sales Invoice No. 0120
(Exh.1) showing that the contract of sale of the motorcycle had been perfected. Nepales signed the sales invoice to
signify his conformity with the terms of the sale. In the meantime, however, the motorcycle remained in Norkis'
possession.
On November 6, 1979, the motorcycle was registered in the Land Transportation Commission in the name of Alberto
Nepales. A registration certificate (Exh. 2) in his name was issued by the Land Transportation Commission on
November 6, 1979 (Exh. 2-b). The registration fees were paid by him, evidenced by an official receipt, Exhibit 3.
On January 22, 1980, the motorcycle was delivered to a certain Julian Nepales who was allegedly the agent of Alberto
Nepales but the latter denies it (p. 15, t.s.n., August 2, 1984). The record shows that Alberto and Julian Nepales
presented the unit to DBP's Appraiser-Investigator Ernesto Arriesta at the DBP offices in Kabankalan, Negros
Occidental Branch (p. 12, Rollo). The motorcycle met an accident on February 3, 1980 at Binalbagan, Negros
Occidental. An investigation conducted by the DBP revealed that the unit was being driven by a certain Zacarias Payba
at the time of the accident (p. 33, Rollo). The unit was a total wreck (p. 36, t.s.n., August 2,1984; p. 13, Rollo), was
returned, and stored inside Norkis' warehouse.
On March 20, 1980, DBP released the proceeds of private respondent's motorcycle loan to Norkis in the total sum of
P7,500. As the price of the motorcycle later increased to P7,828 in March, 1980, Nepales paid the difference of P328
(p. 13, Rollo) and demanded the delivery of the motorcycle. When Norkis could not deliver, he filed an action for
specific performance with damages against Norkis in the Regional Trial Court of Himamaylan, Negros Occidental, Sixth
(6th) Judicial Region, Branch LVI, where it was docketed as Civil Case No. 1272. He alleged that Norkis failed to deliver
the motorcycle which he purchased, thereby causing him damages.
Norkis answered that the motorcycle had already been delivered to private respondent before the accident, hence, the
risk of loss or damage had to be borne by him as owner of the unit.
After trial on the merits, the lower court rendered a decision dated August 27, 1985 ruling in favor of private
respondent (p. 28, Rollo.) thus:
WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendants. The defendants
are ordered to pay solidarity to the plaintiff the present value of the motorcycle which was totally
destroyed, plus interest equivalent to what the Kabankalan Sub-Branch of the Development Bank of
the Philippines will have to charge the plaintiff on fits account, plus P50.00 per day from February 3,
1980 until full payment of the said present value of the motorcycle, plus P1,000.00 as exemplary
damages, and costs of the litigation. In lieu of paying the present value of the motorcycle, the
defendants can deliver to the plaintiff a brand-new motorcycle of the same brand, kind, and quality as
the one which was totally destroyed in their possession last February 3, 1980. (pp. 28-29,Rollo.)
On appeal, the Court of appeals affirmed the appealed judgment on August 21, 1989, but deleted the award of
damages "in the amount of Fifty (P50.00) Pesos a day from February 3, 1980 until payment of the present value of the
damaged vehicle" (p35, Rollo). The Court of Appeals denied Norkis' motion for reconsideration. Hence, this Petition for
Review.
The principal issue in this case is who should bear the loss of the motorcycle. The answer to this question would
depend on whether there had already been a transfer of ownership of the motorcycle to private respondent at the time
it was destroyed.
Norkis' theory is that:
. . . After the contract of sale has been perfected (Art. 1475) and even before delivery, that is, even
before the ownership is transferred to the vendee, the risk of loss is shifted from the vendor to the
vendee. Under Art. 1262, the obligation of the vendor to deliver a determinate thing becomes
extinguished if the thing is lost by fortuitous event (Art. 1174), that is, without the fault or fraud of the
vendor and before he has incurred in delay (Art. 11 65, par. 3). If the thing sold is generic, the loss or
destruction does not extinguish the obligation (Art. 1263). A thing is determinate when it is particularly
designated or physically segregated from all others of the same class (Art. 1460). Thus, the vendor
becomes released from his obligation to deliver the determinate thing sold while the vendee's
obligation to pay the price subsists. If the vendee had paid the price in advance the vendor may retain
the same. The legal effect, therefore, is that the vendee assumes the risk of loss by fortuitous event
(Art. 1262) after the perfection of the contract to the time of delivery. (Civil Code of the Philippines,
Ambrosio Padilla, Vol. 5,1987 Ed., p. 87.)
Norkis concedes that there was no "actual" delivery of the vehicle. However, it insists that there was constructive
delivery of the unit upon: (1) the issuance of the Sales Invoice No. 0120 (Exh. 1) in the name of the private respondent
and the affixing of his signature thereon; (2) the registration of the vehicle on November 6, 1979 with the Land
Transportation Commission in private respondent's name (Exh. 2); and (3) the issuance of official receipt (Exh. 3) for
payment of registration fees (p. 33, Rollo).
That argument is not well taken. As pointed out by the private respondent, the issuance of a sales invoice does not
prove transfer of ownership of the thing sold to the buyer. An invoice is nothing more than a detailed statement of the
nature, quantity and cost of the thing sold and has been considered not a bill of sale (Am. Jur. 2nd Ed., Vol. 67, p. 378).
In all forms of delivery, it is necessary that the act of delivery whether constructive or actual, be coupled with the
intention of delivering the thing. The act, without the intention, is insufficient (De Leon, Comments and Cases on Sales,
1978 Ed., citing Manresa, p. 94).
When the motorcycle was registered by Norkis in the name of private respondent, Norkis did not intend yet to transfer
the title or ownership to Nepales, but only to facilitate the execution of a chattel mortgage in favor of the DBP for the
release of the buyer's motorcycle loan. The Letter of Guarantee (Exh. 5) issued by the DBP, reveals that the execution
in its favor of a chattel mortgage over the purchased vehicle is a pre-requisite for the approval of the buyer's loan. If
Norkis would not accede to that arrangement, DBP would not approve private respondent's loan application and,
consequently, there would be no sale.
In other words, the critical factor in the different modes of effecting delivery, which gives legal effect to the act, is the
actual intention of the vendor to deliver, and its acceptance by the vendee. Without that intention, there is no tradition
(Abuan vs. Garcia, 14 SCRA 759).
In the case of Addison vs. Felix and Tioco (38 Phil. 404, 408), this Court held:
The Code imposes upon the vendor the obligation to deliver the thing sold. The thing is considered to
be delivered when it is "placed in the hands and possession of the vendee." (Civil Code, Art. 1462). It is
true that the same article declares that the execution of a public instrument is equivalent to the
delivery of the thing which is the object of the contract, but, in order that this symbolic delivery may
produce the effect of tradition, it is necessary that the vendor shall have had such control over the
 thing sold that, at the moment of the sale, its material delivery could have been made. It is not enough
to confer upon the purchaser the ownership and the right of possession. The thing sold must be placed
in his control. When there is no impediment whatever to prevent the thing sold passing into the
tenancy of the purchaser by the sole will of the vendor, symbolic delivery through the execution of a
public instrument is sufficient. But if notwithstanding the execution of the instrument, the purchaser
cannot have the enjoyment and material tenancy of the thing and make use of it himself or through
another in his name, because such tenancy and enjoyment are opposed by the interposition of another
will, then fiction yields to reality-the delivery has riot been effects .(Emphasis supplied.)
The Court of Appeals correctly ruled that the purpose of the execution of the sales invoice dated September 20, 1979
(Exh. B) and the registration of the vehicle in the name of plaintiff-appellee (private respondent) with the Land
Registration Commission (Exhibit C) was not to transfer to Nepales the ownership and dominion over the motorcycle,
but only to comply with the requirements of the Development Bank of the Philippines for processing private
respondent's motorcycle loan. On March 20, 1980, before private respondent's loan was released and before he even
paid Norkis, the motorcycle had already figured in an accident while driven by one Zacarias Payba. Payba was not
shown by Norkis to be a representative or relative of private respondent. The latter's supposed relative, who allegedly
took possession of the vehicle from Norkis did not explain how Payba got hold of the vehicle on February 3, 1980.
Norkis' claim that Julian Nepales was acting as Alberto's agent when he allegedly took delivery of the motorcycle (p.
20, Appellants' Brief), is controverted by the latter. Alberto denied having authorized Julian Nepales to get the
motorcycle from Norkis Distributors or to enter into any transaction with Norkis relative to said motorcycle. (p. 5, t.s.n.,
February 6, 1985). This circumstances more than amply rebut the disputable presumption of delivery upon which
Norkis anchors its defense to Nepales' action (pp. 33-34, Rollo).
Article 1496 of the Civil Code which provides that "in the absence of an express assumption of risk by the buyer, the
things sold remain at seller's risk until the ownership thereof is transferred to the buyer," is applicable to this case, for
there was neither an actual nor constructive delivery of the thing sold, hence, the risk of loss should be borne by the
seller, Norkis, which was still the owner and possessor of the motorcycle when it was wrecked. This is in accordance
with the well-known doctrine of res perit domino.
WHEREFORE, finding no reversible error in the decision of the Court of Appeals in CA-G.R. No. 09149, we deny the
petition for review and hereby affirm the appealed decision, with costs against the petitioner.
SO ORDERED.

G.R. No. L-10244 February 29, 1916

SANTIAGO CRUZADO, plaintiff-appellant,
vs.
ESTEFANIA BUSTOS and MANUEL ESCALER, defendants-appellees.
Felix Ferrer for appellant.
Augusto Gonzalez for appellees.
TORRES, J.:
This appeal, by bill of exceptions, was taken from the judgment of June 17, 1914, in which the trial judge absolved
defendants from the complaint and plaintiff from the cross-complaint, without express finding as to costs. Counsel for
plaintiff appealed from this judgment and moved for a new trial. This motion was denied, exception was taken by
appellant, and, on the filing of the proper bill of exceptions, the same was approved, certified, and transmitted to the
clerk of this court, together with a transcript of the evidence introduced at the trial.
Counsel for the plaintiff Santiago Cruzado filed a written complaint on October 8, 1910, amended on September 25,
1913, in which he alleged that plaintiff was the owner of certain rural property situated in the barrio of Dolores,
formerly San Isidro, of the municipality of Bacolor, Pampanga, containing an area of 65 balitas and bounded as set
forth in the complaint; that Estafania Bustos, during her lifetime, and now the administrator of her estate, together
with the other defendant, Manuel Escaler, had, since the year 1906 up to the present, been detaining the said parcel
of land, and had refused to deliver the possession thereof to plaintiff and to recognize his ownership of the same,
notwithstanding the repeated demands made upon them; that by such detention, the plaintiff had suffered losses and
damages to the amount of P3,500. He therefore asked for judgment declaring plaintiff to be the owner of the said
parcel of land and ordering defendants to return it to plaintiff and to pay the latter P3,500 for losses and damages, and
the costs.
The demurrer filed by the defendant Bustos having been overruled, in her answer she made a general denial of each
and all of the allegations of the complaint, and of each and all of the paragraphs thereof, and, as a special defense,
alleged that the title to the said land, produced by the plaintiff, was not a lawful one, for the reason that only a
simulated sale of the land was made by the between herself and the deceased Agapito Geronimo Cruzado, plaintiff's
father, and that for more than thirty years preceding the present time she had been the sole, exclusive, and lawful
owner of the said parcel of land in question; that she had been holding it quietly, peaceably, publicly and in good faith;
that it formed an integral part of another larger parcel of land, both parcels aggregating a total area of 100 balitas,
9 loanes, and 41 square brazas; that in September, 1891, with plaintiff's knowledge, the defendant Bustos sold and
conveyed all the said property to the other defendant Manuel Escaler who then acquired the possession and ownership
of the said parcel of land, and had retained such ownership and possession up to the present time; that at no time and
on no account whatever had plaintiff or any other person except defendants acquired possession of the said parcel of
land or any part thereof, nor any right or title therein. She therefore prayed to be absolved from the complaint, with
the costs against plaintiff.
The other defendant, Manuel Escaler, in an amended answer to the aforementioned complaint, denied each and all of
the allegations therein contained and each and all of its clauses, and, as a special defense, alleged that plaintiff's title
to the said land was illegal as only a simulated sale was made by and between Agapito Geronimo Cruzado, plaintiff's
predecessor in interest, and Bernardino Dizon; that defendants had been in possession of the said parcel of land for
more than thirty years; that the defendant Escaler in good faith purchased the land in question from Estefania Bustos,
widow of Dizon, without ever having had any notice of any defect in the vendor's title; that plaintiff had knowledge of
the contract of sale of the land in question yet did nothing to oppose its purchase by the defendant Escaler, wherefore
the latter, in acquiring the property, did so under the belief that the plaintiff Santiago Cruzado had no right or interest
therein. He therefore prayed that the complaint be dismissed, with the costs against plaintiff, and that an injunction
issue to restrain the latter from interfering with the defendant Escaler in the enjoyment of his property and rights and
from performing any act prejudicial to his interests.
On the case coming to trial, both parties adduced evidence, among which was included the deposition of Inocencio
Rosete.
Counsel for defendants, in a cross-complaint set forth: that as shown by the evidence, the defendant Escaler acquired
in good faith from Estefania Bustos the land in question at a time when there was no record whatever in the property
registry to show that this land belonged to a third person or any other than the vendor; that, on entering into
possession of the property, Escaler spent P4,000 in-improvements and in the repair of a long dike to prevent the
erosion of the land by the frequent overflows of the adjoining estuary; that of this sum P2,000 was paid by Escaler and
the remaining P2,000 by Estafania Bustos, in her capacity as lessee of the land; and that in case the judgment of the
court should be adverse to defendants, these latter, as owners in good faith, were entitled to be indemnified by
plaintiff for the said expenses. He therefore asked that plaintiff be ordered to reimburse half of the said P4,000 to each
of the defendants in case judgment should be rendered favorable to plaintiff.
The latter's counsel, in answer to the said cross-complaint, specifically denied each and all of the allegations thereof
and, in special defense, reproduced plaintiff's amended complaint in all its parts and alleged that the facts set forth in
the cross-complaint did not constitute a cause of action. He therefore prayed that plaintiff be absolved from the cross-
complaint and that judgment be rendered against defendants, in conformity with the prayer of his complaint.
After the evidence was all in, counsel for the defendant Escaler moved that the deposition of the witness Inocencio
Espanol Rosete be admitted into the record, and in support of his motion stated that with the authorization of the court
the said deposition had been taken on November 21, 1913, in the municipality of Arayat in the presence of plaintiff's
attorney; that the said declaration of the deponent was duly forwarded to the clerk of the court, and there attached to
the record, but through an unintentional oversight of defendant's attorney, it was not presented in evidence at the
trial; that this deposition was very important for the defendants' defense; and that the deponent was and continued to
be unable to appear before the court on account of a threatened attack of brain fever which might develop during the
journey from Arayat to San Fernando.
Plaintiff's counsel asked that the foregoing motion be overruled and that the deposition of the witness Rosete be
stricken from the record, because defendants' motion was made out of time and was contrary to the rules of
procedure, and there was no reason for altering the order of procedure, as requested by defendants, for, when the
period for the reception of the evidence of both parties is closed, an alteration in the order of procedure such as asked
by defendants would be improper and illegal, counsel citing the decision of this court in the case ofGarcia vs.
Reyes.1 He alleged, moreover, that the said deposition necessarily affected the main issue in controversy and that to
allow the motion would be in contravention of the provisions of section 364 of the Code of Civil Procedure. He
therefore asked that the said motion be overruled. The court, however, ordered that the deposition of the witness
Inocencio Rosete be admitted in evidence, and that plaintiff's exception be noted. In view of the foregoing, the
judgment aforementioned was rendered.
The questions herein submitted for the decision of this court are:
1. Is it or is it not true that the deed of sale, Exhibit A, (p. 40 of the record) of 65 balitas of land situated in the
municipality of Bacolor, Pampanga, executed by Estefania Bustos, with the assistance of her husband Bernardino
Dizon, in favor of Agapito Geronimo Cruzado, for the sum of P2,200, was simulated, not with intent to defraud any
third person, but for the sole purpose of making it appear that the vendee, Cruzado, then a candidate for the position
of procurador on the date of the said deed, September 7,1875, possessed real estate to the value of P2,200 with which
to guarantee the faithful discharge of the duties of the office of procurador?
2. It is or is it not true that, notwithstanding such apparent alienation of the 65 balitas of land, the supposed vendee
continued in possession thereof, without the supposed purchaser having taken possession of the property until
September 10, 1891, when its owner Bustos sold to Escaler, not only the said 65 balitas of land, but also all the
remainder of a large tract of agricultural land of which the portion appearing as sold to Agapito G. Cruzado formed and
forms a part, and that Escaler was then and, until the date of plaintiff's claim, continued to be in peaceable,
uninterrupted possession of the said whole tract of land, including the aforementioned portion of 65balitas?
3. Has the right of ownership prescribed which Manuel Escaler is and has been enjoying in the land which Estefania
Bustos had sold to him and which includes the parcel of 65 balitas claimed by plaintiff, Santiago Cruzado, or has the
right of any real or personal action he might exercise by reason of the sale to Cruzado prescribed on account of the
lapse of the respective periods fixed by law, between the 7th of September, 1875, the date of said sale, and the 8th of
October, 1910, that of the filing of the complaint?
To judge from the evidence adduced in this case, there is ample ground for holding that the said deed of sale of a
parcel of 65 balitas of land was simulated, not to defraud any creditor or other person interested in the land nor for the
purpose of eluding any lawful obligation on the part of its owner, Estafania Bustos, but for the sole purpose of doing a
favor, of rendering a special service to Agapito Geronimo Cruzado, father of the plaintiff Santiago Cruzado.
During his lifetime Agapito G. Cruzado aspired to hold the office of procurador in the Court of First Instance of
Pampanga, but notwithstanding that he possessed the required ability for the discharge of the duties of that position,
he was unable to give the required bond, an indispensable condition for his appointment, as he was possessed of no
means or real property wherewith to guarantee the proper discharge of his duties in the manner prescribed by the
laws then in force.
In the certified copy of the record of the case tried in the Secretaria de Gobierno of the abolished Real Audiencia de
Manila, issued by the Assistant Executive Secretary and chief of the division of archives, there appears on page 178 a
decree by the presidencia of this latter tribunal, issued by virtue of the resolution passed by the sala de gobierno on
November 24, 1875, whereby it was ordered that Agapito Geronimo Cruzado should be noticed that within the period
of 30 days he must show proof of having furnished a bond of P700 in cash or of P2,100 in real property as security for
the position of procurador to which he had been appointed, with the understanding that should be fail to furnish such
bond he would not be issued the certificate entitling him to practice the profession of procurador.
After complying with the requirements of the said court and executing the mortgage deed of the land purchased by
the procurador elect Cruzado from Estefania Bustos, on March 18, 1876, the mortgage was recorded in the old
mortgage registry then kept in the office of the Ayuntamiento of Manila during the former sovereignty, and thereafter
Agapito G. Cruzado received his appointment and commenced to discharge the duties of his position.
The above-related facts conclusively prove that Estefania Bustos executed the deed of sale Exhibit A in favor of the
deceased Cruzado in order to enable the latter, by showing that he was a property owner, to hold the office
ofprocurador. This position he held for many years, thanks to the liberality of the pretended vendor, who,
notwithstanding the statements contained in the deed of sale, does not appear to have been paid anything as a result
of the sham sale, a sale which was affected, not in prejudice or fraud of any person, nor those who were entitled to
hold Cruzado liable for the proper discharge of the duties of his office, because, had the need arisen, any liability of his
could have been covered by the value of the land, the sale of which was fictitiously set forth in that deed as lawfully
belonging to Cruzado, and then Estefania Bustos would have had no right either to object to or escape the
consequences of that alienation, although simulated.
The simulation of the said sale was effected by making a pretended contract which bore the appearance of truth, when
really and truly there was no contract, because the contracting parties did not in fact intend to execute one, but only
to formulate a sale in such a manner that, for the particular purposes sought by Bustos and Cruzado, it would appear
to have been celebrated solely that Cruzado might hold his office of procurador on the strength of the security
afforded by the value of the land feignedly sold.
The record does not show when the procurador Cruzado died, but it is unquestionable that he was still living during the
last months of 1882, judging from the certificate which he himself issued to Norberto Decena (Exhibit 3). He must have
died sometime between the years 1882 and 1890, to judge from the contents of the letters plaintiff addressed to
Natalio Dizon, one of the children of Estefania Bustos, on July 7, 1891, and July 4, 1896, and from the fact that in the
said year 1890 Agapito G. Cruzado was no longer a practicing procurador in the Court of First Instance of Pampanga..
It is true that even after the death of the aforesaid procurador, any liability he might have incurred in connection with
the exercise of his office could have been, upon presentation of the proper claim, collected out of the value of the land
apparently sold by Estafania Bustos and pledged as security for the proper discharge of the duties of his office. On
October 8, 1910, when his son Santiago Cruzado filed his complaint, already more than twenty years had elapsed
since 1889, if plaintiff's father died in 1889 and not between 1883 and 1889; therefore, any right of action to foreclose
the mortgage, or any personal action with regard to the value of the encumbered land, as the result of any liability
incurred in the performance of his duties as procurador, has more than prescribed. (Art. 1964, Civil Code, and secs. 38,
39 and 43, Act. No. 190.).
On the termination of the sovereignty of Spain over this Archipelago, the Spanish courts here established went out of
existence on January 31, 1899, the Pampanga court indeed being abolished about the middle of 1897 as a result of the
revolution against the former sovereignty. The personnel of those courts also ceased to render service as such. It may
therefore be affirmed that, if the said lien on the land in question has not terminated by its no longer having any
object, it is at least undeniable that prescription has already run with respect to any action that might have been
brought against the pledged land to recover for any liability which might have been incurred by
the procurador Cruzado during his lifetime in connection with his office, so that this real estate may now be considered
as free from that hypothecary encumbrance.
At the present time we have only to explain what rights Agapito G. Cruzado transmitted at his death to his son, the
herein plaintiff, by virtue of the deed of sale of the land in litigation, executed by its owner Estefania Bustos.
It is unquestionable that the contract of sale of the 65 balitas of land was perfect and binding upon both contracting
parties, since they both appear in that instrument to have agreed upon the thing sold, to wit, the 65balitas of land, and
upon the price, P2,200; but it is also undeniable that the said contract was not consummated, inasmuch as,
notwithstanding that the deed of sale Exhibit A was accomplished and this document was kept by the pretended
purchaser, it is positively certain that the latter did not pay the purchase price of P2,200, and never took possession of
the land apparently sold in the said deed. All that this vendee afterwards did was to pledge the land — on March 14,
1876, that is, six months and some days after the 7th of September, 1875, the date when he purchased it — as
security for the faithful discharge of the duties of his office of procurador of the Court of First Instance of Pampanga.
The plaintiff, Santiago Cruzado, a son of the vendee, claiming that the said land was being detained by the vendor, or
by the administrator of the latter's estate or her death after the commencement of these proceedings, and by the
other defendant Manuel Escaler, prayed the court to declare him to be the owner thereof, to order the defendants to
return it to him and to pay him for losses and damages, and the costs.
The action brought by the plaintiff is evidently one for recovery of possession, founded on the right transmitted to him
by his father at his death, — a right arising from the said simulated deed of sale of the land in question. This action is
of course improper, not only because the sale was simulated, but also because it was not consummated. The price of
the land was not paid nor did the vendee take possession of the property from the 7th of September, 1875, when the
said sale was feigned, until the time of his death; nor did any of his successors, nor the plaintiff himself until the date
of his claim, enter into possession of the land.
It is indeed true that it is not necessary that the thing sold or its price should have been delivered in order that the
contract of purchase and sale be deemed perfect on account of its being consensual, and from it reciprocal obligations
arise mutually to compel the parties to effect its fulfillment; but there is no transmission of ownership until the thing,
as in the case at bar, the land, has been delivered, and the moment such delivery is made the contract of purchase
and sale is regarded as consummated. Article 1450 of the Civil Code, relied upon in this connection by the appellant,
refers solely to the perfection of the contract and not to its consummation.
The purchaser is also a creditor with respect to the products of the thing sold, and article 1095 of the Civil Code
prescribes as follows:
A creditor has a right to the fruits of a thing from the time the obligation to deliver it arises. However, he shall
not acquire a property right thereto until it has been delivered to him.
The provisions of this article are in agreement with that of the second paragraph of article 609 of the same Code,
which is of the following tenor:
Ownership is acquired by retention.
Ownership and other property rights are required and transmitted by law, by gift, by testate or intestate
succession, and, in consequence of certain contracts, by tradition.
They can also be acquired by prescription.
The provisions of the said article 1095 are also in accord with those of article 1462 which reads:
A thing sold shall be considered as delivered, when it is placed in the hands and possession of the vendee.
 When the sale should be made by means of a public instrument, the execution thereof shall be equivalent to
the delivery of the thing which is the object of the contract, if in said instrument the contrary does not appear
or may be clearly inferred.
It is true that the deed of sale Exhibit A remained in possession of the vendee Cruzado, but the sale is not to be
considered as consummated by this because the said vendee never entered into possession of the land and neither
did his son the plaintiff. The latter, moreover, was unable to prove that at any time as owner of the land he collected
the fruits harvested thereon, or that any other person cultivated the said land in the name and representation of his
deceased father or of the plaintiff himself. The fiction created by means of the execution and delivery of a public
instrument produces no effect if the person acquiring it never takes possession of the thing sold or acquired, as
happened in the case at bar.
If, as prescribed by the preinserted article 1095, the creditor, and in the present case the vendee, does not acquire a
property right in the land purchased until the property has been delivered to him or he has taken possession of it, it is
unquestionable that, as neither the plaintiff nor his predecessor in interest took possession of the land in litigation,
neither of them acquired any property right therein and, consequently, could not and cannot now bring an action for
recovery of possession which arises out of a property right in a thing which belongs to them and not a mere right
productive of a personal obligation. The plaintiff Santiago Cruzado could only, in a proper case, exercise the personal
right of action flowing from the right possessed by his father to compel the vendor to fulfill the contract made in a
public instrument to deliver the land sold or to give him possession of it, in consequence of the said contract, though
simulated and executed for the sole purpose that the deceased Cruzado in default of P700 in cash might appear to
own real estate with which to insure the proper performance of his duties as procurador, an office he then desired to
hold.
The supreme court of Spain in a decision of cassation of June 1, 1990, established the following doctrine:
That articles 1258 and 1450 of the Civil Code and the decisions of cassation of June 30, 1854, April 13 and
December 13, 1861, June 30, 1864, and April 19 and December 15, 1865, do not warrant the conclusion that
whoever purchases personal or real property may exercise with respect thereto all rights of action inherent in
its ownership, without it having, in some way or another, been placed at his disposal. On the contrary, the
distinction between the perfecting and the consummation of a contract marks the diversity of relations of the
contracting parties among themselves and of the owner with respect to what constitutes this property.
This principle is in harmony with those set up by the same high tribunal in its decision of January 19, 1898, and March
8, 1901.
In this last decision, also rendered on an appeal in cassation, the doctrine enunciated in the excerpt copied here below
was established:
That the contract of purchase and sale, as consensual, is perfected by consent as to the price and the thing
and is consummated by the reciprocal delivery of the one and the other, the full ownership of the thing sold
being conveyed to the vendee, from which moment the rights of action derived from this right may be
exercised.
It is, then, of the utmost importance to examine whether in the said sale the purchase price was paid and whether the
vendee took possession of the land supposed to have been sold.
The record discloses that Cruzado during his lifetime was, before he became a procurador, an official escribienteor
clerk charged with the duty of coursing records and proceedings in the Court of Pampanga; that his salary was hardly
sufficient to maintain him and his family; that on account of the insufficiency of his monthly stipend, he was frequently
obliged to borrow money from his friends, notwithstanding that he with his family lodged in the house of Bernardino
Dizon, the husband of the vendor Bustos, situated in the municipality of Bacolor, with whom Cruzado maintained
intimate relations of friendship, and on this account the said couple were content to live in a country house they
owned on one of their rice fields. Such was the testimony of several witnesses who lived in that municipality, and who
knew and had considerable dealings with the plaintiff's father for many years. It was the opinion of these witnesses
that the deceased Agapito G. Cruzado was a poor man, for the reason that his monthly salary scarcely provided for the
needs of himself and his family, and they therefore believed that he could not have furnished the sum of P2,200 to
purchase the land in question, and, furthermore, if the plaintiff's father had possessed this sum, he would have made
the deposit of the sum of P700, the amount of security required by thePresidencia of the former Real Audiencia de
Manila for his appointment as procurador, since, having the means, he would have preferred to deposit this smaller
sum rather than to have used P2,200 in acquiring a piece of land from which he would derive no benefit whatever, as
in fact he never did, as he must have known that in spite of the simulated sale of the property its owner would
continue in its possession and would cultivate it, as she did do until her death. It is, therefore, unquestionable that the
price of the sale was not paid, an omission which would indicate that it was in effect simulated.
Aside from the fact that the spouses Estafania Bustos and Bernardino Dizon had no need to sell the said 65balitas of
land, or of fencing or separating this parcel from the large tract of land that belonged to them and of which it formed a
part, for the reason that they were rich and at that time were not in need of money to cultivate their extensive
landholdings, it is also to be noted that the portion of land sold was worth very much more than the P2,200 which, in
the said instrument, purported to be its price.
In addition to the foregoing, the proceedings in the case at bar furnish ample proof that Agapito Geronimo Cruzado
during his lifetime stated to various persons that he succeeded in giving bond for his appointment as procurador by
means of the said instrument of simulated sale, executed in his favor by the spouses Dizon and Bustos, as he did not
have the money to make the deposit required for his appointment. So close were the relations that then existed
between the Cruzado family and that of Dizon and Bustos, that later on the plaintiff married a daughter of these latter;
hence, plaintiff, in the beginning of his letters Exhibits 8 and 9 addressed to Natalio Dizon, a son of the vendor
Estefania Bustos, calls his correspondent his "dear and esteemed brother-in-law." It is therefore not stranger that
these spouses should have wished to help plaintiff's predecessor in interest by assisting him to obtain the office
of procurador, even to the extent of making a feigned sale.
However, years afterwards, prompted by an intuition of possible future difficulties, Dizon and his wife Bustos went to
the office of Agapito G. Cruzado and required him to cancel the said deed of sale, in order to avoid any lawsuit after
their death. Cruzado promised to look for money wherewith to substitute the mortgage bond. This demand had to be
repeated several times, because Cruzado did not cancel the deed as he promised.
Furthermore, it is shown that the instrument Exhibit A is merely a second copy obtained by the plaintiff from the chief
of division of archives, without prior summons or notification of the vendor Estefania Bustos, who was still living, in
conformity with the provisions contained in article 18 of the Notarial Law of February 15, 1889, and without the
plaintiff's having explained what became of the first copy. Besides, the clerk and notary who certified that instrument
did not attest therein that in his presence the vendee Cruzado paid over the sum of P2,200, the price of the land sold,
and as the vendor denied having received this sum, the obligation devolved upon plaintiff to prove that his deceased
father had paid the price stated in that instrument. By this not having done so, his omission constitutes additional
proof that the sale of the land, the recovery of possession of which plaintiff now seeks, was really simulated.
The supreme court of Spain, in a decision dated February 20, 1899, rendered on an appeal in cassation, laid down the
doctrine that, in accordance with the provisions of article 40 of the Mortgage Law, in the alienation of real property it is
understood that no price has been paid if the notary does not attest its delivery or the contracting parties do not prove
that it was previously paid.
The courts are allowed full latitude to accept the presumption that the purchase price has not been paid when the
notary before whom the instrument was executed does not attest the delivery of the money, and when, such delivery
being denied by one of the contracting parties, the other does not adduce proof of its payment, especially when such
presumption is corroborated by other circumstantial evidence which, all together, undoubtedly prove that the sale was
feigned and simulated for certain purposes sought to be attained by the parties, though, as in the case at bar, the
simulation was not effected in fraud of creditors.
Besides the failure to pay the purchase price, the record discloses another very important fact, to wit, that neither the
vendee nor his heirs, among these latter, the plaintiff, had at any time taken possession of the land which in the said
instrument Exhibit A appeared to have been sold, for, by the testimony of seven competent witnesses examined at the
trial it is decisively and conclusively proven that the alleged vendor, Estefania Bustos, and her husband while he was
living, notwithstanding the said alienation, continued to possess the said land supposedly sold to plaintiff's father, and
cultivated it, as she had done long before the sale of September, 1875, and continued to do so up to the date of the
complaint filed by Santiago Cruzado; in the first period, until September 10, 1891, as the owner of the land, and from
this date, when the whole of the large tract of land of which the said portion apparently sold forms a part was sold to
the other defendant Manuel Escaler, the original owner Estefania Bustos continued in the material possession of the
land, but now as the lessee of the new owner, until 1908, when she was substituted by Marcelo Rodriguez as the new
lessee of the property. The plaintiff at no time after his father's death occupied the land in litigation, notwithstanding
his allegation that he has been collecting rentals from Estefania Bustos, his mother-in-law, by reason of his having
leased the land to her.
The plaintiff endeavored to prove that during the years 1882 and 1883 he personally took charge of and tilled the
disputed land on shares through his tenants named Florentino de los Reyes, Lino Cortes, Macario de los Reyes and
Regino de los Reyes, all of whom corroborated plaintiff's testimony in this regard. However, six of the defendants'
witnesses positively stated that they never were aware that the said tenants had worked on the land in question
during either the said two years or in any other, for these latter were working on the adjacent lands belonging to other
owners. Pablo Angeles, one of the defendants' witnesses, testified that Regino and Florentino de los Reyes were his
tenants on shares and were employed on his land adjoining that in question. He was positively certain that they never
worked on the disputed land during or about the years aforementioned, because the carabaos used by his said two
tenants belonged to him and he never would have permitted them to use these animals in working land that did not
belong to him. He added that Regino's children, Macario and Basilio, were at that time so young, being about eight
years of age, that they were not yet able to work in the fields.
The plaintiff must have been well convinced that he had no right whatever in the land supposedly purchased by his
father. The latter never demanded its possession from its owner Estefania Bustos and never thought of declaring the
property as belonging to him, for the purposes of the land tax, from the time this tax was established in this country,
notwithstanding that the plaintiff, knowing his obligation, filed a sworn declaration relative to a lot he owned in the
municipality of Bacolor. This procedure of plaintiff's proves that he did not believe himself to be the owner of the land
he claims and which its present owner Manuel Escaler has constantly declared for the purpose of assessment.
Moreover, about the middle of the year 1891, the plaintiff Santiago Cruzado begged his brother-in-law Natalio Dizon to
tell the latter's mother, plaintiff's mother-in-law, that Cruzado desired the lease four balitas of the land in question, and
some days afterwards, possibly because he received no reply from his said brother-in-law, he addressed a letter to
Dizon (Exhibit 9, page 152 of the record, translated on page 154) in which he repeated his request and asked for a
reply; but notwithstanding that his brother-in-law Dizon told him that he could not dispose of any part of the said land
for the reason that his mother Estefania Bustos was negotiating for the sale of all the land she possessed in the sitio of
Sicat to Manuel Escaler, plaintiff went to Dizon's house on an occasion when Paulino de la Cruz was there. Cruz was a
representative of Escaler and had been charged to inform himself of the situation, condition and quality of the land
which Bustos was about to sell to his principal and was at the said house for the purpose of being shown the land
offered for sale. On this occasion plaintiff learned that negotiations were being made for the sale of all the land owned
by Estefania Bustos of which the 65 balitas in litigation formed a part. Plaintiff did not then or afterwards make any
statement or objection whatever in defense of his rights and interest, if he really believed that he was entitled to the
land shown in the instrument Exhibit A to have been purchased by his father.
Plaintiff made no protest whatsoever, because he well knew that the said sale was simulated and that his father had
acquired no right whatever in the property; he was therefore anxious to lease four balitas of the same land, a purpose
in which he was unsuccessful because a deal was then already going forward for the sale of the said land to its present
owner, Manuel Escaler, who in fact did but it on September 10, 1891. If plaintiff were convinced that he was the owner
of the land, as he rashly asserted that he was in his complaint for recovery of possession, it is not understood why
about the middle of the year 1891 he wished to lease, not all the 65 balitas, but only four of them, as stated in his said
letter, Exhibit 9.
From that time the new owner Manuel Escaler took possession of all the land sold by Estefania Bustos, including the
65 balitas in litigation, and continued in its possession as the owner thereof until October 8, 1910, when plaintiff filed
his claim. Thus, more than the ten years required by law for ordinary prescription had already elapsed, as Escaler
purchased the land and was holding it in good faith under a lawful title and was not disturbed in his continuous and
peaceable possession, one that was adverse to the whole world. It is therefore unquestionable that he has absolutely
acquired by prescription the ownership of the disputed land, and the action brought by plaintiff, founded solely on a
simulated sale executed by the original owner of the land, not to the prejudice, but to the benefit, of the pretended
vendee, cannot prevail against Escaler's rights.
The registration obtained by the plaintiff in the property registry of the second copy of the said instrument Exhibit A,
about two months before filing his action for recovery, to wit, on August 23, 1910, has not improved the deed of sale
nor made it more effective, nor could it affect the rights held by the original owner and the present proprietor of the
land in question, inasmuch as their predecessor in interest, by default of payment of the price of the sale and on
account of his never having taken possession of the land sold, was not the owner thereof, nor did he acquire any
property right whatever therein. Consequently at his death he could not have transmitted to the plaintiff as his
successor any greater right than a personal right to exact the fulfillment of a contract, and as plaintiff was not the
owner of the land, he could not validly register it.
Article 1473 of the Civil Code prescribes:
If the same thing should have been sold to different vendees, the ownership shall be transferred to the person
who may have first taken possession thereof in good faith, if it should be personal property.
Should it be real property, it shall belong to the person acquiring it who first recorded it in the registry.
Should there be no entry, the property shall belong to the person who first took possession of it in good faith,
and, in the absence thereof, to the person who presents the oldest title, provided there is good faith.
On the sale of the land to the defendant Escaler, neither he nor the plaintiff had had it entered in the property registry,
but the said new owner, Escaler, took possession of the land on the date of its acquisition, September 10,1891, and
has retained possession thereof up to the present time. So that when plaintiff registered the land he was not in
possession thereof and no longer had any right whatever therein, because it already belonged to the defendant
Escaler, its lawful owner.
However, even though it were proper for plaintiff to bring the real action for recovery derived, though we do not admit
that it could be, from the simulated sale before mentioned, both this action as well as the personal action — the only
one available in a proper case, as before demonstrated, pursuant to the provisions of article 1095 of the Civil Code —
have both certainly prescribed, for the reason that the periods fixed by law for filing such actions have much more
than elapsed.
Article 1939 of the Civil Code says:
Prescription, which began to run before the publication of this code, shall be governed by the prior laws; but if,
after this code became operative, all the time required in the same for prescription has elapsed, it shall be
effectual, even if according to said prior laws a longer period of time may be required.
Personal actions prescribe after ten years; and the same with the writ of execution therein issued, after twenty years;
while real actions prescribe after thirty years: according to Law 5, Title 8, Book 1 of the Novisima Recopilacion, and
Law 21, Title 29, Partida 3, which were those in force on the date of the execution of the deed of sale, Exhibit A.
From September 7, 1875, to October 8, 1910, when the complaint was filed, thirty-five years have elapsed. Therefore,
not only in accordance with the laws aforecited, but also pursuant to the provisions of articles 1963 and 1964 of the
Civil Code, the periods fixed for the prescription of the personal action which could, in a proper case, have been
exercised, as well as for the real action for recovery of possession brought by the plaintiff without right so to do, have
more than prescribed.
For all the foregoing reasons, whereby the errors assigned to the judgment appealed from have been duly refuted, the
said judgment should be, as it is hereby, affirmed, with the costs against the appellant. So ordered.
Arellano, C. J., Johnson, Carson, Moreland, Trent, and Araullo, JJ., concur.

G.R. No. L-21601 December 17, 1966

NIELSON & COMPANY, INC., plaintiff-appellant,
vs.
LEPANTO CONSOLIDATED MINING COMPANY, defendant-appellee.
W. H. Quasha and Associates for plaintiff-appellant.
Ponce Enrile, Siguion-Reyna, Montecillo and Belo for defendant-appellee.
ZALDIVAR, J.:
On February 6, 1958, plaintiff brought this action against defendant before the Court of First Instance of Manila to
recover certain sums of money representing damages allegedly suffered by the former in view of the refusal of the
latter to comply with the terms of a management contract entered into between them on January 30, 1937, including
attorney's fees and costs.
Defendant in its answer denied the material allegations of the complaint and set up certain special defenses, among
them, prescription and laches, as bars against the institution of the present action.
After trial, during which the parties presented testimonial and numerous documentary evidence, the court a
quorendered a decision dismissing the complaint with costs. The court stated that it did not find sufficient evidence to
establish defendant's counterclaim and so it likewise dismissed the same.
The present appeal was taken to this Court directly by the plaintiff in view of the amount involved in the case.
The facts of this case, as stated in the decision appealed from, are hereunder quoted for purposes of this decision:
It appears that the suit involves an operating agreement executed before World War II between the plaintiff
and the defendant whereby the former operated and managed the mining properties owned by the latter for a
management fee of P2,500.00 a month and a 10% participation in the net profits resulting from the operation
of the mining properties. For brevity and convenience, hereafter the plaintiff shall be referred to as NIELSON
and the defendant, LEPANTO.
The antecedents of the case are: The contract in question (Exhibit `C') was made by the parties on January 30,
1937 for a period of five (5) years. In the latter part of 1941, the parties agreed to renew the contract for
another period of five (5) years, but in the meantime, the Pacific War broke out in December, 1941.
In January, 1942 operation of the mining properties was disrupted on account of the war. In February of 1942,
the mill, power plant, supplies on hand, equipment, concentrates on hand and mines, were destroyed upon
orders of the United States Army, to prevent their utilization by the invading Japanese Army. The Japanese
forces thereafter occupied the mining properties, operated the mines during the continuance of the war, and
who were ousted from the mining properties only in August of 1945.
After the mining properties were liberated from the Japanese forces, LEPANTO took possession thereof and
embarked in rebuilding and reconstructing the mines and mill; setting up new organization; clearing the mill
site; repairing the mines; erecting staff quarters and bodegas and repairing existing structures; installing new
 machinery and equipment; repairing roads and maintaining the same; salvaging equipment and storing the
same within the bodegas; doing police work necessary to take care of the materials and equipment recovered;
repairing and renewing the water system; and remembering (Exhibits "D" and "E"). The rehabilitation and
reconstruction of the mine and mill was not completed until 1948 (Exhibit "F"). On June 26, 1948 the mines
resumed operation under the exclusive management of LEPANTO (Exhibit "F-l").
Shortly after the mines were liberated from the Japanese invaders in 1945, a disagreement arose between
NIELSON and LEPANTO over the status of the operating contract in question which as renewed expired in
1947. Under the terms thereof, the management contract shall remain in suspense in case fortuitous event
or force majeure, such as war or civil commotion, adversely affects the work of mining and milling.
"In the event of inundations, floodings of mine, typhoon, earthquake or any other force majeure, war,
insurrection, civil commotion, organized strike, riot, injury to the machinery or other event or cause
reasonably beyond the control of NIELSON and which adversely affects the work of mining and milling;
NIELSON shall report such fact to LEPANTO and without liability or breach of the terms of this
Agreement, the same shall remain in suspense, wholly or partially during the terms of such inability."
(Clause II of Exhibit "C").
NIELSON held the view that, on account of the war, the contract was suspended during the war; hence the life
of the contract should be considered extended for such time of the period of suspension. On the other hand,
LEPANTO contended that the contract should expire in 1947 as originally agreed upon because the period of
suspension accorded by virtue of the war did not operate to extend further the life of the contract.
No understanding appeared from the record to have been bad by the parties to resolve the disagreement. In
the meantime, LEPANTO rebuilt and reconstructed the mines and was able to bring the property into operation
only in June of 1948, . . . .
Appellant in its brief makes an alternative assignment of errors depending on whether or not the management
contract basis of the action has been extended for a period equivalent to the period of suspension. If the agreement is
suspended our attention should be focused on the first set of errors claimed to have been committed by the court a
quo; but if the contrary is true, the discussion will then be switched to the alternative set that is claimed to have been
committed. We will first take up the question whether the management agreement has been extended as a result of
the supervening war, and after this question shall have been determined in the sense sustained by appellant, then the
discussion of the defense of laches and prescription will follow as a consequence.
The pertinent portion of the management contract (Exh. C) which refers to suspension should any event
constituting force majeure happen appears in Clause II thereof which we quote hereunder:
In the event of inundations, floodings of the mine, typhoon, earthquake or any other force majeure, war,
insurrection, civil commotion, organized strike, riot, injury to the machinery or other event or cause reasonably
beyond the control of NIELSON and which adversely affects the work of mining and milling; NIELSON shall
report such fact to LEPANTO and without liability or breach of the terms of this Agreement, the same shall
remain in suspense, wholly or partially during the terms of such inability.
A careful scrutiny of the clause above-quoted will at once reveal that in order that the management contract may be
deemed suspended two events must take place which must be brought in a satisfactory manner to the attention of
defendant within a reasonable time, to wit: (1) the event constituting the force majeure must be reasonably beyond
the control of Nielson, and (2) it must adversely affect the work of mining and milling the company is called upon to
undertake. As long as these two condition exist the agreement is deem suspended.
Does the evidence on record show that these two conditions had existed which may justify the conclusion that the
management agreement had been suspended in the sense entertained by appellant? Let us go to the evidence.
It is a matter that this Court can take judicial notice of that war supervened in our country and that the mines in the
Philippines were either destroyed or taken over by the occupation forces with a view to their operation. The Lepanto
mines were no exception for not was the mine itself destroyed but the mill, power plant, supplies on hand, equipment
and the like that were being used there were destroyed as well. Thus, the following is what appears in the Lepanto
Company Mining Report dated March 13, 1946 submitted by its President C. A. DeWitt to the defendant:1 "In February
of 1942, our mill, power plant, supplies on hand, equipment, concentrates on hand, and mine, were destroyed upon
orders of the U.S. Army to prevent their utilization by the enemy." The report also mentions the report submitted by
Mr. Blessing, an official of Nielson, that "the original mill was destroyed in 1942" and "the original power plant and all
the installed equipment were destroyed in 1942." It is then undeniable that beginning February, 1942 the operation of
the Lepanto mines stopped or became suspended as a result of the destruction of the mill, power plant and other
important equipment necessary for such operation in view of a cause which was clearly beyond the control of Nielson
and that as a consequence such destruction adversely affected the work of mining and milling which the latter was
called upon to undertake under the management contract. Consequently, by virtue of the very terms of said contract
the same may be deemed suspended from February, 1942 and as of that month the contract still had 60 months to go.
On the other hand, the record shows that the defendant admitted that the occupation forces operated its mining
properties subject of the management contract,2 and from the very report submitted by President DeWitt it appears
that the date of the liberation of the mine was August 1, 1945 although at the time there were still many booby
traps.3 Similarly, in a report submitted by the defendant to its stockholders dated August 25, 1948, the following
appears: "Your Directors take pleasure in reporting that June 26, 1948 marked the official return to operations of this
Company of its properties in Mankayan, Mountain Province, Philippines."4
It is, therefore, clear from the foregoing that the Lepanto mines were liberated on August 1, 1945, but because of the
period of rehabilitation and reconstruction that had to be made as a result of the destruction of the mill, power plant
and other necessary equipment for its operation it cannot be said that the suspension of the contract ended on that
date. Hence, the contract must still be deemed suspended during the succeeding years of reconstruction and
rehabilitation, and this period can only be said to have ended on June 26, 1948 when, as reported by the defendant,
the company officially resumed the mining operations of the Lepanto. It should here be stated that this period of
suspension from February, 1942 to June 26, 1948 is the one urged by plaintiff.5
It having been shown that the operation of the Lepanto mines on the part of Nielson had been suspended during the
period set out above within the purview of the management contract, the next question that needs to be determined is
the effect of such suspension. Stated in another way, the question now to be determined is whether such suspension
had the effect of extending the period of the management contract for the period of said suspension. To elucidate this
matter, we again need to resort to the evidence.
For appellant Nielson two witnesses testified, declaring that the suspension had the effect of extending the period of
the contract, namely, George T. Scholey and Mark Nestle. Scholey was a mining engineer since 1929, an incorporator,
general manager and director of Nielson and Company; and for some time he was also the vice-president and director
of the Lepanto Company during the pre-war days and, as such, he was an officer of both appellant and appellee
companies. As vice-president of Lepanto and general manager of Nielson, Scholey participated in the negotiation of
the management contract to the extent that he initialed the same both as witness and as an officer of both
corporations. This witness testified in this case to the effect that the standard force majeure clause embodied in the
management contract was taken from similar mining contracts regarding mining operations and the understanding
regarding the nature and effect of said clause was that when there is suspension of the operation that suspension
meant the extension of the contract. Thus, to the question, "Before the war, what was the understanding of the people
in the particular trend of business with respect to the force majeure clause?", Scholey answered: "That was our
understanding that the suspension meant the extension of time lost."6
Mark Nestle, the other witness, testified along similar line. He had been connected with Nielson since 1937 until the
time he took the witness stand and had been a director, manager, and president of the same company. When he was
propounded the question: "Do you know what was the custom or usage at that time in connection with force
majeure clause?", Nestle answered, "In the mining world the force majeure clause is generally considered. When a
calamity comes up and stops the work like in war, flood, inundation or fire, etc., the work is suspended for the duration
of the calamity, and the period of the contract is extended after the calamity is over to enable the person to do the big
work or recover his money which he has invested, or accomplish what his obligation is to a third person ."7
And the above testimonial evidence finds support in the very minutes of the special meeting of the Board of Directors
of the Lepanto Company issued on March 10, 1945 which was then chairmaned by Atty. C. A. DeWitt. We read the
following from said report:
The Chairman also stated that the contract with Nielson and Company would soon expire if the obligations
were not suspended, in which case we should have to pay them the retaining fee of P2,500.00 a month. He
believes however, that there is a provision in the contract suspending the effects thereof in cases like the
present, and that even if it were not there, the law itself would suspend the operations of the contract on
account of the war. Anyhow, he stated, we shall have no difficulty in solving satisfactorily any problem we may
have with Nielson and Company.8
Thus, we can see from the above that even in the opinion of Mr. DeWitt himself, who at the time was the chairman of
the Board of Directors of the Lepanto Company, the management contract would then expire unless the period therein
rated is suspended but that, however, he expressed the belief that the period was extended because of the provision
contained therein suspending the effects thereof should any of the case of force majeure happen like in the present
case, and that even if such provision did not exist the law would have the effect of suspending it on account of the
war. In substance, Atty. DeWitt expressed the opinion that as a result of the suspension of the mining operation
because of the effects of the war the period of the contract had been extended.
Contrary to what appellant's evidence reflects insofar as the interpretation of the force majeure clause is concerned,
however, appellee gives Us an opposite interpretation invoking in support thereof not only a letter Atty. DeWitt sent to
Nielson on October 20, 1945,9 wherein he expressed for the first time an opinion contrary to what he reported to the
Board of Directors of Lepanto Company as stated in the portion of the minutes of its Board of Directors as quoted
above, but also the ruling laid down by our Supreme Court in some cases decided sometime ago, to the effect that the
war does not have the effect of extending the term of a contract that the parties may enter into regarding a particular
transaction, citing in this connection the cases of Victorias Planters Association v. Victorias Milling Company, 51 O.G.
4010; Rosario S. Vda. de Lacson, et al. v. Abelardo G. Diaz, 87 Phil. 150; andLo Ching y So Young Chong Co. v. Court of
Appeals, et al., 81 Phil. 601.
To bolster up its theory, appellee also contends that the evidence regarding the alleged custom or usage in mining
contract that appellant's witnesses tried to introduce was incompetent because (a) said custom was not specifically
pleaded; (b) Lepanto made timely and repeated objections to the introduction of said evidence; (c) Nielson failed to
show the essential elements of usage which must be shown to exist before any proof thereof can be given to affect the
contract; and (d) the testimony of its witnesses cannot prevail over the very terms of the management contract which,
as a rule, is supposed to contain all the terms and conditions by which the parties intended to be bound.
It is here necessary to analyze the contradictory evidence which the parties have presented regarding the
interpretation of the force majeure clause in the management contract.
At the outset, it should be stated that, as a rule, in the construction and interpretation of a document the intention of
the parties must be sought (Rule 130, Section 10, Rules of Court). This is the basic rule in the interpretation of
contracts because all other rules are but ancilliary to the ascertainment of the meaning intended by the parties. And
once this intention has been ascertained it becomes an integral part of the contract as though it had been originally
expressed therein in unequivocal terms (Shoreline Oil Corp. v. Guy, App. 189, So., 348, cited in 17A C.J.S., p. 47). How
is this intention determined?
One pattern is to ascertain the contemporaneous and subsequent acts of the contracting parties in relation to the
transaction under consideration (Article 1371, Civil Code). In this particular case, it is worthy of note what Atty. C. A.
DeWitt has stated in the special meeting of the Board of Directors of Lepanto in the portion of the minutes already
quoted above wherein, as already stated, he expressed the opinion that the life of the contract, if not extended, would
last only until January, 1947 and yet he said that there is a provision in the contract that the war had the effect of
suspending the agreement and that the effect of that suspension was that the agreement would have to continue with
the result that Lepanto would have to pay the monthly retaining fee of P2,500.00. And this belief that the war
suspended the agreement and that the suspension meant its extension was so firm that he went to the extent that
even if there was no provision for suspension in the agreement the law itself would suspend it.
It is true that Mr. DeWitt later sent a letter to Nielson dated October 20, 1945 wherein apparently he changed his mind
because there he stated that the contract was merely suspended, but not extended, by reason of the war, contrary to
the opinion he expressed in the meeting of the Board of Directors already adverted to, but between the two opinions
of Atty. DeWitt We are inclined to give more weight and validity to the former not only because such was given by him
against his own interest but also because it was given before the Board of Directors of Lepanto and in the presence, of
some Nielson officials 10 who, on that occasion were naturally led to believe that that was the true meaning of the
suspension clause, while the second opinion was merely self-serving and was given as a mere afterthought.
Appellee also claims that the issue of true intent of the parties was not brought out in the complaint, but anent this
matter suffice it to state that in paragraph No. 19 of the complaint appellant pleaded that the contract was
extended. 11 This is a sufficient allegation considering that the rules on pleadings must as a rule be liberally construed.
It is likewise noteworthy that in this issue of the intention of the parties regarding the meaning and usage concerning
the force majeure clause, the testimony adduced by appellant is uncontradicted. If such were not true, appellee should
have at least attempted to offer contradictory evidence. This it did not do. Not even Lepanto's President, Mr. V. E.
Lednicky who took the witness stand, contradicted said evidence.
In holding that the suspension of the agreement meant the extension of the same for a period equivalent to the
suspension, We do not have the least intention of overruling the cases cited by appellee. We simply want to say that
the ruling laid down in said cases does not apply here because the material facts involved therein are not the same as
those obtaining in the present. The rule of stare decisis cannot be invoked where there is no analogy between the
material facts of the decision relied upon and those of the instant case.
Thus, in Victorias Planters Association vs. Victorias Milling Company, 51 O.G. 4010, there was no evidence at all
regarding the intention of the parties to extend the contract equivalent to the period of suspension caused by the war.
Neither was there evidence that the parties understood the suspension to mean extension; nor was there evidence of
usage and custom in the industry that the suspension meant the extension of the agreement. All these matters,
however, obtain in the instant case.
Again, in the case of Rosario S. Vda. de Lacson vs. Abelardo G. Diaz, 87 Phil. 150, the issue referred to the
interpretation of a pre-war contract of lease of sugar cane lands and the liability of the lessee to pay rent during and
immediately following the Japanese occupation and where the defendant claimed the right of an extension of the lease
to make up for the time when no cane was planted. This Court, in holding that the years which the lessee could not
use the land because of the war could not be discounted from the period agreed upon, held that "Nowhere is there any
insinuation that the defendant-lessee was to have possession of lands for seven years excluding years on which he
could not harvest sugar." Clearly, this ratio decidendi is not applicable to the case at bar wherein there is evidence
that the parties understood the "suspension clause by force majeure" to mean the extension of the period of
agreement.
Lastly, in the case of Lo Ching y So Young Chong Co. vs. Court of Appeals, et al., 81 Phil. 601, appellant leased a
building from appellee beginning September 13, 1940 for three years, renewable for two years. The lessee's
possession was interrupted in February, 1942 when he was ousted by the Japanese who turned the same over to
German Otto Schulze, the latter occupying the same until January, 1945 upon the arrival of the liberation forces.
Appellant contended that the period during which he did not enjoy the leased premises because of his dispossession
by the Japanese had to be deducted from the period of the lease, but this was overruled by this Court, reasoning that
such dispossession was merely a simple "perturbacion de merohecho y de la cual no responde el arrendador" under
Article 1560 of the old Civil Code Art. 1664). This ruling is also not applicable in the instant case because in that case
there was no evidence of the intention of the parties that any suspension of the lease by force majeure would be
understood to extend the period of the agreement.
In resume, there is sufficient justification for Us to conclude that the cases cited by appellee are inapplicable because
the facts therein involved do not run parallel to those obtaining in the present case.
We shall now consider appellee's defense of laches. Appellee is correct in its contention that the defense of laches
applies independently of prescription. Laches is different from the statute of limitations. Prescription is concerned with
the fact of delay, whereas laches is concerned with the effect of delay. Prescription is a matter of time; laches is
principally a question of inequity of permitting a claim to be enforced, this inequity being founded on some change in
the condition of the property or the relation of the parties. Prescription is statutory; laches is not. Laches applies in
equity, whereas prescription applies at law. Prescription is based on fixed time, laches is not. (30 C.J.S., p. 522; See
also Pomeroy's Equity Jurisprudence, Vol. 2, 5th ed., p. 177).
The question to determine is whether appellant Nielson is guilty of laches within the meaning contemplated by the
authorities on the matter. In the leading case of Go Chi Gun, et al. vs. Go Cho, et al., 96 Phil. 622, this Court
enumerated the essential elements of laches as follows:
(1) conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation of which
complaint is made and for which the complaint seeks a remedy; (2) delay in asserting the complainant's rights,
the complainant having had knowledge or notice of the defendant's conduct and having been afforded an
opportunity to institute a suit; (3) lack of knowledge or notice on the part of the defendant that the
complainant would assert the right on which he bases his suit; and (4) injury or prejudice to the defendant in
the event relief is accorded to the complainant, or the suit is not held barred.
Are these requisites present in the case at bar?
The first element is conceded by appellant Nielson when it claimed that defendant refused to pay its management
fees, its percentage of profits and refused to allow it to resume the management operation.
Anent the second element, while it is true that appellant Nielson knew since 1945 that appellee Lepanto has refused to
permit it to resume management and that since 1948 appellee has resumed operation of the mines and it filed its
complaint only on February 6, 1958, there being apparent delay in filing the present action, We find the delay justified
and as such cannot constitute laches. It appears that appellant had not abandoned its right to operate the mines for
even before the termination of the suspension of the agreement as early as January 20, 194612 and even before March
10, 1945, it already claimed its right to the extension of the contract,13 and it pressed its claim for the balance of its
share in the profits from the 1941 operation14 by reason of which negotiations had taken place for the settlement of
the claim15 and it was only on June 25, 1957 that appellee finally denied the claim. There is, therefore, only a period of
less than one year that had elapsed from the date of the final denial of the claim to the date of the filing of the
complaint, which certainly cannot be considered as unreasonable delay.
The third element of laches is absent in this case. It cannot be said that appellee Lepanto did not know that appellant
would assert its rights on which it based suit. The evidence shows that Nielson had been claiming for some time its
rights under the contract, as already shown above.
Neither is the fourth element present, for if there has been some delay in bringing the case to court it was mainly due
to the attempts at arbitration and negotiation made by both parties. If Lepanto's documents were lost, it was not
caused by the delay of the filing of the suit but because of the war.
Another reason why appellant Nielson cannot be held guilty of laches is that the delay in the filing of the complaint in
the present case was the inevitable of the protracted negotiations between the parties concerning the settlement of
their differences. It appears that Nielson asked for arbitration16 which was granted. A committee consisting of Messrs.
DeWitt, Farnell and Blessing was appointed to act on said differences but Mr. DeWitt always tried to evade the
issue17 until he was taken ill and died. Mr. Farnell offered to Nielson the sum of P13,000.58 by way of compromise of all
its claim arising from the management contract18 but apparently the offer was refused. Negotiations continued with
the exchange of letters between the parties but with no satisfactory result.19 It can be said that the delay due to
protracted negotiations was caused by both parties. Lepanto, therefore, cannot be permitted to take advantage of
such delay or to question the propriety of the action taken by Nielson. The defense of laches is an equitable one and
equity should be applied with an even hand. A person will not be permitted to take advantage of, or to question the
validity, or propriety of, any act or omission of another which was committed or omitted upon his own request or was
caused by his conduct (R. H. Stearns Co. vs. United States, 291 U.S. 54, 78 L. Ed. 647, 54 S. Ct., 325; United States vs.
Henry Prentiss & Co., 288 U.S. 73, 77 L. Ed., 626, 53 S. Ct., 283).
Had the action of Nielson prescribed? The court a quo held that the action of Nielson is already barred by the statute of
limitations, and that ruling is now assailed by the appellant in this appeal. In urging that the court a quoerred in
reaching that conclusion the appellant has discussed the issue with reference to particular claims.
The first claim is with regard to the 10% share in profits of 1941 operations. Inasmuch as appellee Lepanto alleges that
the correct basis of the computation of the sharing in the net profits shall be as provided for in Clause V of the
Management Contract, while appellant Nielson maintains that the basis should be what is contained in the minutes of
the special meeting of the Board of Directors of Lepanto on August 21, 1940, this question must first be elucidated
before the main issue is discussed.
The facts relative to the matter of profit sharing follow: In the management contract entered into between the parties
on January 30, 1937, which was renewed for another five years, it was stipulated that Nielson would receive a
compensation of P2,500.00 a month plus 10% of the net profits from the operation of the properties for the preceding
month. In 1940, a dispute arose regarding the computation of the 10% share of Nielson in the profits. The Board of
Directors of Lepanto, realizing that the mechanics of the contract was unfair to Nielson, authorized its President to
enter into an agreement with Nielson modifying the pertinent provision of the contract effective January 1, 1940 in
such a way that Nielson shall receive (1) 10% of the dividends declared and paid, when and as paid, during the period
of the contract and at the end of each year, (2) 10% of any depletion reserve that may be set up, and (3) 10% of any
amount expended during the year out of surplus earnings for capital account. 20 Counsel for the appellee admitted
during the trial that the extract of the minutes as found in Exhibit B is a faithful copy from the original. 21 Mr. George
Scholey testified that the foregoing modification was agreed upon. 22
Lepanto claims that this new basis of computation should be rejected (1) because the contract was clear on the point
of the 10% share and it was so alleged by Nielson in its complaint, and (2) the minutes of the special meeting held on
August 21, 1940 was not signed.
It appearing that the issue concerning the sharing of the profits had been raised in appellant's complaint and evidence
on the matter was introduced 23 the same can be taken into account even if no amendment of the pleading to make it
conform to the evidence has been made, for the same is authorized by Section 4, Rule 17, of the old Rules of Court
(now Section 5, Rule 10, of the new Rules of Court).
Coming now to the question of prescription raised by defendant Lepanto, it is contended by the latter that the period
to be considered for the prescription of the claim regarding participation in the profits is only four years, because the
modification of the sharing embodied in the management contract is merely verbal, no written document to that effect
having been presented. This contention is untenable. The modification appears in the minutes of the special meeting
of the Board of Directors of Lepanto held on August 21, 1940, it having been made upon the authority of its President,
and in said minutes the terms of the modification had been specified. This is sufficient to have the agreement
considered, for the purpose of applying the statute of limitations, as a written contract even if the minutes were not
signed by the parties (3 A.L.R., 2d, p. 831). It has been held that a writing containing the terms of a contract if adopted
by two persons may constitute a contract in writing even if the same is not signed by either of the parties (3 A.L.R., 2d,
pp. 812-813). Another authority says that an unsigned agreement the terms of which are embodied in a document
unconditionally accepted by both parties is a written contract (Corbin on Contracts, Vol. 1, p. 85)
The modification, therefore, made in the management contract relative to the participation in the profits by appellant,
as contained in the minutes of the special meeting of the Board of Directors of Lepanto held on August 21, 1940,
should be considered as a written contract insofar as the application of the statutes of limitations is concerned. Hence,
the action thereon prescribes within ten (10) years pursuant to Section 43 of Act 190.
Coming now to the facts, We find that the right of Nielson to its 10% participation in the 1941 operations accrued on
December 21, 1941 and the right to commence an action thereon began on January 1, 1942 so that the action must be
brought within ten (10) years from the latter date. It is true that the complaint was filed only on February 6, 1958, that
is sixteen (16) years, one (1) month and five (5) days after the right of action accrued, but the action has not yet
prescribed for various reasons which We will hereafter discuss.
The first reason is the operation of the Moratorium Law, for appellant's claim is undeniably a claim for money. Said
claim accrued on December 31, 1941, and Lepanto is a war sufferer. Hence the claim was covered by Executive Order
No. 32 of March 10, 1945. It is well settled that the operation of the Moratorium Law suspends the running of the
statue of limitations (Pacific Commercial Co. vs. Aquino, G.R. No. L-10274, February 27, 1957).
This Court has held that the Moratorium Law had been enforced for eight (8) years, two (2) months and eight (8) days
(Tioseco vs. Day, et al., L-9944, April 30, 1957; Levy Hermanos, Inc. vs. Perez, L-14487, April 29, 1960), and deducting
this period from the time that had elapsed since the accrual of the right of action to the date of the filing of the
complaint, the extent of which is sixteen (16) years, one (1) month and five (5) days, we would have less than eight (8)
years to be counted for purposes of prescription. Hence appellant's action on its claim of 10% on the 1941 profits had
not yet prescribed.
Another reason that may be taken into account in support of the no-bar theory of appellant is the arbitration clause
embodied in the management contract which requires that any disagreement as to any amount of profits before an
action may be taken to court shall be subject to arbitration. 24 This agreement to arbitrate is valid and binding. 25 It
cannot be ignored by Lepanto. Hence Nielson could not bring an action on its participation in the 1941 operations-
profits until the condition relative to arbitration had been first complied with. 26 The evidence shows that an arbitration
committee was constituted but it failed to accomplish its purpose on June 25, 1957. 27From this date to the filing of the
complaint the required period for prescription has not yet elapsed.
Nielson claims the following: (1) 10% share in the dividends declared in 1941, exclusive of interest, amounting to
P17,500.00; (2) 10% in the depletion reserves for 1941; and (3) 10% in the profits for years prior to 1948 amounting to
P19,764.70.
With regard to the first claim, the Lepanto's report for the calendar year of 1954 28 shows that it declared a 10% cash
dividend in December, 1941, the amount of which is P175,000.00. The evidence in this connection (Exhibits L and O)
was admitted without objection by counsel for Lepanto. 29 Nielson claims 10% share in said amount with interest
thereon at 6% per annum. The document (Exhibit L) was even recognized by Lepanto's President V. L. Lednicky, 30 and
this claim is predicated on the provision of paragraph V of the management contract as modified pursuant to the
proposal of Lepanto at the special meeting of the Board of Directors on August 21, 1940 (Exh. B), whereby it was
provided that Nielson would be entitled to 10% of any dividends to be declared and paid during the period of the
contract.
With regard to the second claim, Nielson admits that there is no evidence regarding the amount set aside by Lepanto
for depletion reserve for 1941 31 and so the 10% participation claimed thereon cannot be assessed.
Anent the third claim relative to the 10% participation of Nielson on the sum of P197,647.08, which appears in
Lepanto's annual report for 1948 32 and entered as profit for prior years in the statement of income and surplus, which
amount consisted "almost in its entirety of proceeds of copper concentrates shipped to the United States during
1947," this claim should to denied because the amount is not "dividend declared and paid" within the purview of the
management contract.
The fifth assignment of error of appellant refers to the failure of the lower court to order Lepanto to pay its
management fees for January, 1942, and for the full period of extension amounting to P150,000.00, or P2,500.00 a
month for sixty (60) months, — a total of P152,500.00 — with interest thereon from the date of judicial demand.
It is true that the claim of management fee for January, 1942 was not among the causes of action in the complaint, but
inasmuch as the contract was suspended in February, 1942 and the management fees asked for included that of
January, 1942, the fact that such claim was not included in a specific manner in the complaint is of no moment
because an appellate court may treat the pleading as amended to conform to the evidence where the facts show that
the plaintiff is entitled to relief other than what is asked for in the complaint (Alonzo vs. Villamor, 16 Phil. 315). The
evidence shows that the last payment made by Lepanto for management fee was for November and December,
1941. 33 If, as We have declared, the management contract was suspended beginning February 1942, it follows that
Nielson is entitled to the management fee for January, 1942.
Let us now come to the management fees claimed by Nielson for the period of extension. In this respect, it has been
shown that the management contract was extended from June 27, 1948 to June 26, 1953, or for a period of sixty (60)
months. During this period Nielson had a right to continue in the management of the mining properties of Lepanto and
Lepanto was under obligation to let Nielson do it and to pay the corresponding management fees. Appellant Nielson
insisted in performing its part of the contract but Lepanto prevented it from doing so. Hence, by virtue of Article 1186
of the Civil Code, there was a constructive fulfillment an the part of Nielson of its obligation to manage said mining
properties in accordance with the contract and Lepanto had the reciprocal obligation to pay the corresponding
management fees and other benefits that would have accrued to Nielson if Lepanto allowed it (Nielson) to continue in
the management of the mines during the extended period of five (5) years.
We find that the preponderance of evidence is to the effect that Nielson had insisted in managing the mining
properties soon after liberation. In the report 34 of Lepanto, submitted to its stockholders for the period from 1941 to
March 13, 1946, are stated the activities of Nielson's officials in relation to Nielson's insistence in continuing the
management. This report was admitted in evidence without objection. We find the following in the report:
Mr. Blessing, in May, 1945, accompanied Clark and Stanford to San Fernando (La Union) to await the liberation of the
mines. (Mr. Blessing was the Treasurer and Metallurgist of Nielson). Blessing with Clark and Stanford went to the
property on July 16 and found that while the mill site had been cleared of the enemy the latter was still holding the
area around the staff houses and putting up a strong defense. As a result, they returned to San Fernando and later
went back to the mines on July 26. Mr. Blessing made the report, dated August 6, recommending a program of
operation. Mr. Nielson himself spent a day in the mine early in December, 1945 and reiterated the program which Mr.
Blessing had outlined. Two or three weeks before the date of the report, Mr. Coldren of the Nielson organization also
visited the mine and told President C. A. DeWitt of Lepanto that he thought that the mine could be put in condition for
the delivery of the ore within ten (10) days. And according to Mark Nestle, a witness of appellant, Nielson had several
men including engineers to do the job in the mines and to resume the work. These engineers were in fact sent to the
mine site and submitted reports of what they had done. 35
On the other hand, appellee claims that Nielson was not ready and able to resume the work in the mines, relying
mainly on the testimony of Dr. Juan Nabong, former secretary of both Nielson and Lepanto, given in the separate case
of Nancy Irving Romero vs. Lepanto Consolidated Mining Company (Civil Case No. 652, CFI, Baguio), to the effect that
as far as he knew "Nielson and Company had not attempted to operate the Lepanto Consolidated Mining Company
because Mr. Nielson was not here in the Philippines after the last war. He came back later," and that Nielson and
Company had no money nor stocks with which to start the operation. He was asked by counsel for the appellee if he
had testified that way in Civil Case No. 652 of the Court of First Instance of Baguio, and he answered that he did not
confirm it fully. When this witness was asked by the same counsel whether he confirmed that testimony, he said that
when he testified in that case he was not fully aware of what happened and that after he learned more about the
officials of the corporation it was only then that he became aware that Nielson had really sent his men to the mines
along with Mr. Blessing and that he was aware of this fact personally. He further said that Mr. Nielson was here in 1945
and "he was going out and contacting his people." 36
Lepanto admits, in its own brief, that Nielson had really insisted in taking over the management and operation of the
mines but that it (Lepanto) unequivocally refuse to allow it. The following is what appears in the brief of the appellee:
It was while defendant was in the midst of the rehabilitation work which was fully described earlier, still reeling
under the terrible devastation and destruction wrought by war on its mine that Nielson insisted in taking over
the management and operation of the mine. Nielson thus put Lepanto in a position where defendant, under
the circumstances, had to refuse, as in fact it did, Nielson's insistence in taking over the management and
operation because, as was obvious, it was impossible, as a result of the destruction of the mine, for the
plaintiff to manage and operate the same and because, as provided in the agreement, the contract was
suspended by reason of the war. The stand of Lepanto in disallowing Nielson to assume again the
management of the mine in 1945 was unequivocal and cannot be misinterpreted, infra.37
Based on the foregoing facts and circumstances, and Our conclusion that the management contract was extended, We
believe that Nielson is entitled to the management fees for the period of extension. Nielson should be awarded on this
claim sixty times its monthly pay of P2,500.00, or a total of P150,000.00.
In its sixth assignment of error Nielson contends that the lower court erred in not ordering Lepanto to pay it (Nielson)
the 10% share in the profits of operation realized during the period of five (5) years from the resumption of its post-
war operations of the Mankayan mines, in the total sum of P2,403,053.20 with interest thereon at the rate of 6% per
annum from February 6, 1958 until full payment. 38
The above claim of Nielson refers to four categories, namely: (1) cash dividends; (2) stock dividends; (3) depletion
reserves; and (4) amount expended on capital investment.
Anent the first category, Lepanto's report for the calendar year 1954 39 contains a record of the cash dividends it paid
up to the date of said report, and the post-war dividends paid by it corresponding to the years included in the period of
extension of the management contract are as follows:
POST-WAR

8 10% November 1949 P 200,000.00

9 10% July 1950 300,000.00

10 10% October 1950 500,000.00

11 20% December 1950 1,000,000.00

12 20% March 1951 1,000,000.00

13 20% June 1951 1,000,000.00

14 20% September 1951 1,000,000.00

15 40% December 1951 2,000,000.00

16 20% March 1952 1,000,000.00

17 20% May 1952 1,000,000.00

18 20% July 1952 1,000,000.00

19 20% September 1952 1,000,000.00

20 20% December 1952 1,000,000.00

21 20% March 1953 1,000,000.00

22 20% June 1953 1,000,000.00

TOTAL P14,000,000.00

According to the terms of the management contract as modified, appellant is entitled to 10% of the P14,000,000.00
cash dividends that had been distributed, as stated in the above-mentioned report, or the sum of P1,400,000.00.
With regard to the second category, the stock dividends declared by Lepanto during the period of extension of the
contract are: On November 28, 1949, the stock dividend declared was 50% of the outstanding authorized capital of
P2,000,000.00 of the company, or stock dividends worth P1,000,000.00; and on August 22, 1950, the stock dividends
declared was 66-2/3% of the standing authorized capital of P3,000,000.00 of the company, or stock dividends worth
P2,000,000.00. 40
Appellant's claim that it should be given 10% of the cash value of said stock dividends with interest thereon at 6%
from February 6, 1958 cannot be granted for that would not be in accordance with the management contract which
entitles Nielson to 10% of any dividends declared paid, when and as paid. Nielson, therefore, is entitled to 10% of the
stock dividends and to the fruits that may have accrued to said stock dividends pursuant to Article 1164 of the Civil
Code. Hence to Nielson is due shares of stock worth P100,000.00, as per stock dividends declared on November 28,
1949 and all the fruits accruing to said shares after said date; and also shares of stock worth P200,000.00 as per stock
dividends declared on August 20, 1950 and all fruits accruing thereto after said date.
Anent the third category, the depletion reserve appearing in the statement of income and surplus submitted by
Lepanto corresponding to the years covered by the period of extension of the contract, may be itemized as follows:
In 1948, as per Exh. F, p. 36 and Exh. Q, p. 5, the depletion reserve set up was P11,602.80.
In 1949, as per Exh. G, p. 49 and Exh. Q, p. 5, the depletion reserve set up was P33,556.07.
In 1950, as per Exh. H, p. 37, Exh. Q, p. 6 and Exh. I, p. 37, the depletion reserve set up was P84,963.30.
In 1951, as per Exh. I, p. 45, Exh. Q, p. 6, and Exh. J, p. 45, the depletion reserve set up was P129,089.88.
 In 1952, as per Exh. J, p. 45, Exh. Q, p. 6 and Exh. K p. 41, the depletion reserve was P147,141.54.
In 1953, as per Exh. K, p. 41, and Exh. Q, p. 6, the depletion reserve set up as P277,493.25.
Regarding the depletion reserve set up in 1948 it should be noted that the amount given was for the whole year.
Inasmuch as the contract was extended only for the last half of the year 1948, said amount of P11,602.80 should be
divided by two, and so Nielson is only entitled to 10% of the half amounting to P5,801.40.
Likewise, the amount of depletion reserve for the year 1953 was for the whole year and since the contract was
extended only until the first half of the year, said amount of P277,493.25 should be divided by two, and so Nielson is
only entitled to 10% of the half amounting to P138,746.62. Summing up the entire depletion reserves, from the middle
of 1948 to the middle of 1953, we would have a total of P539,298.81, of which Nielson is entitled to 10%, or to the sum
of P53,928.88.
Finally, with regard to the fourth category, there is no figure in the record representing the value of the fixed assets as
of the beginning of the period of extension on June 27, 1948. It is possible, however, to arrive at the amount needed
by adding to the value of the fixed assets as of December 31, 1947 one-half of the amount spent for capital account in
the year 1948. As of December 31, 1947, the value of the fixed assets was P1,061,878.88 41and as of December 31,
1948, the value of the fixed assets was P3,270,408.07. 42 Hence, the increase in the value of the fixed assets for the
year 1948 was P2,208,529.19, one-half of which is P1,104,264.59, which amount represents the expenses for capital
account for the first half of the year 1948. If to this amount we add the fixed assets as of December 31, 1947
amounting to P1,061,878.88, we would have a total of P2,166,143.47 which represents the fixed assets at the
beginning of the second half of the year 1948.
There is also no figure representing the value of the fixed assets when the contract, as extended, ended on June 26,
1953; but this may be computed by getting one-half of the expenses for capital account made in 1953 and adding the
same to the value of the fixed assets as of December 31, 1953 is P9,755,840.41 43 which the value of the fixed assets
as of December 31, 1952 is P8,463,741.82, the difference being P1,292,098.69. One-half of this amount is
P646,049.34 which would represent the expenses for capital account up to June, 1953. This amount added to the value
of the fixed assets as of December 31, 1952 would give a total of P9,109,791.16 which would be the value of fixed
assets at the end of June, 1953.
The increase, therefore, of the value of the fixed assets of Lepanto from June, 1948 to June, 1953 is P6,943,647.69,
which amount represents the difference between the value of the fixed assets of Lepanto in the year 1948 and in the
year 1953, as stated above. On this amount Nielson is entitled to a share of 10% or to the amount of P694,364.76.
Considering that most of the claims of appellant have been entertained, as pointed out in this decision, We believe
that appellant is entitled to be awarded attorney's fees, especially when, according to the undisputed testimony of Mr.
Mark Nestle, Nielson obliged himself to pay attorney's fees in connection with the institution of the present case. In
this respect, We believe, considering the intricate nature of the case, an award of fifty thousand (P50,000.00) pesos for
attorney's fees would be reasonable.
IN VIEW OF THE FOREGOING CONSIDERATIONS, We hereby reverse the decision of the court a quo and enter in lieu
thereof another, ordering the appellee Lepanto to pay appellant Nielson the different amounts as specified
hereinbelow:
(1) 10% share of cash dividends of December, 1941 in the amount of P17,500.00, with legal interest thereon from the
date of the filing of the complaint;
(2) management fee for January, 1942 in the amount of P2,500.00, with legal interest thereon from the date of the
filing of the complaint;
(3) management fees for the sixty-month period of extension of the management contract, amounting to P150,000.00,
with legal interest from the date of the filing of the complaint;
(4) 10% share in the cash dividends during the period of extension of the management contract, amounting to
P1,400,000.00, with legal interest thereon from the date of the filing of the complaint;
(5) 10% of the depletion reserve set up during the period of extension, amounting to P53,928.88, with legal interest
thereon from the date of the filing of the complaint;
(6) 10% of the expenses for capital account during the period of extension, amounting to P694,364.76, with legal
interest thereon from the date of the filing of the complaint;
(7) to issue and deliver to Nielson and Co., Inc. shares of stock of Lepanto Consolidated Mining Co. at par value
equivalent to the total of Nielson's l0% share in the stock dividends declared on November 28, 1949 and August 22,
1950, together with all cash and stock dividends, if any, as may have been declared and issued subsequent to
November 28, 1949 and August 22, 1950, as fruits that accrued to said shares;
If sufficient shares of stock of Lepanto's are not available to satisfy this judgment, defendant-appellee shall pay
plaintiff-appellant an amount in cash equivalent to the market value of said shares at the time of default (12 C.J.S., p.
130), that is, all shares of the stock that should have been delivered to Nielson before the filing of the complaint must
be paid at their market value as of the date of the filing of the complaint; and all shares, if any, that should have been
delivered after the filing of the complaint at the market value of the shares at the time Lepanto disposed of all its
available shares, for it is only then that Lepanto placed itself in condition of not being able to perform its obligation
(Article 1160, Civil Code);
(8) the sum of P50,000.00 as attorney's fees; and
(9) the costs. It is so ordered.

G.R. No. 133879 November 21, 2001

EQUATORIAL REALTY DEVELOPMENT, INC., petitioner,
vs.
MAYFAIR THEATER, INC., respondent.
PANGANIBAN, J.:
General propositions do not decide specific cases. Rather, laws are interpreted in the context of the peculiar factual
situation of each proceeding. Each case has its own flesh and blood and cannot be ruled upon on the basis of isolated
clinical classroom principles.
While we agree with the general proposition that a contract of sale is valid until rescinded, it is equally true that
ownership of the thing sold is not acquired by mere agreement, but by tradition or delivery. The peculiar facts of the
present controversy as found by this Court in an earlier relevant Decision show that delivery was not actually effected;
in fact, it was prevented by a legally effective impediment. Not having been the owner, petitioner cannot be entitled to
the civil fruits of ownership like rentals of the thing sold. Furthermore, petitioner's bad faith, as again demonstrated by
the specific factual milieu of said Decision, bars the grant of such benefits. Otherwise, bad faith would be rewarded
instead of punished.
The Case
Filed before this Court is a Petition for Review1 under Rule 45 of the Rules of Court, challenging the March 11, 1998
Order2 of the Regional Trial Court of Manila (RTC), Branch 8, in Civil Case No. 97-85141. The dispositive portion of the
assailed Order reads as follows:
"WHEREFORE, the motion to dismiss filed by defendant Mayfair is hereby GRANTED, and the complaint filed by
plaintiff Equatorial is hereby DISMISSED."3
Also questioned is the May 29, 1998 RTC Order4 denying petitioner's Motion for Reconsideration.
The Facts
The main factual antecedents of the present Petition are matters of record, because it arose out of an earlier case
decided by this Court on November 21, 1996, entitledEquatorial Realty Development, Inc. v. Mayfair Theater,
Inc.5 (henceforth referred to as the "mother case"), docketed as G.R No. 106063.
Carmelo & Bauermann, Inc. ("Camelo" ) used to own a parcel of land, together with two 2-storey buildings constructed
thereon, located at Claro M. Recto Avenue, Manila, and covered by TCT No. 18529 issued in its name by the Register of
Deeds of Manila.
On June 1, 1967, Carmelo entered into a Contract of Lease with Mayfair Theater Inc. ("Mayfair") for a period of 20
years. The lease covered a portion of the second floor and mezzanine of a two-storey building with about 1,610 square
meters of floor area, which respondent used as a movie house known as Maxim Theater.
Two years later, on March 31, 1969, Mayfair entered into a second Contract of Lease with Carmelo for the lease of
another portion of the latter's property — namely, a part of the second floor of the two-storey building, with a floor
area of about 1,064 square meters; and two store spaces on the ground floor and the mezzanine, with a combined
floor area of about 300 square meters. In that space, Mayfair put up another movie house known as Miramar Theater.
The Contract of Lease was likewise for a period of 20 years.
Both leases contained a provision granting Mayfair a right of first refusal to purchase the subject properties. However,
on July 30, 1978 — within the 20-year-lease term — the subject properties were sold by Carmelo to Equatorial Realty
Development, Inc. ("Equatorial") for the total sum of P11,300,000, without their first being offered to Mayfair.
As a result of the sale of the subject properties to Equatorial, Mayfair filed a Complaint before the Regional Trial Court
of Manila (Branch 7) for (a) the annulment of the Deed of Absolute Sale between Carmelo and Equatorial, (b) specific
performance, and (c) damages. After trial on the merits, the lower court rendered a Decision in favor of Carmelo and
Equatorial. This case, entitled "Mayfair" Theater, Inc. v. Carmelo and Bauermann, Inc., et al.," was docketed as Civil
Case No. 118019.
On appeal (docketed as CA-GR CV No. 32918), the Court of Appeals (CA) completely reversed and set aside the
judgment of the lower court.
The controversy reached this Court via G.R No. 106063. In this mother case, it denied the Petition for Review in this
wise:
"WHEREFORE, the petition for review of the decision of the Court of Appeals, dated June 23, 1992, in CA-G.R.
CV No. 32918, is HEREBY DENIED. The Deed of Absolute Sale between petitioners Equatorial Realty
Development, Inc. and Carmelo & Bauermann, Inc. is hereby deemed rescinded; Carmelo & Bauermann is
ordered to return to petitioner Equatorial Realty Development the purchase price. The latter is directed to
execute the deeds and documents necessary to return ownership to Carmelo & Bauermann of the disputed
lots. Carmelo & Bauermann is ordered to allow Mayfair Theater, Inc. to buy the aforesaid lots for
P11,300,000.00."6
The foregoing Decision of this Court became final and executory on March 17, 1997. On April 25, 1997, Mayfair filed a
Motion for Execution, which the trial court granted.
However, Carmelo could no longer be located. Thus, following the order of execution of the trial court, Mayfair
deposited with the clerk of court a quo its payment to Carmelo in the sum of P11,300,000 less; P847,000 as
withholding tax. The lower court issued a Deed of Reconveyance in favor of Carmelo and a Deed of Sale in favor of
Mayfair. On the basis of these documents, the Registry of Deeds of Manila canceled Equatorial's titles and issued new
Certificates of Title7 in the name of Mayfair.
Ruling on Equatorial's Petition for Certiorari and Petition contesting the foregoing manner of execution, the CA in its
Resolution of November 20, 1998, explained that Mayfair had no right to deduct the P847,000 as withholding tax.
Since Carmelo could no longer be located, the appellate court ordered Mayfair to deposit the said sum with the Office
of the Clerk of Court, Manila, to complete the full amount of P11,300,000 to be turned over to Equatorial.
Equatorial questioned the legality of the above CA ruling before this Court in G.R No. 136221 entitled "Equatorial
Realty Development, Inc. v. Mayfair Theater, Inc." In a Decision promulgated on May 12, 2000,8 this Court directed the
trial court to follow strictly the Decision in GR. No. 106063, the mother case. It explained its ruling in these words:
"We agree that Carmelo and Bauermann is obliged to return the entire amount of eleven million three hundred
thousand pesos (P11,300,000.00) to Equatorial. On the other hand, Mayfair may not deduct from the purchase
price the amount of eight hundred forty-seven thousand pesos (P847,000.00) as withholding tax. The duty to
withhold taxes due, if any, is imposed on the seller Carmelo and Bauermann, Inc."9
Meanwhile, on September 18, 1997 — barely five months after Mayfair had submitted its Motion for Execution before
the RTC of Manila, Branch 7 — Equatorial filed with the Regional Trial Court of Manila, Branch 8, an action for the
collection of a sum of money against Mayfair, claiming payment of rentals or reasonable compensation for the
defendant's use of the subject premises after its lease contracts had expired. This action was the progenitor of the
present case.
In its Complaint, Equatorial alleged among other things that the Lease Contract covering the premises occupied by
Maxim Theater expired on May 31, 1987, while the Lease Contract covering the premises occupied by Miramar Theater
lapsed on March 31, 1989.10 Representing itself as the owner of the subject premises by reason of the Contract of Sale
on July 30, 1978, it claimed rentals arising from Mayfair's occupation thereof.
Ruling of the RTC Manila, Branch 8
As earlier stated, the trial court dismissed the Complaint via the herein assailed Order and denied the Motion for
Reconsideration filed by Equatorial.11
The lower court debunked the claim of petitioner for unpaid back rentals, holding that the rescission of the Deed of
Absolute Sale in the mother case did not confer on Equatorial any vested or residual proprietary rights, even in
expectancy.
In granting the Motion to Dismiss, the court a quo held that the critical issue was whether Equatorial was the owner of
the subject property and could thus enjoy the fruits or rentals therefrom. It declared the rescinded Deed of Absolute
Sale as avoid at its inception as though it did not happen."
The trial court ratiocinated as follows:
"The meaning of rescind in the aforequoted decision is to set aside. In the case of Ocampo v. Court of Appeals,
G.R. No. 97442, June 30, 1994, the Supreme Court held that, 'to rescind is to declare a contract void in its
inception and to put an end as though it never were. It is not merely to terminate it and release parties from
further obligations to each other but to abrogate it from the beginning and restore parties to relative positions
which they would have occupied had no contract ever been made.'
"Relative to the foregoing definition, the Deed of Absolute Sale between Equatorial and Carmelo dated July 31,
1978 is void at its inception as though it did not happen.
"The argument of Equatorial that this complaint for back rentals as 'reasonable compensation for use of the
subject property after expiration of the lease contractspresumes that the Deed of Absolute Sale dated July 30,
1978 from whence the fountain of Equatorial's all rights flows is still valid and existing.
xxx xxx xxx
"The subject Deed of Absolute Sale having been rescinded by the Supreme Court, Equatorial is not the owner
and does not have any right to demand backrentals from the subject property. . .12
The trial court added: "The Supreme Court in the Equatorial case, G.R No. 106063, has categorically stated that the
Deed of Absolute Sale dated July 31, 1978 has been rescinded subjecting the present complaint to res judicata."13
Hence, the present recourse.14
Issues
Petitioner submits, for the consideration of this Court, the following issues:15
"A
The basis of the dismissal of the Complaint by the Regional Trial Court not only disregards basic concepts and
principles in the law on contracts and in civil law, especially those on rescission and its corresponding legal
effects, but also ignores the dispositive portion of the Decision of the Supreme Court in G.R. No. 106063
entitled 'Equatorial Realty Development, Inc. & Carmelo & Bauermann, Inc. vs. Mayfair Theater, Inc.'
"B.
The Regional Trial Court erred in holding that the Deed of Absolute Sale in favor of petitioner by Carmelo &
Bauermann, Inc., dated July 31, 1978, over the premises used and occupied by respondent, having been
'deemed rescinded' by the Supreme Court in G.R. No. 106063, is 'void at its inception as though it did not
happen.'
"C.
The Regional Trial Court likewise erred in holding that the aforesaid Deed of Absolute Sale, dated July 31,
1978, having been 'deemed rescinded' by the Supreme Court in G.R. No. 106063, petitioner 'is not the owner
and does not have any right to demand backrentals from the subject property,' and that the rescission of the
Deed of Absolute Sale by the Supreme Court does not confer to petitioner 'any vested right nor any residual
proprietary rights even in expectancy.'
"D.
The issue upon which the Regional Trial Court dismissed the civil case, as stated in its Order of March 11,
1998, was not raised by respondent in its Motion to Dismiss.
"E.
The sole ground upon which the Regional Trial Court dismissed Civil Case No. 97-85141 is not one of the
grounds of a Motion to Dismiss under Sec. 1 of Rule 16 of the 1997 Rules of Civil Procedure."
Basically, the issues can be summarized into two: (1) the substantive issue of whether Equatorial is entitled to back
rentals; and (2) the procedural issue of whether the court a quo's dismissal of Civil Case No. 97-85141 was based on
one of the grounds raised by respondent in its Motion to Dismiss and covered by Rule 16 of the Rules of Court.
This Court's Ruling
The Petition is not meritorious.
First Issue:
Ownership of Subject Properties
We hold that under the peculiar facts and circumstances of the case at bar, as found by this Court en banc in its
Decision promulgated in 1996 in the mother case, no right of ownership was transferred from Carmelo to Equatorial in
view of a patent failure to deliver the property to the buyer.
Rental — a Civil
Fruit of Ownership
To better understand the peculiarity of the instant case, let us begin with some basic parameters. Rent is a civil
fruit16 that belongs to the owner of the property producing it17 by right of accession. 18 Consequently and ordinarily, the
rentals that fell due from the time of the perfection of the sale to petitioner until its rescission by final judgment should
belong to the owner of the property during that period.
By a contract of sale, "one of the contracting parties obligates himself to transfer ownership of and to deliver a
determinate thing and the other to pay therefor a price certain in money or its equivalent."19
Ownership of the thing sold is a real right,20 which the buyer acquires only upon delivery of the thing to him "in any of
the ways specified in articles 1497 to 1501, or in any other manner signifying an agreement that the possession is
transferred from the vendor to the vendee." 21 This right is transferred, not merely by contract, but also by tradition or
delivery.22 Non nudis pactis sed traditione dominia rerum transferantur. And there is said to be delivery if and when
the thing sold "is placed in the control and possession of the vendee." 23 Thus, it has been held that while the execution
of a public instrument of sale is recognized by law as equivalent to the delivery of the thing sold, 24 such constructive or
symbolic delivery, being merely presumptive, is deemed negated by the failure of the vendee to take actual
possession of the land sold.25
Delivery has been described as a composite act, a thing in which both parties must join and the minds of both parties
concur. It is an act by which one party parts with the title to and the possession of the property, and the other acquires
the right to and the possession of the same. In its natural sense, delivery means something in addition to the delivery
of property or title; it means transfer of possession. 26 In the Law on Sales, delivery may be either actual or
constructive, but both forms of delivery contemplate "the absolute giving up of the control and custody of the property
on the part of the vendor, and the assumption of the same by the vendee."27
Possession Never
Acquired by Petitioner
Let us now apply the foregoing discussion to the present issue. From the peculiar facts of this case, it is clear that
petitioner never took actual control and possession of the property sold, in view of respondent's timely objection to the
sale and the continued actual possession of the property. The objection took the form of a court action impugning the
sale which, as we know, was rescinded by a judgment rendered by this Court in the mother case. It has been held that
the execution of a contract of sale as a form of constructive delivery is a legal fiction. It holds true only when there is
no impediment that may prevent the passing of the property from the hands of the vendor into those of the
vendee.28 When there is such impediment, "fiction yields to reality — the delivery has not been effected."29
Hence, respondent's opposition to the transfer of the property by way of sale to Equatorial was a legally sufficient
impediment that effectively prevented the passing of the property into the latter's hands.
This was the same impediment contemplated in Vda. de Sarmiento v. Lesaca,30 in which the Court held as follows:
"The question that now arises is: Is there any stipulation in the sale in question from which we can infer that
the vendor did not intend to deliver outright the possession of the lands to the vendee? We find none. On the
contrary, it can be clearly seen therein that the vendor intended to place the vendee in actual possession of
the lands immediately as can be inferred from the stipulation that the vendee 'takes actual possession
thereof . . . with full rights to dispose, enjoy and make use thereof in such manner and form as would be most
advantageous to herself.' The possession referred to in the contract evidently refers to actual possession and
not merely symbolical inferable from the mere execution of the document.
"Has the vendor complied with this express commitment? she did not. As provided in Article 1462, the thing
sold shall be deemed delivered when the vendee is placed in the control and possession thereof, which
situation does not here obtain because from the execution of the sale up to the present the vendee was never
able to take possession of the lands due to the insistent refusal of Martin Deloso to surrender them claiming
ownership thereof. And although it is postulated in the same article that the execution of a public document is
equivalent to delivery, this legal fiction only holds true when there is no impediment that may prevent the
passing of the property from the hands of the vendor into those of the vendee. x x x."31
The execution of a public instrument gives rise, therefore, only to a prima facie presumption of delivery. Such
presumption is destroyed when the instrument itself expresses or implies that delivery was not intended; or when by
other means it is shown that such delivery was not effected, because a third person was actually in possession of the
thing. In the latter case, the sale cannot be considered consummated.
However, the point may be raised that under Article 1164 of the Civil Code, Equatorial as buyer acquired a right to the
fruits of the thing sold from the time the obligation to deliver the property to petitioner arose. 32 That time arose upon
the perfection of the Contract of Sale on July 30, 1978, from which moment the laws provide that the parties to a sale
may reciprocally demand performance.33 Does this mean that despite the judgment rescinding the sale, the right to
the fruits34 belonged to, and remained enforceable by, Equatorial?
Article 1385 of the Civil Code answers this question in the negative, because "[r]escission creates the obligation to
return the things which were the object of the contract, together with their fruits, and the price with its interest; x x
x" Not only the land and building sold, but also the rental payments paid, if any, had to be returned by the buyer.
Another point. The Decision in the mother case stated that "Equatorial x x x has received rents" from Mayfair "during
all the years that this controversy has been litigated." The Separate Opinion of Justice Teodoro Padilla in the mother
case also said that Equatorial was "deriving rental income" from the disputed property. Even herein ponente'sSeparate
Concurring Opinion in the mother case recognized these rentals. The question now is: Do all these statements concede
actual delivery?
The answer is "No." The fact that Mayfair paid rentals to Equatorial during the litigation should not be interpreted to
mean either actual delivery or ipso facto recognition of Equatorial's title.
The CA Records of the mother case 35 show that Equatorial — as alleged buyer of the disputed properties and as
alleged successor-in-interest of Carmelo's rights as lessor — submitted two ejectment suits against Mayfair. Filed in
the Metropolitan Trial Court of Manila, the first was docketed as Civil Case No. 121570 on July 9, 1987; and the second,
as Civil Case No. 131944 on May 28, 1990. Mayfair eventually won them both. However, to be able to maintain
physical possession of the premises while awaiting the outcome of the mother case, it had no choice but to pay the
rentals.
The rental payments made by Mayfair should not be construed as a recognition of Equatorial as the new owner. They
were made merely to avoid imminent eviction. It is in this context that one should understand the aforequoted factual
statements in the ponencia in the mother case, as well as the Separate Opinion of Mr. Justice Padilla and the Separate
Concurring Opinion of the herein ponente.
At bottom, it may be conceded that, theoretically, a rescissible contract is valid until rescinded. However,
this general principle is not decisive to the issue of whether Equatorial ever acquired the right to collect rentals. What
is decisive is the civil law rule that ownership is acquired, not by mere agreement, but by tradition or delivery. Under
the factual environment of this controversy as found by this Court in the mother case, Equatorial was never put in
actual and effective control or possession of the property because of Mayfair's timely objection.
As pointed out by Justice Holmes, general propositions do not decide specific cases. Rather, "laws are interpreted in
the context of the peculiar factual situation of each case. Each case has its own flesh and blood and cannot be decided
on the basis of isolated clinical classroom principles."36
In short, the sale to Equatorial may have been valid from inception, but it was judicially rescinded before it could be
consummated. Petitioner never acquired ownership, not because the sale was void, as erroneously claimed by the trial
court, but because the sale was not consummated by a legally effective delivery of the property sold.
Benefits Precluded by
Petitioner's Bad Faith
Furthermore, assuming for the sake of argument that there was valid delivery, petitioner is not entitled to any benefits
from the "rescinded" Deed of Absolute Sale because of its bad faith. This being the law of the mother case decided in
1996, it may no longer be changed because it has long become final and executory. Petitioner's bad faith is set forth in
the following pertinent portions of the mother case:
"First and foremost is that the petitioners acted in bad faith to render Paragraph 8 'inutile.'
xxx xxx xxx
"Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question
rescissible. We agree with respondent Appellate Court that the records bear out the fact that Equatorial was
aware of the lease contracts because its lawyers had, prior to the sale, studied the said contracts. As such,
Equatorial cannot tenably claim to be a purchaser in good faith, and, therefore, rescission lies.
xxx xxx xxx
"As also earlier emphasized, the contract of sale between Equatorial and Carmelo is characterized by bad faith,
since it was knowingly entered into in violation of the rights of and to the prejudice of Mayfair. In fact, as
correctly observed by the Court of Appeals, Equatorial admitted that its lawyers had studied the contract of
lease prior to the sale. Equatorial's knowledge of the stipulations therein should have cautioned it to look
further into the agreement to determine if it involved stipulations that would prejudice its own interests.
xxx xxx xxx
"On the part of Equatorial, it cannot be a buyer in good faith because it bought the property with notice and
full knowledge that Mayfair had a right to or interest in the property superior to its own. Carmelo and
Equatorial took unconscientious advantage of Mayfair."37 (Italics supplied)
Thus, petitioner was and still is entitled solely to he return of the purchase price it paid to Carmelo; no more, no less.
This Court has firmly ruled in the mother case that neither of them is entitled to any consideration of equity, as both
"took unconscientious advantage of Mayfair."38
In the mother case, this Court categorically denied the payment of interest, a fruit of ownership. By the same token,
rentals, another fruit of ownership, cannot be granted without mocking this Court's en banc Decision, which has long
become final.
Petitioner's claim of reasonable compensation for respondent's use and occupation of the subject property from the
time the lease expired cannot be countenanced. If it suffered any loss, petitioner must bear it in silence, since it had
wrought that loss upon itself. Otherwise, bad faith would be rewarded instead of punished.@lawphil.net
We uphold the trial court's disposition, not for the reason it gave, but for (a) the patent failure to deliver the property
and (b) petitioner's bad faith, as above discussed.
Second Issue:itc-alf
Ground in Motion to Dismiss
Procedurally, petitioner claims that the trial court deviated from the accepted and usual course of judicial proceedings
when it dismissed Civil Case No. 97-85141 on a ground not raised in respondent's Motion to Dismiss. Worse, it
allegedly based its dismissal on a ground not provided for in a motion to dismiss as enunciated in the Rules of
Court.@lawphil.net
We are not convinced A review of respondent's Motion to Dismiss Civil Case No. 97-85141 shows that there were two
grounds invoked, as follows:
"(A)
Plaintiff is guilty of forum-shopping.itc-alf
"(B)
Plaintiff's cause of action, if any, is barred by prior judgment."39
The court a quo ruled, inter alia, that the cause of action of petitioner plaintiff in the case below) had been barred by a
prior judgment of this Court in G.R No. 106063, the mother case.
Although it erred in its interpretation of the said Decision when it argued that the rescinded Deed of Absolute Sale was
avoid," we hold, nonetheless, that petitioner's cause of action is indeed barred by a prior judgment of this Court. As
already discussed, our Decision in G.R No. 106063 shows that petitioner is not entitled to back rentals, because it
never became the owner of the disputed properties due to a failure of delivery. And even assuming arguendo that
there was a valid delivery, petitioner's bad faith negates its entitlement to the civil fruits of ownership, like interest and
rentals.
Under the doctrine of res judicata or bar by prior judgment, a matter that has been adjudicated by a court of
competent jurisdiction must be deemed to have been finally and conclusively settled if it arises in any subsequent
litigation between the same parties and for the same cause.40 Thus, "[a] final judgment on the merits rendered by a
court of competent jurisdiction is conclusive as to the rights of the parties and their privies and constitutes an absolute
bar to subsequent actions involving the same claim, demand, or cause of action."41 Res judicata is based on the
ground that the "party to be affected, or some other with whom he is in privity, has litigated the same matter in a
former action in a court of competent jurisdiction, and should not be permitted to litigate it again.42
It frees the parties from undergoing all over again the rigors of unnecessary suits and repetitive trials. At the same
time, it prevents the clogging of court dockets. Equally important, it stabilizes rights and promotes the rule of
law.@lawphil.net
We find no need to repeat the foregoing disquisitions on the first issue to show satisfaction of the elements of res
judicata. Suffice it to say that, clearly, our ruling in the mother case bars petitioner from claiming back rentals from
respondent. Although the court a quo erred when it declared "void from inception" the Deed of Absolute Sale between
Carmelo and petitioner, our foregoing discussion supports the grant of the Motion to Dismiss on the ground that our
prior judgment in G.R No. 106063 has already resolved the issue of back rentals.
On the basis of the evidence presented during the hearing of Mayfair's Motion to Dismiss, the trial court found that the
issue of ownership of the subject property has been decided by this Court in favor of Mayfair. We quote the RTC:
"The Supreme Court in the Equatorial case, G.R. No. 106063 has categorically stated that the Deed of Absolute
Sale dated July 31, 1978 has been rescinded subjecting the present complaint to res judicata."43 (Emphasis in
the original)
Hence, the trial court decided the Motion to Dismiss on the basis of res judicata, even if it erred in interpreting the
meaning of "rescinded" as equivalent to "void" In short, it ruled on the ground raised; namely, bar by prior judgment.
By granting the Motion, it disposed correctly, even if its legal reason for nullifying the sale was wrong. The correct
reasons are given in this Decision.
WHEREFORE, the Petition is hereby DENIED. Costs against petitioner.itc-alf
SO ORDERED.

G.R. No. L-22604 February 3, 1925

GUADALUPE GONZALEZ and LUIS GOMEZ, plaintiffs-appellants,
vs.
E.J. HABERER, defendant-appellee.
Feria and La O for appellants.
Paredes, Buencamino and Yulo for appellee.
OSTRAND, J.:
This action is brought to recover the sum of P34,260 alleged to be due the plaintiffs from the defendant upon a written
agreement for the sale of a tract of land situated in the Province of Nueva Ecija. The plaintiffs also ask for damages in
the sum of P10,000 for the alleged failure of the defendant to comply with his part of the agreement.
The defendant in his answer admits that of the purchase price stated in the agreement a balance of P31,000 remains
unpaid, but by way of special defense, cross-complaint and counter-claim alleges that at the time of entering into the
contract the plaintiffs through false representations lead him to believe that they were in possession of the land and
that the title to the greater portion thereof was not in dispute; that on seeking to obtain possession he found that
practically the entire area of the land was occupied by adverse claimants and the title thereto disputed; that he
consequently has been unable to obtain possession of the land; and that the plaintiffs have made no efforts to
prosecute the proceedings for the registration of the land. He therefore asks that the contract be rescinded; that the
plaintiffs be ordered to return to him the P30,000 already paid by him to them and to pay P25,000 as damages for
breach of the contract.
The court below dismissed the plaintiffs' complaint, declared the contract rescinded and void and gave the defendant
judgment upon his counterclaim for the sum of P30,000, with interest from the date upon which the judgment
becomes final. The case is now before this court upon appeal by the plaintiffs from that judgment.
The contract in question reads as follows:
Know all men by these presents:
That I, Guadalupe Gonzalez y Morales de Gomez, married with Luis Gomez, of age, and resident of the
municipality of Bautista, Province of Pangasinan, Philippine Islands, do hereby state:
1. That I am the absolute and exclusive owner of a parcel of land situated in the barrio of Partida, municipality
of Guimba, Nueva Ecija, described as follows:
Bounded on the north by the land of Don Marcelino Santos; on the east, by the land of Doña Cristina Gonzalez;
on the south by the Binituan River; and on the west, by the land of Doña Ramona Gonzalez; containing an area
of 488 hectares approximately.
2. That an application was filed for the registration of the above described land in the registry of property of
Nueva Ecija, which application is still pending in the Court of First Instance of Nueva Ecija.
3. That in consideration of the sum of P125 per hectare I do hereby agree and bind myself to sell and transfer
by way of real and absolute sale the land above described to Mr. E.J. Habere, binding myself to execute the
deed of sale immediately after the decree of the court adjudicating said land in my favor is registered in the
registry of property of the Province of Nueva Ecija. The condition of this obligation to sell are as follows:
"1. That Mr. E.J. Haberer has at this moment paid me the sum of P30,000 on account of the price of the
aforesaid land.
"2. That said Mr. E.J. Haberer agrees and binds himself to pay within six months from the date of the
execution of this document the unpaid balance of the purchase price.
 "3. That said Mr. E.J. Haberer shall have the right to take possession of the aforesaid land immediately
after the execution of this document together with all the improvements now existing on the same
land, such as palay plantation and others.
"4. That said Mr. E.J. agrees and binds himself to pay the expenses to be incurred from this date in the
registration of the aforesaid land up to the filing of the proper decree in the office of the register of
deeds of the Province of Nueva Ecija.
"5. That in the event that the court should hold that I am not the owner of all or any part of the
aforesaid land, I agree and bind myself to return without interest all such amounts of money as I have
received or may receive from Mr. E.J. Haberer as the purchase price of said land, but, in the event that
the court should adjudicate a part of the aforesaid land to me, then I agree and bind myself to sell said
portion adjudicated to me, returning all the amounts received from Mr. E.J. Haberer in excess of the
price of said portion at the rate of P125 per hectare.
"6. The Mr. E.J. Haberer does hereby waive any interest or indemnity upon the amount that I am to
return to him and which I have receive from Mr. E.J. Haberer as the purchase price of the aforesaid
land."
I, E.J. Haberer, married, of age, and resident of the municipality of Talavera, Nueva Ecija, do hereby state that,
having known the contents of this document, I accept the same with all the stipulations and conditions thereof.
I, Luis Gomez, married, of age, and resident of the municipality of Bautista, Province of Pangasinan, do hereby
grant my wife, Dña. Guadalupe Gonzalez y Morales de Gomez, the due marital license to execute this
document and make effective the definite sale of the land as above stipulated, she being empowered to
execute the deed of sale and other necessary documents in order that the full ownership over the aforesaid
land may be transferred to Mr. E.J. Haberer, as stipulated in this document.
In testimony whereof, we hereunto set our hands at Manila, this 7th day of July, 1920.
(Sgd.) GUADALUPE G. DE GOMEZ
E.J. HABERER
LUIS GOMEZ
Signed in the presence of the witnesses:
(Sgd.) EMIGDIO DOMINGO
L.G. ALVAREZ
(Acknowledged before notary.)
It is conceded by the plaintiffs that the defendant never obtained actual or physical possession of the land, but it is
argued that under the contract quoted the plaintiffs were under no obligation to place him in possession. This
contention cannot be sustained. Cause 3 of paragraph 3 of the contract gave the defendant the right to take
possession of the land immediately upon the execution of the contract and necessarily created the obligation on the
part of the plaintiffs to make good the right thus granted; it was one of the essential conditions of the agreement and
the failure of the plaintiffs to comply with this condition, without fault on the part of the defendant, is in itself sufficient
ground for the rescission, even in the absence of any misrepresentation on their part. (Civil Code, art. 1124 ;
Pabalan vs. Velez, 22 Phil., 29.)
It is therefore unnecessary to discuss the question whether the defendant was induced to enter into the agreement
through misrepresentation made by the plaintiff Gomez. We may say, however, that the evidence leaves no doubt that
some misrepresentations were made and that but for such misrepresentations the defendant would not have been
likely to enter into the agreement in the form it appeared. As to the contention that the plaintiff Gonzalez cannot be
charged with the misrepresentations of Gomez, it is sufficient to say that the latter in negotiating for the sale of the
land acted as the agent and representative of the other plaintiff, his wife; having accepted the benefit of the
representations of her agent she cannot, of course, escape liability for them. (Haskellvs. Starbird, 152 Mass., 117; 23
A.S.R., 809.)
The contention of the appellants that the symbolic delivery effected by the execution and delivery of the agreement
was a sufficient delivery of the possession of the land, is also without merit. The possession referred to in the contract
is evidently physical; if it were otherwise it would not have been necessary to mention it in the contract.
(See Cruzado vs. Bustos and Escaler, 34 Phil., 17.)
The judgment appealed from is in accordance with the law, is fully sustained by the evidence, and is therefore
affirmed, with the costs against the appellants. So ordered.

ARTICLE 1165

G.R. No. L-13438 November 20, 1918

FRANCISCO GUTIERREZ REPIDE, plaintiff-appellant,
vs.
IVAR O. AFZELIUS and his wife, PATROCINIO R. AFZELIUS, defendants-appellees.
Ramon Fernandez for appellant.
T. L. McGirr for appellees.

MALCOLM, J.:
The subject of Specific Performance, with reference to its common law and civil law status, it to be considered
on this appeal. The particular action is for the specific performance of a contract for the sale and purchase of real
estate.
 The plaintiff is the owner of a certain parcel of realty consisting of 2,695.24 square meters, situated in the city of
Manila, and fully described in the complaint. About the month of December, 1916, the defendants made a proposition
to the plaintiff for the purchase of this property. After negotiating for some time, it was agreed that the defendants
would pay plaintiff the sum of P10,000 for the land, P2,000 of which was to be handed over upon the signing of the
deed, and the balance of P8,000, paid in monthly installments of P150. The property was to be mortgaged to the
plaintiff to secure the payment of this balance of P8,000. The plaintiff proceeded to have survey made of the land and
to prepare the deed and mortgage. Expenses to the amount of P83.93 were incurred for these purposes. The deed was
ready about December 28, 1916, when the defendants were notified to appear and sign the same. They failed to do
this, and instead, the defendant, Patrocinio R. Afzelius, wrote a letter to plaintiff, as follows:

MANILA, January 3, 1917.

MR. FRANCISCO GUTIERREZ,
Manila.
MY DEAR SIR: It is with regret that I inform you that it is now absolutely impossible for us
to effect the purchase of the property at Juan Luna Street, as it was our desire to do. The
reason for this is that the business has failed, in which we had invested all the money we had
and from which he hope to obtain sure gains and to get the P2,000 which we were to give you
in advance for the purchase of said property, and consequently, we have lost our savings and
our hope of being able to purchase the property for the time being.
Before closing, I request you to pardon us for the troubles we have caused you, for, in
truth, we acted in good faith, but, as you will readily realize, without having the P2,000 in our
hands, it will be impossible for us to effect the purchase.
Reiterating my request that you pardon us for all the trouble, I am
Very truly yours.
(Sgd.) PATROCINIO R. AFZELIUS.
In addition to the letter above quoted, Afzelius testified on the trial that although he and his wife had available
the sum of P2,000 to pay the first installment on the purchase price of the land, yet it belonged in part to his wife's
sister, and that, as she subsequently needed the money for something else, they had to return it to her, and in order
to give excuses to the plaintiff, his wife wrote this letter to the plaintiff.
Plaintiff was, and still is, willing to execute the deed in accordance with the terms agreed upon with the
defendants. Accordingly, plaintiff, in his action in the Court of First Instance of the city of Manila, asked judgment
against the defendants condemning them to sign the deed and mortgage to the land in question, and to pay the
purchase price stipulated, with costs. The defendants filed a general denial, alleging that the plaintiff has not sustained
damages of any kind or character, and praying that the case be dismissed at the cost of the plaintiff. The trial court,
after finding the facts as herein stated, made application thereto of the law of Specific Performance. After stating the
general principles of this branch of the law, the court deduced therefrom that the remedy by specific performance is
one the granting or denying of which rests in the exercise of sound judicial discretion. The court said:
Whether or not the defendants are able to perform the contract is a matter of defense, and there is no
special defense on that subject in the answer; but it appears from the evidence that the defendants have not
the funds available for the cash payment on the contract, and apparently the performance of the contract in
the terms agreed between the plaintiff and defendants would be impracticable; the court would not be able to
enforce a decree for specific performance, and such a decree might operate as a great hardship upon the
defendants; therefore, the court is of the opinion that it would be useless, unjust and inequitable to render
judgment herein for specific performance.lawphil.net
The judgment then was in favor of the defendants, dismissing the plaintiff's complaint, without prejudice to any
other remedy which the plaintiff might have, and without any finding as to the costs.
The plaintiff and appellant bases his argument on articles 1254, 1258, 1278, 1450, and 1279 of the Civil Code.
The provisions of the five articles first cited and others that could be mentioned merely tend to corroborate what is
self-evident, namely, the existence of a valid contract between the parties. Indisputably, there has been an offer and
an acceptance, and all that remained to effectuate the contract was the execution of the deed and the mortgage.
The article of the Civil code chiefly relied upon by appellant, No. 1279, would seem to settle favorably the first
branch of the prayer of the complaint, asking that the defendants be required to sign the deed and mortgage to the
land in question. This article of the Civil Code appears to have been prepared to meet exactly such a situation, to the
end that the contracting parties can reciprocally compel the observance of the necessary formalities.
Other portions of the Civil Code not called to our attention by the appellant, notably articles 1096, 1098, 1124
and 1451, recognize what is denominated in the common law as Specific Performance. Article 1451 provides that, "A
promise to sell or buy, when there is an agreement as to the thing and the price, entitles the contracting parties
reciprocally to demand the fulfillment of the contract." But the article in recognition of a negative result also provides,
"whenever the promise to purchase and sell cannot be fulfilled, the provisions relative to obligations and contracts,
contained in this book, shall be applicable in the respective cases to the vendor and the vendee." Turning to these
provisions relating to obligations and contracts, we find article 1096 making a distinction between a specific thing to
be delivered and an indeterminate or generic thing; article 1098 providing that a person is obligated to do a certain
thing according to the tenor of the obligation; and finally, article 1124 in absolute approval of contractual mutually
decreeing that "the person prejudiced may choose between exacting the fulfillment of the obligation or its resolution
with indemnity for damages and payment of interest in either cases."
As to whether the vendor can compel the vendee to perform, which is the point before the court, the
jurisprudence of the supreme court of Spain and the commentaries of Manresa do not in the least attempt to
distinguish between one or the other party, the vendor or the vendee, but constantly and without exception use the
word "reciprocamente." the following decisions of the supreme court of Spain interpretative of these articles can be
noted: April 17, 1897; October 10, 1904; February 4, 1905.
The vendee is entitled to specific performance essentially as a matter of course. Philippine cases have so held.
(Irureta Goyena vs. Tambunting [1902], 1 Phil., 490; Thunga Chui vs. Que Bentec [1903], 2 Phil., 561; Couto
Soriano vs. Cortes [1907, 8 Phil., 459; Dievas vs. Co Chongco [1910], 16 Phil., 447.) If the doctrine of mutuality of
remedy is to apply, the vendor should likewise be entitled to similar relief. Philippine jurisprudence, however, has
never as yet been afforded an opportunity to so hold. The nearest approach to the idea has been, with reference to
merchandise, in a decision to the effect that if the purchaser refuses without lawful reason to accept delivery when
tendered by the seller in conformity with the contract of sale, the seller may elect to enforce compliance or to rescind.
(Matute vs. Cheong Boo [1918], 37 Phil., 372.)
Thus far, in this opinion we have discussed the question of whether the vendor as well as the vendee is entitled
to the specific performance of the contract for the sale of land, from the standpoint of the civil law. Now, of course,
specific performance of contracts is, under this name, an equitable remedy. As such, since there exist no courts of
equity and no equity jurisprudence in this jurisdiction, the authority arising from the common law is not of binding
force in the Philippines. Nevertheless, as the civil law and the common law seem to arrive at the same goal on this
subject, we should at least notice as persuasive authority the jurisprudence of the United States and Great Britain.
The American and English cases that relate to specific performance by the vendor are with a few exceptions all
one way. In the language of Chief Justice Marshall, "The right of a vendor to come into a court of equity to enforce a
specific performance is unquestionable." (Cathcart vs. Robinson [1831], 5 Pet., 264.) The rule in nearly all jurisdictions
is that specific performance may be had at the suit of the vendor of land, the vendee being decreed to accept the
deed and pay the purchase price. (Freeman vs. Paulson [1909], 107 Minn., 64; Migatz vs.Stieglitz [1905], 166 Ind.,
362; Robinson vs. Appleton [1888], 124 Ill., 276; Hodges vs. Kowing [1889], 58 Conn., 12; Curtis Land & Loan
Co. vs. Interior Land Co. [1908], 137 Wis., 341; The Maryland Clay Co. vs. Simpers [1903], 96 Md., 1; Old Colony R.
Corp. vs. Evans [1856], 6 Gray, 25; Raymond vs. San Gabriel rec. Co. [1893], 53 Fed., 883; 36 Cyc., 565.) The
reasoning supporting the authorities is that the performance of contracts must and should be mutual. The contract is
ordinarily bilateral. So should the respective rights of the parties be. Nor does an action to recover damages for breach
of contract ordinarily afford a complete and adequate remedy. The equitable doctrine is not applied where it will be
productive of great hardship.
Here we have presented a good and valid contract, bilateral in character, and free from all taint of fraud. The
stability of commercial transactions requires that the rights of the seller be protected just as effectively as the rights of
the buyer. If this plaintiff had refused to comply with the contract, specific performance of the obligation could have
been asked by the defendants. Just as surely should the plaintiff who has lived up to his bargain and who has been put
to expense to do so, be permitted to coerce the defendant into going through with the contract.
The excuse of the defendants is that they do not now have the money to pay the first installment. In other
words, they plead impossibility of performance. The rule of equity jurisprudence in such a case is that mere pecuniary
inability to fulfill an engagement does not discharge the obligation of the contract, not does it constitute any defense
to a decree for specific performance. (Hopper vs. Hopper [1863], 16 N. J. Eq., 147.) Now, the courts will not make an
order obviously nugatory. But the courts should lend their assistance to the plaintiff to compel the defendants to fulfill
their obligation. Besides requiring the defendants to sign the contract and the mortgage, the judgment of the court
can be aided by execution on the property of the defendants. If, then, it is found that it is impossible for the
defendants to live up to their agreement, naturally the plaintiff will rest content if for no other reason than for the
protection of his financial interests.
Judgment shall be reversed, and an order shall issue, condemning the defendants to sign the deed and
mortgage to the land in question and to pay the first installment of the purchase price as stipulated.
The appellant shall recover costs of both instances. The Code of Civil Procedure in its Chapter XXI entitled "Costs
in the Several Courts" states in section 487 that "Costs shall ordinarily be allowed to the prevailing party as a matter of
course . . . . " Philippine law is, in this respect, identical with the general rule, which is that "On reversal, . . . the costs
will generally go to the prevailing party, that is, to the appellant." (7 R. C. L., 801, citing cases.) No special reasons
exist in this case for modifying the general rule. So ordered.
Johnson, Street, Avanceña and Fisher, JJ., concur.

G.R. No. L-45710 October 3, 1985

CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T. CASTRO, JR. OF THE
DEPARTMENT OF COMMERCIAL AND SAVINGS BANK, in his capacity as statutory receiver of Island
Savings Bank, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and SULPICIO M. TOLENTINO, respondents.
I.B. Regalado, Jr., Fabian S. Lombos and Marino E. Eslao for petitioners.
Antonio R. Tupaz for private respondent.
MAKASIAR, CJ.:
This is a petition for review on certiorari to set aside as null and void the decision of the Court of Appeals, in C.A.-G.R.
No. 52253-R dated February 11, 1977, modifying the decision dated February 15, 1972 of the Court of First Instance of
Agusan, which dismissed the petition of respondent Sulpicio M. Tolentino for injunction, specific performance or
rescission, and damages with preliminary injunction.
On April 28, 1965, Island Savings Bank, upon favorable recommendation of its legal department, approved the loan
application for P80,000.00 of Sulpicio M. Tolentino, who, as a security for the loan, executed on the same day a real
estate mortgage over his 100-hectare land located in Cubo, Las Nieves, Agusan, and covered by TCT No. T-305, and
which mortgage was annotated on the said title the next day. The approved loan application called for a lump sum
P80,000.00 loan, repayable in semi-annual installments for a period of 3 years, with 12% annual interest. It was
required that Sulpicio M. Tolentino shall use the loan proceeds solely as an additional capital to develop his other
property into a subdivision.
On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was made by the Bank; and Sulpicio M.
Tolentino and his wife Edita Tolentino signed a promissory note for P17,000.00 at 12% annual interest, payable within
3 years from the date of execution of the contract at semi-annual installments of P3,459.00 (p. 64, rec.). An advance
interest for the P80,000.00 loan covering a 6-month period amounting to P4,800.00 was deducted from the partial
release of P17,000.00. But this pre-deducted interest was refunded to Sulpicio M. Tolentino on July 23, 1965, after
being informed by the Bank that there was no fund yet available for the release of the P63,000.00 balance (p. 47,
rec.). The Bank, thru its vice-president and treasurer, promised repeatedly the release of the P63,000.00 balance (p.
113, rec.).
On August 13, 1965, the Monetary Board of the Central Bank, after finding Island Savings Bank was suffering liquidity
problems, issued Resolution No. 1049, which provides:
In view of the chronic reserve deficiencies of the Island Savings Bank against its deposit liabilities, the
Board, by unanimous vote, decided as follows:
1) To prohibit the bank from making new loans and investments [except investments in government
securities] excluding extensions or renewals of already approved loans, provided that such extensions
or renewals shall be subject to review by the Superintendent of Banks, who may impose such
limitations as may be necessary to insure correction of the bank's deficiency as soon as possible;
xxx xxx xxx
(p. 46, rec.).
On June 14, 1968, the Monetary Board, after finding thatIsland Savings Bank failed to put up the required capital to
restore its solvency, issued Resolution No. 967 which prohibited Island Savings Bank from doing business in the
Philippines and instructed the Acting Superintendent of Banks to take charge of the assets of Island Savings Bank (pp.
48-49, rec).
On August 1, 1968, Island Savings Bank, in view of non-payment of the P17,000.00 covered by the promissory note,
filed an application for the extra-judicial foreclosure of the real estate mortgage covering the 100-hectare land of
Sulpicio M. Tolentino; and the sheriff scheduled the auction for January 22, 1969.
On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court of First Instance of Agusan for injunction,
specific performance or rescission and damages with preliminary injunction, alleging that since Island Savings Bank
failed to deliver the P63,000.00 balance of the P80,000.00 loan, he is entitled to specific performance by ordering
Island Savings Bank to deliver the P63,000.00 with interest of 12% per annum from April 28, 1965, and if said balance
cannot be delivered, to rescind the real estate mortgage (pp. 32-43, rec.).
On January 21, 1969, the trial court, upon the filing of a P5,000.00 surety bond, issued a temporary restraining order
enjoining the Island Savings Bank from continuing with the foreclosure of the mortgage (pp. 86-87, rec.).
On January 29, 1969, the trial court admitted the answer in intervention praying for the dismissal of the petition of
Sulpicio M. Tolentino and the setting aside of the restraining order, filed by the Central Bank and by the Acting
Superintendent of Banks (pp. 65-76, rec.).
On February 15, 1972, the trial court, after trial on the merits rendered its decision, finding unmeritorious the petition
of Sulpicio M. Tolentino, ordering him to pay Island Savings Bank the amount of PI 7 000.00 plus legal interest and
legal charges due thereon, and lifting the restraining order so that the sheriff may proceed with the foreclosure (pp.
135-136. rec.
On February 11, 1977, the Court of Appeals, on appeal by Sulpicio M. Tolentino, modified the Court of First Instance
decision by affirming the dismissal of Sulpicio M. Tolentino's petition for specific performance, but it ruled that Island
Savings Bank can neither foreclose the real estate mortgage nor collect the P17,000.00 loan pp. 30-:31. rec.).
Hence, this instant petition by the central Bank.
The issues are:
1. Can the action of Sulpicio M. Tolentino for specific performance prosper?
2. Is Sulpicio M. Tolentino liable to pay the P17,000.00 debt covered by the promissory note?
3. If Sulpicio M. Tolentino's liability to pay the P17,000.00 subsists, can his real estate mortgage be
foreclosed to satisfy said amount?
When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan agreement on April 28, 1965,
they undertook reciprocal obligations. In reciprocal obligations, the obligation or promise of each party is the
consideration for that of the other (Penaco vs. Ruaya, 110 SCRA 46 [1981]; Vda. de Quirino vs, Pelarca 29 SCRA 1
[1969]); and when one party has performed or is ready and willing to perform his part of the contract, the other party
who has not performed or is not ready and willing to perform incurs in delay (Art. 1169 of the Civil Code). The promise
of Sulpicio M. Tolentino to pay was the consideration for the obligation of Island Savings Bank to furnish the
P80,000.00 loan. When Sulpicio M. Tolentino executed a real estate mortgage on April 28, 1965, he signified his
willingness to pay the P80,000.00 loan. From such date, the obligation of Island Savings Bank to furnish the
P80,000.00 loan accrued. Thus, the Bank's delay in furnishing the entire loan started on April 28, 1965, and lasted for
a period of 3 years or when the Monetary Board of the Central Bank issued Resolution No. 967 on June 14, 1968, which
prohibited Island Savings Bank from doing further business. Such prohibition made it legally impossible for Island
Savings Bank to furnish the P63,000.00 balance of the P80,000.00 loan. The power of the Monetary Board to take over
insolvent banks for the protection of the public is recognized by Section 29 of R.A. No. 265, which took effect on June
15, 1948, the validity of which is not in question.
The Board Resolution No. 1049 issued on August 13,1965 cannot interrupt the default of Island Savings Bank in
complying with its obligation of releasing the P63,000.00 balance because said resolution merely prohibited the Bank
from making new loans and investments, and nowhere did it prohibit island Savings Bank from releasing the balance
of loan agreements previously contracted. Besides, the mere pecuniary inability to fulfill an engagement does not
discharge the obligation of the contract, nor does it constitute any defense to a decree of specific performance
(Gutierrez Repide vs. Afzelius and Afzelius, 39 Phil. 190 [1918]). And, the mere fact of insolvency of a debtor is never
an excuse for the non-fulfillment of an obligation but 'instead it is taken as a breach of the contract by him (vol. 17A,
1974 ed., CJS p. 650)
The fact that Sulpicio M. Tolentino demanded and accepted the refund of the pre-deducted interest amounting to
P4,800.00 for the supposed P80,000.00 loan covering a 6-month period cannot be taken as a waiver of his right to
collect the P63,000.00 balance. The act of Island Savings Bank, in asking the advance interest for 6 months on the
supposed P80,000.00 loan, was improper considering that only P17,000.00 out of the P80,000.00 loan was released. A
person cannot be legally charged interest for a non-existing debt. Thus, the receipt by Sulpicio M. 'Tolentino of the pre-
deducted interest was an exercise of his right to it, which right exist independently of his right to demand the
completion of the P80,000.00 loan. The exercise of one right does not affect, much less neutralize, the exercise of the
other.
The alleged discovery by Island Savings Bank of the over-valuation of the loan collateral cannot exempt it from
complying with its reciprocal obligation to furnish the entire P80,000.00 loan. 'This Court previously ruled that bank
officials and employees are expected to exercise caution and prudence in the discharge of their functions (Rural Bank
of Caloocan, Inc. vs. C.A., 104 SCRA 151 [1981]). It is the obligation of the bank's officials and employees that before
they approve the loan application of their customers, they must investigate the existence and evaluation of the
properties being offered as a loan security. The recent rush of events where collaterals for bank loans turn out to be
non-existent or grossly over-valued underscore the importance of this responsibility. The mere reliance by bank
officials and employees on their customer's representation regarding the loan collateral being offered as loan security
is a patent non-performance of this responsibility. If ever bank officials and employees totally reIy on the
representation of their customers as to the valuation of the loan collateral, the bank shall bear the risk in case the
collateral turn out to be over-valued. The representation made by the customer is immaterial to the bank's
responsibility to conduct its own investigation. Furthermore, the lower court, on objections of' Sulpicio M. Tolentino,
had enjoined petitioners from presenting proof on the alleged over-valuation because of their failure to raise the same
in their pleadings (pp. 198-199, t.s.n. Sept. 15. 1971). The lower court's action is sanctioned by the Rules of Court,
Section 2, Rule 9, which states that "defenses and objections not pleaded either in a motion to dismiss or in the
answer are deemed waived." Petitioners, thus, cannot raise the same issue before the Supreme Court.
Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan agreement, Sulpicio M.
Tolentino, under Article 1191 of the Civil Code, may choose between specific performance or rescission with damages
in either case. But since Island Savings Bank is now prohibited from doing further business by Monetary Board
Resolution No. 967, WE cannot grant specific performance in favor of Sulpicio M, Tolentino.
Rescission is the only alternative remedy left. WE rule, however, that rescission is only for the P63,000.00 balance of
the P80,000.00 loan, because the bank is in default only insofar as such amount is concerned, as there is no doubt that
the bank failed to give the P63,000.00. As far as the partial release of P17,000.00, which Sulpicio M. Tolentino
accepted and executed a promissory note to cover it, the bank was deemed to have complied with its reciprocal
obligation to furnish a P17,000.00 loan. The promissory note gave rise to Sulpicio M. Tolentino's reciprocal obligation
to pay the P17,000.00 loan when it falls due. His failure to pay the overdue amortizations under the promissory note
made him a party in default, hence not entitled to rescission (Article 1191 of the Civil Code). If there is a right to
rescind the promissory note, it shall belong to the aggrieved party, that is, Island Savings Bank. If Tolentino had not
signed a promissory note setting the date for payment of P17,000.00 within 3 years, he would be entitled to ask for
rescission of the entire loan because he cannot possibly be in default as there was no date for him to perform his
reciprocal obligation to pay.
Since both parties were in default in the performance of their respective reciprocal obligations, that is, Island Savings
Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply with his
obligation to pay his P17,000.00 debt within 3 years as stipulated, they are both liable for damages.
Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal
obligations, the liability of the first infractor shall be equitably tempered by the courts. WE rule that the liability of
Island Savings Bank for damages in not furnishing the entire loan is offset by the liability of Sulpicio M. Tolentino for
damages, in the form of penalties and surcharges, for not paying his overdue P17,000.00 debt. The liability of Sulpicio
M. Tolentino for interest on his PI 7,000.00 debt shall not be included in offsetting the liabilities of both parties. Since
Sulpicio M. Tolentino derived some benefit for his use of the P17,000.00, it is just that he should account for the
interest thereon.
WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino cannot be entirely foreclosed to satisfy his P
17,000.00 debt.
The consideration of the accessory contract of real estate mortgage is the same as that of the principal contract
(Banco de Oro vs. Bayuga, 93 SCRA 443 [1979]). For the debtor, the consideration of his obligation to pay is the
existence of a debt. Thus, in the accessory contract of real estate mortgage, the consideration of the debtor in
furnishing the mortgage is the existence of a valid, voidable, or unenforceable debt (Art. 2086, in relation to Art, 2052,
of the Civil Code).
The fact that when Sulpicio M. 'Tolentino executed his real estate mortgage, no consideration was then in existence,
as there was no debt yet because Island Savings Bank had not made any release on the loan, does not make the real
estate mortgage void for lack of consideration. It is not necessary that any consideration should pass at the time of the
execution of the contract of real mortgage (Bonnevie vs. C.A., 125 SCRA 122 [1983]). lt may either be a prior or
subsequent matter. But when the consideration is subsequent to the mortgage, the mortgage can take effect only
when the debt secured by it is created as a binding contract to pay (Parks vs, Sherman, Vol. 176 N.W. p. 583, cited in
the 8th ed., Jones on Mortgage, Vol. 2, pp. 5-6). And, when there is partial failure of consideration, the mortgage
becomes unenforceable to the extent of such failure (Dow. et al. vs. Poore, Vol. 172 N.E. p. 82, cited in Vol. 59, 1974
ed. CJS, p. 138). Where the indebtedness actually owing to the holder of the mortgage is less than the sum named in
the mortgage, the mortgage cannot be enforced for more than the actual sum due (Metropolitan Life Ins. Co. vs.
Peterson, Vol. 19, F(2d) p. 88, cited in 5th ed., Wiltsie on Mortgage, Vol. 1, P. 180).
Since Island Savings Bank failed to furnish the P63,000.00 balance of the P8O,000.00 loan, the real estate mortgage of
Sulpicio M. Tolentino became unenforceable to such extent. P63,000.00 is 78.75% of P80,000.00, hence the real estate
mortgage covering 100 hectares is unenforceable to the extent of 78.75 hectares. The mortgage covering the
remainder of 21.25 hectares subsists as a security for the P17,000.00 debt. 21.25 hectares is more than sufficient to
secure a P17,000.00 debt.
The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the Civil Code is inapplicable to the
facts of this case.
Article 2089 provides:
A pledge or mortgage is indivisible even though the debt may be divided among the successors in
interest of the debtor or creditor.
Therefore, the debtor's heirs who has paid a part of the debt can not ask for the proportionate
extinguishment of the pledge or mortgage as long as the debt is not completely satisfied.
Neither can the creditor's heir who have received his share of the debt return the pledge or cancel the
mortgage, to the prejudice of other heirs who have not been paid.
The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted presupposes several heirs of the
debtor or creditor which does not obtain in this case. Hence, the rule of indivisibility of a mortgage cannot apply
WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED FEBRUARY 11, 1977 IS HEREBY MODIFIED, AND
1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF HEREIN PETITIONERS THE SUM OF P17.000.00,
PLUS P41,210.00 REPRESENTING 12% INTEREST PER ANNUM COVERING THE PERIOD FROM MAY 22, 1965 TO AUGUST
22, 1985, AND 12% INTEREST ON THE TOTAL AMOUNT COUNTED FROM AUGUST 22, 1985 UNTIL PAID;
2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL ESTATE MORTGAGE COVERING 21.25 HECTARES SHALL BE
FORECLOSED TO SATISFY HIS TOTAL INDEBTEDNESS; AND
3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS HEREBY DECLARED UNEN FORCEABLE AND IS HEREBY
ORDERED RELEASED IN FAVOR OF SULPICIO M. TOLENTINO.
NO COSTS. SO ORDERED.

G.R. No. L-2837 August 4, 1950

ROSARIO S. VDA. DE LACSON, ET AL., plaintiffs-appellees,
vs.
ABELARDO G. DIAZ, defendant-appellant.
Jose R. Querubin for appellant.
Ramon Diokno and Jose W. Diokno for appellees.
TUASON, J.:
This case, here on appeal from the Court of First Instance of Negros Occidental, involves an interpretation of a pre-war
contract of lease of sugar-cane lands and the liability of the lessee, defendant and appellant, to pay rent for the period
during and immediately following the Japanese occupation. The defendant resisted payment of that rent of the theory
of force majeure, and claims, besides, right to an extension of the lease to make-up for the time when no cane was
planted.
The material facts are set forth in the appealed decision as follows:
It appears that on June 2, 1939, the plaintiff, Rosario S. Vda. de Lacson, as atty.-in-fact of the other plaintiffs
leased to the defendant, Abelardo G. Diaz, lots Nos. 429 and 1179 of the Talisay Cadastre, together with its
sugar quota of about 5,728.50 piculs. The term of the lease was for five crop years beginning with the crop
year 1940-41; with an option in favor of the defendant for another two years, after the expiration of the
original period. The contract provided that the defendant was to pay to the plaintiffs an annual rental of 1,000
piculs of export sugar , of which 500 piculs were to be paid in the month of January of every year and the rest
at the end of every milling season. The defendant also obligated himself to pay to the plaintiff 20% of
whatever alcohol he receive from the Talisay-Silay Milling Co. Inc. corresponding to thehaciendas above-
mentioned.
To guarantee the payment of the said annual rentals, the defendant Abelardo Diaz, loaned to the plaintiffs the
sum of P10,000 without interest, which was to be paid by plaintiffs with the proceeds of the annual rentals in
sugar provided however, that the sum of P7,000 was to be maintained as the permanent balance until the
termination of the lease period, as security for the payment by the defendant of said rentals.
On October 23, 1940, a supplementary agreement (was) entered into between the parties so as to include in
the lease contract the rights and interests also of the plaintiff, Rosario S. Vda. de Lacson in the haciendas in
question. It was further agreed that out of the annual rental of 1,000 piculs to be sold by the defendant,
Abelardo Diaz in such price as may be agreeable to the plaintiff, Rosario S. Vda. de Lacson, from the proceeds
of which the sum of P2,000.00 was to be applied to the loan of P10,000 extended by the defendant to the
plaintiffs. The balance of 100 piculs of said yearly rental was to be placed at the complete disposition of the
plaintiff, Rosario S. Vda. de Lacson.
The defendant took possession of the haciendas in question beginning with the crop year 1940-41. In that year
he paid to the plaintiffs the corresponding rental of 1,000 piculs of sugar and their share in alcohol. As
provided for in the supplementary agreement the defendant Abelardo G. Diaz, with the approval of the
plaintiff, Rosario S. Vda. de Lacson, sold 400 piculs of said rentals for the sum of P1,984.76, and this amount
was applied on the loan of the plaintiffs thereby leaving a balance of P8,015.24 against them and in favor of
the defendant at the beginning of the crop year 1941-42.
On December 8, 1941, the war broke out. The defendant claims that due to the unsettled conditions which
follows, he was unable to mill all his sugar canes so that during the crop year 1941-42 he produced only the
total amount of 966.42 piculs of sugar from the two haciendas, of which 579.86 piculs went to him as his
planter's share. It appears that the defendant failed to pay the plaintiffs the rentals of 1,000 piculs of export
sugar and alcohol for said crop year. The defendant tried to prove, however, that he assigned 225.65 piculs in
1941-42 to the Agricultural and Industrial Bank for the account of the plaintiffs, but it was not duly established
to the satisfaction of this court that the said Bank actually received the assignment.
The defendant also failed to pay the plaintiffs the stipulated rentals for the remaining crop years up to the
present time, although the plaintiffs had made several demands for their payment, so that on September 17,
1946, this action was commenced by the plaintiffs for the rescission of the lease contract.
From the evidence adduced during the trial it was established that during the years 1943 and 1944
the haciendas in question were worked and cultivated by the tenants of the defendant who planted cereal
crops thereon like corn and rice but there was no evidence as to how much was really produced on the land.
The defendant himself admitted that he planted rice on the haciendas during the years 1945 and 1946, which
brought him a net participation of 200 cavanes for each of these years. The defendant also admitted that he
did not give the plaintiffs any participation in the rice or other crops he had produced in the said haciendas,
because according to him, his obligation was to pay rentals in sugar only, and not in any other kind of
products. It also appears that the defendant has been unable to plant sugar canes on thehaciendas in question
except in preparation for the 19947-48 crop year which he estimated to be around ten hectares.
The court below absolved the defendant, on the principle of fortuitous circumstance, from any liability for rent for the
crop years 1942-43, 1943-44 and 1944-45, although it allowed the plaintiffs "proportionate share of the War Damage
Compensation which the defendant may recover from the War Damage Commission for the products of the afore-
mentioned haciendas for the crop year 1941-42, on the basis of P5,000, the total value of 1,000 piculs of sugar which
is the corresponding rental of said haciendas for the crop year 1941-42." (The defendant had filed a damage claim for
the destruction early in 1942 of standing crops.) But the court gave judgment for the plaintiffs for rent with interest
corresponding to the crop years 1945-46 and 1946-47, amounting to P60,000, the value of 2,000 piculs of sugar, from
which amount was to be deducted the sum of P8,015.24 due the defendant by the plaintiffs for advances. The court
likewise declared the lease terminated after the crop year 1946-47.
On the last point, it is the defendant's contention that he and the plaintiffs stipulated seven sugar "crops" and not
seven "crop years as the duration of the lease and that this period should be computed by the number of times sugar
crops were raised and not by number of years that transpired from the inception of the contract.
We are unable to see any essential difference between crops and crop years sufficient to alter the result. Under one or
the other theory, it seems to us that the contract contemplated seven consecutive agricultural years. To the lessors
time was of the essence of the lease and they could not conceivably have agreed to have discounted from the period,
years which the lessees, who had the exclusive disposition of the lands, might not care to plant sugar cane or not use
the lands at all.
Any how the contract speaks of "cosechas agricolas", and nowhere is there any insinuation that the defendant-lessee
was to have possession of the lands for seven years excluding years on which he could not harvest sugar. On the
contrary, the parties not only used the generic expression "cinco cosechas agricolas" but followed it with the phrase
"periodo de cinco años."
The more important issue, though by no means difficult to decide, concerns the obligation of the lessee to pay the
stipulated rent for the crop years 1945-46 and 1946-47. Admitting that those post-liberation years, the lessee claims
exemption from the obligation stipulated for delivery of 1,000 piculs of centrifugal sugar as rent for each milling
season, and the Talisay-Silay Milling Co. Inc., he adds, had been destroyed and he could not mill any sugar.
The law regulating the facts of force majeure on contracts is to be found in the following articles of the Civil Code:
ART. 1096. Should the thing to be delivered be a determinate one the creditor, independently of the right
granted him by article 1004, may compel the debtor to make the delivery.
Should the thing be determinate or generic, he may demand that the obligation be performed at the expense
of the debtor.
Should the person obligated be in default, or should be have engaged himself to deliver the same thing or two
or more different persons, it shall be at his risk, even in case of inevitable accident, until the delivery is made.
ART. 1105. No one shall be liable for events which could not be foreseen or which, even if foreseen, were
inevitable, with the exception of the cases in which the law expressly provides otherwise and these in which
the obligation itself imposes such liability.
ART. 1182. Any obligation which consists in the delivery of a determinate thing shall be extinguished if such
thing should be lost or destroyed without fault on the part of the debtor and before he is in default (mora).
In binding himself to deliver centrifugal sugar, the defendant promised a generic thing. It could be any centrifugal
sugar without regard to origin or how he secured it. Hence, his inability to produce sugar, irrespective of the cause, did
not relieve him from his commitment. War, like floods and other catastrophes, was a contingency, a collateral incident,
which he could have provided for by proper stipulation. (Reyes vs. Caltex (Philippines) Inc., 47 Off. Gaz., 1193.
In reality there was no fortuitous event which interfered with the exploitation of the leased property in the form and
manner the defendant had intended. We refer to the agricultural years 1945-46 and 1946-47. It should be observed
that the defendant was not bound to keep the lands during those years; it was entirely optional on his part to put an
end to the lease after the 1944-45 crop year. When he decided to exercise the option he was fully aware that there
were no sugar mills in operation and he did not except to produce sugar, He must have had an object other than to
plant sugar cane when he chose to retain the lands for two more years. His purpose was, beyond doubt, to plant other
crops, which he did. If those crops did not bring good return he can not, under any principle of law or equity, shift the
loss to the lessor. Performance is not excused by the fact that the contract turns out to be hard and improvident,
unprofitable or impracticable, ill-advised, or even foolish. (Reyes vs. Caltex, supra.)
In the fourth assignment of error the appellant objects that "the trial court . . . awarded the plaintiffs more than what is
prayed for in the complaint." He says that the plaintiffs pray "either the rescission of the contract of lease and the
immediate delivery . . . of lots 429 and 1179 of Talisay, or in the alternative, to condemn the defendant to pay 5,000
piculs of export sugar; and to pay P500 as liquidated damages and costs.".
We do not think the trial court erred in granting both remedies although the prayer was in the alternative. The
situation or status of the contract had changed in the interval between the commencement of the suit and the
rendition of the judgment. At the time the complaint was filed (September 12, 1946), the lease had not yet expired. Its
expiration took place during the pendency of the action, a fact of which court was justified in taking cognizance.
For the rest, the prayer is not a material factor of the complaint. It is not the prayer but the proven facts which
determine the power of the court to act.
SEC. 9. Extent of relief to be awarded. — A judgment entered by default shall not exceed the amount or be
different in kind from that prayed for the demand for judgment. In other cases the judgment shall grant the
relief to which the party has not demanded such relief in his pleadings. (Rule 35, Rules of Court.)
But when the defendant is not in default, plaintiff. after trial, may be granted any relief that is supported by
the evidence, although not specified in his pleadings. As held by the Supreme Court, plaintiff's failure, in such
cases, to specify the relief to which he is entitled, is immaterial, and even if the complaint contains no prayer
for relief, he is still entitled to such a relief as the facts proven may warrant. It is a rule of pleadings that the
prayer for relief, though part of the complaint, is no part of the cause of action, and plaintiff is entitled to as
much relief as the facts may warrant. (I Moran, Comments on the Rules of Court, 574.)
It is unquestionable that, under the proven facts, the court had the power to grant the remedies it did.
The defendant's counterclaim was, in our opinion, rightly overruled by the court below. Said the court:
As to the counterclaims filed by the defendant the court cannot reasonably entertain it for the simple reason
that there was no sufficient evidence supporting it and the fact that the seven-year period, stipulated in the
contract, including the option of two years in favor of the defendant, had already expired at the end of the
crop year 1946-47, which is of judicial notice to be at the end of May, 1947. After the period, the defendant is
no longer entitled to the possession of the haciendas in question, nor their corresponding sugar quota for the
 crop year 1947-48. If the defendant had already planted sugar canes to the extent he had testified to during
the trial in preparation for the 1947-48 milling season, he did so at his own risk and responsibility for which he
could not hold the plaintiffs herein liable for any loss he may suffer thereby.
The judgment is affirmed with costs.

G.R. No. L-4440 August 29, 1952

BUNGE CORPORATION and UNIVERSAL COMMERCIAL AGENCIES, plaintiffs-appellees,
vs.
ELENA CAMENFORTE and COMPANY, doing business or trading under the name and style of Visayan
Products Company, ET AL., defendants-appellants.
Juan E. Yap and J.P. Garcia for appellants.
Vicente L. Faelnar for appellees.
BAUTISTA ANGELO, J.:
Plaintiffs brought action against the defendants to recover certain damages they have allegedly sustained in view of
the failure of the latter to deliver to the former the amount of Philippine copra which they had agreed to deliver within
the time and under the conditions specified in the contract celebrated between them on October 22, 1947.
Plaintiffs claim that on October 22, 1947, in the City of Cebu a contract was entered into between the Visayan Products
Company and Bunge Corporation (represented by the Universal Commercial Agencies) whereby the former sold to the
latter 500 long tons of merchantable Philippine copra in bulk at the prices of $188.80, U.S. currency, per ton, less 1 per
cent brokerage per short ton of 2,000 pounds, C & F Pacific Coast, U.S.A.; that, according to the terms and conditions
of the contract, the vendor should ship the stipulated copra during the month of November or December 1947, to San
Francisco, California, U.S.A. for delivery to the vendee; that, notwithstanding repeated demands made by the vendee,
the vendor failed to ship and deliver the copra during the period agreed upon; that believing in good faith that the
vendor would ship and deliver the copra on time, the vendee sold to El Dorado Oil Works the quantity of copra it had
purchased at the same price agreed upon; and that because of the failure of the vendor to fulfill its contract to ship
and deliver the quantity of copra agreed upon within the period stipulated, the vendee has suffered damages in the
amount of P180,00.
Defendants answered separately the allegations set forth in the complaint and, with the exception of Vicente Kho,
denied that the Visayan Products Company has ever entered into a contract of sale of copra with the plaintiffs, as
mentioned in the complaint. They aver that if a contract of that tenor has ever been entered into between said
company and the plaintiffs, the truth is that Vicente Kho who signed for and in behalf of the company never had any
authority to act for that company either expressly or impliedly, inasmuch as the only ones who had the authority to do
so are Elena Camenforte, the general manager, Tan Se Chong, the manager, and Tiu Kee, the assistant manager.
Vicente Kho, on his part, after admitting that the commercial transaction mentioned in the complaint had actually
taken place, avers that the contract was concluded with the Visayan Products Company which had its office in
Tacloban, Leyte, and not with the Visayan Products Company established in Cebu, which is not a party to the
transaction; that the Visayan Products Company organized in organized in Tacloban is the one that was presented by
him in the transaction, of which he is the manager and controlling stockholder, which fact was clearly known to the
plaintiffs when the contract was entered into believing that the company he was representing was the one recently
organized in Cebu; that he, Vicente Kho, did his best to comply with the contract, but he failed because offorce
majeure as follows: he informed the plaintiffs sometime in December, 1947, that he would have all the copra covered
by the contract ready for shipment somewhere in the port of San Ramon, Samar, in order that they may make an
arrangement for the booking of a ship, but before the arrival of the ship, a strong storm visited the place causing
the bodega where the copra was stored to be destroyed and the copra washed away into the sea; and that, because of
this force majeure, he cannot now be held liable for damages.
After trial, art which both parties presented their respective evidence, the court rendered decision ordering defendant
Elena Camenforte & Company to pay to the plaintiffs the sum of P79,744, with legal interest thereon from the filing of
the complaint, and the costs of action. The court ordered that, in case said company be unable to pay the judgment
because of total or partial insolvency, the same be paid by its co-defendants, jointly and severally, either in full or such
part thereof as may be left unpaid. Defendants interposed the present appeal.
At the outset, it should be stated that while in the lower court there was a dispute between plaintiffs and defendants
as regards the real contract that was entered into between the parties and which he was given rise to this litigation,
that defense apparently has been abandoned in this appeal, for the only issue now raised by appellants is one of law.
Thus, appellants now admit, contrary to their stand in the lower court, that a contract of purchase and sale of copra
was in effect entered into between the plaintiffs and the defendants under the terms and conditions embodied in the
contract quoted in the complaint, and the only defense on which they now rely is that the copra they had gathered and
stored for delivery to the appellees in Samar was destroyed by force majeure which under the law has the effect of
exempting them from liability for damages. Consequently, appellants now contend that the lower court erred in
condemning them for damages despite the fact that their failure to fulfill the contract is due to force majeure.
A perusal of the contract is necessary to see the feasibility of this contention. The contract is embodied in Exhibit C. A
perusal of this contract shows that the subject matter is Philippine copra. The sale is to be made by weight, — 500
long tons. It does not refer to any particular or specific lot of copra, nor does it mention the place where the copra is to
be acquired. No portion of the copra has been earmarked or segregated. The vendor was at liberty to acquire the
copra from any part of the Philippines. The sale simply refers to 500 long tons of the Philippine copra. The subject-
matter is, therefore, generic, not specific.
Having this view in mind, it is apparent that the copra which appellants claim to have gathered and stored in
abodega at San Ramon, Samar, sometime in December, 1947, in fulfillment of their contract, and which they claim
was later destroyed by storm, in the supposition that the claim is true, cannot be deemed to be the one contemplated
in the contract. It may be the one chosen by appellants in the exercise of the discretion given to them under the
contract, which they could exercise in a manner suitable to their interest and convenience, but it cannot certainly be
considered as the copra contemplated by the parties in the contract. And this must be so because the copra
contemplated in the contract is generic and not specific.
It appearing that the obligation of appellant is to deliver copra in a generic sense, the obligation cannot be deemed
extinguised by the destruction or disappearance of the copra stored in San Ramon, Samar. Their obligation subsists as
long as that commodity is available. A generic obligation is not extinguished by the loss of a thing belonging to a
particular genus. Genus nunquan perit.
Manresa explains the distinction between determinate and generic thing in his comment on article 1096 of the
Civil Code of Spain, saying that the first is a concrete, particularized object, indicated by its own individuality,
while a generic thing is one whose determination is confined to that of its nature, to the genus (genero) to
which it pertains, such as a horse, a chair. These definition are in accord with the popular meaning of the
terms defined.
Except as to qualify and quantity, the first of which is itself generic, the contract sets no bounds or limits to the
palay to be paid, nor was there even any stipulation that the cereal was to be the produce of any particular
land. Any palay of the quality stipulated regardless of origin or however acquired (lawfully) would be obligatory
on the part of the obligee to receive and would discharged the obligation. It seems therefore plain that the
alleged failure of crops through alleged fortuitos cause did not excuse performance." (De Leon vs. Soriano, 87
Phil., 193; 47 Off Gaz., Supplement No. 12, pp. 377, 379-380.)
In binding himself to deliver centrifugal sugar, the defendant promised a generic thing. It could be any
centrifugal sugar without regard to origin or how he secured it. Hence, his inability to produce sugar,
irrespective of the cause, did not relieve him from his commitment. War, like floods and other catastrophies,
was a contingency, a collateral incident, which he could have provided for by proper stipulation. (Reyes vs.
Caltex, 84 Phil., 654; 47 Off, Gaz., 1193; Vda.-Lacson vs. Diaz, 87 Phil., 150; 47 Off. Gaz., Supp. to No. 12, p.
337.)
If appellants are not relieved of civil liability under the contract, what are then the damages for which they stand liable
to the appellees? Appellees claim that, immediately after they had concluded their agreement to buy copra with the
appellants, they agreed to sell to El Dorado Oil Works the 500 long tons of copra subject matter of the agreement,
together with another lot of 500 tons, confident in their belief that the Visayan Products Company would comply with
its agreement. The copra was to delivered by Bunge Corporation to El Dorado Oil Works not later than December 31,
1947. Because of the failure of the appellants to fulfill their aforementioned agreement, appellees failed to deliver the
copra it sold with the result that they had to pay damages in the sum of $84,630.86 (or P169,461.72).
The lower court, however, did not sustain this claim in view of the discrepancy of one day it note in the dates of
execution of the contracts of sale of the copra in question. The court found that the contract signed by El Dorado Oil
Works is dated October 21, 1947, (Exhibit O), whereas the contract signed by the Visayan Products Company is dated
contract had been executed one day latter than the former, which gives rise to the belief that the copra that was sold
to the El Dorado Oil Works could not have been the one purchased from the appellants. Nevertheless, the court
awarded damages to the appellees taking into account the highest price of copra in the market during the month of
December, 1947, as per statement Exhibit P, even though the appellees had made no allegation in their complaint of
any offer or transaction they might have had with other copra dealers during the period contemplated in the contract
in question.
We are of the opinion that the lower court erred in disregarding the transaction with the El Dorado Oil Works simply
because it found an apparent discrepancy in the dates appearing in the contracts Exhibits O and C. Exhibit C appears
dated on October 22, 1947, and was executed in Cebu, Philippines, whereas Exhibit O appears dated on October 21,
1947, and was executed in New York City. the difference of one day in the execution of these documents is merely
nominal because New York time is several hours behind Cebu time. In fact both transactions have been practically
executed on the same day. Even supposing that the contract with the El Dorado Oil Works calls for future and not
present deliveries. There is nothing improbable for the appellees to sell copra which they expect to acquire sometime
in the future for purposes of speculation. But this error cannot now materially change the result of this case
considering that plaintiffs-appellees did not appeal from the decision. "It has been held that appellee, who is not
appellant, may also assign errors in his brief where his purpose is to maintain the judgment on other grounds, but he
may not do so if his purpose is to have the judgment modified or reversed, for, in such case, he must appeal." (Saenz
vs. Mitchell, 60 Phil., 69, 80; see Mendoza vs. Mendiola, 53 Phil., 267; Villavert vs. Lim, 62 Phil., 178; Bajaladia vs.
Eusala, G. R. No. 42579). Wherefore, the decision appealed from is affirmed, with costs against appellants.
Paras, C.J., Padilla, Tuason, Montemayor and Labrador, JJ., concur.
G.R. No. 124922 June 22, 1998
JIMMY CO, doing business under the name & style DRAGON METAL MANUFACTURING, petitioner,
vs.
COURT OF APPEALS and BROADWAY MOTOR SALES CORPORATION, respondents.

MARTINEZ, J.:
On July 18, 1990, petitioner entrusted his Nissan pick-up car 1988 model 1 to private respondent — which is engaged
in the sale, distribution and repair of motor vehicles — for the following job repair services and supply of parts:
— Bleed injection pump and all nozzles;
— Adjust valve tappet;
— Change oil and filter;
— Open up and service four wheel brakes, clean and adjust;
— Lubricate accelerator linkages;
— Replace aircon belt; and
2
— Replace battery
Private respondent undertook to return the vehicle on July 21, 1990 fully serviced and supplied in accordance with the
job contract. After petitioner paid in full the repair bill in the amount of P1,397.00 3 private respondent issued to him a
gate pass for the release of the vehicle on said date. But came July 21, 1990, the latter could not release the vehicle as
its battery was weak and was not yet replaced. Left with no option, petitioner himself bought a new battery nearby
and delivered it to private respondent for installation on the same day. However, the battery was not installed and the
delivery of the car was rescheduled to July 24, 1990 or three (3) days later. When petitioner sought to reclaim his car
in the afternoon of July 24, 1990, he was told that it was carnapped earlier that morning while being road-tested by
private respondent's employee along Pedro Gil and Perez Streets in Paco, Manila. Private respondent said that the
incident was reported to the police.
Having failed to recover his car and its accessories or the value thereof, petitioner filed a suit for damages against
private respondent anchoring his claim on the latter's alleged negligence. For its part, private respondent contended
that it has no liability because the car was lost as result of a fortuitous event — the carnapping. During pre-trial, the
parties agreed that:
(T)he cost of the Nissan Pick-up four (4) door when the plaintiff purchased it from the defendent is
P332,500.00 excluding accessories which were installed in the vehicle by the plaintiff consisting of four
(4) brand new tires, magwheels, stereo speaker, amplifier which amount all to P20,000.00. It is agreed
that the vehicle was lost on July 24, 1990 "approximately two (2) years and five (5) months from the
date of the purchase." It was agreed that the plaintiff paid the defendant the cost of service and
repairs as early as July 21, 1990 in the amount of P1,397.00 which amount was received and duly
receipted by the defendant company. It was also agreed that the present value of a brand new vehicle
of the same type at this time is P425,000.00 without accessories. 4
They likewise agreed that the sole issue for trial was who between the parties shall bear the loss of the vehicle which
necessitates the resolution of whether private respondent was indeed negligent. 5 After trial, the court a quofound
private respondent guilty of delay in the performance of its obligation and held it liable to petitioner for the value of
the lost vehicle and its accessories plus interest and attorney's fees. 6 On appeal, the Court of Appeals (CA) reversed
the ruling of the lower court and ordered the dismissal of petitioner's damage suit. 7 The CA ruled that: (1) the trial
court was limited to resolving the issue of negligence as agreed during pre-trial; hence it cannot pass on the issue of
delay; and (2) the vehicle was lost due to a fortuitous event.
In a petition for review to this Court, the principal query raised is whether a repair shop can be held liable for the loss
of a customer's vehicle while the same is in its custody for repair or other job services?
The Court resolves the query in favor of the customer. First, on the technical aspect involved. Contrary to the CA' s
pronouncement, the rule that the determination of issues at a pre-trial conference bars the consideration of other
issues on appeal, except those that may involve privilege or impeaching matter, 8 is inapplicable to this case. The
question of delay, though not specifically mentioned as an issue at the pre-trial may be tackled by the court
considering that it is necessarily intertwined and intimately connected with the principal issue agreed upon by the
parties, i.e., who will bear the loss and whether there was negligence. Petitioner's imputation of negligence to private
respondent is premised on delay which is the very basis of the former's complaint. Thus, it was unavoidable for the
court to resolve the case, particularly the question of negligence without considering whether private respondent was
guilty of delay in the performance of its obligation.
On the merits. It is a not defense for a repair shop of motor vehicles to escape liability simply because the damage or
loss of a thing lawfully placed in its possession was due to carnapping. Carnapping per se cannot be considered as a
fortuitous event. The fact that a thing was unlawfully and forcefully taken from another's rightful possession, as in
cases of carnapping, does not automatically give rise to a fortuitous event. To be considered as such, carnapping
entails more than the mere forceful taking of another's property. It must be proved and established that the event was
an act of God or was done solely by third parties and that neither the claimant nor the person alleged to be negligent
has any participation. 9 In accordance with the Rules of evidence, the burden of proving that the loss was due to a
fortuitous event rests on him who invokes it 10 — which in this case is the private respondent. However, other than the
police report of the alleged carnapping incident, no other evidence was presented by private respondent to the effect
that the incident was not due to its fault. A police report of an alleged crime, to which only private respondent is privy,
does not suffice to establish the carnapping. Neither does it prove that there was no fault on the part of private
respondent notwithstanding the parties' agreement at the pre-trial that the car was carnapped. Carnapping does not
foreclose the pissibility of fault or negligence on the part of private respondent.
Even assuming arguendo that carnapping was duly established as a fortuitous event, still private respondent cannot
escape liability. Article 1165 11 of the New Civil Code makes an obligor who is guilty of delay responsible even for a
fortuitous event until he has effected the delivery. In this case, private respondent was already in delay as it was
supposed to deliver petitioner's car three (3) days before it was lost. Petitioner's agreement to the rescheduled
delivery does not defeat his claim as private respondent had already breached its obligation. Moreover, such accession
cannot be construed as waiver of petitioner's right to hold private respondent liable because the car was unusable and
thus, petitioner had no option but to leave it.
Assuming further that there was no delay, still working against private respondent is the legal presumption under
Article 1265 that its possession of the thing at the time it was lost was due to its fault. 12 This presumption is
reasonable since he who has the custody and care of the thing can easily explain the circumstances of the loss. The
vehicle owner has no duty to show that the repair shop was at fault. All that petitioner needs to prove, as claimant, is
the simple fact that private respondent was in possession of the vehicle at the time it was lost. In this case, private
respondent's possession at the time of the loss is undisputed. Consequently, the burden shifts to the possessor who
needs to present controverting evidence sufficient enough to overcome that presumption. Moreover, the exempting
circumstances — earthquake, flood, storm or other natural calamity — when the presumption of fault is not
applicable 13 do not concur in this case. Accordingly, having failed to rebut the presumption and since the case does
not fall under the exceptions, private respondent is answerable for the loss.
It must likewise be emphasized that pursuant to Articles 1174 and 1262 of the New Civil Code, liability attaches even if
the loss was due to a fortuitous event if "the nature of the obligation requires the assumption of risk". 14Carnapping is
a normal business risk for those engaged in the repair of motor vehicles. For just as the owner is exposed to that risk
so is the repair shop since the car was entrusted to it. That is why, repair shops are required to first register with the
Department of Trade and Industry (DTI) 15 and to secure an insurance policy for the "shop covering the property
entrusted by its customer for repair, service or maintenance" as a pre-requisite for such
registration/accreditation. 16 Violation of this statutory duty constitutes negligence per se. 17 Having taken custody of
the vehicle private respondent is obliged not only to repair the vehicle but must also provide the customer with some
form of security for his property over which he loses immediate control. An owner who cannot exercise the seven
(7) juses or attributes of ownership — the right to possess, to use and enjoy, to abuse or consume, to accessories, to
dispose or alienate, to recover or vindicate and to the fruits — 18 is a crippled owner. Failure of the repair shop to
provide security to a motor vehicle owner would leave the latter at the mercy of the former. Moreover, on the
assumption that private respondent's repair business is duly registered, it presupposes that its shop is covered by
insurance from which it may recover the loss. If private respondent can recover from its insurer, then it would be
unjustly enriched if it will not compensate petitioner to whom no fault can be attributed. Otherwise, if the shop is not
registered, then the presumption of negligence applies.
One last thing. With respect to the value of the lost vehicle and its accessories for which the repair shop is liable, it
should be based on the fair market value that the property would command at the time it was entrusted to it or such
other value as agreed upon by the parties subsequent to the loss. Such recoverable value is fair and reasonable
considering that the value of the vehicle depreciates. This value may be recovered without prejudice to such other
damages that a claimant is entitled under applicable laws.
WHEREFORE, premises considered, the decision of the Court Appeals is REVERSED and SET ASIDE and the decision of
the court a quo is REINSTATED.
SO ORDERED.
Regalado, Puno and Mendoza, JJ., concur.
Melo, J., is on leave.
Footnotes
1 Registered in the name of petitioner with Plate No. PJK-666.
2 Rollo, p. 81.
3 Covered by CBC Receipt No. 691148; Rollo, p. 10.
4 Rollo, pp. 28-29.
5 Rollo, p. 29.
6 The dispositive portion of the trial court's decision reads:
"Accordingly, this Court finds the defendant liable to the plaintiff for the value of the vehicle in
question. Defendant is ordered to pay plaintiff the value of the vehicle in the amount of Three Hundred
Thirty Two Thousand Five Hundred Pesos representing the acquisition cost of the vehicle plus the
amount of Twenty Thousand Pesos representing the cost of the four brand new tires, magwheels,
pioneer stereo speakers, air-conditioner, which were installed by the plaintiff in his vehicle after the
plaintiff bought the vehicle from the defendant. While it is true that plaintiff purchased from the
defendant the vehicle about two years and five months before the same was lost, and therefore the
vehicle had already depreciated from its original value at the time it was lost, it is also true as agreed
upon by the parties in the pre-trial, that the present value of brand new vehicle of the same type has
at this time increased to Four Hundred Thousand Pesos without accessories, so whatever is awarded
by this Court to the plaintiff in this decision would not even be sufficient to purcahse a brand new
vehicle at the present prices. This Court believes that the amount awarded to the plaintiff above-stated
represents a fair compromise, considering the depreciation of the vehicle from the time it was
purchased and to the time it was lost and which is off-seted by the increase cost of a brand new
vehicle at the present time. Defendant is likewise ordered to pay plaintiff legal interest in the amount
above-stated from the date of the finality of this decision until full payment of the obligation. Further,
defendant is ordered to pay plaintiff Ten Thousand Pesos by attorney's fees." (sicwas not included so
as no to clutter the narration); Rollo, pp. 78, 94.
7 CA Decision promulgated August 31, 1995 penned by Justice Austria-Martinez with Justices Lantin
and Salas, concurring; Rollo, pp. 26-32.
8 Caltex v. CA, 212 SCRA 448; Bergado v. CA, 173 SCRA 497 citing Permanent Concrete Products, Inc.
v. Teodoro, 26 SCRA 332. In the Bergado case (p. 501), the court reiterated the rule that the specific
exceptions to the general rule to be observed in pre-trials emphasized in Gicano v. Gegato, 157 SCRA
140 is "that trial court have authority and discretion to dismiss an action on the ground of prescription
when the parties' pleadings or other facts on record show it to be indeed time-barred; and it may do so
on the basis of a motion to dismiss, or an answer which sets up such ground as an affirmative defense;
or even if the ground is alleged after judgment on the merits, as in a motion for reconsideration; or
even if the defense has not been asserted at all, as where no statement thereof is found in the
pleadings, or where a defendant had been declared in default. What is essential only, to repeat, is that
the facts demonstrating the lapse of the prescriptive period, be otherwise sufficiently and satisfactorily
apparent on the record; either in the averments of the plaintiff's, or otherwise established by the
evidence."
9 Lasam v. Smith, 45 Phil. 657; General Enterprises, Inc., v. Llianga Bay Logging Co., Inc., 120 Phil.
702; Tugade v. CA, 85 SCRA 226.
10 Sec. 1, Rule 131, 1989 Revised Rules on Evidence provides: "Burden of proof. — Burden of proof
is the duty of a party to present evidence on he facts in issue necessary to establish his claim or
defense by the amount of evidence required by law." (Emphasis supplied).
11 Art. 1165. xxx xxx xxx
If the obligor delays, or has promised to deliver the same thing to two or more persons who do not
have the same interest, he shall be responsible for fortuitous event until he has effected the delivery.
(Emphasis supplied).
12 Art. 1265. Whenever the thing is lost in the possession of the debtor, it shall be presumed that the
loss was due to his fault, unless there is proof to the contrary, and without prejudice to the provisions
of Article 1165. This presumption does not apply in case of earthquake, flood, storm, or other natural
calamity. (Emphasis supplie).
13 New Civil Code, Article 1265.
14 Article 1174. Except in cases expressly specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or which, though foreseen, were inevitable.
Art. 1262. xxx xxx xxx
 When by law or stipulation, the obligor is liable even for fortuitous event, the loss of the thing does not
extinguish the obligation, and he shall be responsible for damages. The same rule applies when the
nature of the obligation requires the assumption of risk. (Emphasis supplied).
15 P.D. 1572 (EMPOWERING THE SECRETARY OF TRADE TO REGULATE AND CONTROL THE OPERATION
OF SERVICE AND REPAIR ENTERPRISES FOR MOTOR VEHICLES, HEAVY EQUIPMENT AND ENGINES AND
ENGINEERING WORKS; ELECTRONICS, ELECTRICAL, AIRCONDITIONING AND REFRIGERATION; OFFICE
EQUIPMENT; MEDICAL AND DENTAL EQUIPMENT; AND OTHER CONSUMER MECHANICAL AND
INDUSTRIAL EQUIPMENT; APPLIANCES OR DEVICES, INCLUDING THE TECHNICAL PERSONNEL
EMPLOYED THEREIN).
Section 1. Accreditation. All enterprises and technical personnel employed therein engaged in the
service and repair of motor vehicles, heavy equipment, engines and engineering works; electronics,
electrical, air-conditioning and refrigeration; office equipment; medical and dental equipment; and
other consumer industrial electro-mechanical, chemical and gaseous equipment, machinery,
appliances or devices should apply for accreditation with the Department of Trade within ninety (90)
days from the promulgation of this decree and should apply for renewal on or before the 31st day of
January of every year thereafter. No such service or repair enterprices and technical personnel shall be
licensed or permitted to operate in the Philippines for the first time without being accredited by the
Department of Trade.
16 DTI Ministry Order No. 32, Rule III
Sec. 1. REQUIREMENTS FOR ACCREDITATION:
(1) Enterprise applying for original accreditation shall submit the following:
1.1 List of machineries/equipment/tools in useful condition;
1.2 List of certified engineers/accredited technicians mechanics with
their personal data;
1.3 Copy of Insurance Policy of the shop covering the property
entrusted by its customer for repair, service or maintenance together
with a copy of the official receipt covering the full payment of
premium;
1.4 Copy of Bond referred to under Section 7, Rule III of this Rules and
Regulations;
1.5 Written service warranty in the form prescribed by the Bureau;
1.6 Certification issued by the Securities and Exchange Commission
and Articles of Incorporation or Partnership in case of corporation or
partnership;
1.7 Such other additional documents which the director may require
from time to time.
Sec. 8. INSURANCE POLICY
The insurance policy for the following risks like theft, pilferage, fire, flood and loss should cover
exclusively the machines, motor vehicles, heavy equipment engines electronics, electrical,
airconditioners, refrigerators, office machines, and data processing equipment, medical and dental
equipment, other consumer mechanical and industrial equipment stored for repair and/or in the
premises of the applicant." (Emphasis supplied).
17 Cipriano v. CA, 263 SCRA 711 citing F.F. Cruz and Co., Inc. v. CA, 164 SCRA 731 and Teague v.
Fernandez, 51 SCRA 181.
18 Paras, Civil Code of the Philippines, Annotated, 1989 ed., vol. II, p. 70; De Leon, Comments and
Cases on Property, 1983 ed. p. 77; See also Article 428 of the New Civil Code which states that "The
owner has the right to enjoy and dispose of a thing, without other limitations than those established by
law.
"The owner has also a right of action against the holder and possessor of the thing in order to recover
it."

G.R. No. 106063 November 21, 1996

EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN, INC., petitioners,
vs.
MAYFAIR THEATER, INC., respondent.

HERMOSISIMA, JR., J.:

Before us is a petition for review of the decision 1 of the Court of
Appeals 2 involving questions in the resolution of which the respondent appellate court analyzed and
interpreted particular provisions of our laws on contracts and sales. In its assailed decision, the respondent
court reversed the trial court 3 which, in dismissing the complaint for specific performance with damages and
annulment of contract, 4 found the option clause in the lease contracts entered into by private respondent
Mayfair Theater, Inc. (hereafter, Mayfair) and petitioner Carmelo & Bauermann, Inc. (hereafter, Carmelo) to be
impossible of performance and unsupported by a consideration and the subsequent sale of the subject
property to petitioner Equatorial Realty Development, Inc. (hereafter, Equatorial) to have been made without
any breach of or prejudice to, the said lease contracts. 5
We reproduce below the facts as narrated by the respondent court, which narration, we note, is almost
verbatim the basis of the statement of facts as rendered by the petitioners in their pleadings:
Carmelo owned a parcel of land, together with two 2-storey buildings constructed thereon located at
Claro M Recto Avenue, Manila, and covered by TCT No. 18529 issued in its name by the Register of
Deeds of Manila.
On June 1, 1967 Carmelo entered into a contract of lease with Mayfair for the latter's lease of a portion
of Carmelo's property particularly described, to wit:
A PORTION OF THE SECOND FLOOR of the two-storey building, situated at C.M. Recto
Avenue, Manila, with a floor area of 1,610 square meters.
THE SECOND FLOOR AND MEZZANINE of the two-storey building, situated at C.M.
Recto Avenue, Manila, with a floor area of 150 square meters.
for use by Mayfair as a motion picture theater and for a term of twenty (20) years. Mayfair thereafter
constructed on the leased property a movie house known as "Maxim Theatre."
Two years later, on March 31, 1969, Mayfair entered into a second contract of lease with Carmelo for
the lease of another portion of Carmelo's property, to wit:
A PORTION OF THE SECOND FLOOR of the two-storey building, situated at C.M. Recto
Avenue, Manila, with a floor area of 1,064 square meters.
THE TWO (2) STORE SPACES AT THE GROUND FLOOR and MEZZANINE of the two-
storey building situated at C.M. Recto Avenue, Manila, with a floor area of 300 square
meters and bearing street numbers 1871 and 1875,
for similar use as a movie theater and for a similar term of twenty (20) years. Mayfair put up another
movie house known as "Miramar Theatre" on this leased property.
Both contracts of lease provides (sic) identically worded paragraph 8, which reads:
That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given
30-days exclusive option to purchase the same.
In the event, however, that the leased premises is sold to someone other than the
LESSEE, the LESSOR is bound and obligated, as it hereby binds and obligates itself, to
stipulate in the Deed of Sale hereof that the purchaser shall recognize this lease and
be bound by all the terms and conditions thereof.
Sometime in August 1974, Mr. Henry Pascal of Carmelo informed Mr. Henry Yang, President of Mayfair,
through a telephone conversation that Carmelo was desirous of selling the entire Claro M. Recto
property. Mr. Pascal told Mr. Yang that a certain Jose Araneta was offering to buy the whole property
for US Dollars 1,200,000, and Mr. Pascal asked Mr. Yang if the latter was willing to buy the property for
Six to Seven Million Pesos.
Mr. Yang replied that he would let Mr. Pascal know of his decision. On August 23, 1974, Mayfair replied
through a letter stating as follows:
It appears that on August 19, 1974 your Mr. Henry Pascal informed our client's Mr.
Henry Yang through the telephone that your company desires to sell your above-
mentioned C.M. Recto Avenue property.
Under your company's two lease contracts with our client, it is uniformly provided:
8. That if the LESSOR should desire to sell the leased premises the LESSEE shall be
given 30-days exclusive option to purchase the same. In the event, however, that the
leased premises is sold to someone other than the LESSEE, the LESSOR is bound and
obligated, as it is (sic) herebinds (sic) and obligates itself, to stipulate in the Deed of
Sale thereof that the purchaser shall recognize this lease and be bound by all the
terms and conditions hereof (sic).
Carmelo did not reply to this letter.
On September 18, 1974, Mayfair sent another letter to Carmelo purporting to express interest in
acquiring not only the leased premises but "the entire building and other improvements if the price is
reasonable. However, both Carmelo and Equatorial questioned the authenticity of the second letter.
Four years later, on July 30, 1978, Carmelo sold its entire C.M. Recto Avenue land and building, which
included the leased premises housing the "Maxim" and "Miramar" theatres, to Equatorial by virtue of a
Deed of Absolute Sale, for the total sum of P11,300,000.00.
In September 1978, Mayfair instituted the action a quo for specific performance and annulment of the
sale of the leased premises to Equatorial. In its Answer, Carmelo alleged as special and affirmative
defense (a) that it had informed Mayfair of its desire to sell the entire C.M. Recto Avenue property and
offered the same to Mayfair, but the latter answered that it was interested only in buying the areas
under lease, which was impossible since the property was not a condominium; and (b) that the option
to purchase invoked by Mayfair is null and void for lack of consideration. Equatorial, in its Answer,
pleaded as special and affirmative defense that the option is void for lack of consideration (sic) and is
unenforceable by reason of its impossibility of performance because the leased premises could not be
sold separately from the other portions of the land and building. It counterclaimed for cancellation of
the contracts of lease, and for increase of rentals in view of alleged supervening extraordinary
devaluation of the currency. Equatorial likewise cross-claimed against co-defendant Carmelo for
indemnification in respect of Mayfair's claims.
During the pre-trial conference held on January 23, 1979, the parties stipulated on the following:
1. That there was a deed of sale of the contested premises by the defendant
Carmelo . . . in favor of defendant Equatorial . . .;
2. That in both contracts of lease there appear (sic) the stipulation granting the
plaintiff exclusive option to purchase the leased premises should the lessor desire to
sell the same (admitted subject to the contention that the stipulation is null and void);
3. That the two buildings erected on this land are not of the condominium plan;
 4. That the amounts stipulated and mentioned in paragraphs 3 (a) and (b) of the
contracts of lease constitute the consideration for the plaintiff's occupancy of the
leased premises, subject of the same contracts of lease, Exhibits A and B;
xxx xxx xxx
6. That there was no consideration specified in the option to buy embodied in the
contract;
7. That Carmelo & Bauermann owned the land and the two buildings erected thereon;
8. That the leased premises constitute only the portions actually occupied by the
theaters; and
9. That what was sold by Carmelo & Bauermann to defendant Equatorial Realty is the
land and the two buildings erected thereon.
xxx xxx xxx
After assessing the evidence, the court a quo rendered the appealed decision, the decretal portion of
which reads as follows:
WHEREFORE, judgment is hereby rendered:
(1) Dismissing the complaint with costs against the plaintiff;
(2) Ordering plaintiff to pay defendant Carmelo & Bauermann P40,000.00 by way of
attorney's fees on its counterclaim;
(3) Ordering plaintiff to pay defendant Equatorial Realty P35,000.00 per month as
reasonable compensation for the use of areas not covered by the contract (sic) of
lease from July 31, 1979 until plaintiff vacates said area (sic) plus legal interest from
July 31, 1978; P70,000 00 per month as reasonable compensation for the use of the
premises covered by the contracts (sic) of lease dated (June 1, 1967 from June 1, 1987
until plaintiff vacates the premises plus legal interest from June 1, 1987; P55,000.00
per month as reasonable compensation for the use of the premises covered by the
contract of lease dated March 31, 1969 from March 30, 1989 until plaintiff vacates the
premises plus legal interest from March 30, 1989; and P40,000.00 as attorney's fees;
(4) Dismissing defendant Equatorial's crossclaim against defendant Carmelo &
Bauermann.
The contracts of lease dated June 1, 1967 and March 31, 1969 are declared expired
and all persons claiming rights under these contracts are directed to vacate the
premises. 6
The trial court adjudged the identically worded paragraph 8 found in both aforecited lease contracts to be an
option clause which however cannot be deemed to be binding on Carmelo because of lack of distinct
consideration therefor.
The court a quo ratiocinated:
Significantly, during the pre-trial, it was admitted by the parties that the option in the contract of lease
is not supported by a separate consideration. Without a consideration, the option is therefore not
binding on defendant Carmelo & Bauermann to sell the C.M. Recto property to the former. The option
invoked by the plaintiff appears in the contracts of lease . . . in effect there is no option, on the ground
that there is no consideration. Article 1352 of the Civil Code, provides:
Contracts without cause or with unlawful cause, produce no effect whatever. The cause
is unlawful if it is contrary to law, morals, good custom, public order or public policy.
Contracts therefore without consideration produce no effect whatsoever. Article 1324 provides:
When the offeror has allowed the offeree a certain period to accept, the offer may be
withdrawn at any time before acceptance by communicating such withdrawal, except
when the option is founded upon consideration, as something paid or promised.
in relation with Article 1479 of the same Code:
A promise to buy and sell a determine thing for a price certain is reciprocally
demandable.
An accepted unilateral promise to buy or to sell a determine thing for a price certain is
binding upon the promissor if the promise is supported by a consideration distinct from
the price.
The plaintiff cannot compel defendant Carmelo to comply with the promise unless the former
establishes the existence of a distinct consideration. In other words, the promisee has the burden of
proving the consideration. The consideration cannot be presumed as in Article 1354:
Although the cause is not stated in the contract, it is presumed that it exists and is
lawful unless the debtor proves the contrary.
where consideration is legally presumed to exists. Article 1354 applies to contracts in general, whereas
when it comes to an option it is governed particularly and more specifically by Article 1479 whereby
the promisee has the burden of proving the existence of consideration distinct from the price. Thus, in
the case of Sanchez vs. Rigor, 45 SCRA 368, 372-373, the Court said:
(1) Article 1354 applies to contracts in general, whereas the second paragraph of
Article 1479 refers to sales in particular, and, more specifically, to an accepted
unilateral promise to buy or to sell. In other words, Article 1479 is controlling in the
case at bar.
(2) In order that said unilateral promise may be binding upon the promissor, Article
1479 requires the concurrence of a condition, namely, that the promise be supported
by a consideration distinct from the price.
 Accordingly, the promisee cannot compel the promissor to comply with the promise,
unless the former establishes the existence of said distinct consideration. In other
words, the promisee has the burden of proving such consideration. Plaintiff herein has
not even alleged the existence thereof in his complaint. 7
It follows that plaintiff cannot compel defendant Carmelo & Bauermann to sell the C.M. Recto property
to the former.
Mayfair taking exception to the decision of the trial court, the battleground shifted to the respondent Court of
Appeals. Respondent appellate court reversed the court a quo and rendered judgment:
1. Reversing and setting aside the appealed Decision;
2. Directing the plaintiff-appellant Mayfair Theater Inc. to pay and return to Equatorial the amount of
P11,300,000.00 within fifteen (15) days from notice of this Decision, and ordering Equatorial Realty
Development, Inc. to accept such payment;
3. Upon payment of the sum of P11,300,000, directing Equatorial Realty Development, Inc. to execute
the deeds and documents necessary for the issuance and transfer of ownership to Mayfair of the lot
registered under TCT Nos. 17350, 118612, 60936, and 52571; and
4. Should plaintiff-appellant Mayfair Theater, Inc. be unable to pay the amount as adjudged, declaring
the Deed of Absolute Sale between the defendants-appellants Carmelo & Bauermann, Inc. and
Equatorial Realty Development, Inc. as valid and binding upon all the parties. 8
Rereading the law on the matter of sales and option contracts, respondent Court of Appeals differentiated
between Article 1324 and Article 1479 of the Civil Code, analyzed their application to the facts of this case,
and concluded that since paragraph 8 of the two lease contracts does not state a fixed price for the purchase
of the leased premises, which is an essential element for a contract of sale to be perfected, what paragraph 8
is, must be a right of first refusal and not an option contract. It explicated:
Firstly, the court a quo misapplied the provisions of Articles 1324 and 1479, second paragraph, of the
Civil Code.
Article 1324 speaks of an "offer" made by an offeror which the offeree may or may not accept within a
certain period. Under this article, the offer may be withdrawn by the offeror before the expiration of
the period and while the offeree has not yet accepted the offer. However, the offer cannot be
withdrawn by the offeror within the period if a consideration has been promised or given by the offeree
in exchange for the privilege of being given that period within which to accept the offer. The
consideration is distinct from the price which is part of the offer. The contract that arises is known as
option. In the case of Beaumont vs. Prieto, 41 Phil. 670, the Supreme court, citing Bouvier, defined an
option as follows: "A contract by virtue of which A, in consideration of the payment of a certain sum to
B, acquires the privilege of buying from or selling to B, certain securities or properties within a limited
time at a specified price," (pp. 686-7).
Article 1479, second paragraph, on the other hand, contemplates of an "accepted unilateral promise to
buy or to sell a determinate thing for a price within (which) is binding upon the promisee if the promise
is supported by a consideration distinct from the price." That "unilateral promise to buy or to sell a
determinate thing for a price certain" is called an offer. An "offer", in laws, is a proposal to enter into a
contract (Rosenstock vs. Burke, 46 Phil. 217). To constitute a legal offer, the proposal must be certain
as to the object, the price and other essential terms of the contract (Art. 1319, Civil Code).
Based on the foregoing discussion, it is evident that the provision granting Mayfair "30-days exclusive
option to purchase" the leased premises is NOT AN OPTION in the context of Arts. 1324 and 1479,
second paragraph, of the Civil Code. Although the provision is certain as to the object (the sale of the
leased premises) the price for which the object is to be sold is not stated in the provision Otherwise
stated, the questioned stipulation is not by itself, an "option" or the "offer to sell" because the clause
does not specify the price for the subject property.
Although the provision giving Mayfair "30-days exclusive option to purchase" cannot be legally
categorized as an option, it is, nevertheless, a valid and binding stipulation. What the trial court failed
to appreciate was the intention of the parties behind the questioned proviso.
xxx xxx xxx
The provision in question is not of the pro-forma type customarily found in a contract of lease. Even
appellees have recognized that the stipulation was incorporated in the two Contracts of Lease at the
initiative and behest of Mayfair. Evidently, the stipulation was intended to benefit and protect Mayfair
in its rights as lessee in case Carmelo should decide, during the term of the lease, to sell the leased
property. This intention of the parties is achieved in two ways in accordance with the stipulation. The
first is by giving Mayfair "30-days exclusive option to purchase" the leased property. The second is, in
case Mayfair would opt not to purchase the leased property, "that the purchaser (the new owner of the
leased property) shall recognize the lease and be bound by all the terms and conditions thereof."
In other words, paragraph 8 of the two Contracts of lease, particularly the stipulation giving Mayfair
"30-days exclusive option to purchase the (leased premises)," was meant to provide Mayfair the
opportunity to purchase and acquire the leased property in the event that Carmelo should decide to
dispose of the property. In order to realize this intention, the implicit obligation of Carmelo once it had
decided to sell the leased property, was not only to notify Mayfair of such decision to sell the property,
but, more importantly, to make an offer to sell the leased premises to Mayfair, giving the latter a fair
and reasonable opportunity to accept or reject the offer, before offering to sell or selling the leased
property to third parties. The right vested in Mayfair is analogous to the right of first refusal, which
means that Carmelo should have offered the sale of the leased premises to Mayfair before offering it to
other parties, or, if Carmelo should receive any offer from third parties to purchase the leased
premises, then Carmelo must first give Mayfair the opportunity to match that offer.
In fact, Mr. Pascal understood the provision as giving Mayfair a right of first refusal when he made the
telephone call to Mr. Yang in 1974. Mr. Pascal thus testified:
Q Can you tell this Honorable Court how you made the offer to Mr.
Henry Yang by telephone?
 A I have an offer from another party to buy the property and having
the offer we decided to make an offer to Henry Yang on a first-refusal
basis. (TSN November 8, 1983, p. 12.).
and on cross-examination:
Q When you called Mr. Yang on August 1974 can you remember
exactly what you have told him in connection with that matter, Mr.
Pascal?
A More or less, I told him that I received an offer from another party to
buy the property and I was offering him first choice of the enter
property. (TSN, November 29, 1983, p. 18).
We rule, therefore, that the foregoing interpretation best renders effectual the intention of the
parties. 9
Besides the ruling that paragraph 8 vests in Mayfair the right of first refusal as to which the requirement of
distinct consideration indispensable in an option contract, has no application, respondent appellate court also
addressed the claim of Carmelo and Equatorial that assuming arguendo that the option is valid and effective, it
is impossible of performance because it covered only the leased premises and not the entire Claro M. Recto
property, while Carmelo's offer to sell pertained to the entire property in question. The Court of Appeals ruled
as to this issue in this wise:
We are not persuaded by the contentions of the defendants-appellees. It is to be noted that the Deed
of Absolute Sale between Carmelo and Equatorial covering the whole Claro M. Recto property, made
reference to four titles: TCT Nos. 17350, 118612, 60936 and 52571. Based on the information
submitted by Mayfair in its appellant's Brief (pp. 5 and 46) which has not been controverted by the
appellees, and which We, therefore, take judicial notice of the two theaters stand on the parcels of
land covered by TCT No. 17350 with an area of 622.10 sq. m and TCT No. 118612 with an area of
2,100.10 sq. m. The existence of four separate parcels of land covering the whole Recto property
demonstrates the legal and physical possibility that each parcel of land, together with the buildings
and improvements thereof, could have been sold independently of the other parcels.
At the time both parties executed the contracts, they were aware of the physical and structural
conditions of the buildings on which the theaters were to be constructed in relation to the remainder of
the whole Recto property. The peculiar language of the stipulation would tend to limit Mayfair's right
under paragraph 8 of the Contract of Lease to the acquisition of the leased areas only. Indeed, what is
being contemplated by the questioned stipulation is a departure from the customary situation wherein
the buildings and improvements are included in and form part of the sale of the subjacent land.
Although this situation is not common, especially considering the non-condominium nature of the
buildings, the sale would be valid and capable of being performed. A sale limited to the leased
premises only, if hypothetically assumed, would have brought into operation the provisions of co-
ownership under which Mayfair would have become the exclusive owner of the leased premises and at
the same time a co-owner with Carmelo of the subjacent land in proportion to Mayfair's interest over
the premises sold to it. 10
Carmelo and Equatorial now comes before us questioning the correctness and legal basis for the decision of
respondent Court of Appeals on the basis of the following assigned errors:
I
THE COURT OF APPEALS GRAVELY ERRED IN CONCLUDING THAT THE OPTION CLAUSE IN THE
CONTRACTS OF LEASE IS ACTUALLY A RIGHT OF FIRST REFUSAL PROVISO. IN DOING SO THE COURT OF
APPEALS DISREGARDED THE CONTRACTS OF LEASE WHICH CLEARLY AND UNEQUIVOCALLY PROVIDE
FOR AN OPTION, AND THE ADMISSION OF THE PARTIES OF SUCH OPTION IN THEIR STIPULATION OF
FACTS.
II
WHETHER AN OPTION OR RIGHT OF FIRST REFUSAL, THE COURT OF APPEALS ERRED IN DIRECTING
EQUATORIAL TO EXECUTE A DEED OF SALE EIGHTEEN (18) YEARS AFTER MAYFAIR FAILED TO
EXERCISE ITS OPTION (OR, EVEN ITS RIGHT OF FIRST REFUSAL ASSUMING IT WAS ONE) WHEN THE
CONTRACTS LIMITED THE EXERCISE OF SUCH OPTION TO 30 DAYS FROM NOTICE.
III
THE COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DIRECTED IMPLEMENTATION OF ITS DECISION
EVEN BEFORE ITS FINALITY, AND WHEN IT GRANTED MAYFAIR A RELIEF THAT WAS NOT EVEN PRAYED
FOR IN THE COMPLAINT.
IV
THE COURT OF APPEALS VIOLATED ITS OWN INTERNAL RULES IN THE ASSIGNMENT OF APPEALED
CASES WHEN IT ALLOWED THE SAME DIVISION XII, PARTICULARLY JUSTICE MANUEL HERRERA, TO
RESOLVE ALL THE MOTIONS IN THE "COMPLETION PROCESS" AND TO STILL RESOLVE THE MERITS OF
THE CASE IN THE "DECISION STAGE". 11

We shall first dispose of the fourth assigned error respecting alleged irregularities in the raffle of this case in
the Court of Appeals. Suffice it to say that in our Resolution, 12 dated December 9, 1992, we already took note
of this matter and set out the proper applicable procedure to be the following:
On September 20, 1992, counsel for petitioner Equatorial Realty Development, Inc. wrote a letter-
complaint to this Court alleging certain irregularities and infractions committed by certain lawyers, and
Justices of the Court of Appeals and of this Court in connection with case CA-G.R. CV No. 32918 (now
G.R. No. 106063). This partakes of the nature of an administrative complaint for misconduct against
members of the judiciary. While the letter-complaint arose as an incident in case CA-G.R. CV No. 32918
(now G.R. No. 106063), the disposition thereof should be separate and independent from Case G.R. No.
106063. However, for purposes of receiving the requisite pleadings necessary in disposing of the
 administrative complaint, this Division shall continue to have control of the case. Upon completion
thereof, the same shall be referred to the Court En Bancfor proper disposition. 13
This court having ruled the procedural irregularities raised in the fourth assigned error of Carmelo and
Equatorial, to be an independent and separate subject for an administrative complaint based on misconduct
by the lawyers and justices implicated therein, it is the correct, prudent and consistent course of action not to
pre-empt the administrative proceedings to be undertaken respecting the said irregularities. Certainly, a
discussion thereupon by us in this case would entail a finding on the merits as to the real nature of the
questioned procedures and the true intentions and motives of the players therein.
In essence, our task is two-fold: (1) to define the true nature, scope and efficacy of paragraph 8 stipulated in
the two contracts of lease between Carmelo and Mayfair in the face of conflicting findings by the trial court
and the Court of Appeals; and (2) to determine the rights and obligations of Carmelo and Mayfair, as well as
Equatorial, in the aftermath of the sale by Carmelo of the entire Claro M. Recto property to Equatorial.
Both contracts of lease in question provide the identically worded paragraph 8, which reads:
That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days
exclusive option to purchase the same.
In the event, however, that the leased premises is sold to someone other than the LESSEE, the LESSOR
is bound and obligated, as it hereby binds and obligates itself, to stipulate in the Deed of Sale thereof
that the purchaser shall recognize this lease and be bound by all the terms and conditions thereof. 14
We agree with the respondent Court of Appeals that the aforecited contractual stipulation provides for a right
of first refusal in favor of Mayfair. It is not an option clause or an option contract. It is a contract of a right of
first refusal.
As early as 1916, in the case of Beaumont vs. Prieto, 15 unequivocal was our characterization of an option
contract as one necessarily involving the choice granted to another for a distinct and separate consideration
as to whether or not to purchase a determinate thing at a predetermined fixed price.
It is unquestionable that, by means of the document Exhibit E, to wit, the letter of December 4, 1911,
quoted at the beginning of this decision, the defendant Valdes granted to the plaintiff Borck the right
to purchase the Nagtajan Hacienda belonging to Benito Legarda, during the period of three months
and for its assessed valuation, a grant which necessarily implied the offer or obligation on the part of
the defendant Valdes to sell to Borck the said hacienda during the period and for the price mentioned .
. . There was, therefore, a meeting of minds on the part of the one and the other, with regard to the
stipulations made in the said document. But it is not shown that there was any cause or consideration
for that agreement, and this omission is a bar which precludes our holding that the stipulations
contained in Exhibit E is a contract of option, for, . . . there can be no contract without the requisite,
among others, of the cause for the obligation to be established.
In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in the following
language:
A contract by virtue of which A, in consideration of the payment of a certain sum to B,
acquires the privilege of buying from, or selling to B, certain securities or properties
within a limited time at a specified price. (Story vs. Salamon, 71 N.Y., 420.)
From vol. 6, page 5001, of the work "Words and Phrases," citing the case of Ide vs. Leiser (24 Pac.,
695; 10 Mont., 5; 24 Am. St. Rep., 17) the following quotation has been taken:
An agreement in writing to give a person the option to purchase lands within a given
timeat a named price is neither a sale nor an agreement to sell. It is simply a contract
by which the owner of property agrees with another person that he shall have the right
to buy his property at a fixed price within a certain time. He does not sell his land; he
does not then agree to sell it; but he does sell something; that is, the right or privilege
to buy at the election or option of the other party. The second party gets in praesenti,
not lands, nor an agreement that he shall have lands, but he does get something of
value; that is, the right to call for and receive lands if he elects. The owner parts with
his right to sell his lands, except to the second party, for a limited period. The second
party receives this right, or, rather, from his point of view, he receives the right to elect
to buy.
But the two definitions above cited refer to the contract of option, or, what amounts to the same thing,
to the case where there was cause or consideration for the obligation, the subject of the agreement
made by the parties; while in the case at bar there was no such cause or consideration. 16 (Emphasis
ours.)
The rule so early established in this jurisdiction is that the deed of option or the option clause in a contract, in
order to be valid and enforceable, must, among other things, indicate the definite price at which the person
granting the option, is willing to sell.
Notably, in one case we held that the lessee loses his right to buy the leased property for a named price per square
meter upon failure to make the purchase within the time specified; 17 in one other case we freed the landowner from
her promise to sell her land if the prospective buyer could raise P4,500.00 in three weeks because such option was not
supported by a distinct consideration; 18 in the same vein in yet one other case, we also invalidated an instrument
entitled, "Option to Purchase" a parcel of land for the sum of P1,510.00 because of lack of consideration; 19 and as an
exception to the doctrine enumerated in the two preceding cases, in another case, we ruled that the option to buy the
leased premises for P12,000.00 as stipulated in the lease contract, is not without consideration for in reciprocal
contracts, like lease, the obligation or promise of each party is the consideration for that of the other. 20 In all these
cases, the selling price of the object thereof is always predetermined and specified in the option clause in the contract
or in the separate deed of option. We elucidated, thus, in the very recent case of Ang Yu Asuncion vs. Court of
Appeals 21 that:
. . . In sales, particularly, to which the topic for discussion about the case at bench belongs, the
contract is perfected when a person, called the seller, obligates himself, for a price certain, to deliver
and to transfer ownership of a thing or right to another, called the buyer, over which the latter agrees.
Article 1458 of the Civil Code provides:
 Art. 1458. By the contract of sale one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably the
ownership of the thing sold in retained until the fulfillment of a positive suspensive condition (normally,
the full payment of the purchase price), the breach of the condition will prevent the obligation to
convey title from acquiring an obligatory force. . . .
An unconditional mutual promise to buy and sell, as long as the object is made determinate and the
price is fixed, can be obligatory on the parties, and compliance therewith may accordingly be exacted.
An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when
coupled with a valuable consideration distinct and separate from the price, is what may properly be
termed a perfected contract of option. This contract is legally binding, and in sales, it conforms with
the second paragraph of Article 1479 of the Civil Code, viz:
Art. 1479. . . .
An accepted unilateral promise to buy or to sell a determinate thing for a price certain
is binding upon the promisor if the promise is supported by a consideration distinct
from the price. (1451a).
Observe, however, that the option is not the contract of sale itself. The optionee has the right, but not
the obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of
the option, a bilateral promise to sell and to buy ensues and both parties are then reciprocally bound
to comply with their respective undertakings.
Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise
(policitacion) is merely an offer. Public advertisements or solicitations and the like are ordinarily
construed as mere invitations to make offers or only as proposals. These relations, until a contract is
perfected, are not considered binding commitments. Thus, at any time prior to the perfection of the
contract, either negotiating party may stop the negotiation. The offer, at this stage, may be withdrawn;
the withdrawal is effective immediately after its manifestation, such as by its mailing and not
necessarily when the offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a period
is given to the offeree within which to accept the offer, the following rules generally govern:
(1) If the period is not itself founded upon or supported by a consideration, the offeror is still free and
has the right to withdraw the offer before its acceptance, or if an acceptance has been made, before
the offeror's coming to know of such fact, by communicating that withdrawal to the offeree (see Art.
1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable
to a unilateral promise to sell under Art. 1479, modifying the previous decision in South Western Sugar
vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank of Parañaque, Inc. vs.
Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to withdraw, however, must not
be exercised whimsically or arbitrarily; otherwise, it could give rise to a damage claim under Article 19
of the Civil Code which ordains that "every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe honesty and good
faith."
(2) If the period has a separate consideration, a contract of "option" deemed perfected, and it would
be a breach of that contract to withdraw the offer during the agreed period. The option, however, is an
independent contract by itself; and it is to be distinguished from the projected main agreement
(subject matter of the option) which is obviously yet to be concluded. If, in fact, the optioner-offeror
withdraws the offer before its acceptance (exercise of the option) by the optionee-offeree, the latter
may not sue for specific performance on the proposed contract ("object" of the option) since it has
failed to reach its own stage of perfection. The optioner-offeror, however, renders himself liable for
damages for breach of the opinion. . .
In the light of the foregoing disquisition and in view of the wording of the questioned provision in the two lease
contracts involved in the instant case, we so hold that no option to purchase in contemplation of the second
paragraph of Article 1479 of the Civil Code, has been granted to Mayfair under the said lease contracts.
Respondent Court of Appeals correctly ruled that the said paragraph 8 grants the right of first refusal to
Mayfair and is not an option contract. It also correctly reasoned that as such, the requirement of a separate
consideration for the option, has no applicability in the instant case.
There is nothing in the identical Paragraphs "8" of the June 1, 1967 and March 31, 1969 contracts which would
bring them into the ambit of the usual offer or option requiring an independent consideration.
An option is a contract granting a privilege to buy or sell within an agreed time and at a determined price. It is
a separate and distinct contract from that which the parties may enter into upon the consummation of the
option. It must be supported by consideration. 22 In the instant case, the right of first refusal is an integral part
of the contracts of lease. The consideration is built into the reciprocal obligations of the parties.
To rule that a contractual stipulation such as that found in paragraph 8 of the contracts is governed by Article
1324 on withdrawal of the offer or Article 1479 on promise to buy and sell would render in effectual or "inutile"
the provisions on right of first refusal so commonly inserted in leases of real estate nowadays. The Court of
Appeals is correct in stating that Paragraph 8 was incorporated into the contracts of lease for the benefit of
Mayfair which wanted to be assured that it shall be given the first crack or the first option to buy the property
at the price which Carmelo is willing to accept. It is not also correct to say that there is no consideration in an
agreement of right of first refusal. The stipulation is part and parcel of the entire contract of lease. The
consideration for the lease includes the consideration for the right of first refusal. Thus, Mayfair is in effect
stating that it consents to lease the premises and to pay the price agreed upon provided the lessor also
consents that, should it sell the leased property, then, Mayfair shall be given the right to match the offered
purchase price and to buy the property at that price. As stated in Vda. De Quirino vs.Palarca, 23 in reciprocal
contract, the obligation or promise of each party is the consideration for that of the other.
The respondent Court of Appeals was correct in ascertaining the true nature of the aforecited paragraph 8 to
be that of a contractual grant of the right of first refusal to Mayfair.
We shall now determine the consequential rights, obligations and liabilities of Carmelo, Mayfair and Equatorial.
The different facts and circumstances in this case call for an amplification of the precedent in Ang Yu Asuncion
vs. Court of Appeals. 24
First and foremost is that the petitioners acted in bad faith to render Paragraph 8 "inutile".
What Carmelo and Mayfair agreed to, by executing the two lease contracts, was that Mayfair will have the
right of first refusal in the event Carmelo sells the leased premises. It is undisputed that Carmelo did recognize
this right of Mayfair, for it informed the latter of its intention to sell the said property in 1974. There was an
exchange of letters evidencing the offer and counter-offers made by both parties. Carmelo, however, did not
pursue the exercise to its logical end. While it initially recognized Mayfair's right of first refusal, Carmelo
violated such right when without affording its negotiations with Mayfair the full process to ripen to at least an
interface of a definite offer and a possible corresponding acceptance within the "30-day exclusive option" time
granted Mayfair, Carmelo abandoned negotiations, kept a low profile for some time, and then sold, without
prior notice to Mayfair, the entire Claro M Recto property to Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question rescissible.
We agree with respondent Appellate Court that the records bear out the fact that Equatorial was aware of the
lease contracts because its lawyers had, prior to the sale, studied the said contracts. As such, Equatorial
cannot tenably claim to be a purchaser in good faith, and, therefore, rescission lies.
. . . Contract of Sale was not voidable but rescissible. Under Article 1380 to 1381(3) of the Civil Code, a
contract otherwise valid may nonetheless be subsequently rescinded by reason of injury to third
persons, like creditors. The status of creditors could be validly accorded the Bonnevies for they had
substantial interests that were prejudiced by the sale of the subject property to the petitioner without
recognizing their right of first priority under the Contract of Lease.
According to Tolentino, rescission is a remedy granted by law to the contracting parties and even to
third persons, to secure reparation for damages caused to them by a contract, even if this should be
valid, by means of the restoration of things to their condition at the moment prior to the celebration of
said contract. It is a relief allowed for the protection of one of the contracting parties and even third
persons from all injury and damage the contract may cause, or to protect some incompatible and
preferent right created by the contract. Rescission implies a contract which, even if initially valid,
produces a lesion or pecuniary damage to someone that justifies its invalidation for reasons of equity.
It is true that the acquisition by a third person of the property subject of the contract is an obstacle to
the action for its rescission where it is shown that such third person is in lawful possession of the
subject of the contract and that he did not act in bad faith. However, this rule is not applicable in the
case before us because the petitioner is not considered a third party in relation to the Contract of Sale
nor may its possession of the subject property be regarded as acquired lawfully and in good faith.
Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale. Moreover, the petitioner
cannot be deemed a purchaser in good faith for the record shows that it categorically admitted it was
aware of the lease in favor of the Bonnevies, who were actually occupying the subject property at the
time it was sold to it. Although the Contract of Lease was not annotated on the transfer certificate of
title in the name of the late Jose Reynoso and Africa Reynoso, the petitioner cannot deny actual
knowledge of such lease which was equivalent to and indeed more binding than presumed notice by
registration.
A purchaser in good faith and for value is one who buys the property of another without notice that
some other person has a right to or interest in such property and pays a full and fair price for the same
at the time of such purchase or before he has notice of the claim or interest of some other person in
the property. Good faith connotes an honest intention to abstain from taking unconscientious
advantage of another. Tested by these principles, the petitioner cannot tenably claim to be a buyer in
good faith as it had notice of the lease of the property by the Bonnevies and such knowledge should
have cautioned it to look deeper into the agreement to determine if it involved stipulations that would
prejudice its own interests.
The petitioner insists that it was not aware of the right of first priority granted by the Contract of
Lease. Assuming this to be true, we nevertheless agree with the observation of the respondent court
that:
If Guzman-Bocaling failed to inquire about the terms of the Lease Contract, which
includes Par. 20 on priority right given to the Bonnevies, it had only itself to blame.
Having known that the property it was buying was under lease, it behooved it as a
prudent person to have required Reynoso or the broker to show to it the Contract of
Lease in which Par. 20 is contained. 25
Petitioners assert the alleged impossibility of performance because the entire property is indivisible property.
It was petitioner Carmelo which fixed the limits of the property it was leasing out. Common sense and fairness
dictate that instead of nullifying the agreement on that basis, the stipulation should be given effect by
including the indivisible appurtenances in the sale of the dominant portion under the right of first refusal. A
valid and legal contract where the ascendant or the more important of the two parties is the landowner should
be given effect, if possible, instead of being nullified on a selfish pretext posited by the owner. Following the
arguments of petitioners and the participation of the owner in the attempt to strip Mayfair of its rights, the
right of first refusal should include not only the property specified in the contracts of lease but also the
appurtenant portions sold to Equatorial which are claimed by petitioners to be indivisible. Carmelo acted in
bad faith when it sold the entire property to Equatorial without informing Mayfair, a clear violation of Mayfair's
rights. While there was a series of exchanges of letters evidencing the offer and counter-offers between the
parties, Carmelo abandoned the negotiations without giving Mayfair full opportunity to negotiate within the 30-
day period.
Accordingly, even as it recognizes the right of first refusal, this Court should also order that Mayfair be
authorized to exercise its right of first refusal under the contract to include the entirety of the indivisible
property. The boundaries of the property sold should be the boundaries of the offer under the right of first
refusal. As to the remedy to enforce Mayfair's right, the Court disagrees to a certain extent with the concluding
part of the dissenting opinion of Justice Vitug. The doctrine enunciated in Ang Yu Asuncion vs.Court of
Appeals should be modified, if not amplified under the peculiar facts of this case.
As also earlier emphasized, the contract of sale between Equatorial and Carmelo is characterized by bad faith,
since it was knowingly entered into in violation of the rights of and to the prejudice of Mayfair. In fact, as
correctly observed by the Court of Appeals, Equatorial admitted that its lawyers had studied the contract of
lease prior to the sale. Equatorial's knowledge of the stipulations therein should have cautioned it to look
further into the agreement to determine if it involved stipulations that would prejudice its own interests.
Since Mayfair has a right of first refusal, it can exercise the right only if the fraudulent sale is first set aside or
rescinded. All of these matters are now before us and so there should be no piecemeal determination of this
case and leave festering sores to deteriorate into endless litigation. The facts of the case and considerations of
justice and equity require that we order rescission here and now. Rescission is a relief allowed for the
protection of one of the contracting parties and even third persons from all injury and damage the contract
may cause or to protect some incompatible and preferred right by the contract. 26 The sale of the subject real
property by Carmelo to Equatorial should now be rescinded considering that Mayfair, which had substantial
interest over the subject property, was prejudiced by the sale of the subject property to Equatorial without
Carmelo conferring to Mayfair every opportunity to negotiate within the 30-day stipulated period. 27
This Court has always been against multiplicity of suits where all remedies according to the facts and the law
can be included. Since Carmelo sold the property for P11,300,000.00 to Equatorial, the price at which Mayfair
could have purchased the property is, therefore, fixed. It can neither be more nor less. There is no dispute over
it. The damages which Mayfair suffered are in terms of actual injury and lost opportunities. The fairest solution
would be to allow Mayfair to exercise its right of first refusal at the price which it was entitled to accept or
reject which is P11,300,000.00. This is clear from the records.
To follow an alternative solution that Carmelo and Mayfair may resume negotiations for the sale to the latter of
the disputed property would be unjust and unkind to Mayfair because it is once more compelled to litigate to
enforce its right. It is not proper to give it an empty or vacuous victory in this case. From the viewpoint of
Carmelo, it is like asking a fish if it would accept the choice of being thrown back into the river. Why should
Carmelo be rewarded for and allowed to profit from, its wrongdoing? Prices of real estate have skyrocketed.
After having sold the property for P11,300,000.00, why should it be given another chance to sell it at an
increased price?
Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court stated that there was nothing to execute
because a contract over the right of first refusal belongs to a class of preparatory juridical relations governed
not by the law on contracts but by the codal provisions on human relations. This may apply here if the contract
is limited to the buying and selling of the real property. However, the obligation of Carmelo to first offer the
property to Mayfair is embodied in a contract. It is Paragraph 8 on the right of first refusal which created the
obligation. It should be enforced according to the law on contracts instead of the panoramic and indefinite rule
on human relations. The latter remedy encourages multiplicity of suits. There is something to execute and that
is for Carmelo to comply with its obligation to the property under the right of the first refusal according to the
terms at which they should have been offered then to Mayfair, at the price when that offer should have been
made. Also, Mayfair has to accept the offer. This juridical relation is not amorphous nor is it merely
preparatory. Paragraphs 8 of the two leases can be executed according to their terms.
On the question of interest payments on the principal amount of P11,300,000.00, it must be borne in mind that
both Carmelo and Equatorial acted in bad faith. Carmelo knowingly and deliberately broke a contract entered
into with Mayfair. It sold the property to Equatorial with purpose and intend to withhold any notice or
knowledge of the sale coming to the attention of Mayfair. All the circumstances point to a calculated and
contrived plan of non-compliance with the agreement of first refusal.
On the part of Equatorial, it cannot be a buyer in good faith because it bought the property with notice and full
knowledge that Mayfair had a right to or interest in the property superior to its own. Carmelo and Equatorial
took unconscientious advantage of Mayfair.
Neither may Carmelo and Equatorial avail of considerations based on equity which might warrant the grant of
interests. The vendor received as payment from the vendee what, at the time, was a full and fair price for the
property. It has used the P11,300,000.00 all these years earning income or interest from the amount.
Equatorial, on the other hand, has received rents and otherwise profited from the use of the property turned
over to it by Carmelo. In fact, during all the years that this controversy was being litigated, Mayfair paid rentals
regularly to the buyer who had an inferior right to purchase the property. Mayfair is under no obligation to pay
any interests arising from this judgment to either Carmelo or Equatorial.
WHEREFORE, the petition for review of the decision of the Court of Appeals, dated June 23, 1992, in CA-G.R. CV
No. 32918, is HEREBY DENIED. The Deed of Absolute Sale between petitioners Equatorial Realty Development,
Inc. and Carmelo & Bauermann, Inc. is hereby deemed rescinded; petitioner Carmelo & Bauermann is ordered
to return to petitioner Equatorial Realty Development the purchase price. The latter is directed to execute the
deeds and documents necessary to return ownership to Carmelo and Bauermann of the disputed lots. Carmelo
& Bauermann is ordered to allow Mayfair Theater, Inc. to buy the aforesaid lots for P11,300,000.00.
SO ORDERED.